j) .-Document of 'IN The World Bank FILE C0PY FOR OFFICIAL USE ONLY Report No. 1233-KO STAFF PROJECT REPORT ON APPRAISAL OF A SECOND AGRICULTURAL CREDIT PROJECT KOREA September 1, 1976 Agricultural Credit & DFC Division East Asia & Pacific Projects Department This document has a restricted distribution and may be used by recipients only in the performance of their oflicial duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Won (W) 1.00 = US$0.00206 Won 485 = US$1.00 Won 1 million = US$2,062 WEIGHTS AND MEASURES Metric System 1 meter (m) 2 3.28 feet 1 square meter (m ) = 10.76 square feet 1 Kilogram (Kg) = 2.205 pounds 1 hectare (ha) = 3,000 2pyongs 1 pyong - 3.3 m ABBREVIATIONS NACF - National Agricultural Cooperative Federation ORD - Office of Rural Development MAF - Ministry of Agriculture and Fisheries PKCs - Participating Kun (Gun) Cooperatives TU - Technical Unit of NACF LAOs - Loan Appraisal Officers of the PKCs FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY KOREA SECOND AGRICULTURAL CREDIT PROJECT STAFF PROJECT REPORT TABLE OF CONTENTS CHAPTER Page No. INTRODUCTION AND SUMMARY ........ . . .. . . .. . ........ ............ . i - xiv A. BANKING AND AGRICULTURAL CREDIT ...................... 1 - 3 B. PROJECT COMPONENTS, COSTS AND FINANCING .............. 1 - 5 Project Components ..... ............................... 1 Cost Estimates ........ ......................................... 4 Financing ................................................... . 5 C. BORROWING AND EXECUTING AGENCIES 1..................... 1- 23 The National Agricultural Cooperative Federation ...... 1 Project Coordinating Committee ................... .o.... 10 D. PROJECT IMPLEMENTATION ... o........ ..... ... . 1 - 5 E. DEMAND AND MARKET ASPECTS . ............... .. 1 - 4 F. TECHNOLOGY AND PRODUCTION SPECIFICATIONS ... .... 1 - 11 G. FINANCIAL ANALYSIS . 1........ .... . I - 12 H. ECONOMIC ANALYSIS ...... o- ............ 1 - 3 I. RECOMMENDATIONS AND LOAN CONDITIONS ............. ....... 1 ANNEX ANNEX I Additional Reports and Data Related to the Project Available in the Bank. MAP IBRD 10375 This report is based on the findings of the Appraisal Mission, which comprised S.J. Khoo, A. Soulard, G. Kalu (IBRD), W. Bilbo and V. Carlson (Consultants). The report was prepared by S.J. Khoo. This document has a restricted distribution u may be used by recipients only in the performance of their omcial duties. Its contentu may not olberw.e be diacbed without World Dank authorinzation. KOREA SECOND AGRICULTURAL CREDIT PROJECT INTRODUCTION AND SUMMARY I. Agriculture Sector 1. The extraordinary expansion of Korea's export-oriented manufactur- ing sector in recent years has, to a certain extent, obscured the tangible and impressive, albeit less spectacular, gains made by the country's agri- cultural sector; over the 1962-74 period its output increased by about 4% per annum (a rate comparable with that attained by Thailand, Indonesia and the Philippines). Korea's agricultural exports (including those of the fisheries sub-sector) rose from about US$70 million equivalent in 1967 to approximately US$423 million in 1974 and are estimated to have risen to over US$600 million in 1975. Further, despite the steady increase in industrial wages, rising agricultural productivity and increased farmgate prices have contributed towards the achievement of near-parity in the earnings of urban and rural households. These achievements are all the more commendable in view of the fact that, because of Korea's geo-physical features, only about a quarter of its total land area of about 10 million ha is cultivable. 2. About 22%, or 2.24 million ha, of Korea's total land area is cul- tivated. Another two-thirds are classified as forest land most of which being mountainous would not be suitable for cultivation. Additional land that can be brought into cultivation is consequently quite limited. Total cropped area was 3.29 million ha in 1974 giving a cropping intensity of 147%. Rice (1.2 million ha) and barley (0.9 million ha) are the major crops accounting for about two-thirds of the total cropped area. Pulses (mainly soybeans), vegetables, mulberry, fruits, tobacco and ginseng are the other important crops and together with miscellaneous cereals, viz. maize, wheat and millet, account for most of the remaining cropped area. 3. There are some 2.38 million farm households in Korea. The average farm size is about 0.9 ha. Nearly two-thirds of farm households have less than 1 ha of cropland but only 4% are landless largely as a result of the Farmland Reform Law of 1950 which imposed a ceiling of 3 ha of cultivated land per household. 4. The Government places high priority on expanding foodgrain pro- duction to supply as large a part of domestic consumption requirements as possible. Efforts to expand production, especially of rice, barley and soy- beans are directed mainly towards increasing yields on presently cultivated land as new land suitable for cultivation is limited. Although rice yields are already high, further increases can be obtained through irrigation coupled with the wider use of high yielding and earlier maturing varieties. - ii - 5. As a result of rapidly rising per capita incomes and increasing urbanization, the consumption pattern of the population has been undergoing significant changes. It is estimated that the per capita consumption of foodgrains reached a plateau during the 1972-73 season. In contrast to this, per capita consumption of high value foods, especially fruits, vegetables and meat products have been increasing significantly. Thus between 1962 and 1974, while annual foodgrain consumption increased by about 4%, consumption of vegetables, fruits and livestock products increased by 8%, 12% and 11% re- spectively. 6. Reflecting the rapidly rising domestic demand for the high value foods, the other major strand of the Government's agricultural development strategy is the continued diversification and expansion of agricultural output into vegetables, fruits, livestock, mulberry, mushrooms, and tobacco to meet domestic consumption needs and for export. Increased production of these high income elastic commodities is an important way to raise the in- comes of farmers and would result in fuller utilization of the available farm labor as well as more productive use of other agricultural resources. 7. The growth of agricultural output, which has been impressive as compared with other East Asian countries especially when the country's geo- physical features referred to in paragraph 1 above are taken into account has nevertheless not kept pace with domestic requirements. This has caused the Government to be increasingly concerned with the need to raise agri- cultural productivity and to devote additional resources to the development of the agriculture sector. More than three times the resources budgeted for agriculture in the previous Five-Year Plan (1967-71) are included in the current Plan (1972-76). Fourth Five-Year Development Plan (1977-81) 8. The proposed project would fit into the programs embodied in the new Development Plan being formulated by the Government for the period 1977-81. The objectives of the Plan in the agricultural sector are: (a) the expansion of agricultural production and rural incomes; and (b) the further diversific- ation of agricultural output through expansion of sericulture and the produc- tion of nutritionally superior horticulture and livestock products. Support Facilities 9. Research, Extension and Marketing. Research on fruits and vegetables is undertaken primarily at the Horticultural Experiment Stations, and includes development of improved varieties and cultural practices, and use of fertilizers and pesticides. Storage problems are also being investigated with a view to developing suitable storage facilities for the various fruits and vegetables. The Suweon Sericulture Experiment Station has been involved in sericulture re- search since 1914. It is presently undertaking research in four main areas - breeding of disease resistant and more productive silk worm varieties, im- provement of rearing techniques, development of higher yielding mulberry trees, and improvement of silk-reeling techniques and silk processing. The research - ii i - and experiment stations are operated by the Office of Rural Development (ORD) ot the Ministry of Agriculture and Fisheries. The stations' specialists and )RD's extension officers provide technical advice and extension support to farmers. Extension guidance is also provided by the Horticultural Cooperatives and Sericulture Associations of which most of the farmers are members. 10. The cooperatives, which are part of the National Agricultural Co- operative Federation's (NACF) network of cooperatives, are engaged in the marketing of farmers' output which is sold at NACF's crop and livestock auction centres located in the urban areas. In addition, they provide their farmer members with supplies of agricultural inputs. 11. Agricultural Credit and Subsidies. The total amount of credit made available to farm households from institutional sources increased steadily over the past decade from about 2,000 Won per farm household in 1964 to over 6,000 Won in 1974. 1/ However, in 1974 institutional credit represented only about 25% of total outstanding borrowings with the remainder provided by non-institutional sources. NACF is the main source for institutional credit for the agricultural sector in Korea. The terms and conditions of its loans vary with the purpose and the source of funds and are controlled by the Govern- ment. Part of NACF's operations are funded by borrowing from the Government which charges interest varying from 2 to 5% per annum; these funds are used to provide medium-term loans primarily for agricultural production. Borrow- ings from the Bank of Korea at interest rates varying from 2 to 6% are used to finance NACF's fertilizer operations, the purchase and export of agricul- tural products and credit sales of agricultural inputs. Short-term loans to depositors and cooperatives are made from NACF's deposit resources as a normal banking service; the interest rate charged is 15.5%, the same as applied by the commercial banks. Medium- and long-term loans are made by the Kun Cooperatives, and short-term financing of agricultural inputs is handled by the Primary Cooperatives. NACF loan interest rates range from 3.5% for irrigation associations to 15.5% for commercial loans. Interest charged on the bulk of NACF loans is between 9 and 12%. 12. In addition to interest subsidies, the Government provides farm inputs, such as fertilizers and farm implements, to farmers at subsidized prices. It has also provided price supports for certain products produced by farmers, e.g. through the operation of the Grain Management Fund. However, in recent years the Government has begun to reduce the levels of subsidy partly because incentives of the magnitude provided previously are no longer needed to boost production. The Bank Group Lending Program 13. The Bank Group's lending for the agricultural sector in Korea has been aimed at assisting in the achievement of the Government's objectives. Of the IJS$145.5 million lent, to date, for agricultural projects, US$93 million 1/ Based on ;i sample survey n)f farm householls in 1974. - iv - was provided for the Pyongtaek Kumgang (Loan 600-KO) and Yong San Gang (Loan 795-KO-Credit 283-KG) Projects, which are expected to provide irrigation for 60,000 ha; USS10.5 million has been made available for an Agricultural Credit Project (Credit 335-KG) which supported a three-year lending program for the provision of medium and long-term credit to Korean farmers through NACF to develop orchards, sericulture, poultry, and swine; a US$7.0 million Loan has been made for a Seeds Project (Loan 942-KO) which is helping to develop higher yielding varieties of cereal crops, oil seeds and potato for multiplication and distribution to farmers; US$13.0 million has been lent for the Integrated Agricultural Products Processing Project (Loan 994-KO) aimed at combining the on-farm production of commercial crops on land that was idle or under-utilized with efficient and hygienic processing facilities. A US$7.0 million Credit (234-KO) and a US$15 million Loan (1193-KO) have helped finance two livestock projects the main components of which are the establishment of small and medium size dairy farms by providing long-term loans to dairy farmers, the construction and operation of dairy products processing plants and the pro- vision of management and technical services related to these activities. In addition, a US$20.0 million Bank Loan and a US$40.0 million Third Window Loan (1216-KO & 1218T-KO) are helping finance a Rural Infrastructure Project involving the construction of minor irrigation facilities, roads and bridges, water supply systems, the provision of rural electrification, the development of fuelwood blocks, and upland reclamation. II. The First Agricultural Credit Project (Credit 335-KO) 14. The project, which formed part of the Government's program for agri- cultural development under the current Five-year Development Plan (1972-1976), provided funds to NACF for: (a) medium- and long-term lending to farmers for investments in orchard, sericulture, poultry and swine development; (b) con- struction of training facilities at NACF's Cooperative College; (c) a farm management consultant to assist in project lending to farmers; and (d) a management study of NACF. Of the total project cost estimated at US$18.2 million during appraisal, IDA financed 58%, the Government 23%, and participat- ing farmers the remaining 19%. 15. The IDA credit of USS10.5 million for the project became effective in Mvay 1973. Project implementation had been satisfactory and was completed in May 1976, about a month ahead of schedule. Project lending for on-farm investments totalled about W 5,970 million involving 6,114 sub-loans. Lending by sub-projects and ID)A disbursements as of May 31, 1976 were as follows: v - Sub-Loans Number Amount IDA Disbursements (W million) (US$ thousand) Orchard: Apple 1,870 2,624 Pear, Peach & Grape 752 738 Sericulture 2,553 1,418 Poultry 157 378 Swine 782 812 6,114 5,970 10,030 Farm M4anagement Consultant 75 Training Facilities 215 Management Study 180 Total 10,500 Total sub-loans made were only about one-half the number estimated during appraisal due to inflation which far exceeded the 15% contingencies pro- vision. Building costs, the largest item in the subprojects, averaged about twice the appraisal costs, and significant cost increases in excess of the contingency provision were recorded for all the other investment items. With regard to the distribution of sub-loans by sub-projects, the reduction in the number of sericulture sub-loans accounted for most of the difference between the actual lending and appraisal estimates. The increases in sub- loans for apple orchard and swine development were largely offset by cor- responding declines in the other fruit and poultry sub-loans. These dif- ferences were mainly the result of unforeseen price and demand changes and appear to represent a reasonable response to changing conditions. 16. Under the project, a Technical Unit (TU) was established in NACF to oversee project implementation, and particularly to monitor and super- vise lending to farmers through the Participating Kun Cooperatives (PKCs). The TU has carried out its functions satisfactorily; it has also helped to select the PKCs, provided technical advice, and trained the Loan Appraisal Officers of the PKCs in proper sub-loan appraisal and supervision. Since the inception of the project, a total of 59 PKCs have been involved in project lending and 123 Loan Appraisal Officers (LAOs) have been trained. 17. The TU surveys indicate that total project investments made by participating farmers as of the end of December 1975 amounted to an estimated W 7,808 million (US$16.1 million). Major investment items include: (a) 2,181 ha of new orchard development of which apple orchards accounted for some 1,844 ha, (b) 24,887 pyongs (82,130 m2) of storage space for fruits, (c) 461 ha of mulberry plantings, (d) 56,230 pyongs (185,560 m2) of rearing house space for raising silkworms and cocoons, (e) 24,713 pyong (81,550 m2) and 13,300 pyong (43,900 m2) of rearing house space for swine and poultry respect- ively, and (f) irrigation facilities, equipment and other tools in support of the major investment items. The average size of sub-loans was about 976,000 won (US$2,000). - vi - 18. It is still too early to evaluate the project's benefits and impact, because several more years are required for it to reach full de- velopment. However, in addition to the development and expansion of the sub-projects concerned (para 17), the project has had significant institution- building effects for NACF and the PKCs. Thus, the method of appraising project investments in terms of their technical feasibility and financial viability based on incremental returns and the need for regular supervision of project investments during their implementation are becoming increasingly appreciated by NACF and the PKCs. In fact, NACF is considering applying this approach to its other agricultural lending as well. Provision of train- ing facilities, construction of which was completed in October 1975, would increase the output of trained personnel, and the management study completed in December 1975 would improve NACF's management of its large and diverse operations. III. The Project Project Concept 19. The proposed project would be a continuation and expansion of the agricultural development program financed under the First Agricultural Credit Project (Credit 335-KO). It would provide medium and long-term loans through selected Kun Cooperatives of NACF to about 7,900 farmers for investments in: (a) apple orchard development, (b) silkworm rearing houses, (c) sprinkler irrigation for orchards, (d) greenhouses for vegetable production, and (e) on-farm storage for fruits. Similar sub-projects were financed under the First Project except for green houses. The proposed project would support a three-year lending program which would be part of a high priority Government program to increase farm output and incomes through diversification and modern- ization of agricultural production. It also aims at making more efficient and fuller use of available agricultural resources, thereby enhancing the employ- ment opportunitites, productivity and incomes of participating farmers. Determination of project size was based on estimates of farmer demand and the loan processing capacity of the on-lending institutions (Kun Cooperatives) over a three-year period. In making the determination, account was also taken of domestic consumption projections and export prospects of the Project output, and the availability of complementary resources. Description of the Project 20. Apple Orchard Development. This sub-project would finance expendi- tures for the establishment of about 2,100 ha of apple orchards. Major in- vestment categories would be: land clearing, preparation, levelling and terracing; orchard establishment, including improved planting materials, fer- tilizers, pesticides, and hired labor; and spraying facilities and other small hand tools. Most of the apple orchards to be developed would range from one to two ha and would be planted with improved varieties. Subloans would be made to about 1,400 farmers and would only be given for orchard establishment in soils considered suitable by the Institute of Agricultural Sciences in Suweon. - ViL - 21. Silkworm Rearing Houses. The main purpose of this sub-project is to increase the productivity of sericulture production without the need to expand the existing acreage under mulberry. The sub-project would provide improved silkworm rearing houses and equipment to enable sericulture farmers to expand as well as improve the quality of cocoon production. It would also finance the first year's cost of improved inputs to existing mulberry plant- ings, mainly fertilizers/manure, pesticides, and hired bullock power and manual labor. Sub-loans would be made to about 3,500 sericulture farmers owning 0.35 ha or more of mulberry plantings that would provide sufficient leaves to feed the quantity of silkworms envisaged. The typical sub-loan would finance an improved rearing house of about 20-25 pyongs (66-83 mi2) floor space, and equipment, the major items of which would be pivot cocoon beds, wooden racks and trays for silkworm feeding, and a two-wheel cart. The rearing capacity would be five cases of silkworms per crop, or ten cases for the two-crop year. 22. Sprinkler Irrigation for Orchards. Many existing orchards, es- pecially those on sandy or volcanic ash soil, suffer from insufficient available soil moisture. Consequently, apple orchards in areas of lower rainfall, where near-drought conditions occur frequently during certain periods in the hot summer months, generally produce smaller fruit with a high incidence of skin cracks and poor coloring. Experience in recent years confirms that sprinkler irrigation would be the most appropriate means of overcoming this problem, though surface irrigation would be helpful for some orchards. About 800 farmers, each owning 2 ha or more of producing orchards, would be given sub-loans under this component. Sprinkler irriga- tion normally cannot be justified on orchards of less than 2 ha. Eligible orchards would have soil and rainfall conditions described above and have an available supply of water sufficient for irrigation needs. Major investment items for a 2 ha orchard would include a concrete well, diesel engine and pump, pipes and fittings, and installation costs. Although some of the sub-loans would be made for pear and orange orchards, most are expected to be made for apple orchards. 23. Greenhouses for Vegetable Production. In response to rising in- comes, there is a rapidly growing demand for fresh vegetables during the cold months of the year. Existing greenhouses are inadequate to meet pre- sent demand and many are inefficient. About 1,200 farmers would participate in this subproject which would finance the cost of constructing and equip- ing improved greenhouses. Major investment items would include: metal frames for the greenhouses; ventilating, heating and irrigation equipment and facilities; and incremental working capital required to produce the initial crop of vegetables. Sub-loans would be made to farmers who are experienced in greenhouse production, and have easy access to important urban consuming centres. 24. On-Farm Fruit Storage. Apple, pear and orange growers with storage facilities, who market only some of their production at harvest time and store the larger part for sale over the following months, have - viii - 5een able to obtain prices and financial returns which are significantly iigher than those received by growers who sell all their output at harvest time. As a result, there is an increasing demand for on-farm storage facili- ties. About 1,000 sub-loans would be made under the sub-project to finance -oncrete storage buildings, wooden packing cases, and ventilating fans. Although the capacity of the storage buildings would vary according to sub- ,orrowers' needs, the majority would have a floor space of about 20 pyongs (66 m-) or a maximum storage capacity of about 30 tons of apples and pears )r 20 tons of oranges. 'roject Cost and Financing 25. Cost Estimates. The total cost of the project is estimated at about W 19,978 million (US$41.2 million), of which about 31%, or W 6,207 million (US$12.8 million), would be the foreign exchange component. Es- timates are based on current prices, including the cost of installation. A )rice contingency of 28% had been added to the base costs on the assumption of )rice increases of 15% in 1976 and 10% in each of the years 1977 and 1978. Jetailed cost estimates are given in Chapter G. They are summarized below: Local Foreign Total … ---------- US$ 000… __________ \pple Orchard Development 5,573 1,958 7,531 ,ilkworm Rearing Houses 5,818 2,376 8,194 ,prinkler Irrigation 2,404 1,967 4,371 Ireen liouses 5,051 2,602 7,653 On-farm Storage 3,411 1,137 4,548 'rice Contingency 6,137 2,758 8,895 Total 28,394 12,798 41,192 ?6. Financing. The project would be financed as follows: Am o un t Source (US$ million) Bank 20.0 Government 8.8 Subborrowers 12.4 Total 41.2 - ix - The proceeds of the proposed Bank loan will be on-lent by the Government to NACF at the same interest rate as applicable to the Bank loan with repay- ment over 17 years. The Government's contribution would also be repay- able by NACF over 17 years with interest at 5.7%. The funds would be onlent by NACF to participating farmers through the Kun Cooperatives. Production and Market Aspects 27. The annual incremental output of the project at full development would be as follows: Annual Domestic Annual Demand Full Incremental at Full Domestic (2) as Development Project Development Production % of Year Output Year /a in 1974 (3) (1) (2) (3) (4) ------------('000 tons)----------- Apple Orchard Apples 1990 69.2 753 297 9.2 Silk Worm Rearing Houses Cocoons 1981 0.81 37.2 Sprinkler Irrigation Apples 1990 9.4 753 297 1.2 Green Houses Cucumber 1980 13.1) 150 /b 49 /b 8.7 Green Pepper 9 - 1 /a Based on present trends in population and per capita income growth, and estimated income elasticities of demand. lb Main vegetables grown in green houses consisting of cucumber, green pepper, tomato, squash, lettuce, and melon. 28. Incremental output from all the subprojects except sericulture would be primarily for the domestic market. The annual incremental output of apples and vegetables would be easily absorbed by the domestic market since they would account for only minor proportions of the production increases required to meet their projected demand. There would likewise be no difficulty in marketing the project's annual incremental cocoon output since the amount involved is small in relation to total domestic production. Moreover, the x - decline in Korea's silk exports in 1973/74 which resulted from the recent world-wide economic recession, is expected to be reversed in the near future, as Japan and the other major silk importing countries are already in the process of recovering from the recession. Project Implementation 29. The National Agricultural Cooperative Federation (NACF) would ad- minister the project. Project loans to farmers would be made by the Kun Cooperatives. The Technical Unit (TU) established under the First Project would supervise and monitor project implementation. It would also advise and train the staff of the Kun Cooperatives in proper appraisal and supervision of project loans. In view of the larger size of the project and the introduction of new types of sub-projects, the TU staff would be strengthened. The Project Coordinating Committee to ensure overall coordination between NACF and other agencies involved in the First Project will be maintained for purposes of the proposed project. 30. Established in 1961, NACF fulfills a dual, closely integrated role. As.the apex organization of a three-tier agricultural cooperative structure in Korea, it supervises and coordinates the operations of its member coopera- tives, which comprise Kun (county) Cooperatives, Primary Cooperatives, and Special Cooperatives for horticulture and livestock farmers. NACF also functions as an instrument for the implementation of national agricultural policies. It undertakes a variety of credit and non-credit activities in- cluding the distribution of agricultural inputs and supplies, marketing, banking, mutual insurance, guidance and training. In all these operations, NACF receives substantial financial support from the Government and the Bank of Korea which is the country's central bank. NACF recently embarked on a major reorganization of the cooperative structure which is to be completed in 1977; it would involve a reallocation of functions between the Primary and Kun Cooperatives whereby all short-term production credit and non-credit activities would be undertaken by the 1,545 Primary Cooperatives, while the Kun Cooperatives would handle medium and long-term credit and exercise audit functions over the Primary Cooperatives on behalf of NACF. 31. The General Assembly of NACF is the representative body of the member cooperatives (Kun and Special Cooperatives). The Representatives Meeting elected by it approves NACF's annual business plan, budget and accounts. The Administration Board, the policy-making body of NACF, con- sists of the President of NACF (appointed by the President of the Republic of Korea), representatives of the Ministries of Agriculture and Finance and the Bank of Korea, and five delegates elected by the Representatives Meeting. The President of NACF is assisted by an Executive Vice-President while six Vice-Presidents supervise the various departments. NACF has a staff of approximately 2,100 of whom about a third are professionals. It operates an Agricultural Cooperative College and two other training institutions, the Saemaul Leaders Training Institute for farm leaders and the Cooperative Training Institute. tIany of the graduates of the College and the Cooperative Training Institute are employed by NACF and its coop- eratives. - xi - 32. Loans advanced by NACF and Kun Cooperatives grew from W 222 billion in 1971 to W 449 billion in 1974 and outstanding loans rose from W 123 billion to W 252 billion during the period. NACF's loan collection record is satis- factory. The ratio of arrears to outstanding loans was 4.1 percent at the end of 1974. Net income in 1975 was W 1,818 million compared with W 950 million in 1974 and W 442 million in 1973. 33. The Technical Unit (TU). For effective implementation of the pro- posed project, the TU established under the First Project would be strengthened by the inclusion of three additional technical staff comprising an agricultural economist, and two horticulturists specializing in green house vegetable production and sprinkler irrigation for orchards respectively. They would be appointed and in position within three months following Loan effectiveness. 34. Kun Cooperatives. The 140 Kun Cooperatives with their 211 branches function at the intermediate level of the three-tier cooperative structure. NACF and Kun Cooperatives are distinct legal and financial entities but are closely integrated in regard to management, resource mobilization, and lending operations. The Kun Cooperatives handle NACF's credit and non- credit activities at the county level and act as a channel for funds to their member Primary Cooperatives. In the framework of the reorganization mentioned in para 30, the number of branches will be reduced and the Kun Cooperatives will concentrate on banking activities such as the mobilization of deposits and the provision of agricultural development loans. As under the First Pro- ject, Kun Cooperatives will be required to meet the following conditions in order to participate in the proposed project: (a) Overdues at the end of the preceding financial year would not exceed 10 percent of loans outstanding; (b) There would be at least one Loan Appraisal Officer in the Kun Cooperative working full-time on project loans, the actual number to be commensurate with the workload; and (c) Adequate extension support would be available for project farmers. 35. Project Coordinating Committee. A Project Coordinating Committee was established under the First Project to ensure coordinated planning and execution of project operations between NACF and other Government agencies. Constituted under the Chairmanship of the Vice President of NACF responsible for the Project, the Committee includes representatives of the MAF, Office of Rural Development, Economic Planning Board, Ministry of Finance, and the Agri- cultural Development Corporation, with the Project Manager who heads the TU as its secretary. The Committee played an important role in the timely and effective implementation of the First Project. In view of this, the Committee is to be maintained to carry out a similar role under the proposed project. - xii - 36. Procurement. Project investment items and operations on individual farms are varied and small, and therefore would not be suitable for inter- national competitive bidding. The scattered location of farms and the fact that project investments would be spread over several years, are additional factors which would discourage interest by foreign firms. Silkworm rearing houses, on-farm storage, and green houses are simple structures and would be constructed by local artisans and in some cases by the farmers themselves. There are numerous suppliers of project equipment and services, both private companies and cooperatives. Prices are competitive. Project procurement would consequently be through normal commercial and cooperative channels by the individual farmer subborrower as in the First Project. 37. Disbursement. Disbursement of the proposed Bank loan is expected to extend over three years. Against appropriate statements, disbursements would be 70% of sub-loans to beneficiaries made by the Participating Kun Cooperatives (PKCs). The documentation for the sub-loans for reimburse- ment certified by the PKCs would be retained on file at NACF, and be available for review by Bank supervision missions. 38. Relending Terms and Conditions. The Government would make available the Bank Loan and its share of the total project cost to NACF for on-lending by the Kun Cooperatives to subborrowers. The TU would ensure that the Kun Cooperatives selected to participate in the project have met the conditions specified in para 34. Project investments would be evaluated in terms of their technical feasibility annd financial viability based on incremental returns. Sub-borrowers would pay an annual interest rate of 12%. This is the maximum rate currently applicable to Government sponsored agricultural credit programs. The interest rate charged under many of these is only 9%. NACF and the Participating Kun Cooperatives (PKCs) would require minimum interest margins of 1% and 3% respectively to cover administrative costs and provisions for bad debts. The 4% percent interest margin and the 8.9% interest on the Bank Loan would consequently require that the cost of the Government funds to NACF would be at 5.7% interest, given the 12% interest charged to subborrowers, and the proposed contributions to total project cost by the partLes concerned (para 26) and the repayment of the Bank Loan and Government funds by NACF to the Government over 17 years, including 3.5 years of grace. The Government would bear the foreign exchange risk. Since it is essential to en-Ire that the incremental working capital necessary to produce the initial output and sales from project investments is available, such capital should be provided by the Government or NACF if not available from other sources. NACF will establish an account called the Special Fund which would comprise proceeds of the Bank Loan and Government loan (4,300 million Won). The Government will deposit in the Special Fund (a) not later than April 1, 1977 an initial amount of not less than 700 million Won to enable NACF to initiate Project lending, and (b) thereafter at the beginning of each quarter such amounts as shall be re- quired during such quarter by NACF for the purpose of the Project. The total of the Government loan would be made available to NACF not later than January 1, 1980. Agreements acceptable to the Bank would be entered into between the Government and NACF, and NACF and the PKCs incorporating these terms, and the execution of these agreements would be a condition of loan effectiveness. The - xiii - term of each subloan would be determined by the repayment capacity of the sub-borrower. Financial models for typical subloans indicate that loan repayment schedules need not exceed the limits shown below: Grace Period of Subloan Period Repayment Loan Period ------------- Years --------------- Apple Orchard Development 7 4 11 Silk Worm Rearing Houses 2 7 9 Sprinkler Irrigation 3 5 8 Green Houses 1 5 6 On-Farm Storage 2 8 10 Financial and Economic Analysis 39. The project would directly benefit about 7,900 farmer sub-borrowers and their families or a total of some 47,000 persons. At full development, the additional labor required annually is estimated at about 7,200 man year equivalent (1,806,000 man-days). It is envisioned that part of the labor required would be supplied by family labor. At current prices, the esti- mated annual incremental output at full development, ranging from about 5 to 15 years, would amount to about US$32 million. The increased production of fruits and vegetables and their extended marketing season would enhance the nutritional standard and variety of the local diet. In addition to providing increased employment and incomes to the farmer sub-borrowers, a further significance of the project is the fact that a greater part of the increased output would be the result of a fuller and more efficient use of existing land and labor resources through improved technology. 40. The financial rates of return for the subprojects would range from 27% to 35%. With appropriate adjustments for taxes and subsidies, and based on current prices, the economic rates of return would range from 29% to 38%. With additional adjustments using estimated shadow prices for foreign exchange, the rates would range from 27% to 36%. An increase in the cost of the Project investments of 200% without increasing the value of the benefits would result in rates from 21% to 30%. The figures would be 20% to 29% if the value of the net benefits were to be 20A lower than projected. Conclusion, Recommendations, Loan Conditions 41. The proposed project would support the Government's efforts to in- crease the output of high value crops so as to increase farm incomes and to use labor and the available resources more fully. This would assist in the achievement of the Government's objective of eliminating the urban-income gap and in improving the quality of life and standard of living in the rural areas in which nearly 50 percent of the population lives. As a result of the increase in population, rapidly rising per capita incomes and the high income elasticities associated with such foods, the demand for fruits and vegetables has been increasing rapidlv. The incremental output from the proposed project will contribute to meeting this demand. - xiv - 42. The following are the main loan conditions on which agreement was reached during negotiations: (a) An agricultural economist, and two horticulturists specializing in green house vegetable production and sprinkler irrigation for orchards respectively, would be appointed and in position within three months following Loan effectiveness (para 33); (b) Participating Kun Cooperatives would meet the conditions specified in para 34; (c) Subloan repayment periods would not exceed those indicated in para 38; and (d) Conditions of Loan effectiveness would be the execution of agreements between the Government and NACF, and NACF and the PKCs which are acceptable to the Bank and covering project lending terms and conditions indicated in para 38. 43. Since the proposed project is basically a continuation of the First Project, which has been implemented effectively and on schedule, there are no major risks inherent in it. However, a greater degree of supervision and monitoring of project implementation will be necessary in view of the introduction of lending for new types of sub-projects. To this end, NACF's TU is to be strengthened by the addition of three technical officers (para 42). KOREA SECOND AGRICULTURAL CREDIT PROJECT A. BANKING AND AGRICULTURAL CREDIT Financial Institutions 1. The financial sector of Korea consists of the Bank of Korea, De- posit Money Banks, either commercial or specialized, and non-bank financial institutions. The Bank of Korea performs regular central banking functions including the control and supervision of commercial banks. Commercial banks receive funds mainly from depositors. They are authorized to make various kinds of loans but have traditionally concentrated on short-term lending. The majority of shares in most commercial banks is held by the Government. Specialized Banks are directly controlled by the Ministry of Finance and, as their names imply, were founded for particular purposes such as small scale industry financing or agricultural financing. Their major source of funds is loans, primarily from the Government. 2. Commercial banks consist of: (a) six banks with a nationwide net- work of 412 branches; (b) ten local banks each with a smaller area of opera- tion approximately the size of a province and a network of 184 branches; and (c) eight branches of foreign banks. Specialized banks include the Citizens National Bank (mainly for mobilizing small savings and financing household loans), the Medium Industry Bank, the Korea Housing Bank, Korea Development Bank, Korea Exchange Bank, the Central Federation of Fisheries Cooperatives and the National Agricultural Cooperative Federation (NACF). 3. Apart from insurance companies and the postal savings system, non- bank financial institutions consist principally of: (a) the Korean Develop- ment Finance-Corporation (KDFC) for medium- and long-term financing of the industrial and transportation sectors; (b) the Korean Investment Corporation (KIC) which acts primarily as a broker on the Korean capital market; (c) the Korea Investment and Finance Corporation (KIFC) which provides short-term finance to the private industrial sector; and (d) the Agriculture and Fish- ery Development Corporation (ADFC), a Government-owned agency which takes equity participation and provides long- and short-term loans to agro-indus- tries. AFDC also owns five manufacturing companies engaged in food and silk processing. 1 4. In coordination with monetary and credit policies of the Govern- ment, the Bank of Korea imposes reserve requirements for all Deposit Money Banks. Since 1971, the reserve requirement ratios have been fixed at 16% for time deposits and 19% for demand deposits. Corresponding ratios for NACF and Kun Cooperatives, however, are 13% and 16% respectively. This preferen- tial reserve ratio has been established as a means to increase the transfer of urban savings mobilized by NACF and the Kun Cooperatives for agricultural production purposes. The Bank of Korea is also an important supplier of short-term funds at subsidized interest rates for NACF's credit and non- credit operations (see Chapter C). CHAPTER A Page 2 Agricultural Credit 5. Sources of Agricultural Credit - NACF has a virtual monopoly in the provision of institutional credit to farmers. The commercial banks and AFDC provide neglible amounts of such credit. The contribution of NACF and its cooperatives to the supply of credit and other services for agriculture has been expanding rapidly. Loans granted to farmers by NACF and the Kun Cooperatives increased from W 222 billion in 1971 to W 449 billion in 1974 (the agricultural cooperative system in Korea is described in Chapter C). 6. According to a survey carried out by the Ministry of Agriculture and Fisheries (MAF), the average total borrowings of farm households in 1974 stood at about W 26,091 against average total assets of W 3,226,596. Of the total borrowings, W 5,378 (21%) originated from cooperatives and other public orga- nizations, W 19,558 (75%) from individuals, and W 1,155 from other sources. The application of these borrowed funds shows that agricultural production pur- poses accounted for about 50%, with the balance going to living expenses, ceremonies, education, etc. Of the borrowings of W 12,929 used for agricul- tural production purposes, about 31% were supplied by agricultural coopera- tives and other public institutions, and 64% by private individuals. The purchase of land accounted for 37% of the private loan funds used for agri- cultural production purposes, while cooperative funds for such purposes were negligible. This analysis shows that for agricultural production purposes, high interest loans from private sources were twice as important as credit from institutional sources. These private funds, however, were mainly used for purposes which agricultural cooperatives do not normally finance, such as the purchase of land. For non-productive purposes (living expenses, ceremonies, education, etc.) credit from private lenders is the main source of funds. Sources and Uses of Farm Household Borrowings in 1974 (in Won) Agricultural Produc- tion Purposes Land Other Sources of Funds Purchases Others Purposes Total Cooperatives and Public Organizations 234 3,801 1,343 5,378 Individuals 3,093 5,232 11,233 19,558 Others 178 391 586 1,155 Total 3,505 9,424 13,162 26,091 7. Interest rates charged by private money lenders are reportedly as high as 3 to 6% per month. The MAF survey mentioned above shows that average interest payments per household in 1974 were W 5,872 or 22.5% of the average total borrowings of W 26,091 (which include borrowings from cooperatives at rates of 9 to 12% per annum). CHAPTER A Page 3 Interest Rates 8. Deposits - Interest rates on deposits of banking institutions have been adjusted from time to time but remained at relatively high levels since 1965 when an interest rate reform was adopted as part of the monetary policy of the Bank of Korea aimed at checking inflation, promoting savings and stimulating the flow of funds into the organized banking system. Rates on deposits as of July 1, 1975 range from 6 to 15% per annum. In order to mobilize rural savings, the Primary Cooperatives of NACF pay interest rates on deposits which are slightly higher than other banking institutions, in- cluding the Kun Cooperatives. Interest rates on time deposits of NACF and other banking institutions as of July 1, 1975, were approximately 3% higher than in 1973: Interest Rate on Time Deposits 1973 July 1, 1975 1. 3 months 8.4% 12.6% 2. 6 months 10.8% 13.8% 3. 1-2 years 12.0% 15.0% 4. Over 2 years 12.6% 15.0% 9. Loans - The rates of interest charged by NACF on its short-term loans to depositors and member cooperatives are the same as those charged by commercial banks (15.5% per annum). NACF's other lending operations for agricultural production purposes or for exports are subsidized with rates to the borrowers of 9% to 12% (3.5% for irrigation associations). Details of NACF's lending operations are given in Chapter C. KOREA SECOND AGRICULTURAL CREDIT PROJECT B. PROJECT COMPONENTS, COSTS AND FINANCING 1. Although comprising a relatively small share of total lending by NACF, the First Agricultural Credit Project (Credit 335-KO) constituted an important source of funding of the institution's medium and long-term lending for on-farm investments to expand production of fruits, vegetables, meat and other non-food grain crops and allowed NACF to play a major role in implement- ing Government programs for agricultural diversification. To NACF, the other important benefits of the First Project are the institutional strengthening of NACF and its Kun Cooperatives. With the experience and expertise in project implementation acquired under the First Project, NACF is now capable of undertaking an expanded credit operation for agricultural diversification. This is an appropriate development strategy which is accorded high priority by the Government (also see para 14). The proposed Project would be a continu- ation and expansion of the agricultural development program financed under the First Project. It would provide medium and long-term loans, through selected Kun cooperatives of NACF to about 7,900 farmers for investments in: (i) apple orchard development, (ii) silkworm rearing houses, (iii) sprinkler irrigation for orchards, (iv) greenhouses for vegetable production, and (v) on-farm storage for fruits. Except for greenhouses, the other subprojects were already financed under the First project. The Project would be a three-year lending program. It would be part of a high priority Government program to increase farm output and incomes through diversification and modernization of agricul- tural production. The Project also aims at making more efficient and fuller use of available agricultural resources, thereby enhancing the employment opportunities, productivity and incomes of participating farmers. Determina- tion of Project size was based on estimates of farmer demand and the loan processing capacity of the lending institutions (Kun Cooperatives) over a three-year period. In making the determination, account was also taken of domestic consumption projections and export prospects of the Project output, and the availability of complementary resources. 1/ Project Components Apple Orchard Development 2. This subproject would finance expenditures for the establishment of about 2,100 ha of apple orchard. Major investment categories would be for land clearing, preparation, levelling and terracing; orchard establishment, including improved planting materials, fertilizers, pesticides, and hired 1/ Detailed features of project components are given in Chapter F. CHAPTER B Page 2 labor; spraying facilities and other small hand tools. In newly established orchards it is usual to intercrop with peanuts, soybeans or other vegetables over the first few years until the area is sufficiently shaded over by the apple trees when this practice would no longer be feasible. Sub-project in- vestments would include financing production inputs for the initial crop. Investments would average about W 1.74 million per ha. 3. Most of the apple orchards to be developed would range from one to two ha. They would be planted with improved varieties using about equal pro- portions of standard and dwarf rootstocks. Sub-loans would only be given for orchard establishment in soils considered suitable by the Institute of Agri- cultural Sciences in Suweon. Although sub-loans would be made to about 1,400 farmers in seven out of nine provinces, there would be a marked concentration of lending within the apple growing counties. Silkworm Rearing Houses 4. This sub-project would provide improved silkworm rearing houses and equipment to enable sericulture farmers to expand production of cocoons. In addition to allowing the adoption of branch feeding of the silkworms, which is labor saving, the investment items, in permitting more effective environ- mental control, would also enable quality improvements in cocoon production to be obtained. The sub-project would also finance the first year's cost of improved inputs to existing mulberry plantings in order to raise the yields of mulberry leaves to provide sufficient feed for the expansion in silkworm rearing. The main purpose of this sub-project is to increase the productivity of sericulture production without the need to expand existing mulberry acreage. 5. Sub-loans would be made to about 3,500 sericulture farmers owning 0.35 ha or more of mulberry plantings in production. The typical sub- oan would finance an improved rearing house of about 20-25 pyongs (66-83 m ) floor space, and equipment, the major items of which are pivot cocoon beds, wooden racks and trays for silkworms feeding, and a 2-wheel cart. The rearing ca- pacity would be five cases of silkworms a crop, or 10 cases for the two-crop year. About 0.35 ha of improved mulberry plantings would provide sufficient leaves to feed the quantity of silkworms envisaged. Sub-project financing to improve the mulberry plantings would mainly be for fertilizers/manure, pesti- cides, and hired bullock power and manual labor. The typical sub-loan would involve investments of about W 1.14 million. Sprinkler Irrigation for Orchards 6. Many existing orchards, especially those growing in rather sandy soils as on river bed land, and volcanic ash soils, suffer from insufficient soil moisture that would be available to the plants. This in turn retards the rate of tree growth and lowers the yields and quality of fruit production. Thus, apple orchards in areas of lower rainfall where near drought conditions CHAPTER B Page 3 occur quite regularly during certain periods in the hot summer months, gen- erally produce smaller fruit (reduced yields) with a high incidence of skin cracks and poorer coloring. Sprinkler irrigation would be the most appro- priate to correct this problem, though surface irrigation would be helpful for some orchards. In recent years, some of these orchards have installed sprinkler irrigation and have experienced significant improvements in yields and fruit quality. 7. About 800 farmers, each owning 2 ha or more of producing orchard, would be given sub-loans under the sub-project. Orchards of less than 2 ha would normally be unable to justify the use of sprinkler irrigation and would therefore not qualify for participation. Eligible orchards would have con- ditions described above and have available supply of water sufficient for ir- rigation needs. Major investment items for a 2 ha orchard would include a concrete well about 6 m deep and 2 m wide, diesel engine of about 10 hp and pump, pipes and pipe fittings, sprinkler heads, and installation costs. Although some of the sub-loans would be made on pear and orange orchards most are expected to be made on apple orchards. Investments would average about W 2.65 million for a 2 ha orchard. Greenhouses for Vegetable Production 8. In response to rising incomes, there is a rapidly growing demand for fresh vegetables grown in greenhouses during the cold months of the year. Existing greenhouses are inadequate and many are inefficient. Improved green- houses to be provided under the sub-project would raise productivity and ex- pand output to help meet this increasing demand for vegetables during the period concerned. 9. About 1,200 farmers would participate in this sub-project which would finance the cost of constructing and equipping improved greenhouses. Major investment items would include metal frames for the greenhouses; ventilating, heating and irrigation equipment and facilities; and incremental working capi- tal required to produce the initial crop of vegetables. Investments would average about W 3.09 million for 0.1 ha of greenhouses, a typical size invest- ment to be undertaken by the individual sub-borrower. Sub-loans would be made to farmers who are experienced in greenhouse production, and have easy access to important urban consuming centres. On-Farm Storage for Fruits 10. Apple, pear and orange growers with storage facilities, who market only some of their production at harvest time and store the larger part of their output for sale over the following months, have been able to obtain prices and financial returns which are significantly higher than those re- ceived by growers who sell all their output at harvest time. However, the majority of the growers do not have storage, but many have begun to recog- nize the profitability to be derived from a more orderly marketing of their output through the use of storage. Accordingly, there is now an increasing demand for on-farm storage facilities by such growers. CHAPTER B Page 4 11. About 1,000 sub-loans would be made under the sub-project for the financing of concrete storage buildings, wooden boxes for packing the fruits for storage, and ventilating fans. Although the capacity of the storage ouildings would vary according to sub-borrowers' needs, the majority would have a floor space of about 20 pyongs (66 m2) or a maximum storage capacity of about 30 tons of apples and pears or 20 tons of oranges. This capacity, in rlving an investment cost of about W 2.2 million, would provide sufficient storage for the majority of apple and pear growers with 1-2 ha and orange growers with 0.5-1.0 ha. Cost Estimates 12. The total cost of the Project is estimated at about W 19,978 mil- lion (US$41.2 million), of which about 31%, or W 6,207 million (US$12.8 mil- lion) would be foreign exchange. Project Cost Estimate --------W million ----- … … …----US$ J00------- % Foreign Local Foreign Total Local Fcreign Total Exchange Apple Orchard Development /a 2,702.9 949.7 3,652.6 5,573 1,958 7,531 26 Silkworm Rearing Houses /b 2,821.5 1,152.4 3,973.9 5,818 2,376 8,194 29 Sprinkler Irri- gation for Orchards /c 1,166.0 954.0 2,120.0 2,404 1,967 4,371 45 Green Houses for Vegetable Production /d 2,449.7 1,261.9 3,711.6 5,051 2,602 7,653 34 On-farm storage for Fruits /e 1,654.5 551.5 2,206.0 3,411 1,137 4,548 25 Subtotal 10,794.6 4,869.5 15,664.1 22,257 10,040 32,297 31 Price Contingency 2,976.7 1,337.4 4,314.1 6,137 2,758 8,895 Total 13,771.3 6,206.9 19,978.2 28,394 12,798 41,192 31 /a 2,100 ha. /b 3,500 rearing houses (each of 20-25 pyong floor space), rearing implements, and improved inputs for 3,500 mulberry holdings each of about 0.35 ha. /c For 1,600 ha of producing orchard. /d 120 ha. /e 1,000 storage buildings, averaging about 20 pyongs storage per building. CHAPTER B Page 5 13. Detailed cost estimates are shown in Chapter G. Estimates are based on prices prevailing at time of appraisal (November 1975), including the costs of installation. A price contingency of 28% had been added to Project costs. The contingency is based on the projected price increases on the estimated amounts that would be disbursed. 1/ Financing 14. The total Project cost would be financed as follows: Amount Source (US$ million) IBRD 20.0 Government 8.8 Subborrowers 12.4 41.2 Of the total estimated Project cost, about 50% would be financed with pro- ceeds from the proposed IBRD loan (US$20.0 million), including the foreign exchange component of US$12.8 million and some 25% of the local currency component. The Government will finance about 20% and subborrowers 30% of the total Project cost. This Project has a number of features which justify the proposed provision of local cost financing in an amount of about US$7 million. The Government is placing increasing emphasis on the diversification and expansion of agricultural production into high value foods and other non- foodgrain commodities, since it will lead to the more productive use of Korea's scarce agricultural resources. As such, the Government's efforts in this direction deserve IBRD's support to the fullest extent possible. NACF, which is the implementing agency and the primary source of agricultural credit in the country, is playing a major role in the implementation of this strategy. 1/ Projected price increases of 15% for 1976 and 10% for 1977 and 1978. KOREA SECOND AGRICULTURAL CREDIT PROJECTS C. BORROWING AND EXECUTING AGENCIES 1. The IBRD loan would be made to the Government which would lend the proceeds of the loan and its share of Project costs to NACF for on- lending by NACF's network of Kun Cooperatives to subborrowers. Project lending terms and conditions for the parties concerned are given in Chapter D. The Technical Unit (TU) and Project Coordinating Committee established under the First Agricultural Credit Project would also be involved in im- plementing the proposed Project as described below. The National Agricultural Cooperative Federation 2. Established in 1961, NACF fulfills a dual closely integrated role. As the apex organization of a three-tier agricultural cooperative structure in Korea, it supervises and coordinates the operations of its member coopera- tives, which comprises Kun (county) Cooperatives at the intermediate level, Primary Cooperatives at the village level, and Special Cooperatives for horticulture and livestock farmers (organizational structure is shown in Chart 15623 below). NACF also functions as an instrument for the implementation of national agricultural policies. It is partly in pursuance of this responsibility that NACF undertakes a variety of credit and non-credit activities, including the distribution of agricultural inputs and supplies, marketing, banking, mutual insurance, guidance and training. In all these operations, NACF receives considerable financial support from the Government. 3. NACF recently embarked on a major reorganization of the cooperative structure. To be completed in 1977 it would involve a reallocation of func- tions between the Primary and Kun Cooperatives whereby all short-term produc- tion credit and non-credit activities would be undertaken by the 1,545 Primary Cooperatives while the Kun Cooperatives would handle medium and long-term credit and exercise audit functions over the Primary Cooperatives on behalf of NACF. Primary Cooperatives 4. The Primary Cooperatives have about 1.9 million member farmers and are multi-purpose in their functions. They have a minimum membership of 20 farmers and an area of operation of one or several villages. There were about 16,000 such cooperatives in 1968. Since then NACF has been pursuing a con- solidation program of the Primary Cooperatives into larger, more economical units. This merger program was completed in 1972 and NACF now sponsors 1,545 Primary Cooperatives throughout Korea. Although legally separate from NACF and the Kun Cooperatives, the Primary Cooperatives are an essential instru- ment for the implementation of NACF's credit and non-credit operations. The CHAPTER C Page 2 functions of the Primary Cooperatives include storage and distribution of con- sumer goods and agricultural inputs, collection and storage of agricultural products, distribution of short term production loans as well as technical guidance and general welfare activities. 5. Most of the Primary Cooperatives also operate a Mutual Credit scheme through which they mobilize the savings of their farmer members and make short- term loans to their depositors for miscellaneous purposes. This mutual credit system was initiated in 1969 in order to reduce usury financing and has made good progress with deposits of W 57,918 million and outstanding loans of W 34,237 million at the end of December 1974. The unused portion of the mobilized funds is deposited with the Kun Cooperatives and channelled to NACF for financing its banking operations. Another source of funds of the Primary Cooperatives is their share capital. Each member farmer must own at least one share (W 1,000) but has one voting right irrespective of his share capital. Part of these funds is utilized by the Primary Cooperatives for their own subscriptions to the share capital of Kun Cooperatives which in turn subscribe to NACF's capital. 6. NACF has initiated a "self-support" program for the Primary Co- operatives. To be completed by 1977, the program provides for the training and strengthening of the management of the Primary Cooperatives, and also aims at a reallocation of tasks between the Primary and Kun Cooperatives which will further expand the functions of the Primary Cooperatives (see para 8). At present 735 of the 1,545 Primary Cooperatives are considered as "self-supporting" by NACF. Kun Cooperatives 7. The 140 Kun Cooperatives with their 211 branches function at the intermediate level of the three-tier cooperative structure. NACF and Kun Cooperatives are distinct legal and financial entities but are closely inte- grated in regard to management, resource mobilization and lending operations. The Kun Cooperatives handle NACF's credit and non-credit activities at the county level and act as a channel of funds to their member Primary Cooperatives. 8. Non-credit activities represent a large part of the operations of the Kun Cooperatives. NACF, however, plans to delegate more of these activi- ties to the Primary Cooperatives in the frame of the "self-support" program. The Kun Cooperatives would then assume a role of auditing and supervising the operations of the Primary Cooperatives and in addition would concentrate on banking type operations, such as mobilization of deposits and provision of agricultural development loans. The Kun Cooperatives already are playing an important role in mobilizing deposits of which approximately 30% are utilized for short-term commercial loans, 20% kept in reserves and the rest trans- ferred to NACF to support its operations. With deposits of W 201,380 million at the end of 1974 of which less than 20% were from farmers, the Kun Coopera- tives are effectively able to mobilize urban savings for the financing of NACF's agricultural activities. CHAPTER C Page 3 9. As under the First Agricultural Credit Project, Kun Cooperatives should meet the following conditions before they would be allowed to parti- cipate in the proposed Project: (1) Overdues at the end of the preceding financial year would not exceed 10% of the loans outstanding. (ii) The Kun Cooperatives should have at least one Loan Appraisal Officer (LAO) working full time on Project loans and more would be provided commensurate with increases in the work load. LAOs would be trained by the TU. (iii) Adequate extension support for Project farmers would be provided. Special Cooperatives 10 The Special Cooperatives are organized outside the three-tier struc- ture on the basis of commodities handled rather than geographical jurisdiction. There are 45 horticulture and 97 livestock cooperatives organized for the purpose of promoting the production, processing and marketing of specific com- mnodities in areas in which there is a concentration of production. They have ahout 57,000 member farmers who may also be members of Primary Cooperatives. Special Cooperatives are members of NACF. They are also associate members of the Kun Cooperatives in their area. Services provided by the Special Coopera- tives include the supply of inputs, marketing, and processing of agricultural products. Their operations are controlled and financed by NACF. 11. The Sericulture Associations fulfill a similar role for sericul- ture farmers but with more emphasis on the provision of extension work. They have a farmer membership of about 4,700. Although not presently integrated with NACF, they work closely with the local cooperatives. Organization 12. Management - The General Assembly of NACF is the representative body of the member cooperatives (Kun and Special Cooperatives). The Repre- sentatives Meeting elected by it approves NACF's annual business plan, budget and accounts. The Administration Board, the policy-making body of NACF5 consists of the President of NACF (appointed by the President of the Republic of Korea), representatives of the Ministries of Agriculture and Finance and the Bank of Korea, and five delegates elected by the Represen- tatives Meeting. The President of NACF is assisted by an Executive Vice- President. Six Vice-Presidents supervise the various departments (see Chart 15622 below). 13. Staff - NACF has a staff of approximately 2,100 of whom about a third are professionals. NACF's Agricultural Cooperative College offers a two-year training course in agricultural cooperation. Many of its graduates are employed by NACF and its member cooperatives. NACF also operates two other training institutions, the Saemaeul Leaders Training Institute for farm leaders and the Cooperative Training Institute for its own cooperative staff. CHAPTER C Page 4 14. Non-Credit Functions - NACF's non credit activities are as follows: (a) Distribution of Agricultural Inputs and Supplies - Sales of fertilizer, chemicals and agricultural machinery are made at subsidized prices and on credit. (b) Marketing - NACF collects farm products through the Kun, Special, and Primary Cooperatives and sells by auction in the 20 marketing centers it operates in the major cities. NACF also purchases certain crops under a Government pro- gram and is engaged in agricultural processing, including the manufacture of animal feeds. In addition, NACF operates a Government sponsored price stabilization scheme through purchases and storage of a limited number of agricultural products. These operations are financed from credit pro- vided by the Bank of Korea and Government funds. (c) Insurance - NACF's insurance activities have grown rapidly and include life and damage insurance. This business has proved very profitable (para 26). (d) Other Activities - NACF is involved in a variety of other activities such as foreign trade of agricultural products, warehousing, and production of fertilizers. l5S Credit Functions - NACF makes short, medium, and long-term loans Lor agricultural and non-agricultural purposes to member cooperatives, agri- cultural associations, agricultural processing industries and individuals. Terms and conditions vary with the purpose and source of funds and are strict- ly controlled by the Government (see Table C-4). Medium and long-term loans are made by the Kun Cooperatives. Short-term financing of agricultural inputs is handled by Primary Cooperatives. Agricultural loans are mainly financed from Government and Bank of Korea funds, and N4ACF's own resources. Short-term commercial loans to depositors and cooperatives are made from deposit resources. Loans advanced by NACF and Kun Cooperatives grew from W 222 billion in 1971 to W 449 billion in 1974 and outstanding loans during the period rose from W 123 billion to W 252 billion. Details of loans granted and outstanding by purpose and sources of their funding are given in Tables C-1 and C-2. Lending Operations 16. Types and Terms of Loans - According to their purpose, NACF loans are in four categories: (a) Agricultural Loans - (i) Long-term loans have been granted mainly to irrigation associations at 3.5% interest per annum from funds provided by the Government. (ii) Medium- term loans at 9% interest per annum are made either from CHAPTER C Page 5 NACF's own resources or directly from Government budgetary funds lent to NACF at 5% per annum. The Government gives to NACF an interest subsidy equivalent to 6.5% when its own deposit resources are utilized which could otherwise be lent for commercial purposes at 15.5% interest. (iii) Short-term loans are granted at 12% per annum for financing agricul- tural inputs. About two-thirds of these funds come from NACF's own resources and the remaining one-third through borrowings from the Bank of Korea at 6% interest per annum. (b) Loans to Primary and Special Cooperatives - Medium-term loans at 9% are made for the construction of storage and other facilities from Government funds lent to NACF at 2% per annum. Short-term working capital loans are also granted at 15.5% from deposit resources. (c) Agricultural Processing and Export - Short-term loans at 9% interest per annum are granted for the purchase of agricultural raw materials for export, with funds from credits provided by Bank of Korea. Cd) Commercial Loans - Short-term loans are granted to de- positors as a normal banking service at a rate of 15.5% per annum. Such service is essential to the mobilization of urban deposits for which NACF must compete with other commercial banks. The deposits represent an important source of funds for NACF. 17. Loan Collection - Collection records are satisfactory. The arrears position has gradually improved and the amount of loans overdue was lower at the end of 1974 than in 1971, despite a rapid increase in credit operations during the period. The ratio of arrears to outstanding loans was 4.1% at the end of 1974. Details are shown in Table C-3. 18. Credit Guarantee Fund - Established by NACF in 1972 for borrowers with insufficient collateral, this Fund is financed from a fee of 0.5% per annum charged to the borrowers, a Government grant and reserves set aside from annual profits. Lending Procedures 19. Lending procedures vary with the origin of the funds, the purpose of the loans and the types of borrowers. The Ministry of Agriculture and Fisheries (MAF) can have a direct influence on the selection of eligible bor- rowers when these are agricultural development organizations, cooperatives, farming groups, the Kun, Primary and Special Cooperatives. The Bank of Korea plays the same role for the funds it loans to NACF on short-term for the fi- nancing of agricultural processing enterprises. NACF lends directly to the cooperatives for their working capital or facilities, and channels Government CHAPTER C Page 6 funds to the farmers through the cooperative system. Loans to farmers for productive purposes are made either from Government funds earmarked for such purposes, or from NACF's own banking funds. Since available funds often fall short of meeting the credit demand, NACF in consultation with MAF makes quarterly allocations by province and county. At the cooperative level, a Loan Committee selects eligible borrowers. This committee consists of the President of the cooperative, the chief of the Kun or county (or village in the case of Primary Cooperatives), the head of the local Office of Rural Development and at least two farmers. For medium-term production loans which are exclusively handled by Kun Cooperatives, an appraisal of the invest- ment is carried out before a loan can be sanctioned. In the case of short-term production loans for the financing of agricultural inputs (partly funded by the Bank of Korea) no appraisal is made and the loan committee of the Primary Cooperative must reconcile the needs of individual farmers with the allocation available. 20. As part of the instructions issued by NACF's Loan Appraisal Depart- ment, cooperatives are required to keep a list of all the member farmers with information concerning their resources, production, sales and credit record. This information is used to determine the loan eligibility of borrowers. Short- term production loans are made under the personal guarantee of each borrower with one or two co-guarantors. Other production loans are secured by mort- gages on land and fixed assets. Chattel mortgages are taken on livestock, machinery and equipment. 21. Powers of loan sanction have been increasingly decentralized by NACF. Primary Cooperatives can approve loans up to W 300,000. Kun Coopera- tives and Provincial Branch Offices are limited to ceilings of W 7 million and W 10 million respectively. Loans for more than W 10 million must be ap- proved by the President of NACF. Resources 22. As of the end of 1975, NACF's total resources amounted to W 663.9 billion as follows: (In W million) Share Capital, Unappropriated Earnings and Reserves 10,413 Borrowings from Government 70,060 Foreign Loans 24,416 Borrowings from Bank of Korea 187,951 Deposits 367,753 Agriculture and other Bonds 3,309 Total 663,902 CHAPTER C Page 7 23. Borrowings from Governmlent comprise loans from budgetary funds made available to NACF at 2% to 5% interest per annum. Borrowings from the Bank of Korea at interest rates varying frori 2,% to 6" are used for financing NACF's fertiLizer operations, purchase and export of agricultural products, and credit sales of agricultural inputs. Deposit resources represent an increasingly large share of NACF's total resources. Savings are mobilized from farmers by the Primary Cooperatives under the Mutual Credit Scheme and from urban depositors by the Kun Cooperatives and NACF. Excess deposit funds after allowance for legal reserves and commercial loans are ultimately trans- ferred to NACF for the financing of its banking operations (see Chapter A para 4). Interest rates paid on time and savings deposits are fixed by the Govern- ment. They range from 12.6% to 15%. Financial Condition 24. Basis of Accounting - As is conventional in most other financial institutions in Korea, NACF states its income on an actual receipts basis and expenses on an accrual basis in its annual accounts. As a result income accrued and receivable is not shown as an asset and undistributed profits are understated. NACF's and Kun Cooperatives' balance sheets and income statements on cash-cum-accrual basis of accounting appear in Tables C-5, C-6, and C-7. NACF's audited accounts appear in Tables C-8 and C-9. The account- ing system also does not provide for a clear allocation of administrative costs among the various activities and departments. However, measures to improve the accounting and financial reporting systems would be implemented in the near future (para 27). 25. Equity. At the end of 1975 NACF's equity was as follows: (in million IJon) Paid-in Capital 3,725 Capital Surplus 417 Reserves 767 Unappropriated earnings 5,504 10,413 Although NACF's equity is small in relation to its total borrowings, this should not be of concern since the majority of the borrowings comprise funds provided by the Government and Bank of Korea for the implementation of Govern- ment directed programs (para 2, 16, and 23). NACF has also been pursuing efforts to increase subscriptions to its share capital by the Kun Cooperatives. By the end of September 1975, total subscriptions of the Cooperatives amounted to W 2,943 million or 2.7% of their outstanding borrowings from NACF. CHAPTER C Page 8 26. Financial Performance. NACF's audited accounts show the following breakdown of its profits: (in million Won) 1973 1974 1975 General Business Department -1,277 -2,149 -1,653 Banking Department 644 -47 960 Insurance Department 1,075 3,146 2,511 Total net income 442 950 1,818 The losses of the General Business Department were reportedly due to the expansion of NACF's non-profitable activities (such as the supply of fertil- izers and chemicals) and the overall increase in their procurement costs following the energy crisis. NACF's auditors pointed out that the rate of losses to revenues showed a reduction from 0.9% in 1973 to 0.4% in 1975. As for the losses of the Banking Department in 1974 the explanations are: (i) Effective January 24, 1974, the interest rates payable by NACF on time deposits increased substantially while the rates applied to loans remained unchanged thus reducing NACF's margin. (ii) The devaluation of the Won in December 1974 resulted in a foreign exchange loss of W 106 million in 1974. In 1973 a foreign exchange gain of W 198 million had been recorded. (iii) The 1973 accounts showed as revenues interest receivable on the total outstanding loan balance, including the doubtful accounts. In 1974, however, uncollectable loans were identi- fied separately from doubtful accounts and accrued interest on uncollectable loans was not included in the revenues. While the explanations for the losses incurred by the Banking Department in 1974 seem reasonably substantiated, it appears that the General Business Department should keep a closer control on its costs and obtain appropriate compensation from the Government for the losses incurred from operations undertaken at the insistence of the Government (para 27). Accounts and Audit 27. Although NACF maintains separate accounts for all its organizational units and major activities, not all the accounts are sufficiently comprehen- sive or independent, nor are they recorded in a manner which will allow NACF to obtain accurate and appropriately detailed financial statements for each of its activities. Furthermore, accounting functions are handled by various departments entailing unnecessary duplication of work. The main purpose of the Management Study provided for in the First Project is to correct this CHAPTER C Page 9 major weakness in NACF's accounting and financial reporting systems. The Study was completed in December 1975. Major recommendations include: (i) the need to measure and value services of centralized service departments and to charge the cost of such services to other departments which use them; (ii) introduction of an accounting code structure which will allow all departments and activities to maintain independent accounting records; and (iii) creation of a consolidating accounting function to reconcile and eliminate duplication of transactions, and to prepare activity and other formal financial statements at each organizationsl level and for NACF as a whole. Systems to implement these recommendations which were developed under the Study are being tested using a number of selected departments. Implementation of the systems, to be phased over several months, is expected to provide NACF with, inter alia, in- dependent financial and accounting statements by department and major activity. This will also provide NACF with a proper basis to seek appropriate compensa- tion from the Government for the losses incurred in the implementation of Government directed programs. 28. As required under the First Project, NACF's accounts have been auditied by independent auditors acceptable to IBRD. The audit had been satisfactory. This requirement would be maintained under the proposed Proj- ect. NACF would maintain a separate Project account which would be audited annually and sent to IBRD, together with a copy of the audited balance sheets and income statements covering its total operations within four months after the close of each financial year. NACF would also forward to IBRD quarterly reports covering the Project's progress within two months following the end of each quarter. The Technical Unit 29. Under the First Agricultural Credit Project, a Technical Unit (TU) was set up by NACF in 1973 to supervise and monitor Project implementation. A Project manager, at the section chief level, is heading the TU and is re- sponsible to the head of the Foreign Loan Office who, in turn reports to one of the six Vice-Presidents of NACF. The TU has performed satisfactorily under the First Project. 30. While individual loans under the First Project are appraised and disbursed by the Kun Cooperatives, the TU supervises their project loan operations, including the provision of technical advice and training the Loan Appraisal Officers of the Cooperatives in proper appraisal and super- vision. The TU is also responsible for monitoring the project in all its aspects. 31. No substantial change in the functions of the TU would be neces- sary to implement the proposed Project. However, assurance should be ob- tained from NACF that a Kun Cooperative would be allowed to participate in the Project only when the TU is satisfied that adequate extension support would be available to its Project farmers. The TU shall further ensure that the extension services are satisfactory and adequate through frequent visits to the Cooperatives and to the Project subborrowers. CHAPTER C Page 10 32. At present, the TU consists of a Manager, two Assistant Managers, two horticulturists, two experts each in sericulture and livestock, and administrative support staff. Under the proposed Project, the TU would be strengthened by the inclusion of at least three additional technical staff comprising an agricultural economist, and two horticulturists spe- cializing in green house vegetable production and sprinkler irrigation for orchards respectively. The agricultural economist would be mainly responsi- ble for the financial and economic aspects of the Project, including train- ing Loan Appraisal Officers in proper appraisal which at present is done essentially by the Manager. One of the Assistant Managers would be in charge of administration, and the other would handle Project matters, including training. The three additional technical staff would be appointed and in position within three months following Loan effectiveness. 33. In order that the TU would be able to retain its technical experts, especially those who are experienced and whose services are therefore essen- tial to the effective and timely implementation of the Project, it is proposed that these officers, when promoted, would continue to remain with the TU and would not be transferred out as is the present practice. The turnover of the technical staff which had some disruptive effect on the TU's work under the First Project would accordingly be minimized. 34. The present TU Manager is a junior officer (section chief) when compared with the officials of other NACF and Government departments whom he has often to deal with on matters concerning the First Project. Conse- quently, his dealings with the officials concerned had not been as effective nor expeditiously dealt with. To correct this shortcoming, it is suggested that the TU Manager's position under the proposed Project be upgraded to that of a Department Deputy Manager level. Project Coordinating Committee 35. A Project Coordinating Committee was established under the First Agricultural Credit Project to ensure coordinated planning and execution of project operations between NACF and other Government agencies. Constituted under the Chairmanship of the Vice President of NACF responsible for the Project, the Committee included representatives of MAF, Office of Rural Development, Economic Planning Board, Ministry of Finance, and Agricultural Development Corporation (ADC), with the Project Manager (para 29) as its secretary. The Committee assumed the following responsibilities: (a) coordinate project investments with related Government programs; (b) assure cooperation of administrative and technical extension staff of MAF and ADC; and CHAPTER C Page 11 (c) review progress, identify difficulties and recommend measures to remove obstables to project execution. 36. Meeting at regular intervals, the Committee had played an important role in the timely and effective implementation of the First Project. In view of this, it is suggested that the Committee be maintained to carry out a similar role under the proposed Project. JUAPT4,;2 C I-a 3~ .2 KOREA Ta'>Ie C-1 SECOND AGRICULTURAL CREDIT PROJECT Outstanding Loans of NACF and Kun Cooperatives by Source of Funds and Purpose (in million won) December 31, 1970 1971 1972 1973 1974 1975 -/ From Banking Funds I. Agricultural Loans a. Short-term Production 5,729 7,990 13,387 11,814 14,098 24,825 b. Medium-term Production and Equipment 17,215 21,611 23,931 26,059 31,594 35,504 c. Short-term Loans to Institutions 5,002 7,795 8,465 10,111 20,024 21,066 d. Other Short-term Agricultural Loans 9,224 8,336 8,435 10,532 17,612 15,178 e. Usury Debt Settlement (Medium-term) 1,521 1,474 761 720 677 672 Total Agricultural Loans 38,691 47,206 54,979 59.236 84,005 97,245 II, Short- and Medium-term Fishery Loans 4.634 5.134 4.024 4,228 5,222 6,118 III. Other Short-term Loans a. Export Loans 2,404 4,334 5,804 6,760 40,575 41,343 b. Trade 1,830 1,305 1,015 3,756 1,133 2,621 Total Other Short-term Loans 4,234 5,639 6,819 10.516 41.708 43,964 IV. Savings Promotion Loans a. Commercial Loans 13,069 17,482 23,575 27,102 36,335 37,481 b. Others 10,360 12,187 9,627 11,962 20,479 20,451 Total Savings Promotion Loans 23,429 29,669 33.202 39,064 56,814 57,932 V. Agricultural Machinery Industry - - - - 269 265 VI. Long-term Credit Debentures - - 3,960 3,850 3,264 3,220 Total Banking Fund Loans 70.988 7648 116.894 208744 From Budgetary Funds I. Counterpart Funds a. Agricultural Modernization 1,177 2,734 2,532 2,148 1,758 1,747 b. Assistance to Primary and Special Coops 822 510 1,415 1,159 1,206 1,325 c. Other Agricultural Loans 118 102 97 90 83 83 Total Counterpart Funds 2,117 3,346 4,044 3,397 3,047 3.155 II. Budgetary Operations Funds a. Agricultural Production 2,963 4,124 4,948 4,147 3,546 3,490 b. Rural Development 412 320 279 222 158 150 c. Special crops 9,074 10,101 11,691 12,716 12,840 13,462 d. Others 349 506 5,218 5,557 9,198 8,180 Total Budgetary Operations Funds 12.798 15,051 22,136 22,642 25.742 25,282 III. Agricultural Price Stabilization 1,931 1.473 1.194 .1037 1.319 673 IV. Long-term Irrigation Loans 13,664 11.778 14.164 16.029 17,906 20,231 V. Foreign Loans 3.791 3.772 3.723 4.401 5.063 11,513 VI. National Investment Fund 71 - - - 7,790 15.717 Total Budgetary Fund Loans 34.372 35.420 472506 76,571 GRAND TOTAL 105,360 123,068 148,245 164,400 252,149 285,315 1/ As of June 30. EAP Projects Department December 15, 1975 JHAPTER C Page 13 - Table C-2 KOREA SECOND AGRICULTURAL CREDIT PROJECT Purposewise Analysis of Loans Granted by NACF and Kun Cooperatives During each year (in million won) 1971 1972 1973 1974 I. Agricultural Loans a. Long-term (irrigation) 3,403 2,819 2,287 2,463 b. Production and Farmers Increased Income Progress (i) Medium term 13,837 18,653 14,982 29,062 (ii) Short term 19,855 23,995 51,910 101,454 c. Agricultural Machinery and Modernization 1,992 3,418 938 132 d. Other Agricultural Loans 4,813 5,236 1,095 594 Sub-Total 43.900 54,121 71,212 133,705 II. Fostering of Special and Primary Coops a. Short-term (operation) 5,147 4,682 10,378 15,504 b. Medium-term (facilities) 1,998 3,210 483 5,143 Sub-Total 7.145 7,892 10.861 20,647 III. Agricultural Marketing 3,331 3.882 5,094 5,034 IV. Export Preparation and Foreign Trade (Short-term) 22.645 29.804 51,409 88,450 V. Fishery Loans a. Short-term (operation) 18,364 17,324 16,059 33,631 b. Medium-term (facilities) 1,724 - - - Sub-Total 20.088 17,324 16,059 33,631 VI. General Commercial Loans 125.303 131,400 126,640 162,018 VII. Special Long-term Loan for Improvement of Farm Enterprises - 5,654 6,052 5,549 Total 222.412 250.077 287.327 449.034 EAP Projects Department December 15, 1975 KOREA SECOND AGRICLnLTURAL CREDIT PROJECT Collections and Overdues of NACF and Kun Cooperatives (in m,ill ion won) NACF 1/ Kun Cooperatives NACF and Kun Cooperatives 1971 1972 1973 1974 1971 1972 1973 1974 1971 1972 1973 1974 1. Loans outstanding of the beginning of the year 39,094 39,957 45,173 50,318 66,267 83,112 103,072 114,083 105,360 123,068 148,245 164,400 2. Loans advanced during the year 76,779 98,918 124,653 224,148 145,633 151,159 162,674 224,886 222,412 250,077 287,327 449,034 3. Loans recovered during the year 75,916 93,702 119,508 178,710 128,788 131,199 151,663 182,576 204,704 224,900 271,171 361,285 4. Loans outstanding at the end of the year 39,957 45,173 50,318 95,756 83,112 103,072 114,083 156,393 123,068 148,245 164,400 252,149 5. Loans overdue at the end of the year 2,775 2,231 1,787 1,657 8,604 9,344 7,957 8,755 11,376 11,575 9,744 10,412 6. Proportion of S to 4 6.9% 4.9% 3.6% 1.77. 10.4% 9.1% 7.0% 5.6% 9.2% 7.8% 5. 97 4.1% 1/ Figures exclude loans from NACF for supporting Kun Cooperatives and their business EAP Projects Departmeet Deceenber 15. 1975 KOREA SECOND AGRICULTURAL CREDIT PROJECT Typos end Tetns of NACF Loans By Source of Funds LendinB Terms Project Eligible Selecting Interest Tocal Repay- fr.ee A. BANKLHG FUNDS Purpose Sp.n.sr Borrowers Agueny Rate meet period Period Remarks 1. PrEduction aed Equip ent (GOK 0 bsidioed opsestiems) 1. Serieeltore Silk worm rearimg hou..e MAF Foreieg grasps, Sertiultoro Ls.n Coppittee 97 S 2 NACF receives free G-vernemnt - iste.eet sebsidy for solleeti-c use An..ciation, Primary Coops f 6.5% (15.5% 9E) as a o.-pemsa tie o far t isg ite ownReds which cou ld otherwise be leer or UBB.5% 2. MHshroPP Reri.s honors, scodiog materials, chemi..le MAF Fatocs Lose Cocasittoo 97 2 to 8 up to 2 years 3. Grreo Rouses Vinyl green ho.sce MAF Farmers Lose Corasittco 9% 8 3 4. Grace Fields FeecieR of 9-ons fiSlds MAF Farmers Proovicial Gpvereor 97 a 3 5. Feed 8upply Buffer stookh MAF Agritultaal Coop- and Feed Prod.cers NACF 9% 4 months 6. Rrel .nd Fishery Ares Developsent, S-em-nl Side-lime production MAF Farm-im groups MAF 97 5 2 ?40-t. 7. Wsrehessa Constsuctioc of WArehooeee MAF NACF Marketing Centers MAF 9% 10 S 8. Matel Credit Assiet-soe to Primary Coops MAF Primary Coops NACF 97 8 Lomp .s- repay ent 9. Farm Mechb stsstise Sprayer, Pumps, Tillers MAF Farmers, local orgI nieitiins Kto Coops 9% 3 to 9 Na graee 10. Shiitkc Purchase of Logs Forestry Offi-c Farmers Loam Cossittes 97% 5 2 11. Eprt Collection and processIng of Prasidemt of the Shiitek. Forestry Offite Foroatry Coops Forestry Office 9% 5 2 12. Fr-it Apple, Peate Orange, Prrinsee MAF Farmers Loam Ccseittee 97, 12 7 13. Ten and Herb. Praduetion of Tea and Heebe MAF Fareer6 Loat Conittee 97, 6 3 14. Livestock Korean cattle MAF Farmers Loam Csittee 9% 8 2 lB. Dairy Productiom Milking -hine., Marketing MAF Livestock Special Coops, Loam Cnittee 9% 8 2 Csnters F_rmers 11. BW supeorted Berations Short-term Prod.etios Loans Porohese of inpota NACF Farmers Losa Cosseittee 12% 1 year Frm NOR at 6% per seu far 1 year, epress sties 3AR to 40% af the tbta1 lo-am Bewelapmeei of Aaro-IndastrieS Pro .ssoing of Agricultoral Prodects BOK Enterprises BOK 9% 1 year Fram BOK at 3.5% for I year mr lees Export Fund (Agriceltorn1 & Fishery Products) CollstioD and storage of cocoons, amehsamos, lsvI ro etctA. MDterpris.s BDK 97 180 days Fram BOK at 3% per far 135 to 240 days. FPetiliser Boi.esss Starage of fertiliser KAF NACF Bei.neos Dep-rtert BOK Ne on-londing Pram BOK at 2% per arm for one year III. Operatises Fram NUF Ose Feeds OBeV Aarineltarsl Etererises ed Aasooiatisns 1. Serinolture Short-term seeds NACF Fsdssatioe sf Forostry Coops., NACF 155% Sbhort-term Serice1ters sed M.iberry Tree 2. FPm Esterprise Short-tees .eeds NACF Farsing aterpri... KCn Ceops 13.5% 1 year 3. Irrigation ShErt-tSm nleeds NACF Leed Dsv.lope1 t Coops NACF 15.5% 1 year 4. Fishieg Short-team mssds Office ef Fisheries Fishieg E.teeprises Fishary A-soiatioms 155.% 1 year 5. Primary Caop- Shart-term seeds NACF Primary Coops Ken Ceeps 15.5% 1 year 6. Spesil Caspa Short-t.rm needs NACF Speaial Coeps NACF 155.% 1 year Nevieme Pr_otion 1 Tsaeh.es Welfare As.ecieti.e Edenstiom fees, welfare NACF Tec.e.sh (depositors) Welfare Asaciatios- 15.5h 1 year 2 LE.as o- It.tBlm ent DBposits Personal loses NACF DBpasitors Ktn Coops 12 ta 15.5% 2 years 3 C .rciL1 leers Cemrcial NACF Depasitors or potential clisets Kan Ceope 15.5% 1 year 0 PM 4. Ovsrdrfts CMests NACF Chenking A-acoete KEn Coops 17.5% 6 .ooths or less NAP Pmojseta Department D.e_br 15, 1975 KOREA SECiTD AGRLCILTURAL CREDIT PROJECT Typos and Terps of NACF Loans BI Scarce of Funds Project EliSible seleotiog Interest rota Total Repay- Interest Mepaynont B.P onoEr Morronorr kap-sx to Por ere se BPt Deriod Gace Period Rotr Period Gr-ne 1 Irrig-ton end Land -evnilP-ent Fond hgbicnlt-ral Ir-igtion Davelop-seot and ReservoIr, Pumping Statics, River Bed MAR ADC, Load De. MAF 3.5% 35 5 2% 35 5 AdiS.L-nce tn Land Development Associat.ont Development Asatoni.ti- ID Counterpart Fund Farm Mod-rmitietn end Land r-cl1-ati-p, M-chinpry cod sto-nag MAY Foat. s, Primary top Cocps 9% 2 to 5 years Vartiblo 22 10 5 (fr e Gmeewmn) Facilities fot Frinary end Special Coops fact) ities nd Spatial Coops 8a for --oroga 5h 30 5 (from USID) 111 Bidgtarey F-nds a. ur-1 S-vtelpmenrt Sas--t MPvement MAF Fporma-, Leading hAF Gratis 8 yeO-e Pr Desa 3 years or lees Gratia 10 5 b. Aglrni-ve-a1 Pradant-on Agriculturl F-odoctio IDnr..F- (mainly for ric- sod blrey) MdAF Parmere MAF 9% 5 2 5% 10 5 c. PnrOetry Pfestration Office of FPrm.e, Federstion Peed of Forsatry 9l 5 2 5% 10 5 Fareesyt of Fores ry Canpo Offica d. Settlnee.t of Agrttulrl-l Eigh sabtl Livestock, Seri-lpt-re, CTsh Crops Ministry of Agricult-rol College nd College Gradostes Rd-at-ion & figh School FIAP 97 5 2 5% 10 5 e Leading Farmers Suppoting Foals Cash Cropn end FPrn sidelin.t MAF Lsoding FP r-e LCeading FPrmmrs 9% 5 2 5% 10 5 Cao=git tea f. Ginseng P-ch..es storage of Gineeng noopoly ffitc Gine.og Topper-, M-onopoly Offic. 9% 1 - 5% 10 5 a-me Fed-r-ins g. Feed Fe-d tester instellatioo MPA Farmers Loom Caneitton 97 5 2 57 10 5 h. Tob..o Coantrutian of n--sery beds and Monopoly Toos.como-pp M.onopaly Offine 97 4 years . len. 1 5b 10 5 drying fentlities Office IV. Fertili-er Feetili-er Feadoction -ed Utili-ation MAM F-n, Pd-- MAM 27h 10 5 27 10 5 V. Fa Che-it-l- Application sad S-orege XAF Faers, NACF PA- iretia 10 5 Cent-s 10 5 VI. Price Stabilia-ttne Pond PFroP see & n.roge of farm prodantn MAF K.n Coops one MAF Gratis fer befer 52 1 Special Tonpa t-kobs;97 fPo 9 -antho ur Dnss purchase Vill SeentAl Fore"sts had Refone-tretlon OPtion of Fed-rati-n of 3% during groan 1l during gra- 35 15 Forestry Forestry Coopt, 6% thernafter 35 15 27 th-efter Kyn & Ri-doing CTopn VIII. NetieI al tDd through (BOK) a Power fill- a Prodnction af Pacer Tiller- MAF Manof-ctarere NACF Lon 97, 90 to 120 doys 7. 57. 8 o grate P-sahbse of Pacer Tillers MAP Farme- n - - C ittee 92 7 No grate 7.5% 8 b. S1lp.jmed Slopeltnd Desepmenn MAF Proviociel or lAF 97 8 3 " *' County Govermor t. Gean Ln O Pasture Grs.elond Dvelop-ent 4 Cettl Rearing MAF FP-erm MAF 9% 8 3 d. Urehossing Food Groin St-rage MAF NACF and CTapa KAF 97 8 3 EAP PreJeNjt tpt_t D.c_b r 1!5, 1975 KOREA SECOND AGRICULTURAL CKEDIT PROJECT Condense.d Balance Sheet of RACF (in illion won) - - - - - - - - - - - - - - - - - - - - - _ - A S S E T S - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - L I A B I L I T I E S - - - - - - - - - - - - - - - - - - - - - - 1970 1971 1972 1973 1974 1970 1971 1972 1973 1974 CHEDIT AND BANKIKG CREDIT AND BANKING C.n 2,7 02 2,533 1,604 3,882 2,410 Onpoaita: Dapnnit in BRkh 07 60 5,306 12,361 24,016 20,677 a) Sto- Run Copnrtiv- 19,475 19,794 25.639 53,735 95,551 snoo. iEn d 52 67 114 136 175 b) Pro- Pvblio 7,402 7,967 9,357 11,605 14,472 Bereovign:s Loon. to Ktn Coop.retive- 42,356 59,240 70,612 95,104 147,864 a) Prow BRnk of Korn: Lo.en Fran Baaklg Foodn 16,540 19,405 21,902 25,449 67,445 i) for -Rin .aa rdit 2,673 9,765 8,500 15,770 78.565 L en. from Budgetay Fondn 18,916 16,916 19,637 21,239 24,073 Fi) foe fenotilfo bK lo 30,000 32,000 34,000 433000 20.000 Lo.- fro Fo-iga Fonda 3,638 3,636 3:634 3,631 6.238 4b) Fro Go.ornat of Kor- 4B,541 50,143 59.717 64,540 70,606 Forign Loan 8.117 4,957 4,908 4,724 16,818 Miseallooneoa Claiat 8,262 14,503 17,184 10,221 25,282 Agei.olttral Credit D beotor2B 83 81 4,043 3,952 3,385 Inte-nffioe Anoowntn 26,407 36,620 50,455 58,281 71,769 Sob-Total 101.226 121,606 148.048 183.677 292.164 Yit.llanaon. Liebilitina 4,866 15,254 9,057 11,894 19,838 Sob-Total 146.564 175.481 205 576 267.501 3B0.804 MMMUTUAL N8URiCE MUTUAL IN8URANCE DBpo it 1,945 2,272 1,967 1,845 1,509 R...rve. aod Other Liabilitie- 9,409 12,677 16.943 22,750 30.196 L.o 2,029 2,415 3,637 4,422 6,879 Find and ath-r A..ta 1,530 3,926 8,493 9,832 13,530 RUSINESS Sob-Total 5.504 8.613 14.097 16.099 21.918 A.co.unt Payable nnd Adva-on Ma.iptn 6,518 8,501 12,879 15,314 22,862 Other Liabilitina 4,199 1,988 4,220 12,769 42,024 RenieAblan cad Advnne Paymuata 11,700 1',617 19,490 26,156 53,725 Inventmy 22,741 25,910 22,022 34,538 50,874 Fixd Au..ta 3,116 3,634 4,218 4,944 6,652 Mieoell nwaow Annat 17,083 24,086 34,891 56,857 55,782 Sob-Total 62.640 71i247 80.621 122,495 167.033 Sob-Total 10.717 10.489 17.099 28,083 64 886 CAPITAL AND RESERVES Paid-ia Capital 492 597 887 1,367 2,371 R. ieven (inclodiaR owdinteibotad pr-fit) 2,125 2,156 2,187 2,235 2,435 Sub-Total 21617 2.753 3,074 3,602 4.806 Nat Profit fSe the Year 63 66 74 335 423 Total Mannat 169.370 701.446 242,766 3 271 4816115 Total Llabilitie 69370 201.466 242.766 327.271 1 EAP Proje-ta Depar-ae-t D-coober 15, 1975 KOREA SECOND AGRICULTURAL CREDIT PROJECT Con-ulid-Oud Balnce Sheet Ef Kun (County) Coonr-tiv-u (In million won) -~~~ ~ ~ ~ - - - - - - - - -_ Assets - - - - - - - - - - Liabiliti - -- - - - - - - - - - - - - - - - - - - - 1970 1971 1972 1973 1974 1970 1971 1972 1973 1974 CREDIT AND BANKING CREDIT AND BANKING Cash and Deposit with Bnks 30,248 30,428 39,395 74,316 101,418 Deposits 88,014 101,D58 123,384 157,766 201,380 Borruwigs 42,681 59,344 70,869 95,337 148,040 Lons: a) Fr-n Banking Funds 52,928 66,770 80,321 90,727 123,160 winr L- biliti 15,505 192,904 16,543 39,119 515980 b) Fran Budgetary Funds 11,665 14,732 21,901 21,866 27,856 e) From Te-pn-ary Debentures 1,521 1,474 761 720 677 Sub-Tutn1 146 200 173.506 210.796 283.213 401.010 d) Fro- Fareign Funds 153 136 89 770 4,700 e) On behalf af NACF 12,978 9,887 12,244 14,105 16,225 Oth-r Basins Total Lo.se 79,245 92,999 115,316 128,188 172,618 Ae..unBt Payublo and Advauns Ree.ipto 30,815 29,436 25,481 2Z,017 42,444 Mutusi Enonranro ~~~~~~ ~~2,929 2,418 3,642 4,412 7,016 Mi.nallaeans A ..ata 2,113 3,801 3,855 12,840 28,648 Mluenilnoaus Llnbtlittss 4,235 4,887 6,729 2,236 2,548 Ister-uffi.e Ateannta 26,761 37,357 42,902 52,323 80,156 S.b-Tet.1 37.079 36.741 85.852 28.665 52 808 Sub-Total 138.367 164.585 201.468 267,667 382.840 PFid-in Capitsl 1,060 1,331 1.971 3,005 4,802 Other B.sut-on .eserven Including U.diatributod Profit 3,886 4,110 4,142 4,241 4,705 Anansatasu inabls and Adonas. Paynts 14,524 14,271 15,637 15,346 18,987 Cnpite1 oud Resne..- 4,946 5,441 6,113 7,246 9,507 Inventory 21,629 21,255 17,308 16,281 36,084 FPled ASsets 7,360 8,697 11,604 12,755 15,444 Not Profit for thd Year 228 105 135 593 1,059 Other Assets 6,573 6,985 6,879 7,668 10,229 Sab-Ttal 50.886 51.208 51.428 52,050 80D744 Tot-s Aeats 1 _ 215.793 24635849 Total Litbilitiea and Capital 188 453 215.793 252.896 3.971 5 IARP-bnjents D 1r97nt hbZc er 15, 1975 KOREA SECOND AGRICULTURAL CREDIT PROJECT Income and Expenditure of NACF and Kun Cooperatives (in million won) NACF Kun Cooperatives 1971 1972 1973 1974 1971 1972 1973 1974 Income Interest and Commission 13,255 15,160 16,096 29,076 27,004 29,767 31,042 37,657 Income from Business 0 eration 9,620 10,867 12,976 20,122 43,915 55,350 99,473 161,393 Income from the Mutual Insurance 14,694 18,522 24,192 31,371 6,546 7,108 8,504 10,665 Total 37,569 44,549 53,264 80,569 77,465 92,225 139.019 209.715 Direct Expenditure Interest Payment 11,274 13,029 13,066 25,441 20,850 22,780 22,980 27,470 Direct Cost of Business Operation 9,294 10,567 12,726 19,482 41,585 53,279 97,580 158,698 Expenditure on Mutual Insurance 14,367 18,145 23,823 30,979 6,024 6,496 7,985 9,819 Total 34,935 41,741 49,615 75,902 68,459 82_555 128,545 195.987 Gross Profit 2,634 2,808 3,649 4,667 9,006 9.670 10.474 13,728 Less Overhead Expenditures Wages and Salaries 1,720 1,891 2,380 2,979 5,684 6,327 7,252 9,221 Other Expenditures 891 866 858 1,199 3,108 3,015 2,775 3,863 Total 2,611 2,757 3,238 4,178 8.792 9.342 10,027 13.084 Net Profit from Operations 23 51 411 489 214 328 447 645 Other Income 40 47 40 50 352 333 261 255 Other Expenses 28 60 129 177 487 597 270 235 Net Income from Other Period 31 36 13 61 26 71 155 395 Total Net Profit 66 74 335 423 105 135 593 1.059 EAP Projects Department a H|L December 15, 1975 CTAPTER C Page 20 Table C -8 KOREA SECOND AGRICULTURAL CREDIT PROJECT Condensed Balance Sheet of NACF 1/ (in million won) 1972 31974 1975 …---------------------------------- Assets ------------ …------------------ Cash and Deposits 17,226 29,044 25,o62 36,059 Receivables: Loans and Overdrafts 117,872 149,814 251,219 333,581 Trade and others 29,300 39,811 53.457 64.912 147,172 1896250 304,676 398,493 Less allowance for doubtful accounts and loan losses 46000 6.200 8 115 8,678 143,172 183,425 389,815 Inventories 19,h436 18,091 37,479 109,334 Due from Government of Korea 40.,490 71,731 80,871 189,494 Property and Equipment 3,673 4,092 7,202 9,037 Securities 7,511 9,109 11,100 9,722 Other Assets 2,_095 3455 4,609 7,824 Total Assets 233,603 318,947 462,884 751,285 __________________---_---------- Liabilities --------------------------- Deposits 85,587 131,929 196,577 367,753 Trade payable 14,002 18,437 28,395 42,584 Claims and insurance reserves 12,082 16,788 20,994 27,839 Accrued interest and other liabilities 3,263 10,980 7,282 15,062 Reserve for employees severance 1,402 1,585 1,868 1,898 Borrowings and other debt 112,671 133,499 200,212 285, 736 Equity: Share capital 887 1,367 2,372 3,725 Capital surplus 400 429 437 417 Reserves 493 511 657 767 Retained earnings 2 816 3,422 4,o90 5_504 Sub-Total R e7 10r413 Total Liabilities 233,603 318,947 462,884 75L,285 1/ As audited by external independent auditors - Messrs. Arthur Young Co. for 1972 and 1973 - Messrs. San Kyong & Co. for 1974 and 1975. EAP Projects Department May 6, 1976 CHAPTER C Page 21 Table C-9 KOREA SECOND AGRICULTURAL CREDIT PROJECT Summarized Income Statements of NACF 1/ (in million won) INCOME 1972 1973 1974 1975 Sales and service fees 48,889 77,802 169,335 235,552 Subsidized fertilizer sales 47,495 59,362 94,920 180,164 Interest income 15,928 18,903 22,391 31,815 Premiums written less unearned premiums 3,591 4,952 6,588 8,327 Commission and other 2.887 3.267 4,863 7,677 Total Incone 118,790 164,286 298,097 463,535 EXPENSES Cost of sales and service Lees 96,120 136,769 261,816 411,286 Interest charges and commissions 12,073 13,051 20,208 30,373 Insurance claims, reservas and dividend to policy holders 4,181 6,795 6,465 9,646 Selling, general and administrative expenses 4,300 5,041 6,832 9,718 Provision for doubtful accounts and loan losses 670 2,200 1,915 563 Total Expenses 117,344 163,856 297,236 461,586 Operating Profit 1,446 430 861 1,949 Other income (net) 518 12 89 - 131 Net income 1,964 442 950 1 8 1/ As audited by external independent auditors - iMessrs. Arthur Young Co. for 1972 and 1973 - Messrs. San Kyong & Co. for 1974 and 1975. EAP Projects Department May 6, 1976 CHAPTER C Page 22 KOREA SECOND AGRICULTURAL CREDI;T PROJtCT ORGANIZATION STRUCTURE OF THE AGRICULTURAL COOPERATIVES IN KOREA NATIONAL AGRICULTURAL COOPERATIVE FEDERATION 9 BRANCH OFFICES 140 COUNTY (KUN) - * | COOPERATIVES 211 BRANCH OFFICES (RT142 SPECIAL COOPERATIVES ) .~ ~ ~~~0llKNCOEAIE (HORTICULTURAL COOPERATIVES) 1,545 PRIMARY OF KUN COOPERATIVES (97 LIVESTOCK COOPERATIVES) COOPERATIVES ABOUT 1.92 MILLION ABOUT !7000 MEMBER FARMERS MEMBER FARMERS December 15, 1975 VVorld Bank-15623 KOREA SECOND AGRICULTURAL CREDIT PROJECT ORGANIZATION OF NACF AND KUN COOPERATIVES N A C F | GENERAA AS AEMNLY | KUN COOPS GUIANC DPT UN OPRAIONDET SLE DET ESMEETRCG DEP PLNIG.PNPCINDP RASAUL PEROEPS MEEPIC G GENERAL ASSEMBLY SPECIAL COOP DEPT EANKNG DEPT UTUAL INSURANCE DEPST LA OAN 80APPRAISAD DEPT LEGAL CLAARD DEPT FOREIGTDF DIRECTO ECEER IS IA ISTANT M | L - E | AUDITDRS DFFICE | H | AUDlrOR |~IR U'DANE AN R IIPEIET1 |VC RSDN IESIDESDN T VICIC VRESDEN L ICE IRESDN VCIDENT DET|LDN EERHPCASG (II {22S 131 |N14 tS 1s DEPOtSITS GIAC AKTN INBUPIANCE UDEIG FERI1E ACCOU4T2G T UTLZ TION GUI DANCE DEPT u O UDOFAIN DEFT ||SALES DEPT RESEARCH DEPT PLANNING DEPT INSPECTION DEPT SAEMAUL PROJECT DEPT ||SAVINGS PROMOTION DEPT ||MARKETING DEPT ||PURCH ASE DEPT GENERAL AFFAIRS DEPT FOREIGN EYCHANGE DEPT| ,,EC, AL COOP DEPT | B|ANKING DEPT M UTUAL INSURANCE DEPT ||LOAN APPRAISAL DEPT ||LEGAL CLAIRS DEPT ||FOREIGN TRADE DEPT CIAIN STORE CENTER CREOIT GUARANTEE ||EDP DFFICE ||EMERGENCY PLANNING ||FOREIGN LDAN OFFICE | EDUCATION B TRAINING ||OFFICE ||OFFICE LIVESTOCK MARKETING || DECEUGER 15 1975 W. ld B.- 166122 KOREA SECOND AGRICULTURAL CREDIT PROJECT STAFF PROJECT REPORT D. PROJECT IMPLEMENTATION 1. NACF would administer the Project. Project loans to farmers would be made by the Kun Cooperatives. The Technical Unit (TU) established under the First Agricultural Credit Project would supervise and monitor Project implementation, including evaluation of the actual financial and economic benefits which will result from the Project. It would also advise and train the staff of the Kun Cooperatives in proper appraisal and supervision of Pro- ject loans. In view of the larger size of the Project and the introduction of new types of sub-projects, the TU staff would be strengthened. The Project Coordinating Committee to ensure overall coordination between NACF and other agencies involved in the First Project will be maintained in this Project. Details of the responsibilities of these entities in implementing the Project are given in Chapter C. Procurement 2. Project investment items and operations on individual farms are varied and small, and therefore would not be suitable for international com- petitive bidding. The scattered location of farms and the fact that Project investments would be spread over several years, are additional factors which would discourage interest by foreign firms. 3. Silkworm rearing houses, on-farm storage, and green houses are simple structures and would be constructed by local artisans and in some cases by the farmers themselves. Adequate sprinkler irrigation and other Project equipment and inputs, including facilities to service them, are available locally. There are numerous suppliers, both private companies and cooper- atives including NACF. Prices are competitive. Project procurement would consequently be through normal commercial and cooperative channels by the individual farmer subborrower according to his choice, as in the First Agri- cultural Credit Project. Disbursement 4. IBRD disbursements are expected to extend over three years in accordance with the following: CHAPTER D Page 2 Estimated Schedule of Disbursements Quarter Ending Cumulative Disbursements 1977 September 30, 1977 1.0 December 31, 1977 2.5 1978 March 31, 1978 4.0 June 30, 1978 5.5 September 30, 1978 7.2 December 31, 1978 8.9 1979 Mlarch 31, 1979 10.6 June 30, 1979 12.4 September 30, 1979 14.5 December 31, 1979 16.6 1980 March 31, 1980 18.7 June 30, 1980 /1 20.0 /1 Estimated Completion Date. 5. Against appropriate statements, disbursements would be 70% of sub- loans to beneficiaries as disbursed by the Participating Kun Cooperatives. The documentation for the sub-loans for reimbursement certified by the Participating Kun Cooperatives would be retained on file at NACF, and be available for review by IBRD supervision missions. Lending Terms and Conditions 6. The Government would make available the IBRD Loan and its share of the total Project cost to NACF for on-lending by the Kun Cooperatives to subborrowers. The TU would ensure that the Kun Cooperatives selected to participate in the Project have met the conditions specified in Chapter C para 9. Project investments would be evaluated in terms of their technical feasibility and financial viability based on incremental returns. Subborro- wers would pay an annual interest of 12%. This is the maximum rate currently applicable to Government sponsored agricultural credit programs many of which CHAPTER D Page 3 are charging only 9%. 1/ NACF and the Participating Kun Cooperatives (PKCs) would require minimum interest margins of 1% and 3% respectively to cover administrative costs and provisions for bad debts (Table D-1). The 4% inte- rest margin and the 8.9% interest on the IBRD Loan would consequently require that the cost of the Government funds to NACF would be at 5.7% interest, given the 12% interest charged to subborrowers, and the proposed contributions to total Project cost by the parties concerned (Chapter B para 14) and the repay- ment of the IBRD Loan and Government funds by NACF to the Government over 17 years, including 3.5 years grace. The Government would bear the foreign exchange risk. Since it is essential to ensure that the incremental working capital necessary to produce the initial output and sales from Project invest- ments be available, such capital should be provided by the Government or NACF if not available from other sources. NACF will establish an account called the Special Fund which would comprise proceeds of the Bank Loan and Government loan (4,300 million Won). The Government will deposit in the Special Fund (a) not later than April 1, 1977 an initial amount of not less than 700 mil- lion Won to enable NACF to initiate Project lending, and (b) thereafter at the beginning of each quarter such amounts as shall be required during such quarter by NACF for the purpose of the Project. The total of the Government loan would be made available to NACF not later than January 1, 1980. Agreements acceptable to IBRD, would be entered into between the Government and NACF, and NACF and the PKCs incorporating these terms, and the execution of these agreements would be a condition of Loan effectiveness. The repayment of the IBRD loan by Government would be 17 years including 3.5 years grace. 7. The period of each subloan would be determined by the repayment capacity of the subborrower. Financial models for typical subloans indi- cate that loan repayment schedules need not exceed the limits shown below: 1/ Interest rates of both the bank and non-bank financial institutions are regulated by the Government and these rates have been adjusted from time to time and generally upwards since the mid 1960s (Chapter A para 8-9). Prevailing rates have been aimed, inter alia, at stimulat- ing overall investments with preferential lending rates for agriculture as part of Government's effort to accelerate investment in that sector in order to help reduce the urban-rural income gap. The Government is currently undertaking various measures, including monetary and fiscal policy measures which emphasize restraint, to reduce significantly the rate of domestic inflation and improve the economy's aggregate savings performance. These measures have already proved effective and the rate of inflation has declined quite markedly. The Government intends to review the interest rate structure and to take the necessary corrective measures in a timely manner if it becomes clear that a positive rate of return on financial savings will not be achieved by the end of 1976. CHAPTER D Page 4 Grace Period of Total Subloan Period Repayment Loan Period -------- years --------------- 1. Apple Orchard Development 7 4 11 2. Silk Worm Rearing Houses 2 7 9 3. Sprinkler Irrigation 3 5 8 4. Green Houses 1 5 6 5. On-farm Storage 2 8 10 tOREA SECOND AGRICULTURAL CREDIT PROJECT Pro1ect Cash Floe (in =illion Won) 1, Cash Inflow Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 TotaI IBRD Lo.n 2,619 3,298 3,783 9,700 Govarsnent Lean 1,161 1,46Z 1,677 4,300 Repayments by sub-borrowors (i) Principal - 198 627 1,200 1,639 1,793 1,595 1,586 1,551 1,595 1,190 716 320 - - - - 14,000 (ii) Interest 227 728 1,291 1,509 1,339 1,133 930 739 550 362 196 86 19 - - - - 94109 loca7e on revolving fods V/ 10 51 17 181 249 315 370 423 477 512 503 452 364 260 157 53 Total Inflow 4,007 5,696 7.429 2,826 3.159 3.175 2.840 2.695 2,524 2.424 1.898 1.305 791 364 260 157 53 41.603 II. Cssh Outflow Loans no sob-borrowers 3,700 4,760 5,460 14,000 Loterest on 1bbD/Govnr.3e7t foods 2/ 151 495 902 1,099 1,057 954 871 788 706 623 540 457 374 291 208 125 42 9,661 spsy,sett ef IBRD/Govsr-ssst funds - - - 518 1,036 156 1 6 ,036 1,036 1,036 1,036 1,036 1,036 1,036 1,036 1,050 14,000 Pro-ert Adsioistrative Expenses 3/ (i) Teehbioel Usit 71 79 87 94 104 75 83 90 100 110 121 133 146 35 38 42 47 1,455 (ii) Con Cooperativ-s 138 152 167 184 202 111 122 134 148 163 45 39 33 - - - - 1,638 Provisoti for bad debts 4/ 19 61 108 1.26 112 94 77 62 46 30 16 7 2 _ _ _ _ 760 Total Outflow 4.159 5,545 6,724 2,021 2,491 2.270 2,189 2.110 2.036 1.962 1,758 1,672 1.591 1.56 1,592 1.203 1.139 41,514 111. Surplus (Deficit) (152) 151 705 805 668 905 651 585 488 467 140 (367) (800) (998) (1,022) (1,046) (1,086) 89 IV. Cooolativ- Surplus (152) (1) 704 1,509 2,177 3,082 3,733 4,318 4,806 5,268 5,408 5,041 4,241 3,243 2,221 1,175 89 / Plare,neot of revolving foods asaa,ed ot 10% par anu,0. / Averaeo interest rate of 87. par ennu= (IBRD foods epreseottog 70% of the total b-ar inJtrest at 8,97. per anont and Gavoroeset fooda repre-entiog 30%. of the total bear interest at 5.7R per annot). 3/ Includes ataff salaries and othbe sdofniotratilv expenees. 4/ 1% of outstanding loa.s to sob-borrowers. EAF Pro'i'ts lDpartceAt Mona.t 23, 1976 in |D7 KOREA SECOND AGRICULTURAL CREDIT PROJECT L DEMAND AND MARKET ASPECTS 1. The annual incremental output of the Project at full development would be as follows: Annual Domestic Annual Demand Full Incremental at Full Domestic (2) as Development Project Development Production % of Year Output Year / in 1974 (3) (1) (2) (3) (4) --------- ('000 tons) --------------- Apple Orchard Apples 1990 69.2 753 297 9.2 Silk Worm Rearing Houses Cocoons 1981 0.81 37.2 Sprinkler Irrigation Apples 1990 9.4 753 297 1.2 Green Houses Cucumber 1980 13.1 150 /2 49 /2 8.7 Green Pepper ) 1 / /1 Based on present trends in population and per capita income growth, and estimated income elasticities of demand. /2 Main vegetables grown in green houses consisting of cucumber, green pepper, tomato, squash, lettuce, and melon. 2. In newly established apple orchards, it is usual to intercrop with soybeans, peanuts or other vegetables during the first four or five years. The annual output of soybeans as the sole intercrop would be about 1,300 tons. For sprinkler irrigation, the incremental apple production would be smaller than indicated since some of the subloans would be made on pear and orange orchards. This would likewise be true concerning the output of cucumbers CHAPTER E Page 2 and green peppers from green houses, since other vegetables would also be grown. In the case of the on-farm fruit storage subproject, its annual in- cremental value in the form of higher prices received from the sale of stored fruit would amount to about W 657 million (US$1.4 million). 3. Incremental output from all the subprojects except sericulture would be primarily for the domestic market. Domestic demand for fruits and vegetables have been increasing significantly as a result of population increases, rapidly rising per capita incomes, and the high income elasticities associated with such foods. Thus, between 1962 and 1974, annual consumption of vegetables and fruits increased by 8% and 12% respectively. In addition, there are also growing opportunities for the export of these products, espe- cially to Japan and the South East Asian countries. For example, exports of horticultural products rose from about US$0.6 million in 1965 to US$9.0 mil- lion in 1974, with fresh apple exports increasing from US$0.2 million to US$1.3 million. The Project annual incremental output of apples and vegetables would be easily absorbed by the domestic market since they would account for only minor proportions of the production increases required to meet their projected demand. There would likewise be no difficulty in marketing the Project annual incremental cocoon output since the amount involved is small in relation to total domestic production. Moreover, the decline in Korea's silk exports in 1973/74 which resulted from the recent world-wide economic recession, is expected to be reversed in the near future, as Japan and the other major silk importing countries are already in the process of recovering from the recession. Demand projections cited below were made by NACF based on present trends in population and per capita income growth and estimated income elasticities of demand for the commodities concerned. Demand 4. Apples. The annual increase in apple production averaged about 9% during 1965-74. Prices increased at a substantially higher rate (Chapter F para 2). Demand for apples is projected to increase from 294,000 tons in 1974 to 753,000 tons in 1990 the year in which full development of the pro- posed apple subproject is expected. At full development, the annual in- cremental output of about 69,200 tons from the subproject and 9,400 tons from the sprinkler irrigation subproject, would together account for about 10% of the projected demand. In fact, for sprinkler irrigation, the in- cremental apple production would be smaller than indicated since some of the subloans would be made on pear and orange orchards. 5. Vegetables. Production of vegetables rose by an annual average of about 10% during 1965-1974 with an increasing proportion, although still a small proportion, grown in green houses. Per capita annual consumption of vegetables almost doubled during 1962-1973, reportedly rising from about 47 kg to 70 kg. The rapid increase in demand for green house grown vegetables is CHAPTER E Page 3 particularly evident in recent years and is reflected in the substantial increase in prices (Chapter F para 25-26). Demand for green house vegetables has been projected to expand from about 49,000 tons in 1974 to 150,000 tons by 1980 at which time the additional output from the subproject at year of full development would be an estimated 13,100 tons or only about 9% of the projected demand. 6. Sericulture. Subproject incremental annual output of about 810 tons of cocoons at full development (1981) represents only about 2% of the total domestic production in 1974, and should be marketed without difficulty. About 90% of the silk production is currently exported as raw silk and silk fabrics. Exports increased rapidly from 1,129 tons in 1967 to 3,508 tons in 1972. Exports declined to 3,367 tons in 1973 as a result of the world- wide economic recession which commenced during the latter part of that year. With the worsening of the recession, exports declined further to 2,935 tons in 1974. The decline is expected to continue into part of 1975. However, with the economic recovery already underway in the major importing countries, particularly Japan, which is Korea's main export market, the decline in export demand is expected to be reversed soon. Korea's silk ex- ports has been projected to increase by about 7% annually over the next decade. The export projections have been based on a projected Japanese economic growth rate of 5% - 7% annually and on the assumption of a 3% an- nual growth in world consumption of silk. In response to rapidly rising demand, Korean exports of silk fabrics rose from 170 tons in 1967 to 1,241 tons in 1972, or in terms of its share of total silk exports, from 15% to 37%. The share of raw silk exports declined correspondingly from 85% to 63%. The switch to the production of silk fabrics for export is expected to continue and this in turn would result in greater value added for the domestic sericulture industry. Marketing 7. Farmers' agricultural products are marketed through private trad- ers and the NACF cooperative network. The cooperatives accounted for about one-fifth of the total farm produce marketed in 1974. The growing import- ance of the cooperatives as a marketing channel is indicated by the fact that their marketing share has been increasing steadily and is expected by NACF to account for about 30% by 1980. 8. Fruits and Vegetables. Marketing of the Project output of fruits and vegetables would be conducted primarily through the Horticultural and Primary Cooperatives, and private traders. The Cooperatives would market their farmer members' produce on an individual consignment basis through auction sales in urban marketing centres operated by NACF (including some Kun and Primary Cooperatives). Farmers' produce for sale are usually picked up at the farms by the Cooperatives and transported to the marketing centres. The farmer is paid the auction price less commission for marketing services rendered by NACF and the Cooperatives, and transport costs. Fixed by NACF, CHAPTER E Page 4 the present marketing commission is 6.5% of the auction price - 5% to NACF's marketing centre and 1.5% to the Cooperative concerned. Farmers can expect to receive the net sale proceeds a few days after auction sales. 9. Cocoons. The Sericulture Associations are currently in the pro- cess of being organized as special cooperatives under NACF. They will soon become a network for the collection of cocoons from sericulture farmers. Cocoon marketing is regulated by the Government and MACF is the only agency authorized by the Ministry of Agriculture and Fisheries (MAF) to buy co- coons on its behalf. NACF resells the cocoons to licensed silk reeling factories according to regional allocations determined by MAF and the pro- vincial governments. There were 54 reeling factories in 1974 which are privately owned, and together they produced about 4,240 tons of raw silk that year. Selling prices of cocoons to NACF are fixed annually by the Sericulture Promotion Deliberation Committee, composed of several MAF of- ficials, and representatives from producers and reeling factories. NACF and its Kun Cooperatives which are now undertaking the collection of co- coons from farmers, receive a commission of W 20 per kg for the collection services. Farmers are paid cash on delivery, but NACF sells on credit to the reeling factories, which repay with interest (7% per annum) when the reeled raw silk is sold. Cocoon prices paid by the reeling factories are based on export prices for raw silk, processing costs, and a fair profit margin to the factories. KOREA SECOND AGRICULTURAL CREDIT PROJECT F. TECHNOLOGY AND PRODUCTION SPECIFICATIONS Apple Orchard Development 1. As of the end of 1974, Korea had a total cultivated area of about 2,238,000 ha, of which an estimated 75,100 ha of 3% were under orchards. Of the orchard area, apples accounted for 37%, peaches 16%, oranges 14%, pears 12%, grapes 11%, persimmon 7%, and other fruits 3%. 2. The area under apple orchards increased from about 19,000 ha in 1965 to an estimated 27,500 ha in 1974, or an annual average increase of 5%. Due to improving yields, production increased even faster from 167,000 tons to 297,000 tons, or by an annual average of about 9% during the period con- cerned. Increasing incomes and demand, as reflected in the steady rise in apple prices, and the Government's efforts in promoting the development of slopeland for orchards have been primarily responsible for the expansion in the apple area. Retail prices for apples reportedly rose nearly three fold from W 54/kg in 1965 to W 160/kg in 1974. 3. Although apples are grown commercially in all the provinces ex- cept Jeju, the bulk of the apple area is concentrated in a few provinces with Gyeongsang-Bug accounting for about 57%, Chungcheong-Nam 15%, and Chung- cheong-Bug 14% of the total area. Most existing orchards are planted, with standard rootstocks spaced out at about 200 trees per ha. First fruiting usually begins by about the 4th year, and the initial small yields increase gradually reaching economic production levels by the 10th year and full pro- duction by the 20th year. Full production yields at about 30 tons/ha can be expected to continue until the 40th year or more and the tree has an eco- nomic life of 40-50 years. Varieties grown by most of the orchards, es- pecially the older orchards, are Ralls Janet, Jonathan, Indo, Summer Permain, McIntosh, and Golden Delicious. Ralls Janet and Jonathan account for the bulk of the apples produced. However, new improved varieties and dwarf rootstocks have been introduced in recent years and they are gaining increas- ing acceptance by growers. The improved varieties which include Fuji, Mutsu, Aori, Starking, Early Blaze, and Star Krimson are of better quality and generally fetch higher prices than the older varieties. The popular dwarf rootstocks are MM-111, and M26. 4. Trees with dwarf rootstocks are smaller and are therefore planted closer at about 800 trees per ha. They would produce heavily after the 5th year, reach full production of about 45 tons/ha by the 10th year, and slowly decline in production after the 15th year. Their economic life is about 25 years. Thus, compared with standard rootstocks, dwarf rootstocks have significantly higher output in the early years, which in turn means quick- er financial returns. However, they cost more to establish and have a much CHAPTER F Page 2 shorter economic life, including a faster decline in yields, than standard rootstock trees. Moreover, dwarf rootstocks are relatively new to Korea and Korean farmers are not as experienced with them as they have with the old established standard rootstocks. 5. In view of the above considerations, it is proposed that sub- project apple orchards would have about one half the area grown with stand- ard rootstocks and the other half with dwarf rootstocks. The subproject would finance the development of 2,100 ha of apple orchards over a three- year period. Based on available land and lending for similar purpose under the on-going Agricultural Credit Project, the majority of sub-loan demand would be for the development of orchards ranging between one to two ha, and the potential loan demand areas would be in seven out of the nine provinces with Gyeongsang-Bug, Jeonla-Bug, Gyeonggi, and Chungcheong-Bug expected to account for the bulk of the sub-loans. About 1,400 sub-borrowers would be involved. 6. The development cost for a 1.5 ha orchard is used for illustrative purposes. Major investment items are land preparation, saplings, fertilizers/ manure, pesticides, power sprayer, small hand tools, and labor. Details of the investment and operating costs are given in Chapter G. Land prepara- tion would include terracing and construction of drainage ditches where necessary. 600 dwarf and 150 standard root saplings would be planted in holes of about 1.Om x 1.Om x 0.9m. 20-25 kg of manure would be incorporated in the soil around each sapling at time of planting. 10 trees can be planted per man day. Fertilizers, viz. nitrogen phosphate and potash, would be applied at about 150-200 kg/ha during the first year, with the rates increasing annually to about 500 kg/ha of N,P,K for mature trees. Increasing rates of manure would also be applied up to 12-15 tons/ha annually for trees in full development production. Application of lime would be 2 tons/ha at planting time and 1 ton/ha annually thereafter. About 20 kg/ha borax would be applied annually. Pesticide sprays would be applied 16-18 times a year. The spraying facility would include a mixing tank, 8 horse power sprayer with about 50m of spray hose. Small hand tools would be hauling carts, ladders, pruning and thinning shears, spade, etc. The subproject would finance the development costs up to first fruiting, that is over 3 years. 7. In newly established orchards, the usual practice is to intercrop with soybeans, peanuts, or other vegetables for several years until the shade from the fruit trees makes this practice no longer possible. Since intercropping, which reduces the financial burden of the grower and makes more productive use of his land and labor, should be encouraged, the sub- project costs would include the inputs necessary to produce the initial crop. 8. Good quality saplings required by the subproject can easily be supplied by the 43 registered private nurseries accredited by the Ministry of Agriculture and Fisheries (MAF). Provincial Government officers inspect all saplings to ensure they are disease free before delivery to farmers. The nurseries, as part of their sales service, provide technical advice on proper cultural practices to their buyers. Extension officers of the Office of Rural Development, MAF and horticultural cooperatives, to which many orchard growers belong, also provide such advice. CHAPTER F Page 3 9. As part of its efforts to expand and diversify agricultural produc- tion, the Government has in recent years begun to actively promote the develop- ment of uncultivated slopeland and reclaimed riverbed land for agricultural purposes. Under the Government's Farmland Extension Promotion Law of April 1975, an estimated 350,000 ha of such land would be available, of which approximately 124,000 ha of slopeland (15 -20 slope) and some 30,000 ha of riverbed land would best be planted with fruit trees. Since most of this land is suitable for apple production, ample land therefore exists for the 2,100 ha of apple orchards to be developed under the subproject. More- over, most of the land belongs to farmers. Some areas have soils that are unsuitable, being too sandy, shallow, poorly drained, subject to a high water table, or with insufficient moisture. To avoid planting apples on such soils, NACF's Technical Unit should in consultation with the Institute of Agricultural Sciences at Suweon, first determine that a subborrower's land would be suitable for apple development before he can be granted a loan for this purpose. Alternatively, Loan Appraisal Officers of the participating Kun cooperatives should be trained at the Institute to do this job. On-Farm Storage 10. Most Koreans prefer to consume their fruit in fresh rather than processed forms. Given this preference and the rising trend in production, seasonal fluctuations in prices would become more pronounced unless part of the output at harvest is stored for sale over an extended marketing period. Farmers with on-farm storage not only receive higher prices for the stored fruit sold during the offseason, but also help to maintain farm- gate prices at harvest by removing excess fruit from the market. Consumers will also benefit by a spreading out of available supplies over an extended period, which in turn would reduce seasonal price fluctuations and lower prices during the offseason. 11. As their output increased, growers began storing storable fruits, essentially apples, pears, and oranges, in cellars and semi-cellars on their farms. Not all varieties are storable. These storage facilities are inefficient and poorly ventilated so that the stored fruit is subject to excessive spoilage. 12. In recent years, improved storage facilities have been introduced. These are concrete buildings with insulated walls and ceilings and more ef- fective ventilation which resulted in better quality stored fruits, less spoilage, and a longer storage period. Storage usually begins in November for apples and pears and early December for oranges. Maximum storage periods are 6-7 months. The harvested fruit is laid under the trees and allowed to cool for about 24 hours before being sorted and packed into wooden boxes for storage. Each wooden box holds 18-19 kg of apples/pears or about 15 kg of oranges. The boxes are then placed in storage stacked 9 high for apples and pears, and 7 high for oranges. The lower stack for oranges is due to their greater need for good ventilation. The storage 2 capacity is about 1-1/2 ton apple/pear or one ton orange per pyong (3.3 m2) of storage space. CHAPTER F Page 4 13. Based on current practices and experiences of farmers with storage, some 70-75% of the output at harvest is stored. For apples, about 30% of the stored fruits would be sold at 2-3 months after storage with no damaged or spoiled fruit, another 25% by the 4th month with 5% (1.25% of crop) dam- aged fruit and 1% (0.25% of crop) spoiled fruit, and the remaining 20% by the 6th month with 5% damaged fruit and 5% spoiled fruit. For pear, 20% would be marketed within three months with no damaged or spoiled fruit, another 30% by the 4th month with 5% damaged fruit, and the remaining 25% by the 6th month with 5% damaged and 5% spoiled fruit. For oranges which are more difficult to store, 55-60% would be marketed by the 2nd month with no spoiled fruit, and the remaining 40-45% by the 4th month with 20% spoiled fruit. Damaged fruit would be sold at much lower prices and spoiled fruit are discarded. Although seasonal increases in prices have ranged up to 150% of harvest prices, the percentage increases in recent years for the different storage periods have averaged as follows: % Increase Over Price at Storage Period Harvest Time Apples 2 months 20 4 months 30 6 months 40 Pears 3 months 15 4 months 25 6 months 30 Oranges 2 months 25 4 months 40 14. The extent of the present and anticipated storage shortage is indicated in NACF's projections (up to 1980) of storage needs for apples, pears, and oranges as shown below: CHAPTER F Page 5 Required Existing Storable Quantity to Storage Storage Increase Storage Production be Stored Floor Space Floor Space Needed Each Year ('000 tons) ('000 tons) ('000 pyong) ('000 pyong) ('000 pyong) 1975 375.4 292.3 205.1 145.0 60.1 1976 412.0 329.6 236.5 31.4 1977 463.7 370.9 270.7 34.2 1978 518.2 414.5 306.8 36.0 1979 574.3 459.5 343.3 36.6 1980 632.5 505.1 381.1 37.9 The projections take into account the age of trees, composition of storable varieties and increase in yields. Basic data were derived from a survey made by MAF in 1970. Assumptions used are: (a) About 80% of storable production would be stored. (b) Storing capacities per pyong are about 1.5 tons for apples/pears and 1 ton for oranges. (c) Existing storage calculated from survey made by MAF in 1970 plus storage constructed since that year in- cluding those financed under Government programs and on-going Agricultural Credit Project. 15. Under the subproject, financing will be provided to fruit farmers to construct improved on-farm storage of about 20,000 pyong over a 3-year period for storing mainly apples, pears and oranges. The storage space proposed would account for only a small proportion of the anticipated storage needed during the remainder of the decade. Although the actual size of storage to be built would vary according to farmers' present and anticipated needs, a 20 pyong storage for apples/pears has been selected for illustration purposes since this is the common size currently being built by farmers. The maximum storage capacity would be about 30 tons of apples/pears or 20 tons of oranges. This capacity would provide sufficient storage for the majority of apple and pear growers with 1-2 ha and orange growers with 0.5-1.0 ha. 16. The investment items would comprise a storage building and wooden boxes for packing the fruits for storage. The building would have concrete block walls, about 10 cm thick for the inside wall, 15 cm for the outside wall and with 10 cm of sawdust or styrofoam in between as insulation. The inside ceiling would consist of 2.5 cm styrofoam mounted on 0.5 cm plywood sheeting. In the case of orange storage, the building would be divided into 2 rooms, each with an exhaust fan (45 watt 50 cm diameter). The low volume fans would provide better ventilation required by this fruit. A 20 pyong building would be about 6.6 meters wide, 10 meters long and 3.6 meters high. A break-down of the investment cost for this size storage is given in Chapter G. CHAPTER F Page 6 17. The major areas of subproject financing would be in the provinces of Gyeongsang-Bug, Chungcheong-Nam, Gyeonggi, and Chungcheong-Bug for apples and pears; and Jeju for oranges. About 1,000 subborrowers are envisioned. Sprinkler Irrigation for Orchards 18. Approximately two-thirds of the annual rainfall in Korea, which has averaged about 1,200 mm, occurs during the summer. Because of this concentration, seasonal shortages of rainfall in relation to optimum water requirements for agricutural production occur quite regularly, which in the absence of irrigation had resulted in lower crop production and yields. Data collected for 1970-72 indicate that in the main orchard areas prolonged periods of insufficient or no rainfall frequently occur from March to October. The result is slower tree growth and production of smaller and lower quality crops. Thus, affected apple orchards generally produce smaller fruit with a high incidence of skin cracks and poorer coloring. The effects tend to be more pronounced on orchards with sandy soils and volcanic ash soils because of their low water retention capacities, and there are many such orchards. For example, the majority of the orchards in the main apple producing province of Gyeongsang-Buk are on riverbed soils which are rather sandy, and many of the orange groves in Jeju are on volcanic ash soils and this province accounts for over 90% of the total orange output. Many orchards are also grown on heavier soils, viz. loams, sandy loams and clay loams. 19. Most of the orchards are not irrigated. Although those that are irrigated commonly use surface irrigations, some have installed sprinkler irrigation in recent years. The fact that the irrigated apple orchards are located essentially in Gyeongsang-Buk province may explain why it has the highest yields, about one-third higher than the average yield for all producing areas. 20. Surface irrigation would not be suitable on light soils because they are very permeable. Soil near the point where the irrigation water is released would be overwet while soil a short distance away would be wet insufficiently. Overwetting soils also causes leaching of fertilizers and may result in soil erosion and drainage problems. Proper and efficient irrigation of such soils would require use of sprinklers. Other main ad- vantages of sprinkler irrigation are: (a) Rough land can be irrigated with a minimum of levelling and disturbance of the top soil. (b) Light and even applications of water can be made on sandy soils, thereby allowing effi- cient distribution of the right amount of water. (c) Eliminates surface run-off. (d) Use can be made of small supplies of water too small for surface irrigation. CHAPTER F Page 7 (e) Affords frost protection in the winter and enables liquid fertilizer application. 21. Yield increases with sprinkler irrigation have been estimated at about 20-25% for apples, pears, and oranges. In addition to yield in- creases, improved fruit quality, in the form of larger fruit, better coloring and virtual absence of skin cracks (apples), would also be obtained. Better quality fruits generally fetch 10-20% higher prices. 22. The installation costs for a sprinkler system for a 2 ha orchard is used for illustrative purposes. Major investment items would include a concrete well, pumping station, sprinkler system and installation costs. The well would be about 6m deep and 2m wide. The pumping station would comprise a diesel engine of about 10 hp and centrifugal pump (2-1/2 inches in diameter with 4 impellers), pump base, pipes, pipe fittings and sluice valves. The sprinkler system would include about 1,500m of PVC pipes for the main and lateral lines, steel riser pipes, pipe fittings, and sprinkler heads. The PVC pipes to be laid underground would provide for some 104 sprinkler outlets distributed through the 2 ha orchard. The outlets would protrude about 30 cm above the ground and be equipped with a coupling device to which steel riser pipes 20 mm in diameter and 3 m long can be attached. Sprinkler heads will be threaded to the tops of the riser pipes. Two sets of 16 riser pipes plus sprinkler heads will be provided. While one set is operating, the other would be moved to the next location. Sprinklers will operate for about 3 hours at each location and will apply about 20 mm of water. A total of 24 hours or 2 man days will be required to irrigate 2 ha. About 16 irrigations would be required annually. Detailed investment and operating costs are given in Chapter G. 23. There are several domestic private companies which design, supply and install sprinkler irrigation systems. These companies have qualified personnel who in addition to designing and installing sprinkler systems, also provide technical assistance to their clients. All the sprinkler component parts are manufactured locally and of good quality. Sprinkler systems required by the subproject can easily be met by the existing suppliers. 24. Under the subproject, 800 farmers, each owning about 2 ha or more of producing orchards, would be given loans to install sprinkler irrigation. To avoid premature installation, orchards should already be producing fairly heavy crops as from 10-15 year old trees. Orchards significantly less than 2 ha would normally be unable to justify the use of sprinkler irrigation, and would therefore not qualify for participation. Eligible orchards would in addition be those with light soils where use of surface irrigation would not be suitable or efficient. Most of such orchards would be on volcanic ash soils or on riverbed soils where an adequate supply of water is availa- ble within a few meters of the soil surface. Some orchards on slopeland which could profit from sprinkler irrigation would also qualify, provided an adequate supply of water for irrigation is available. Although some of the sub-loans would be made on pear and orange orchards, the majority are ex- pected to be on apple orchards. CHAPTER F Page 8 Green Houses for Vegetable Production 25. Korea's significant increases in per capita incomes and population growth, including its urbanization, since the mid 1960s have led to a rapidly growing domestic demand for higher quality food, viz. vegetables, fruit and livestock products. Thus, vegetable production rose from an estimated 1,576,000 tons in 1965 to 2,975,000 tons in 1974, an increase of about 90% or by an annual average of 8%. Prior to the early 1960s, virtually all the vegetables were grown as field crops from late spring to early autumn when prevailing temperatures were sufficiently warm to permit growth. Since then, an increasing proportion of the vegetables have been grown in vinyl covered green houses. 26. Vinyl covered green houses were first introduced around the mid 1960s. Located near urban centres and in the southern parts of the country where more moderate temperatures prevail, the area under such houses increased from about 530 ha in 1965 to 3,500 ha in 1974. Although small in relation to the total vegetable area (274,000 ha), the real significance of green houses is their ability to produce vegetables during the cold months when field pro- duction would not be possible. The availability of vinyl and PVC at low prices, and the increasing demand and consequent high prices for vegetables particularly during the cold months had made green house production a prac- tical and profitable undertaking. Increasing prices and sharp seasonal price differences for green peppers and cucumbers are shown below: Wholesale Prices for Green Peppers and Cucumbers (WI kg) 1969 1972 1974 Green Peppers (Grade A) Green House Production (Dec. - June) Average Monthly Price 242 290 594 Field Production (July - Nov.) Average Monthly Price 51 77 78 Average Monthly Price for the year 115 168 379 Cucumbers (Grade A) Green House Production (Oct. - May) Average Monthly Price 98 152 234 Field Production (June - September) Average Monthly Price 28 48 57 Average Monthly Price 67 118 175 for the year 6 1 7 CHAPTER F Page 9 The Government had also encouraged investments in green houses by providing loans for such purposes. 27. Of the.existing vinyl green houses, most of them use bamboo and wood for the house frames and other supporting structures. They generally do not have adequate irrigation, heating, and ventilation facilities which are essential for timely and high yield production of good quality vegetables. However, improved green houses using PVC or metal pipes for the frames and supporting structures and with more effective heating, ventilation and irri- gation facilities have been constructed in recent years. Although the in- vestment costs are higher, they are more productive and profitable than the older green houses, which in addition would have the following disadvantages: (a) Generally susceptible to damage from heavy snowfall and strong winds. (b) Require excessive internal supporting structures which in turn would reduce the space available for plants and lowers labor productivity. (c) Have a much shorter life. Yields from the older green houses are consequently low at 23-25 tons/ha for fruit type vegetables. Substantially higher yields have been obtained from improved green houses, e.g. about 50 tons/ha for green peppers and 55-60 tons/ ha for cucumbers. 28. Under the subproject, financing will be provided to farmers for the construction and equipping of improved green houses covering 120 ha. Major investment categories are metal (iron/steel) green house frames, vinyl/ polyethylene and straw thatch to cover the frames, irrigation facility, oil stoves for heating, electric fans for ventilation, pesticide sprayers, small hand tools, and incremental working capital required to produce the initial crop of vegetables. The irrigation facility would consist of a small, e.g. 0.5 hp electric water pump, and plastic tubes that rest on the soil surface along each row of plants. Small water emitters on the tubes would release water near each plant (trickle irrigation). Incremental working capital would include costs for seed, seedling pots, seed bed soil, fertilizers/ pesticides, supports for the plants, fuel, and labor. Detailed costs are given in Chapter G. 29. The development cost for an improved green house covering 0.1 ha is used for illustrative purposes. The green house would preferably comprise three separate units so that production can be staggered for more effective use of labor and equipment, and to enable crop marketings to be spread out. About 1,200 sub-loans would be made to farmers who are experienced in green house production, and are located near important urban consuming centers, or in areas which have easy access to transport facilities connected to the urban centers. CHAPTER F Page 10 30. Vegetable research is conducted at the Horticultural Experiment Stations at Suweon and Gimhae. The latter specializes in green house pro- duction. Research results in cultural improvements, including optimum crop- ping patterns, are relayed to farmers in the form of extension bulletins and through the horticultural extension officers of the Ministry of Agricul- ture. Horticultural Cooperatives to which most vegetable farmers belong also provide advice on cultural practices. Silkworm Rearing Houses 31. On-farm sericulture activities comprise two types of operations, mulberry tree cultivation and the rearing of silk worms. Both are labor in- tensive. In 1974, there were some 88,000 ha of mulberry trees, and produc- tion of cocoons amounted to 37,000 tons valued at about W 54 billion. 476,000 farm households are engaged in this activity. Sericulture production is scat- tered throughout the nine provinces, but the main producing areas are Gyeongsan- Buk with 32%, Jeonla-Bug 15%, and Chungcheong-Bug 12% of the cocoon production. The subproject would involve the improvement of less than 2% of the total area under mulberry production. 32. Mulberry seedlings are produced by about 500 accredited private nurseries. One year old seedlings are used to plant fields from which leaves are harvested to feed the silk worms. Planting densities range from 9,000 to 9,500 seedlings per ha. Mulberry trees have an economic life of 20 years. Production starts in the third year, and full production is reached by the fifth year, and would continue to the fifteenth year. National yields of mulberry leaves average 11.4 tons/ha on upland and 7.2 tons/ha on slopeland. With adequate fertilizers (per ha annual application of 15 tons manure, 1.5 tons 24-11-15 fertilizers and 1 ton lime), and good cultivation practices, yields of about 19 tons have been obtained. 33. Silk worms are raised in rearing houses from silk worm eggs pur- chased by farmers from 54 private companies regulated by the Goverrment. Tra- ditional rearing houses are poorly constructed with insufficient space and without proper ventilation and temperature control. Some are lean-to sheds without walls. Cocoon production under such conditions is generally low and of poor quality. Improved concrete rearing houses which allow proper tempera- ture and humidity control and adequate ventilation, are essential for produc- tion of higher yield and good quality cocoons. 34. Silk worms are usually raised and their cocoons harvested during spring and autumn, or twice a year. These two crops are generally timed to avoid competition with peak labor requirements for food grain production. There are two methods of feeding silkworms. The traditional and most com- monly used method involves the picking of mulberry leaves to feed the silk worms. The other is the branch-feeding method whereby instead of picking leaves, branches are cut from the mulberry trees and the silk worms are al- lowed to feed on the leaves of the branches. This method which was intro- duced in recent years, would reduce labor use to about one-half of that required under the traditional method. Branch-feeding which requires more CHAPTER F Page 11 space is used essentially by farmers with improved rearing houses. The op- timum space requirement for such houses using branch-feeding is about 4.5 pyongs per case of silk worms. Improved rearing houses with branch-feeding and use of improved rearing tools have been able to raise a substantially larger number of silk worms and obtain significant improvements in cocoon production in terms of yield and quality than under traditional facilities and practices (para 36). In view of its greater productivity and profit- ability, the Government has begun to encourage farmers to invest in improved rearing houses and to adopt the branch-feeding method of raising silk worms. 35. The subproject would finance improved rearing houses and equipment to enable sericulture farmers to expand production of cocoons. It would also finance the first year's cost of improved inputs to existing plantings in order to raise the yields of mulberry leaves to provide sufficient feed for the expansion in silk worm rearing. Accordingly, the main purpose of the subproject is to increase the productivity of sericulture production without the need to expand the existing mulberry acreage. 36. Sub-loans would be made to about 3,500 sericulture farmers owning 0.35 ha or more of mulberry plantings in production. The typical sub- loan would finance an improved rearing house of 20-25 pyongs floor space, and rearing equipment, the major items of which are pivot cocoon beds, wooden racks and trays for branch-feeding of the silk worms, litter cleaning nets, a two-wheel cart, and small hand tools. The rearing capacity would be five cases of silk worms a crop, or 10 cases for the two-crop year and cocoon yields are expected to be at least 35 kg per case of silk worms with quality improvements amounting to about a 15% higher price than that for the average grade cocoon. (Farmers with 0.35 ha of producing mulberry with traditional facilities and practices are generally rearing about 4 cases of silk worms a year and getting an average of 30 kg of cocoons per case of worms.) Inputs to improve the mulberry plantings would mainly be for fertilizers/manure, pesticides, hired bullock power and manual labor. Leaves from the 0.35 ha of improved mulberry would be sufficient to feed the quantity of silk worms envisaged. Detail investment costs are given in Chapter G. 37. Research is carried out at the Office of Rural Development Seri- culture Experiment Station at Suweon to (a) improve mulberry varieties and cultural practices, (b) breed improved silk worm strains which are also disease resistant, and (c) improve rearing and silk reeling techniques. Extension services to farmers are provided by the field extension officers of the local governments and leading farmers who have undertaken intensive training courses at the Sericulture Training Centre. Sericulture Associations also provide technical advice and other extension services, in addition to farm inputs. KOREA SECOND AGRICULTURAL CREDIT PROJECT G. FINANCIAL ANALYSIS 1. Current prices have been used in estimating Project returns. These prices and details of the financial benefits and cash flow projections, derived from typical investment models, are presented in Tables G-1 to G-10. As indicated in the models, the incremental incomes and financial returns would be sufficiently high to make the proposed investments attractive. Incremental incomes would be higher to the extent that the labor requirements would be accounted for by family labor. The financial rates of return for the subprojects would range from 27% to 35% as shown below: Financial Rate of Return (%) Apple Orchard 33 Silk Worm Rearing Houses 30 Sprinkler Irrigation 35 Green Houses 32 On-farm Storage 27 In calculating these returns, current prices for both inputs and outputs were assumed to continue at their present levels. 2. Since it is a relatively new technology in Korea, the use of sprink- ler irrigation would entail some risks which, however, would be minimized through careful selection of subborrowers and close supervision of such in- vestments by NACF's Technical Unit. The financial rate of return at 31% would still be satisfactory even if yield improvements are up to 20% lower than ex- pected. 3. The value of total incremental production would be about US$32 mil- lion per annum at full development. The level of investments and expansion in output can be expected to generate substantial increases in employment, both family and paid labor (Chapter H para 2). ,hAKz, G Pape 2 KOMR Tar,l G-I S8OD AGRICLTLTURAL COMIT PAJJSJT Farm Imdel Appe and Pear Storag 1 2 3 4 5 6 8 9-23 21 -25 ?pics1l 11.dm Mt/Ha Apples 24.0 26.0 28.0 29.0 30.0 30.0 3(X0 30.0 30.0 30.0 Pears 11.3 12.5 15.0 16.5 18.0 19.5 2:.0 22.0 23.0 23.0 1/ Produotion Mt Apples 30.0 32.5 35.0 36.3 37.5 37.5 37.5 37.5 37.5 37.5 Storable 75% of production 22.5 24.4 26.3 27.0 27.0 27.0 27.0 27.0 27.0 27.0 Marketed at harveet under Project 7.5 8.1 8.7 9.3 10.5 10.5 10.5 10.5 10.5 10.5 Pears 2.8 3.1 3.8 4.1 4.5 4.9 5.3 5.5 5.8 5.c Storable 75% of production 2.1 2.3 2.8 3.0 3.0 3.0 3.0 3.0 3.0 3.0 Marketed at harvest under Project 0.7 0.8 1.0 1.1 1.5 1.9 2.3 2.5 2.8 2.8 Salea (won '000) A. Without Project Apples * W 97/kg 2,910.0 3,152.5 3,395.0 3,521.1 3,637.5 3,637.5 3,637.5 3,637.5 3,637.5 3,637.5 Pears O W 88/kg 246.4 272.8 334.4 360.8 396.0 4L31.2 6f.4 48L.o 510.4 510.4 Total 3,156.4 3413 3 3 729.I 3,881.9 4,033.5 4,o68.7 4 03.9 4,121.5 4 107.9 4147.9 2,/~~~~~~~~L_ - L _ _ _ i * W 97/kg 727.5 785.7 843.9 902.1 1,018.5 1,018.5 1,018.5 1,018.5 1,018.5 1,018.5 Apple mold after 2-3 mo.storage a W 116/kg 1,044.0 1,131.0 1,218.0 1,252.8 1,252.8 1,252.8 1,252.8 1,252.8 1,252.8 1,252.8 Apples sold after It w.storage * W 126/kg 888.3 962.6 1,037.0 1,066.0 1,066.0 1,066.0 1,066.0 1,066.0 1,066.0 1,066.0 Damaged fruit * W 38/kg 14.4 15.6 16.7 17.1 17.1 17.1 17.1 17.1 17.1 17.1 Apples sold after 6 mo. storage O W 135/kg 729.0 789.8 850.5 874.8 874.8 874.8 874.8 874.8 874.8 87h.8 Damaged Fruit S W 41/kg 12.3 13.9 15.2 14.8 14.8 14.8 11.8 14.8 14.8 _14.8 SLib-total 3,415.5 3,698.6 3,981.3 4,127.6 4,244.0 4,244.0 4,244.0 4,244.0 4,244.0 4,244.0 Pears sold at harvest 1 W 88/kg 61.6 66.2 83.6 96.8 132.0 167.2 202.4 220.0 246.4 246.4 Pears sold after 3 mn. storage * W 102/kg 57.1 63.2 77.5 81.6 81.6 81.6 81.6 81.6 81.6 81.6 Pears sold after 4 D. storage i W 110/kg 88.0 97.2 119.1 125.4 125.4 125.4 125.4 125.4 125.4 125.4 Damaged fruit * W 31/kg 1.2 1.5 1.8 1.9 1.9 1.9 1.9 1.9 1.9 1.9 Pears mold after 6 so. storage S W 115/kg 72.5 80.3 98.3 103.5 103.5 103.5 103.5 103.5 103.5 103.5 Dmaged fruit S W 35/kg 1.4 1.4 1.7 1.8 1.8 1.8 1.8 1.8 1.8 1.8 Enb-total 281.8 311.8 382.0 411.0 446.2 481.4 516.6 534.2 560.6 560.6 Total 3,697.3 10.4 4,363.3 4,538.6 4 690.2 4,725.4 4,760.6 4,778.2 4,804.6 4,804.6 Incremental Incorm From Project 540.9 585.1 633.9 656.7 656.7 656.7 656.7 656.7 656.7 656.7 Invemtent 3/ Storage Building 20 pyong 1,646.0 Storage Boxes 1600 t w350/ box 560.o 56.o 56.0 56.o 56.0 56.0 56.0 Stb-total 2,206.0 - 56.o 56.0 56.o 56.o 56.o 56.o Operating Casts Storage,bidling & re- packing 60.4 65.5 71.4 73.6 73.6 73.6 73.6 73.6 73.6 73.6 Rspsir & YAintance Boxes 23.0 24.9 27.2 28.0 28.0 28.0 28.0 28.0 28.0 28.0 Repair & Maintenance Building - 32.9 32.9 32.9 32.9 32.9 32.9 32.9 32.9 32.9 Sub-tetal 83.4 123.3 131.5 134.5 134.5 134.5 134.5 134.5 134.5 134.5 Total Cost 2a89.4 123.3 131.5 190.5 W.5 V0.5 190.5 19.5 190.5 13IJ5 Net Incremental (1748.5) 461.8 502.4 h66.2 466.2 466.2 466.2 466.2 466.2 522.4 Finsancisl Rate of Ftumrn - 27% 1/ Production bmaed on 1.25 ha of typical 15-18 year old apple orohar4$s and on 0.25 ha of typioal 10-12 year old pear orchards in Korea. 2/ Apple crop sold as followst 25% at harvest, 30% aftar 2-3 tunths storage, 25% during the 4th umth of which 5% (1.25% of crop) ia oonsidered dmged and 1% lost (.25% of orop) and the remaining 20% mac t by the oi of the 6th onth of wich 5% (1% of crop) is ornsidered damaged mnd 5% (1% of the crop) is lost. Poar oap sold as follows: 25% at harvest, 20% after 3 inths of storae, 30% after 4 months of which 5% (1.5% a crop) is oounidered as disd m*d the remaining 25% marketed ster 6 mnths of torage with 5% (1.25% of the crop) conmidered dsmaged md 5% (1.25% of crop) is lost. 3/ mhe storage building of 20 pyeong (66 mq.meter) h a opacity of 30 mt of apples or pears. 1st year storage is oonsidered 80% full reaching full oapacit' in the 4th year onward. KOREA SECOND AGRICULTURAL CREDIT PROJECT Apple and Pear Storage Farmer's Loan Cash Flow (in W '000) Year 1 2 3 4 5 6 7 8 9 10 11-23 24-25 Inflow Loan 1,544.2 Incremental Sales 540.9 585.1 633.9 656.7 656.7 656.7 656.7 656.7 656.7 656.7 656.7 656.7 Total 2,085.1 585.1 633.9 656.7 656.7 656.7 656.7 656.7 656.7 656.7 656.7 656.7 Outflow Investment and Replacement 2,206.0 56.0 56.0 56.0 56.0 56.0 56.0 56.0 56.0 - Operating Costs- Storage 83.4 123.3 131.5 134.5 134.5 134.5 134.5 134.5 134.5 134.5 134.5 134.5 Debt Service (Interest and Principal 185.3 185.3 378.3 355.1 332.0 308.8 285.7 262.5 239.3 216.4 - - Total 2,474.7 308.6 509.8 545.6 522.5 499.3 476.2 453.0 429.8 406.9 190.5 134.5 Surplus or (Deficit) (389.6) 276.5 124.1 111.1 134.2 157.4 180.5 203.7 226.9 249.8 466.2 522.2 Cumulative (389.6)(113.1) 11.0 122.1 256.3 413.7 594.2 797.9 1p24.8 1,274.6 7)335.2 8,379.6 w) m CHAPTER G Pag~e 4 Table G-3 KOREA SECOND AGRICULTURAL CREDIT PROJECT 0.1 Ha Green House (Cucumber and Green Peapers) (W 000's) Year 1 2 - 5 6 7 - 10 11 12 - 15 I. Sales Cucumber 1/ 807 965 965 965 965 965 Green Pepper i/ 1.628 .1.9L2 1.9 1.93 1.3 1 Sub-total 2, 2,902 2,902 2,902 2,902 2,902 II. Investment and Replaceent Costs Metal Frame 1,205 Irrigation Facility 212 94 212 Electric Fans 180 180 180 Heating Facility Oil Stoves 260 260 260 Thatch, Polyethylene film/band 307 Sprayers 77 Small tools/implements 32 Incremental Working Capitals' Seed/seed pots 10 Seed bed soil/heating material 174 Supports 59 Fertilizer/pesticide 34 Fuel/electricity 228 Labor 315 Sub-total 3,093 53 652 III. O9entiw Costs Seed/seed pots 13 22 22 22 22 22 Seed bed soilAheating material 43 216 216 216 216 216 Supports 40 40 40 40 40 40 Fertilizer/Pesticide 37 70 70 70 70 70 Fuel/electricity 516 744 744 744 744 744 Thatch, Polyethylene fila/and 165 ]65 165 165 165 165 Labor 452 767 767 767 767 767 Miscellaneow (repairs/maintenance)_10 106 106 106 106 106 1,372 2,130 2,130 2,130 2,130 2,130 IV. Benefit (I - II - III) (2,030) 772 229 772 120 772 V. Opportunity Cost of Land 6 ____ 44 44 44 44 _1 VI. Net Benefit (IV - V) (2,074) 728 194 728 76 728 FINAMCIAL RATE OF RETRU: 32% L/ 5,380 Kg x W 150 in 1st year; 5,850 Kg x W 165 in subsequent years. 2/ 4,650 Kg x W 350 in 1st year; 5,030 Kg x W 385 in subsequaent years. / Includes pump, plastic pipeline, and installation cost. Pipeline replaced year 6, whole facility year 11. For produxction of initial crop of cucumbers i/ For initial crop of green peppers in year 1, md both crops (cucumber and green peppers) in subsequent years. 6/ Net production value from 0.1 ha taken fron rice production. KOREA SECOND AGRICULTURAL CREDIT PROJECT 0.1 Ha Green House: Farmer's Cash Flow-/ (W 000's) 1 2 3 4 5 6 7 - 10 11 12 - 15 I. Inflow Loan 2,165 Sales 2,435 2 2,902 2,902 2,902 2,902 2 902 2,902 2.902 Sub-total 4,600 2,902 2,902 2,902 2,902 2,902 2 2,902 2,902 II. Outflow Investment and Replacement Costs 3,093 543 652 Operating Costs 1,372 2,130 2,130 2,130 2,130 2,130 2,130 2,130 2,130 Debt Service Interest 260 260 208 156 104 52 Principal 433 433 433 433 433 . Sub-total 4,725 2,823 2,771 2,719 2,667 3,158 2,130 2,782 2,130 III. Surplus or (Deficit) (125) 79 131 183 235 (256) 772 120 772 IV. Cumulative (125) (46) 85 268 503 247 3,335 3,455 6,543 1/ Growing cucumbers and green peppers. I4 C) 'U 9 c) '-1 0cG sage 6 Table *- KOREA 3300ND AGriCULIURAL CREDIT PRJECT Fam. Mbdel Silk Worm Rearing Hbuse Year 1 2 3 4 5 6 7-10 11 12 13 14-15 16 ,W Without Project Area-Hectares %lberry .35 .35 Yield ----(kg/ha---- - Conoy @ W 1400 2/ /kg_,r W 340 o50 970 1000 1000 1000 1000 I}00 1000 1000 1000 1000 1000 1000 -Mhlberry Branches 0 W300/bundle 70 100 l1o 1 10 110 no 1 110 110 no 110 110 110 110 Silkworm Litter @ w 6/kg 2000 4500 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 Increase qocoon quality ' 0 w 200/kg e------------ (v '000)-------------.------------------ Sales 1. Sericulture Cocoons 166.6 476.o 543.2 560.0 !6. 560.0 560. 0 560.0 5600. 560.0 56c.o 560.0 560,0 560.0 By-products 11.6 20.0 2?.l 22.1 22.1 22.1 22.1 22.1 22.1 22.1 22.1 22.] 22.] 22.1 Total 178.2 496.o 565.3 582.1 582.1 50.1 582.1 5R2.1 582.1 582,1 582.1 5P2.1 5P2.1 592.1 Investment5/ and Replacement Cost Rearing House (22.5 pyongs) 765.0 - - - . _ _ . _ _ - Equipment for rearing house 186.o - - 178.0 - 186.0 - 178.0 o Fertilizer 26,4 Manure 26.3 Pesticides - (]8ilberry) 9.9 Labor (field)a/ 45.5 Hired Animals 19.6 Lime 0.7 Silk worm eggs, 4 cases 9.1 Sterilizers 9.7 Other materials 2.0 Labor - (W/rms)- 35.2 Establish mulberry fields - b3.2 62.4 Sub-total 1135.4 178.0 186.0 83.2 62., 178.0 Operating Costs A. ?hilberry field Fertilizers - - 26.4 26.4 26.4 26.4 26,,4 26.4 26.4 26,4 26.4 26.4 26.4 26.4 Manure 17.5 - 26.3 26.3 26.3 26.3 26.3 26.3 26.3 26.3 26.3 26.3 26.3 26.3 Pestigides - - 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 Lsbort./ 35.0 - 45.5 45.5 1.5 5 45.5 45.5 45.5 45.5 45.5 45.5 45.5 45.5 45.5 Hired Animals 10.5 - 19.6 19.6 19.6 19.6 19.6 19.6 19.6 19.6 19.6 19.6 19.6 19.6 Lime 0.5 - 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0,7 0.7 0.7 0.7 Sub-total 63.5 - 128.L 12b.4 128.4 128.4 128.4 128.4 126.4 128.4 128.4 126.4 128.4 128.4 ,UPTZRt G Page 7 Table G-5 KOREA SeW,( AcDICULTURiL C0BDIT POJRCT Farm Nbdel Sllk Worm Hearing House Witbout Operating Costa (Cont'd) Project 1 2 3 4 5 6 7-10 11 12 13 14-15 16 17-20 B. Silk Wbrm Fearing Silk WDrm !ggs 9.1 11.3 22.7 22.7 22.7 22. 22.7 22.7 22.7 22.7 22.7 22.7 22.7 22.7 Sterilizers 8.0 12.1 24.2 2h.2 24.2 24.2 24.2 24.2 24.2 2L.2 2h.2 24.2 24.2 2h.2 Other "aterials 2.0 2.5 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.o 5.0 5.0 5.0 5.0 Labor6,/ 57.4 44.o 88.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0 Maint. & Repair - - 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 Sub-total 76.5 69.9 162.9 162.9 162.9 162.9 162.9 Ib2.9 102.9 162.9 162.9 162.9 162.9 102.9 Tbtal 40 0 1205.3 291.3 291.-32 91.3 469.3 291.3 4 7.3 374.5 353.7 291.3 469.3 291.3 Net Value 38.2 (709.3) 274.0 290.8 290.8 290.8 112.8 290.8 104.8 207.6 228.4 290.8 112.8 290.8 Increumetal Value (747.5) 235.8 252.6 252.6 252.6 74.6 252.6 66.6 169.4 190.2 252.6 74.6 252.6 Rate of Return 30% I/ Project based on farmer already having established ilhberry plantings but in need of improved rearing facilities. 2/ Price below average due to lower quality cocoons as a reomlt of inadequate space, aaitation, rearing methods and disease control. 3/ Young nulberry, L year old, low production, little or no fertiliser or insecticid-- used. 4 oase without project, 9 casea first year of project nd 10 cases each year tbiueafter. rield per case before project 30 kg/came,lst year of project, 33kg/case, 2nd year 34 kg/came and 3rd year am 35 kg/case. 4/ Improve quality as a result of proper housing, pivot coooon-bed, improve sanitation and disease control. 5/ Investment provides financing for one year's impute and improved cultural practies for the *ulberry field and for the rearing costs of the first batch of h casm of silk worms in the nev rearlng house. 6/ Family labor is included and makes up 80% before the project and 72% after the project of the total labor remireents. CHAPTER G Page 8 Table G-6 KOREA SECOND AGRICULTURAL CREDIT PROJECT Silk Worm Rearing House Farmer's Loan Cash Flow (W 000's) Years 1 2 3 4 5 6 7 8 9 10 11 12 13 Inflow Loan 794.8 - - - - - - - - - - - - Sales 496.0 565.3 582.1 582.1 582.1 582.1 582.1 582.1 582.1 582.1 582.1 582.1 582.1 Sub-total 1,290.8 565.3 582.1 582.1 582.1 582.1 582.1 582.1 582.1 582.1 582.1 582.1 582.1 Outflow Investment and replacement cost 1,135.4 178.0 186.0 83.2 62.4 Operating cost 69.9 291.3 291.3 291.3 291.3 291.3 291.3 291.3 291.3 291.3 291.3 291.3 291.3 Debt Service Interest 95.4 95.4 95.4 81.8 68.1 54.5 40.9 27.3 13.7 - - - - Principal - - 113.5 113.5 113.5 113.5 113.5 113.5 113.8 - - - - Sub-total 1,300.7 386.7 500.2 486.6 472.9 637.3 445.7 432.1 418.8 291.3 477.3 374.5 353.7 Surplus or (Deficit) (9.9) 178.6 81.9 95.5 109.2 (55.2) 136.4 150.0 163.3 290.8 104.8 207.6 228.4 Cumulative (9.9) 168.7 250.6 346.1 455.3 400.1 536.5 686.5 849.8 1,140.6 1,245.4 1,453.0 1,681.4 Years 14 15 16 17 18 19 20 Inflow Loan Sales 582.1 582.1 582.1 582.1 582.1 582.1 582.1 Sub-total 582.1 582.1 582.1 582.1 582.1 582.1 582.1 Outflow Investment & Replacement Cost 178.0 Operating Cost 291.3 291.3 291.3 291.3 291.3 291.3 291.3 Debt Service Interest - - - - - - - Principal - - - - - - 291.3 291.3 469.3 291.3 291.3 291.3 291.3 Surplus or (Deficit) 290.8 290.8 112.8 290.8 290.8 290.8 290.8 Cumulative 1,972.2 2,263.0 2,375.8 2,666.6 2,957.4 3,248.2 3,539.0 KOREA N" '000) SECONID .AIRICULTORAL CREDIT PROJECT APPLE ORCRSARD (1.5 Ha): FAIN NOD9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 APPIa Or-hard 1.5 ha Int--crp Soyb.- I ha II. Prod-cton Apple (tons) Standard tree (0.75 ha) 0,2 0.7 2.2 3.7 4.8 8.5 9.6 11.0 12.2 14.7 16.2 17.7 19.2 20.7 21.7 22.7 22.7 22.7 22.7 22.7 22.7 22.7 D..rf trene (0.75 ha) j.. 5 5 IL 4, 18.8 24.8 27.7 31.7 31.7 31.7 31.7 31.7 31.7 277 267 26 .7 26 .7 26 .7 2 3.7 20.7 16 9 12.9 11.9 6g2o16 22. 29.6 38. 41.3 4. 43.9 4. 47.9 49.4 46.9 47. 48.4 49.4 49. 464 43.4 39.5 35.6 34.6 Syan(Kg) 900 900 90 __ __ ___ 42_ 7 9 46 APpIe - a120/K& 2W8 74.4 1.632 2,700 3.552 4,344 4,956 5,124 5.268 5.566 5,748 5.928 5.628 5,688 5.808 5,928 5,929 5.568 5,208 4,740 4.212 4,152 Soybean-w 160/Kg 144_ _ 1_ _ _4_ 144_ _ __ Subtotal 144 632 _ . 496 4 ~ 58 _ _ _ 568 ~ 2 fl ~ _ ~ .5 0,.aef 600 (8 5 70 each 342 34 Standard 130 (9 a 300 a 45 5 Land Prep-rtIon 437 Labor 320 235 223 Pertlll-clanr./1. 102 78 82 Petkindee/b raa 52 85 8 0611 han tool. 60 9 8 Poses ap-eyst 210 155 275 125 350 Concrete ieliln tank 40 Hlanel la..... 15 17 26 Soybean D-evlop-t 114 Subtotol ~~1.527 69 05231250 V. Oaaigbt Applaa: 66~~~~~~~~~~a 99 106 117 131 142 160 166 170 175 160 1.80 190 IS1O 190 190 190 190 190 190 190 190 Peastilida/borax 90 132 182 237 277 312 361 379 396 405 418 424 438 438 438 4-38 438 438 438 436 438 438 .,l for sprayer 20 25 35 30 60 70 85 85 85 65 85 95 85 83 95 83 85 83 85 85 85 85 B.oe. for apple .ale 23 63 139 228 300 360 410 433 4.45 455 465 500 475 480 490 500 500 470 440 400 360 350 Labor 304 340 410 475 535 560 633 649 664 664 690 731 712 717 719 723 723 714 705 696 691 678 Mlanellaeaooa ~~~ ~~~~20 20 20fl 20 20 20 25 0 ,,,,20 3 20 20 ....0.L 20 20 20 20 20 --20 ...A Snbtotal 54~~~~~~~~35 67 901 1.12 1.32 1.484 1.669 ±7"1 a.7: TI 910 .920 - j. 1.956 1.1 i1 78 1929 1 784 L Soybean: Prtilieer/m.anre 25 25 25 25 Labo 79 79 79 79 VI. btotal 1174 14 11 VI. Total Cota (IV & 7) 1.527 766 544 659 792 901 1,232 1,323 1,494 1,669 1,732 2,057 1,804 1,878 1,940 1,910 2.054 1,942 1.956 1,956 1,917 2,229 1,529 1,794 1,761 vii. 9et ecretal Value (111-511) (1,373) (622) (400) (2273 96 731 1,468 2,229 2,860 3,287 3,392 3.211 3,764 3,870 3,988 3.718 3,643 3,866 3.972 3.972 5,651 2,980 2,911 2,688 2,391 FINANCIAL RATE OF nTUR13: 331 KOREA SECOND A8RICULTURAL CREDIT PRJECT Apple Orchard (1.5 Ha): F ,er'. Cah Flow (W '000) 1 2 .3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1. Inflw Lo.n 1,069 456 301 Sale. --144 144 144 432 888 1.632 2 700 3.552 4.344 4 956 514 5 268 5.568 5.748 5_928 5.628 5.688 5.808 5.928 5.928 5.568 5 20 4 4 272 4 5 Sabtota1 1423 600 445 432 888 1,632 2,700 3,552 4,344 4,956 5,124 5,268 5,568 5,748 5,928 5,628 5,688 5,808 5.928 5,928 5,568 5,208 4,740 4,272 4.152 I. Oatflw Inve-t- nt and Rap lanaent Coata 1,527 652 430 105 275 125 350 Optlartng Co Ct. 114 114 659 792 901 1,127 1,323 1,484 1,669 1,732 1,782 1,804 1,878 1,940 1,910 1,920 1,942 1,956 1,956 1,917 1,878 1,829 1,784 1,761 Debt Servic. Interest 128 183 219 219 219 219 219 219 164 110 55 tian.ipal 456 456 456 458 Subtotal 1.655 § _763 878 1.011 1.120 1, 4 1 998 25 104 56 245 057 1.804 1.878 1.940 1.910 2.045 1.942 1,956 1.956 1.917 2.2a28 1.829 1.784 1761 III. Surplus or (Deficit) (442) (349) (318) (446) (123) 512 1,249 1,554 2,240 2,721 2,879 3,211 3,764 3,870 3,988 3,718 3,643 3,866 3,972 3,972 3,651 2,980 2,911 2,488 2,391 IV. Camolativ- (442) (791) (1,109) (1,55S) (1,678) (1,166) 83 1,637 3,877 6,598 9,477 12,688 16,452 20,322 24,310 28,028 31,671 35,537 39,509 43,481 47,132 50,112 53,023 55,511 57,902 ~I Z IEA SACCENR J RICUMLTURAL CREDIT HROJ£CT SPRINKLER IRRIGATION (2 HA APPLE OtCHARD) FARN MODEL Year 1 2 3 4 5 6 7 8 9 10 11 12-15 16 17-19 20 21 22-25 I. Production (tons) With Project 27.7 34.6 40.2 44.6 53.4 58.1 61.7 64.0 66.4 68.8 70.0 71.1 71.1 71.1 71.1 71.1 71.1 Without Project 27.7 32.6 36.6 40.5 44.5 48.4 51.4 53.4 55.3 57.3 58.3 59.3 59.3 59.3 59.3 59.3 59.3 II. sales 1. With Project - w 107/Kg 2,964 3,702 4,301 4,772 5,714 6,217 6,602 6,848 7,105 7,362 7,490 7,608 7,608 7,608 7,608 7,608 7,608 2. Without Project - v 97/Kg 2,687 3,162 3,550 3,929 4,317 4,695 4,986 5,180 5,364 5,558 5,655 5,752 5,752 5,752 5,752 5,752 5,752 3. Gross Benefits (1-2) 277 540 751 843 1,397 1,522 1,616 1,668 1,741 1,804 1,835 1,856 1,856 1,856 1,856 1,856 1,856 III. Investment and Replacment Costs Well 1/ 500 45 45 45 45 Pimping Station - 2/ S80 150 150 Sprinkler System -/ 1,390 120 120 120 120 Installation cost ISO 2,650 T65 150 165 165 IV. Operating Cost Labor 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 Fuel 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91 Maintenance/repairs 28 28 28 26 28 28 28 28 28 28 28 28 28 28 28 28 164 164 164 164 164 4 164 164 164 164 164 164 164 164 164 164 164 V. Net Benefit (II 3-III-V) (2,537) 376 587 679 1,233 1,193 1,452 1,504 1,577 1,490 1,506 1,692 1,527 1,692 1,542 1,527 1,692 FINANCIAL RATE OF RETURN: 35% 2/ Diesel engine, pump, pump base, sluice valves, and pipes. 2/ PVC pipes for main lines and lateral lines, steel riser pipes, pipe fittings and sprinkler heads. KOREA SECOND AGRICULTURAL CREDIT PROJECT Sprinkler IrriRation (2 a 4Apple Orchard): Farmer's Cash Flow (W '000) Year 1 2 3 4 5 6 7 8 9 10 11 12-15 16 17-19 20 21 22-25 I. Inflow Loan 1,855 Increases in sales 277 540 751 843 1,397 1.522 1,616 1.668 1,741 1,804 1.835 1.856 1.856 1.856 1.856 1.856 1.856 Sub-total 2,132 540 751 843 1,397 1,522 1,616 1,668 1,741 1,804 1,835 1,856 1,856 1,856 1,856 1,856 1,856 II. Outflow Investment and Replacement C ts 2,650 165 150 165 165 150 165 Operating Costs 164 164 164 164 164 164 164 164 164 164 164 164 164 164 164 164 164 Debt Service Interest 223 223 223 223 178 134 89 45 principal ____371 371 371 371 371 Sub-total 3,037 387 387 758 713 834 624 580 164 314 329 164 329 164 314 329 164 rII. Surplus or (Deficit) (905) 153 364 85 684 688 992 1,088 1,577 1,490 1,506 1,692 1,527 1,692 1,542 1,527 1,692 IV. Cumulative (905) (752) (388) (303) 381 1,069 2,061 3,149 4,626 6,116 7,622 14,390 15,917 20,993 22,535 24,062 30,830 a 01 o cL KOREA SECOND AGRICULTURAL CREDIT PROJECT H. ECONOMIC ANALYSIS 1. Direct benefits of the Project would come from the increase in production resulting from the various subproject investments. At current prices, the estimated annual incremental output at full development, rang- ing from about 5 to 15 years, would amount to about US$32 million. The increased production of fruits and vegetables would improve nutritional standards of the local diet. Mainly for export, the incremental out- put of cocoons would generate an export income of about US$3.4 million at June 1975 prices, although the farmers involved would receive about US$2.8 million in terms of their cocoon sales. The increased availability to the consumer of vegetables and fruits during the offseason are added benefits. In addition to providing increased employment and incomes to the farmer sub- borrowers, the significance of the Project is further enhanced by the fact that a greater part of the increased output would be the result of a fuller and more efficient use of existing land and labor resources through improved technology. 2. The Project would directly benefit about 7,900 farmer subborrowers and their families or a total of some 47,000 persons. At full development production, the additional labor required annually has been estimated at about 7,200 man year equivalent (1,806,000 man-days). It is envisioned that part of the labor required would be supplied by family labor. Additional employment resulting from expanded marketing activities would also add to Project benefits. 3. The economic rates of return from the Project investments have been calculated based on the following assumptions: (i) Current prices received by farmers have been used to estimate the benefits. (ii) Cost streams have been adjusted by deducting taxes and import duties, and adding on subsidies. (iii) A shadow rate of foreign exchange estimated at 1.135 or W 550 per US$ have been used in the economic analysis. The shadow rate for foreign exchange was estimated using the following formula: CHAPTER H Page 2 SCF =M + X M(1 + tm + tQm) + X(1 - tx) where: SCF = Standard Conversion Factor M = Five-year average of merchandize imports X = Five-Year average of merchandize exports t = Taxes on imports m t = Net value of taxes/subsidies on exports x tQ = Tariff equivalents of import quotas Using 1969-1973 values, the SCF was estimated at 0.881. The shadow rate of foreign exchange is the reciprocal of the SCF multiplied by the official exchange rate. 4. Based on the above assumptions but without the use of the estimated shadow price for foreign exchange, the economic rates of return would range from 29% to 38% as shown below and in attached Table H-1: Economic Rate of Return (%) Apple Orchard 30 Silk Worm Rearing House 32 Sprinkler Irrigation 38 Green House 38 On-farm storage 29 Using the shadow price concerned to adjust the cost streams, the rates would be from 27% to 36% which are satisfactory. 5. To test the subprojects against changes in investment costs and production results, a sensitivity analysis has been carried out. By in- creasing the cost of the investments by 20% without increasing the value of the benefits, the rates would be from 21% to 30%. The figures would be 20% to 29% if the value of the net benefits were to decline by 20% without changing the costs of the investments. .REPUBLIC OF ~KOREA SECOND AGiICUIJTURE CREDIT PROJECT ECONOMIC RATES OF RETURN Year 1 2 3 4 5 8 7 8 9 15 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 - - - - - - - - - - -~~~~~~~~T HO0U SA ND WO0N - - - - - - - - - -- 1. Apple Orchard Develomnet a. Iccre-s-m-tal Sales 144 144 144 432 888 1,632 2,700 3,25.2 4,344 4,956 5,124 5,268 5,588 5,748 2.923 5,628 5,688 2,808 5,828 5,828 5,568 5,208 4,740 4,212 4,152 b. Investment &Replaceomot Coats 1,699 724 470 125 327 149 417 o. Iperating Coata 122 125 709 846 548 1,179 1,380 1,546 1,739 1,805 1,857 1,881 1,856 2,018 1,988 1,998 2,025 2,041 2,041 2,000 1,863 1.913 1,846 1,845 Net Benefits (a-h-c) - 1,552 715- 451- 277 42 684 1,396 2,172 2,798 3,217 3,319 3,084 3,687 3,892 3,905 3,640 3,541 3,783 3,887 3,887 3,568 2,828 2,827 2.4*4 2,307 ECONOMIC RATE OF RETURBN 30.07, 2. Sericulture ResrinR House a, Encresuntel Sales 317 388 404 404 404 404 404 404 484 404 404 404 404 404 404 404 404 404 404 404 b, Invstment 4 Replacemet Costs 1,064 178 186 87 85 178 c. operating Costs -69 164 164 164 164 164 164 164 164 164 164 164 164 164 164 164 164 164 164 164 Net Benefits (a-h-c) - 678 224 240 240 240 62 240 240 240 240 54 155 175 240 240 62 240 240 240 240 3. Greenhooses a. Bales 2,435 2,802 2,902 2,902 2,902 2,802 2,902 2,982 2,902 2,902 2,902 2,902 2,902 2,802 2,902 b. 1ovetmest & Replacment Costs 2,844 471 574 r. Operating Costs 1,382 2,169 2,169 2,169 2,169 2,169 2,169 2,189 2,169 2,169 2,169 2,169 2,169 2,169 2,169 Hot Benefits (a--c-) - 1,824 700 788 780 788 229 700 700 708 700 126 780 708 788 708 ECONOMIC RATE OF RETURN =38.0%, 4. DO-Farm SternaR a. In-re,sental Bales 541 581 634 657 657 657 657 857 657 657 657 657 817 657 657 657 657 657 657 657 657 657 657 657 657 . b. 1nvetment Coats 2,0888 53 53 53 53 55 53 53 53 53 53 53 53 53 53 53 55 53 55 53 53~ c. Operating Costs 83 125 152 155 155 135 135 135 155 135 135 135 135 135 135 135 135 135 135 155 133 155 135 133 135 Net Benefit. (s-h-c) -1,822 462 582 469 469 469 469 469 469 469 469 469 469 469 469 469 469 469 469 469 469 469 469 322 522 ECONOMIC RATE OF RETURN - 29.07, 5, Sprinklier Irrigation a. Increme-c-ta1 Bales 277 540 751 843 1,397 1,522 1,616 1,668 1,741 1,804 1,835 1,856 1,836 1,856 1,856 1,856 1,856 1,856 1,856 1,856 1,856 1,856 1,856 1,856 1,856 b. Investment 4 Beplacomect Costa 2,375 155 134 153 153 134 153 c. Operating Coats 155 155 155 155 155 153 155 151 155 155 155 155 155 155 155 155 155 155 155 155 155 155 155 155 155 Net Benefita (a-h-c) -2,253 385 596 688 1,242 1,214 1,461 1,513 1,586 1,515 1,527 1,701 1,701 1,781 1,781 1,548 1,701 1,701 1,701 1,567 1,548 1,701 1,781 1,701 1,701 ECONOMIC RATE OF RETURN = 38.0% KOREA SECOND AGRICULTURAL CREDIT PROJECT I. RECOMMENDATIONS AND LOAN CONDITIONS 1. The following are the main loan conditions on which agreement was reached during negotiations: (a) Participating Kun Cooperatives would meet the conditions specified in Chapter C para 9 and 31; (b) An agricultural economist, and two horticulturists spe- cializing in green house vegetable production and sprinkler irrigation for orchards respectively, would be appointed and in position within three months following Loan effect- iveness (Chapter C para 32); and tc) Subloan repayment periods would not exceed those indi- cated in Chapter D para 7. 2. Conditions of Loan effectiveness would be the execution of agreements between the Government and NACF, and NACF and the PKCs which are acceptable to IBRD (Chapter D para 6). 3. Given agreement on the abovementioned conditions, the proposed Project is suitable for an IBRD loan of US$20 million. ANNEX I KOREA SECOND AGRICULTURAL CREDIT PROJECT Additional Reports and Data Related to the Project Available in the Bank 1. THE SECOND AGRICULTURAL CREDIT PROJECT, AUGUST 1975 (Project preparation report by the National Agricultural Cooperative Federation, Seoul, Republic of Korea). 2. Tables on economic rates of return by subprojects and the Project as a whole. IBRD 10375 , , ,. ._. U5.SR.SR, % ( 127' 2 129- APRIL 973 . , X vm N O R T H K R E A , C H I N.A IV e ,- |/ < >4KREA t1 Cy/< A59 s t Se a7 Se- r Sy>R /4 S) NsZ9 ngeum<;:3~ ~~~~~~~~~Gngnun .0~~< PC Erpressways Chin 5e, Mukhoilry _34-~ ~ ~ ~ ~ ~ ~ ~~~Rh on-u|Ralesude osrut 4 cW X ,,1;n,a eorgsec .- Pr3vincic. boundririe5 -37. ~ ~ ~ ~ w g p °n0seiongs , eo Y e/l w L - - Y 32b w7 1 8 129' 23'~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~6 36' J h 35'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~5 -~~~~~~~~~~~~~~~~~~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~. p O4~~~6/ ______ ~Espresswcys Wsedn -- -~~~~~~~~~~~~Expressways unde construction rib~~~~~~~~~ &3i ~~~~~~~~Primory rocads -.. ~~~~~~~~~~-_- Raiways P--aiways under conlstructias -34'~~~~~~~~~~~~~~~~~~~~~~~~~~ Airports 4,Ports .--Rivers Special cities Provincial boundaries i nternational boundaries 0 20 40 60 80 100 20 140 160 KILOMEOERRS 0 20 60 60 20 100 MILES 136' 136' 127' 128' 129'