Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4419 PROJECT PERFORMANCE AUDIT REPORT PARAGUAY - SMALL FARMER CREDIT AND RURAL DEVELOPMENT PROJECT (CREDIT 509-PA) March 30, 1983 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS US$1.00 = 0 126 WEIGHTS AND MEASURES Metric System ABBREVIATIONS BNF - National Development Bank CNFPA - National Council for Development of Agricultural Production CNPS - National Council for Social Progress CPI - Consumer Price Index IBR - institute for Rural Welfare IDA - International Development Association IDB - Inter-American Development Bank MA- Ministry of Agriculture and Livestock EC- Ministry of Education MOPC - Ministry of Public Works and Communications MSPBS - Ministry of Public Health and Social Welfare OED - Operations Evaluation Department ONCP - National Projects Coordinating Office PCR - Project Completion Report SEAG - National Agriculture and Livestock Extension Service GOVERNMENT OF PARAGUAY Fiscal Year January 1 to December 31 FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT PARAGUAY - SMALL FARMER CREDIT AND RURAL DEVELOPMENT PROJECT (CREDIT 509-PA) TABLE OF CONTENTS Page No. Preface ............................................................i.... Basic Data Sheet ........................................................ ii Highlights .............................................................iii PROJECT PERFORMANCE AUDIT MEMORANDUM I. SUMMARY .................................................. 1 II. MAIN ISSUES ................................... ..4...... 4 A. General ................................. ......... 4 B. Project Infrastructure and Recurrent Costs ........... 4 C. Development Reporting .............................. 6 PROJECT COMPLETION REPORT I. Identification and Preparation ........................... 11 II. Project Implementation and Institutional Performance ..... 12 III. Impact .......................................... ...... 21 IV. Rates of Return ............................... ......... 23 V. IDA's Performance ........................... ........... 25 Tables 1 - Final Cost Table ........................................ 29 2 - Loan Performance by BNF; Actual vs. Appraisal Estimates... 30 3 - Number of Sub-Borrowers, Loans and Amounts Disbursed and Repaid ......................................... 31 4 - Crops Financed Through Production Credit ................. 32 5 - Area, Yield, Volume and Value of Major Crop Production on 15 ha Farm (BNF Client) ................. ........ 33 6 - Area, Yield, Volume and Value of Major Crop Production on 16 ha Farm (not BNF Client) ........................ 35 7 - Area, Yields and Production Before Project and at Full Development .......................... .......... 37 8 - Comparison of Farm Prices and Yields Between SAR and Actual ....................................... 38 9 - Economic Rate of Return .................................. 39 Map -- IBRD 10777 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - i - PROJECT PERFORMANCE AUDIT REPORT PARAGUAY - SMALL FARMER CREDIT AND RURAL DEVELOPMENT PROJECT (CREDIT 509-PA) PREFACE This is a performance audit of the Small Farmer Credit and Rural Development Project in Paraguay, for which Credit 509-PA was approved in August 1974 in the sum of US$11.0 million. The final disbursement in respect of this credit was made on April 29, 1981, and a remaining balance of US$57, 689.50 was cancelled on May 4, 1981. The audit report consists of an audit memorandum prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR) dated July 30, 1982. The PCR was prepared by the Latin America and the Caribbean Regional Office on the basis of a country visit in November 1981. The audit memorandum is based on a review of the Appraisal Report (No. 413a- PA) dated July 17, 1974, the President-s Report (P-1483-PA) of July 25, 1974, the Credit Agreement dated September 6, 1974, and the PCR; correspondence with the Borrower and internal Bank memoranda on project issues as contained in relevant Bank files have also been consulted and Bank staff associated with the project have been interviewed. An OED mission visited Paraguay in September 1982. The mission held discussions with officials of the Ministries of Agriculture, Health, Education and the National Development Bank. A field trip to visit some participating farmers was undertaken. The information obtained during that mission was used to test the validity of the conclusions of the PCR and permitted discussion of various development aspects not covered by the PCR. The draft report was sent to the Government on December 13, 1982 for comments but none were received. The audit finds the PCR comprehensive and accurate with respect to the project's principal achievements and shortcomings. The points dis- cussed by the audit mission have been selected because of their importance to this as well as other rural development projects. The valuable assistance provided by the Government of Paraguay and its staff met during the preparation of this report is gratefully acknowl- edged. u BASIC DATA SHEET COSTA RICA - FOURTH TELECOMMUNICATIONS PROJECT - LOAN 1006-CR IEY PROJECT DATA Appraisal Actual or Item Expectation Current Estimate Total project coat (US$ million) 54.19 68.67 Overrun (%) - 27 Loan amount (US$ million) 23.50 23.50 Disbursed 23.50 23.50 Cancelled - Date for completion of physical components 12/77 12/79 Proportion completed by appraisal target date (%) 100 651 Proportion of time overrun (%) 502 Economic rate of return (%) 21 27 Financial performance satisfactory Institutional performance satisfactory CUMULATIVE LOAN DISBURSEMENT As of June 30 1975 1976 1977 1978 1979 1980 1981 (I) Planned 6.8 13.0 19.0 23.5 23.5 23.5 23.5 (II) Actual 0.4 8.0 16.8 18.8 20.1 22.1 23.5 (III) (II) as % of (I) 5.7 61.5 88.4 80.0 85.4 94.0 100.0 OTHER PROJECT DATA Actual or Item Original Plan Revisions Estimated Actual First mention in files or timetable - 12/13/72 Government's application - - 09/05/73 Negotiations 05/06/74 - 05/06/74 Board approval date 06/11/74 - 06/10/74 Guarantee and Loan Agreement date 06/14/74 - 06/14/74 Effectiveness date 11/19/74 - 11/19/74 Closing date 12/31/78 12/31/79; 09/31/80; 03/31/81 06/30/81 Guarantor Republic of Costa Rica Borrower and exetuting agency Instituto Costarricense de Electricidad (ICE) Fiscal year of borrower January 1 - December 31 Follow-on project name Fifth Telecommunications Project Loan number 1592-CR Amount (US$ million) 10.6 Loan Agreement date March 23, 1978 MISSION DATA Item Month/Year No. of Weeks No. of Persons Manweeks Date of Report Appraisal3 12/73 3 2 6 05/21/74 Supervision 1 12/74 1.2 3 3.6 01/20/75 Supervision II 05/75 1 1 1 06/10/75 Supervision III 12/75 1 1 1 01/07/76 Supervision IV5 02/76 1.2 1 1.2 02/26/76 Supervision V 05/77 1.4 2 2.8 07/25/77 Supervision VI 09/78 1.2 2 2.4 10/19/78 Supervision VII 05/79 1.3 2 2.6 09/05/79 Supervision VIII 09/80 1.4 2 2.8 11/14/80 Completion 10/81 1.6 2 3.2 04/28/82 Total 14.3 26.6 COUNTRY EXCHANGE RATES Name of currency: Costa Rican Colones (C) Year: Appraisal year average - 1973 Exchange Rate: US$1 - C 6.65 Intervening years average - 1974-1978 US$1 - C 8.60 Completion year average - 1979 US$1 - C 8.60 1/ About 65% of the original project was completed by 12/77 (measured by exchange lines installed). 2/ Revised project completed in 6 years instead of originally assumed 4 years. 3/ Indentification, preparation and preappraisal were carried out during the supervision of the third telecommunications project. 4/ Technical supervision. 5/ Financial supervision.  - 111 - PROJECT PERFORMANCE AUDIT REPORT PARAGUAY - SMALL FARMER CREDIT AND RURAL DEVELOPMENT PROJECT (CREDIT 509-PA) HIGHLIGHTS The project was to provide farmers living in settlements in the country's eastern parts with agricultural credit, and infrastructure such as farm to market roads, schools, health and community centers. Special atten- tion was to be paid to issuing land titles to about 2000 farmers. About 7000 families were to benefit directly from the improvements in roads and social infrastructure. The project's main objectives were to raise the incomes of the rural poor and to increase agricultural output. The project achieved most physical, economic and social objectives. Delays were encountered in road construction, lending and titling which contributed to a cost overrun of about 25%. Due to improved husbandry prac- tices and use of modern inputs, yields for cotton, maize and soyabeans increased. The economic rate of return has been recalculated at 12%, slightly below the appraisal estimate of 13%. Other points of interest are: - annual recurrent costs of maintaining project infrastructure and services are more than twenty times the amount of government reve- nues generated by incremental project production (PPAM, paras. 18, 19 and 22; PCR para. 5.06); - when establishing social infrastructure attention needs to be paid to existing facilities and maintenance responsibilities (PPAM, paras. 17 and 21); - supervision reporting should be comprehensive and should focus on all project aspects. In the case of this project agricultural development and production received inadequate coverage in the reports (PPAM, paras. 23, 24); and - the "Key Indicators" annexed to supervision reports would require standardization to permit easier project comparison and progress evaluation (PPAM, para. 25).  - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM PARAGUAY - SMALL FARMER CREDIT AND RURAL DEVELOPMENT PROJECT (CREDIT 509-PA) I. SUMMARY!' 1. In August 1974, IDA approved a US$11 million credit to the Republic of Paraguay for the first rural development project financed by the Bank Group in that country. The Credit Agreement was signed on September 6, 1974, and became effective on April 14, 1975. Project implementation began in April 1975, and was completed by December 1980, when the credit was closed. This was 18 months later than estimated at appraisal. Project costs were US$19.8 million compared to US$15.8 million estimated at appraisal. However, opera- ting costs, which were not included in appraisal estimates, totalled US$5.9 million. Thus, total project costs were US$25.2 million, of which the IDA credit financed 44%. 2. The project was originally intended to provide investment credit and working capital to farmers living in three public settlement colonies in the Eastern Region of Paraguay (Map IBRD 10777). However, during preparation and appraisal, it was expanded to include construction of roads, schools, health centers, community centers and purchase of vehicles. The project's lending and titling programs were to benefit about 2,000 farmers. About 7,000 fami- lies, totalling 42,000 people, were to benefit directly from the improvements in roads and social infrastructure. It was estimated that an expanded exten- sion effort, combined with the lending and titling program, would help to increase both agricultural production and net farm income. The total area included in the three colonies was 80,000 ha. 3. The project achieved most of its physical and nearly all of its economic and social objectives. There were, however, frequent delays in implementation. Mostly, these affected the pace of road construction, lending and titling. There were no major problems in procurement. Under the project, the following were constructed: (a) 287 km of dirt roads; (b) 17 bridges and 193 drains or culverts for the dirt roads; (c) 36 km of all-weather roads; 1/ Adapted from the PCR. -2- (d) 18 schools; (e) three health centers; and (f) three community centers. The project provided 25 vehicles to implementing agencies. Investment credit and production loans were extended to 2,360 farmers. Titles were awarded to 2,027 farmers. Except for tobacco, production of crops and livestock increa- sed by 85% and soybeans by 90%. Net farm income increased by 160% among credit beneficiaries and by 130% among non-beneficiaries. School enrollment in grades 1 to 6 increased by 66%. Health facilities were made more acces- sible to the area-s population, though there is no data to show what effect this had on health indicators. 4. It is clear that the rapid increase in the price of cotton was the main factor in stimulating land clearing and increasing crop production and net farm income. There was some increase in yields. This was more the result of log and stump removal than the adoption of improved cultural practices. Extension efforts achieved only limited success in promoting the adoption of such practices. Technology transfer by private or non-institutional means probably contributed as much to increasing production as the efforts of the extension service. The extension service may have played a role in changing the traditional behavior patterns of farmers, however. 5. By 1981, it was estimated that 60,000 people had benefitted directly or indirectly from project activities. The project achieved an overall ERR of 12%. The appraisal estimate was 13%. However, the latter was calculated without including operating expenses of the extension, titling, credit, health and schools components. 6. Project implementation was coordinated by the National Council for Social Progress (CNPS). This arrangement proved unsatisfactory. The principal project activities were never integrated into a coherent development program. Some agencies tended to see their activities as being independent of other agencies. In addition, the important implementing agencies all suffered from structural weaknesses and the CMPS coordinator could not compensate for them. CNPS itself was a deliberative council which seldom met. Having appointed the coordinator early in the project, CNPS practically abandoned its collective responsibility. 7. Bank staff charged with supervision reacted constructively to this situation. They actively assisted the project coordinator in carrying out many of his responsibilities, helping him prepare budget estimates for the implementing agencies and goading the Paraguayan bureaucracy into action. That the project achieved its physical goals with only a two-year delay was due, in no small part, to their persistent efforts. - 3 - 8. Some progress was made, though not to the extent hoped for at appraisal. For example, BNF did improve, but the improvement achieved resulted more from other (and later) Bank-financed projects. IBR also im- proved its titling operations by adopting a policy of awarding titles after receiving only 10% down towards the price of land. This single improvement greatly aided titling activities in other areas of Paraguay as well. Respon- ding to shortcomings clearly demonstrated during the implementation of the project, MOPC and MAG established a rural roads coordinating committee and this arrangement has improved coordination between the two ministries. Similarly, deficiencies experienced in project coordination led to the crea- tion later of a National Projects Coordinating Office (ONCP). This office has been given responsibility for coordination of the recently approved Caazapa Area Development Project and the Eje Norte Rural Development Project. 9. Many problems were the result of the failure of participating agencies to have a clear idea of their responsibilities and annual investment and operating budgets before implementation began. It is clear that all of these should be spelt out clearly at appraisal just as final design for any road component should be completed before initiation of project activities. 10. It is questionable if efforts to organize farmers' supply coopera- tives for distribution of consumer goods are justified because private traders are likely to exploit and eventually dominate any market such cooperatives might develop. Efforts to organize marketing cooperatives are likely to be more fruitful, particularly when there is sizeable production of a single crop which lends itself to collective marketing. 11. Extension efforts which do not transmit a message based on clearly demonstrated technical or economic advantages are unlikely to have much effect. On the other hand, home demonstration agents working with groups of girls and young women can have a considerable impact on improving rural living conditions. In this particular project, good prices and an active market were as important in stimulating farm development as roads, extension or credit. 12. Two years after project termination, problems remain. During the current recession in world commodity prices, the price of cotton has declined to the point where many farmers no longer consider it profitable to produce. Unfortunately, little has been done to develop markets for other commodities. However, the people in the zone, though depressed by the present economic situation, remain enthusiastic when discussing the way the project has improved their lives. Most agree that they are living better and have a more promising future than they did seven years ago. II. MAIN ISSUES A. General 13. The project contributed to improving the living of an estimated 60,000 people, providing them with access to main roads and thereby to the markets for selling their produce, with schools and health facilities. For the first time, the Bank assisted successfully, through this project, some of Paraguay's small farmers. Lending to small farmers permitted production to increase during project implementation, mainly due to expansion of cultivated lands. However, because of depressed cotton prices during the past two years as well as a slump of all other agricultural commodity prices, combined with high input prices,!! a reversal of production trends has taken place. The decline in production can also be attributed to the fact that one of the three project areas has rather unfavorable soil conditions. Reduced Government revenues from cotton and soya exports make it increasingly difficult to maintain project investments. B. Project Infrastructure and Recurrent Costs 14. The project design recognized the need to support the rural popula- tion - mainly settlers without proper titles to their land - by providing not only agricultural credit for production purposes but also with farm to market roads and social infrastructure such as schools, health and communal facili- ties, the project's "rural development component". Three areas where small farmers had been settled were selected for the project. With the emphasis on the agricultural credit component, the required strengthening of weak credit organizations, as well as the social infrastructure to improve the living conditions of the rural poor, not enough attention was paid to agronomic problems during appraisal.2/ Soil conditions vary between the three project areas with the best soils found at the Juan Leon Mallorquin colony in the east and the worst at the Repatriacion colony where sandy soils with high acidity prevail. 15. The appraisal correctly identified the problems associated with this soil type, i.e. , "after clearing, the soils are high in organic matter and nutrients which, in the absence of fertilizer and optimum cultural methods, are rapidly depleted. If continuous cropping is practiced on these soils, balanced fertilization together with soil conservation measures are neces- sary".-V While the problem was adequately identified by the appraisal, the 1/ The Region points out that input prices declined in relative terms. 2/ The Region states that adequate attention was paid to agronomic problems at appraisal. About one-third of a Technical Assistance component (US$0.4 million) provided three years of expatriate agronomist services for assisting the extension service to identify and promote the introduc- tion of land use and farming systems compatible with soil conditions in the various sub-areas once the production intensity increased. 3/ SAR, Annex 1, p. 6. - 5 - necessary corrective measures were not dealt with. There is no indication in the appraisal report what kind of fertilizer would be used in the different soil types, nor is there any mention or costing of the necessary soil conser- vation measures. At the time of appraisal world fertilizer prices were soaring due to the oil price increase and this forced many countries to take a closer look at the economics of nitrogen applications to cotton.!/ In most cases only the cheapest nitrogen fertilizer, i.e., sulphate of ammonia could be economically applied, but this would have been unadvisable on the acid sandy soils because this fertilizer type, with an acid reaction, would have contributed to a further lowering of the pH with all its negative consequen- ces. 16. In the audit's view, the appraisal emphasis on credit/infrastructure aspects and the relatively limited agronomic supervision (see paras. 23, ff.) / have led to agricultural development efforts in the Repatriacion area which can be challenged. The absence of fertilization and/or soil conserva- tion measures is quite evident with eroded sand accumulating in ditches and depressions. Steps need to be taken to introduce new farming systems in the area with emphasis on pastures and possibly milk/beef production. Continu- ation of annual crop production may lead to permanent soil destruction. 17. Questions can also be raised on the appraisal of the infrastructure components. The mission visited the project health center at Repatriacion which is run by a doctor assisted by nurses. According to information obtained at the center, on average, only 80 patients per month are treated. The main reason for this disappointing performance is that most people living in the Repatriacion colony prefer to go to Caaguazu, a township only 7 km from the health center, where clinics and specialized doctors attract more pa- tients. An analysis of available services, need for emergency services and transportation facilities seems to be warranted before determining center locations. 18. The appraisal considered the project's operation and maintenance costs in a rather concise manner. In para. 4.06 of the appraisal report, it is mentioned that "Government would be responsible for maintaining and staf- fing the roads, schools, health and community centers once they have been constructed. Those costs are estimated to be annually as follows: (i) earthmoving unit 053 million, (ii) all-weather roads 015 million, (iii) 1/ For instance in Sudan Southern Region Agriculture Rehabilitation, OED Report No. 3476, of June 16, 1981, or forthcoming audit on Tanzania Geita Cotton. 2/ The Region does not see a link between shortcomings in appraisal and supervision and deficiencies of farm development patterns in terms of crop diversification, rotation, soil conservation and fertilization. These deficiencies were decisively determined by factors outside the control of the project. High cotton prices and the emergence of an effective cotton marketing system encouraged farmers to concentrate heavily on this crop and, as a result, to neglect the establishment of farming systems compatible with soil conditions in the medium and long term. Additional appraisal or supervision input would not have changed this development. - 6 - schools 030 million, (iv) health centers 014 million, and (v) community centers 0 1 million." In total, 0 & M costs of the social infrastructure were estimated at US$890,000 per annum. 19. To this, the cost of the extension service should have been added, which at 1981/82 values amounted to about US$200,000/annum, and which, dis- counting inflation, would have nevertheless pushed 0 & M costs in the first project years above the one million dollar mark. In the audit's view, mainte- nance, operating and recurrent costs of integrated rural development projects need special attention to safeguard project activities also beyond the imple- mentation period. In the case of this project, the Public Works Department has budgeted 0103,910 per km and year for the maintenance of project roads. This would amount to 032 million had the roads been constructed at the full appraisal length. As can be seen there is a shortfall of 036 million which is further accentuated by inflation occurring between 1974 and 1982. 20. The road maintenance allocation which is in line with the country's budgetary possibilities is completely insufficient. The obvious road main- tenance problems are further exacerbated by too generous standards (7 m. width) for little-travelled farm access roads.1 Due to the limited mainte- nance possible at present, driving over these roads resembles more negotiating a slalom course than a road. 21. During project implementation, and up to now, maintenance of the community centers has remained unresolved. Since several different organiza- tions were expected to make use of the buildings, none of these agencies was willing to take over the maintenance costs and/or share these with other organizations. The center visited by the audit mission showed all signs of neglect, with loose roof-tiles, and paint work badly needed. The centers are now mainly used by the extension service and their usefulness is questioned by officials since meetings of local farmers could take place in the open or at local schools. 22. Bearing in mind the insignificant amount of direct Government reve- nues generated by the project, i.e., 6% export taxes on soya and 4.7% on cotton, the incremental production of about 1,000t cotton fiber (US$0.5 million) and 5,000t soya (if entirely for export US$0.6 million) as assumed by the appraisal would have contributed only US$59,500, an amount completely insufficient to cover the project's recurrent costs as outlined in para. 18. The question raised in a recent audit report.2/ has to be repeated: how many integrated small development projects can be afforded by a developing country? C. Development Reporting 23. Supervision activities concentrated heavily on the project's credit aspects and land titling and to a certain degree also on infrastructure such 1/ Erosion problems (para. 16) are rather serious and quite noticeable along some roads with ditches sanded up and road beds turned into knee deep sand stretches. 2/ Mauritius Rural Development (Credit 419-MAS), OED Report No. 3988, dated June 23, 1982. - 7 - as roads, health facilities, schools, etc. Conspicuously absent in reporting however, was a focus on the development of agricultural production, although the President's Report (para. 18) states that the project's objectives are: "In lending to Paraguay, the Bank Group tries to assist the Government in achieving four major objectives. These objectives are interdependent and complementary; hence, it is not possible to rank them in order of priority or importance. One objective is to spread the benefits of growth . . . . A second objective is to help Paraguay expand output, including exports, by investing in projects that directly or indirectly make large contributions to production and employment. . In para. 28, the same report states: "This strategy . . . would have the dual objective of raising incomes of the rural poor and agricultural output." (Emphasis added) And the Appraisal Report: the project "would support Government efforts for an integrated program . . .with emphasis on production. . . (para. 1.03). 24. In contrast to the original emphasis on improving production, Bank supervision concentrated on institutional aspects and progress of construc- tion. Out of 15 supervision missions that reported their findings, only 4 included an agriculturist, who, in two of these missions, was also involved with other projects. As a consequence, no mention is made in supervision reports or in the files on how production developed until 1978, when the 9th supervision mission reported that "there are no comprehensive data available on yield and aggregate production development in the project area." No further discussion on yields and production can be found until May 19, 1980 when for the first time cotton yields are mentioned.l/ For practically all the years the Bank and its management remained in the dark on how a major project objective was being accomplished.2/ This is the more regrettable because short-term lending operations, an indicator of how much seasonal 1/ The estimate of 1,800-2,000 kg/ha seems to have been optimistic in light of average yields of 1,300 kg/ha now mentioned in the PCR. 2/ In the Region's view, it was appropriate that supervision measures should initially focus on credit, extension, titling and road construction which were considered necessary for attaining the production objectives. Further, the Region questions if agronomic supervision can be measured merely by the number of agriculturists participating in the missions. Such an indicator does not take account of the participation in 7 out of 15 supervision missions of agricultural economists. The Region also does not consider the alleged "conspicuous absence in reporting.. .on the development of production" (para 23) to be a consequence of the neglect of agronomic supervision; rather it reflects the fact that there was not much to report initially, and, later, the failure to establish a monitor- ing system despite a special Bank mission to assist in this task. - 8 - inputs are being used by farmers, lagged substantially behind appraisal estimates, signalling that production was not improving as expected.1! 25. In the case of this project, no indication or production trends was given in the "Key Indicator" annex of the supervision reports that would have permitted some insights on how production was developing. During recent audits, it was found that there is no uniformity in determining what the "Key Indicators" of projects are. Key Indicators are clearly listed in CMS 3.50, Annex Attachment B,2/ to include quantitative measures in critical areas - e.g. , construction progress, yields, adoption rates, target groups reached, etc. Unfortunately, only one sample (Appendix 1) dealing with a railway project has been issued with OMS 3.501/ and this may account for the differ- ent interpretation by the agricultural divisions in determining what indica- tors to list in the supervision reports. A review by the Regions of "Key Indicators" in on-going projects would be warranted to safeguard proper information of Bank management on project progress. 1/ The Region points out that due to farmers' high income from cotton production and the resulting liquidity, the need for short-term credit was curtailed. 2/ Issued in January 1979. 3/ The same sample was also used in Circular No. 301-1-75, dated Septem- ber 8, 1975 when the Key Indicator annex was first introduced. -9- PARAGUAY SMALL FARMER AND RURAL DEVELOPMENT PROJECT (CREDIT 509-PA) PROJECT COMPLETION REPORT July 30, 1982  - 11 - I. IDENTIFICATION AND PREPARATION 1.01. The project was identified by two members of a Bank economic mission that visited Paraguay in October 1971. The project was prepared by two FAO/CP missions in May 1972 and April 1973, with assistance from officials of the Ministry of Agriculture and Livestock (MAG) and IBR. Appraisal 1.02. The project was appraised in October 1973. Two major issues were raised at appraisal and during the subsequent period preceding Board approval. One was the serious shortcoming in BNF's collection of arrears and its financial weakness. The other was the confused land tenure situation and the inability of IBR to present accurately the existing situation as regards land titles. 1.03 The BNF issue was resolved by: (a) requiring the Government to increase BNF's paid-in capital by not less than US$1.2 million per year during the 1975-79 period, (b) establishing strict liquidity and debt-equity ratios, (c) requiring the Government to make payment of US$55 million to BNF to erase all debts owed by various ministries to the BNF (condition of effectiveness), and (d) requiring BNF to greatly increase its debt collection efforts to recover grain program loans in arrears. The land tenure issue was resolved by requesting the IBR to carry out an owner- ship survey within the project area to determine the status of the various settlers. Originally this survey was to be completed before Board presentation. When this proved impossible, the survey was included as part of the project's land titling activities. It was also considered that the issue could be dealt with satisfactorily through close project supervision. Project Area and Technical Assistance 1.04 The project area included the colonies of Mallorquin, Repatriacion and Gen. Stroessner (about 80,000 ha). Project field activities were to be supported by three UNDP-financed experts in credit, marketing and agro- nomy. The experts were to help train, coordinate and supervise the techni- cians of BNF, IBR, and MAG. The project also provided financing for a project coordinator as well as for 50 vehicles to be used by the field staff of the implementing agencies. These agencies were to provide 45 additional staff in order to expedite project activities. Project Objectives 1.05. The project aimed to improve the economic and social infrastructure in the colonies for some 7,000 families comprising 42,000 people. Specifi- cally, this included: (a) equipment for the construction of 250 km of earth roads; (b) construction of bridges and culverts for those roads; (c) construction of 26 primary schools, three health centers and three community centers, and (d) purchase of 50 vehicles for use by implementing agencies. About 2,000 farmers were to benefit from BNF's lending and IBR's titling programs. An expanded extension effort, using technical assis- tance, was to help increase both agricultural production and net farm income. - 12 - II. PROJECT IMPLEMENTATION AND INSTITUTIONAL PERFORMANCE General 2.01 The government needed more time than anticipated to ratify the credit documents, transfer funds to the project and appoint key personnel. Since these were all conditions of effectiveness, the deadline for effec- tiveness was extended by four months. The first bids received for the con- struction of schools, health and community centers and design and construc- tion supervision consultants for roads were considerably higher than appraisal estimates. This meant that the implementing agencies had to review the potential effect on overall project costs before proceeding which resulted in more delays. IDA eventually agreed to modifications in the quantities, design and contracting methods, which permitted the project to complete most of the civil works included at appraisal. Once construc- tion began, it was generally carried out following a revised schedule (February 10, 1976). The major exception was the roads component. Road Component 2.02 The Credit Agreement was modified on August 10, 1976 to permit the construction of bridges, culverts and drains by the staff of the Ministry of Public Works and Communications' (MOPC) own highway construction unit instead of requiring that they be contracted for under ICB procedures. This change was adopted since it was shown to be the most economical arrangement. 2.03 A total of 287 km of dirt roads were actually constructed instead of the 250 estimated at appraisal, while 36 km of all-weather roads were completed instead of the 60 planned at appraisal. Funds saved by the reduction in the length of these roads were used to upgrade the paved surface of the all-weather roads from 5 to 6 m and to increase the length of the dirt roads constructed. 2.04 This component experienced more delays in execution than any other. Many were the result of overcentralization of authority. The Director of Highways makes most of the decisions himself. Though a highly competent individual, he is overburdened and has insufficient staff to whom he can safely delegate authority. This is because competent engineers can easily earn more in the private sector than working for the MOPC. When the major dam construction program is completed on the Parana river, more qualified engineers may become available. However, no early resolution of this problem is likely. 2.05 Many of the delays had to do with awarding contracts. For example, the credit became effective April 14, 1975. Prompt construction of the roads was considered a prerequisite for successful implementation of the project's other components. However, negotiations for the employment of consulting engineers for preparation of the design of the road network dragged on until July 1, 1976. Actual construction of the road network did not begin until October 1976. Similar delays put off starting final construction of all-weather roads until June 1978. - 13 - 2.06 Construction once begun, nevertheless, appeared to have been carried out satisfactorily. MOPC's road maintenance unit in Caaguazu, led by a competent and dedicated engineer, performed admirably. Not only did this unit begin maintenance of existing roads in the project area promptly upon receiving project-supplied equipment, but it efficiently executed the construction of the dirt roads under force account using the same equip- ment. The original equipment supplied was maintained so well that all of it was still in use when the follow-on project (Loan 1674-PA) was super- vised in March 1982. All roads built met or exceeded design specifica- tions. Construction costs of dirt roads were low at US$4,580/km (not including equipment depreciation) and US$5,365/km (including deprecia- tion). Total costs of this component, as well as the costs of other components, are shown in Table 1. 2.07 On-site supervision was well-performed by consultants. One of their tasks was to monitor the force account construction carried out by the MOPC unit in Caaguazu. Yet they had to report to an MOPC staff member in Asuncion who served as General Project Supervisor. This situation required tact and diplomacy and the consultants appeared to have been equal to the challenge. The work of the consultants was also rendered more difficult by the fact that they were not provided with adequate terms of reference, lacked knowledge of the project's terms and scope, and were initially unaware of the requirements for adequate supervision and report- ing. With the help of IDA's supervision missions, most of these deficien- cies were corrected. 2.08 Coordination between MOPC and MAG was frequently judged inadequate and to improve it, a rural roads coordinating committee was created in 1981. It is composed of representatives of all agencies affected by the construction of rural roads. On the basis of its initial performance, the committee is considered a success. 2.09 Roadside erosion has become a major problem in the project area, mainly as a result of maintenance activities. Graders routinely remove all vegetation from the highly erodable soils alongside the main roadbed and, where slopes are more than 5%, water runoff rapidly creates gulleys. In some places these are now so deep that farmers cannot go directly from their farms onto the roads. Erosion is considerably less where natural grasses and vegetation have not been removed. Agricultural Credit 2.10 At appraisal, it was estimated that 2,000 farmers would benefit from investment and production credit. The project allocated US$5.8 mil- lion for the former and US$3.3 million for the latter. It was expected that the average farmer would need US$2,600 in investment and US$1,500 in production credit. The timetable called for serving 400 farmers during year 1 and 800 during each of the two following years. 2.11. The pace of lending did not match appraisal expectations (Table 2). The first loan was made in June 1975, but the final goal of 2,000 beneficiaries was not reached until the 1979/80 crop year. A total of 7,330 loans were made in the project area; 4,970 (totalling US$4.3 million) were for short term and 2,360 (totalling US$8.3 million) were for long and medium term. Of US$12.7 million, some 50%, or US$6.4 million, were financed by the IDA credit. The number and amount of investment loans - 14 - are shown in Table 3. The use of production credit (short-term loans) is shown in Table 4. 3.12 On-farm investment is shown in the table below: Appraisal Estimate Actual % of Total % of Total Difference Major Categories Investment Investment % Purchase of Draft Animals and Cattle 37 19 -16 Land Clearing (Cutting and Burning) 19 29 +10 Improved Pastures and Fencing 21 14 - 7 Purchase of Farm Machinery and Construction of Farm 23 38 +15 Buildings TOTAL 100 100 2.13 The pattern of investment borrowing illustrated above was congruent with the rapid and unexpected increase in the price and profitability of cotton (and to a lesser extent soybean) production which stimulated land clearing, construction of temporary storage facilities and purchase of tillage and planting equipment. Appraisal estimates for production credit proved overly optimistic. Farmers did not use fertilizer as expected and continued to rely on non-institutional sources of credit. 2.14 In the first two years of lending, the repayment rate was over 100% because farmers apparently took advantage of good cotton prices in 1976 and 1977 to pay off their debts. This also suggests that some long-term credit was used to finance short-term needs. In later years, loan recovery declined, to about 79% of amounts due in 1980 and to 78% in 1981. However, the reduced rate of repayment was considered to be related to declining cotton prices. BNF branch managers in the project area expect to recover most if not all of their outstanding loans, probably within the next two crop seasons, but the present unfavorable prices are causing farmers to cut back on borrowing and rely on their own resources. 2.15 Implementation did not fully meet appraisal expectations: (a) the technicians and loan officers who were to be assigned to BNF offices in the project area did not reach full strength (15) until mid-1976, over a year after the project became operational; (b) as the technicians assigned were new to BNF and had little experience, it took them several months to get acquainted with procedures and to reach normal operating efficiency; - 15 - (c) the credit consultant made many suggestions for simplifying forms and procedures; however, none was adopted during the project's life; (d) supervision of the credit component appears to have been inade- quate; a capable supervisor was named early to work with the consultant but was burdened with excessive administrative chores in Asuncion and could not spend sufficient time in the field; a second supervisor was appointed to reside in the project area, but he was there only six months before the departure of the consultant, too short a time to permit adequate training; and (e) though BNF staff did benefit from in-service training, many were promoted within BNF and transferred out of the area, thus disrupting the continuity of BNF's staff. 2.16 In spite of these deficiencies, BNF accomplished its main objec- tives. Of the 5,360 farmers in the project area, 2,360, or 44%, benefitted from investment or production credit. BNF also improved its organization and operational performance during the project. The present staff 1/ is certainly able to service the existing clientele adequately given the recent decline in demand for BNF credit. Farmers still complain about the complicated and lengthy procedures for obtaining BNF credit. Titling 2.17 The project provided vehicles for IBR staff but no financing of IBR's operating expenses. Since possession of title was a prerequisite to obtaining BNF credit, the Credit Agreement stipulated that IBR should provide titles to 2,000 additional farmers living in the project area. About 30% of the farmers were estimated to possess title at the time of appraisal. The 2,000 titles were to be delivered by IBR over three years, 400 in the first year and 800 in each of the two following years. In May 1978, this figure was raised to 2,300 to be consistent with the transfer of an additional US$1 million from Category 4 Schedule 1 of the Credit Agreement (short-term lending) to Category 3 (medium- and long-term lending). 2.18 Even though IBR provided the necessary staff (15) to carry out titling activities, 2/ titling proceeded much more slowly than expected at appraisal. Multiple transfers of property and the failure of the regional and central offices of the General Property Registry and IBR to maintain adequate records and provide prompt processing caused numerous delays. To enable more farmers to qualify for BNF credit, IBR decided to issue Certificates of Credit Qualification which were to be valid for 30 days. During this time, IBR was supposed to clarify the property situation and issue definitive titles. However, this measure did not help much and even complicated the titling process after project completion. From 1975 to 1/ As of March 1982. 2/ Condition of effectiveness. - 16 - 1978, IBR issued 2,097 Certificates, 1,469 of which were later exchanged against a definitive title. Another 208 titles were granted directly, bringing the total number issued during the project implementation period to 1,677. With this number added to those already possessing title, at least 2,360 farmers received loans from BNF. One useful innovation in titling procedure was adopted. IBR decided to award titles upon receiving 10% down payment on the price of the land, with the balance to be paid in equal annual installments. BNF credit was obtainable with this title. IBR initiated this practice during the project and now applies it in other externally financed projects. Performance of IBR 2.19 Titling operations were also hindered by certain procedural obstacles and organizational weaknesses: (a) titling required as many as 20 individual steps before a title could be awarded to a farmer and this increased demands on the staff in the General Registry of Property (GRP) office; IBR then agreed to delegate certain IBR agents to work with GRP in order to speed up registration; (b) IBR agents, in addition to working with the GRP, were also used to aid project authorities in organizing farmers and to assist in marketing activities, thus reducing the effectiveness of the IBR staff in titling; (c) vehicles were not always available to IBR field staff either because they were being kept and used in Asuncion or because they were frequently unusable for lack of operation funds and poor maintenance; and (d) supervision of the regional activities by the central authorities was deficient; this resulted in underutilization of the resources which IBR had deployed in the project area. 2.20 Prior to the project, it had been assumed that farmers wanted titles to feel secure about their ownership. However, this was not uni- formly true for all farmers in the area, since IBR had widely publicized its policy of never evicting occupants from land, even if they failed to pay sums due IBR for obtaining definitive title. Further, the availability of non-institutional credit reduced the need for farmers to obtain BNF credit. Farm development was, therefore less affected by the titling situation than thought at appraisal. Extension and Technical Assistance 2.21 The project provided vehicles for extension staff. It also provided an extension advisor under Bank-executed, UNDP-financed project, PAR 74/002. The extension service (SEAG) of the Ministry of Agriculture was responsible for providing 15 extension agents, 3/ and at the height of project activities, there were 15 extension agents, six extension 3/ Condition of effectiveness. - 17 - assistants, three veterinarians, five home economists, one supervisor, and five US Peace Corps Volunteers. Four-wheel-drive vehicles and motorcycles were assigned in numbers sufficient to give extension workers some mobility. Since the project area included about 5,000 farmers, the ratio of farmers to extension agents was 333:1. However, there were frequent transfers of personnel into and out of the project area and this lack of continuity greatly reduced the overall effect of the substantial numbers of technicians working with the farm population. 2.22 Extension activities began in 1975 about four months after arrival in Paraguay of a foreign consultant and were highly varied. The basic approach was to select individual farmers who were receptive to improved technology. These "pilot" farmers served as a focal point for demonstra- tions and the organization of "committees." Agents then used regular meet- ings of the "committees" as a forum to present innovations. The foreign consultant, in cooperation with authorities and agents of SEAG, developed a comprehensive training and extension program covering such subjects as mechanical land clearing; clearing of stumps along contour lines; produc- tion of certified cotton seed; establishing improved pastures; use of fertilizers on cotton, maize and wheat; crop rotation; and introduction of new crops. Extension agents attempted to introduce the cultivation of wheat, peas, and sunflowers. They also encouraged more rational production of livestock and set up several "pilot" centers for poultry, sheep and fish production. 2.23 The extension specialist and the staff of SEAG also organized 17 in-service training courses for agents of SEAG, IBR and BNF working in the project area. The extension unit produced 23 documents for the use of project technicians, including one concerning farm planning and budgeting. Practically every important farm activity was the subject of one or several courses and each course was accompanied by specific documentation. Audio-visual aids were widely used, particularly in farmer demonstrations and group meetings. Over 70 such meetings were held during the first three years of implementation. A particularly effective home demonstration program was carried out involving the active participation of nearly 600 rural women and girls. At the peak of activities, 26 groups were organized. Most of these groups still meet regularly and enthusiasm remains high. The program promoted improvement of sanitation, nutrition and household facilities. 2.24 Deficiencies in the extension service are summarized as follows: (a) by 1978, half of the vehicles were out of service for lack of maintenance, spare parts in particular; (b) extension agents were paid less than workers in other agencies performing similar duties which contributed.to a rapid turnover in personnel, depriving the extension effort of continuity; (c) some confusion was created by the presence of three services competing for farmers' attention; two were dispensing technical advice (SEAG and BNF); (d) the extension program failed to establish clear priorities; with much apparent enthusiasm, nearly everything was tried; and - 18 - (e) the profitability of recommended practices was, however, unsupported by any research information; agents recommended a given practice because they thought or were told it would increase yields. 2.25 One year after project completion, in the same area but where a follow-on project (Loan 1674-PA) was already well underway, SEAG has corrected some of these deficiencies. Vehicles appear better maintained and the respective responsibilities of extension agents and BNF agents are more closely defined. However, extension agents still receive low salaries and staff turnover continues high. Little has been done to develop and extend recommendations which are clearly related to increased farm profit- ability. Farmers' Groups and Organizations 2.26 It was thought that extension, credit, and marketing activities could be more easily and effectively carried out if farmers were orga- nized. The main effort took place in the second and third years of the project. At one time or another 45 "committees" with over 750 members were organized. Cooperatives and pre-cooperatives were also organized with the aim of facilitating the purchase of inputs and the marketing of farm produce. Seventeen consumers' cooperatives with nearly 300 members func- tioned at the peak of project activities. 2.27 By 1978 only 22 committees with nearly 400 members remained, and by 1981, there were only five with about 75 members. These five continued mainly for marketing reasons, grouping their cotton production so as to obtain better sales contracts with cotton gins. One of the committees also grouped its members' needs for credit and pesticides. Of the 17 consumer cooperatives, none remain. As private traders became more active, there was not enough interest to hold these cooperatives together. Consultants 2.28 The technical assistance financed by UNDP provided the services of three specialists for a total of nearly 100 man-months. Their specialities were agricultural credit, agricultural extension, and farmers' organiza- tions and marketing. All three were provided by an international consult- ing firm. Generally, they contributed to the success of the project. Frequently they performed duties which were above and beyond their terms of reference. However, the delays in naming national counterparts greatly reduced the residual effect of the consultants. Another factor diminishing their contribution was the frequent transfer of local staff who had worked with them to positions elsewhere in the country. The consultants, in their final report, stated that the project was too short to permit the introduction of innovations which they felt necessary to introduce. This was particularly true with regard to crop diversification, farmers' organizations and credit application processing. School Construction 2.29 After the initial call for bids revealed that school construction was going to be more expensive than thought at appraisal, the construction program was modified by mutual agreement between the borrower and IDA. - 19 - While the project originally called for construction of 102 classrooms in 26 different localities, 92 classrooms were actually built at 18 different sites. Projected capacity was thus reduced from 4,080 to 3,680 pupils. During project implementation, 21 other schools were constructed in the project area with financing from national and local sources, and 18 private schools were closed. From 1974 to 1980, school enrollment (grades 1 to 6) increased by 66%, rising from 12,300 to 20,000. The Ministry of Education (MEC) estimated that the latter figure included about 84% of the local school age population. The national average is about 80%. The number of teachers also increased by 61% from 385 to 620 and the average qualifica- tion level of the teachers increased as well. 2.30 This component was implemented by MEC in a generally satisfactory manner.: Construction was completed on schedule, schools were staffed promptly, and budgeting for staff, equipment and maintenance appears to have been adequately provided. An exception was the maintenance of the wells and water delivery systems at the rural schools. Health Centers 2.31 The project originally included construction and equipping of two health centers of 210 m each in Repatriacion and Gen. Stroessner and the expansion and equipping of an existing center in Mallorquin. However, the construction and equipping of another center at J. O'Leary was added to the health component by mutual agreement between the borrower and IDA. All centers were equipped with a well and running water system and, where needed, an electrical generator. Each center was also equipped with a dental office. 2.32 Construction of the health centers was contracted out by the MOPC and completed about on schedule. Supervision of construction appears to have been satisfactory. The design, however, did not provide housing for staff,. In two of the centers, part or all of the staff are now using one or more rooms originally intended for patients. Cooking is performed in the instrument sterilization area and the refrigerator is used for .the storage of vegetables as well as vaccines. The present staff agree that some staff housing should have been provided, particularly for midwives who, when on duty, must be near the delivery room. 2.33 Though construction was completed fairly early in the project implementation period, no clear picture has emerged of the impact of the health centers on either the health of the population or on their predis- position to use the new facilities. Some people are obviously still inclined to journey the additional distance to visit the health facilities they traditionally used. This situation has been aggravated by the fact that as late as 1981, at least one of the four centers was still inade- quately staffed. In all of them, the expensive dental equipment was grossly underutilized. The illness and disease situation which existed in 1974 appeared little changed in 1981. Enteritis, diarrhea, infections of the respiratory tract, internal parasites, malnutrition and anemia were before and still are the main reported health problems in the area. 2.34 Though repeated complaints were made to the Ministry of Public Health and Social Welfare (MSPBS) by various IDA missions, equipment and - 20 - qualified staff were furnished only with considerable delays. A budget was finally approved for 28 staff to be provided for four centers during 1978, but by 1981, only abut 20 fully qualified staff were on duty. The most serious deficiency is in dentistry, with MSPBS clearly unable to mobilize sufficient dentists to answer this need. 2.35 Another deficiency in performance has been MSPBS' refusal to provide medicines to the centers. It is not the Ministry's policy to do so. Yet staff at the centers unanimously agree that medicines should be made available to assure adequate treatment in most cases. Since MSPBS has other ongoing projects with the IDB to construct and equip health centers and rural dispensaries throughout Paraguay, it is to the Ministry's credit that it was able to provide basic staff to three of the four centers in the project area. If the deficiencies in dental staff and medicines were corrected, the three centers would be able to provide adequate health care to the communities they serve. Community Centers 2.36 Three community centers were built to provide a physical infra- structure, which, it was hoped, would facilitate community development. Built by MOPC, they were and are still administered by SEAG although there is no budget for maintenance. All three now serve as offices for extension personnel. Though two were constructed in the main population centers of the colonies they were meant to serve, one was placed about half-way between two other main population centers and never satisfied the needs of either. All three centers were equipped with oversized electric generators but evening activities were practically non-existent and the generators remained little used. Two of the colonies now have electric service and the centers located there (Repatriacion and Gen. Stroessner) could be hooked into the electrical grid. However, no funds were ever made available to pay for the hook-up and permission has not been granted to sell the generators to cover this cost. 2.37 The design of the centers has been criticized as being too ambi- tious. Toilet and washroom areas were oversized and are now used mainly as storage areas for seeds and field demonstration equipment. Other public buildings (schools) could have been used for the sort of gatherings which were a necessary part of project activities. It is, therefore, not clear that the centers were justified. CNPS and Project Coordination 2.38 CNPS was given responsibility for coordinating the implementation of the project. CNPS includes representatives of the Ministries of Agriculture and Livestock, Public Works and Communications, Education, and Public Health and Social Welfare; BNF; and IBR. This arrangement was considered at appraisal to be the most suitable to ensure cooperation between the various implementing ministries and agencies. Later, a coordinating committee was established at the local level comprising representatives of these agencies. 2.39 A qualified and competent project coordinator (an ex-Minister of Agriculture) was appointed at the initiation of project activities. He - 21 - performed reasonably well but died in 1978. His replacement was appointed within five months and turned out to be well-qualified and competent. 2.40 However, project coordination was unsatisfactory. CNPS was either unwilling or unable to meet to review project implementation. The project coordinator was left to sort out problems with the executing agencies and this kept him fully occupied at the national level. At no time did he reside in the project area, a condition stipulated in the Credit Agree- ment. Though it was clear he was needed in the capital, field coordination suffered from his absence. 2.41 The local coordinating committee was organized under a rotating presidency, which it was hoped would facilitate operations and encourage cooperation at the field level. However, the local committee had little power and was unable to make significant decisions without recourse to national authority. 2.42 The support staff assigned by CNPS at the national level was inadequate. Staff assigned by different agencies to work on the project were frequently untrained and inexperienced. Unfortunately, once they were trained and had gained experience in the project area, they were often transferred and their talents lost to the project. In such circumstances, the coordinator was running essentially a one-man show, trying to cover both the national and local scenes. 2.43 Both the Bank Group representatives and the Paraguayans came to recognize that CNPS was unwilling and unable to discharge its responsibil- ity for project implementation. Thus, a National Projects Coordinating Office (ONCP), responsible to the National Council for the Development of Agricultural Production (CNFPA), was created in May 1982. The CNFPA includes the Ministers of Agriculture and Livestock and Finance as well as the President of the Central Bank and BNF. It has more authority than any other national agency concerned with agricultural development. ONCP will name a project coordinator for all new Bank Group agricultural projects as well as a field coordinator. A headquarters office with support staff will be created. This new arrangement is expected to overcome many of the deficiencies encountered in project coordination under the three previous and ongoing rural development projects. III. IMPACT Agricultural Production 3.01 Project impact was evaluated in a final report prepared by the Technical Office (Gabinete Tecnico) of MAG in cooperation with representa- tives of CNPS. Information for this report was collected through a field - 22 - survey of 284 farmers in the project area carried out in 1981. Additional information was contained in the final report of the UNDP-financed techni- cal assistance team which conducted a survey of farmers toward the end of the third year of project implementation. However, the data available from these various sources was deficient and contained contradictions. There- fore, care should be exercised in drawing conclusions. 3.02 Production of the four major crops increased as a result of increases in both crop area and yields (Tables 5, 6 and 7). The major change in crop production concerned cotton. Encouraged by rapidly rising prices between 1975 and 1980, farmers increased the area planted in cotton by 46%. Farmers also more than doubled soybean production. These two cash crops pushed into relative insignificance the increases in production of cassava, maize and beans. Beef production increased due to improved pastures and more breeding stock. The cultivation of tobacco greatly declined. Continued land clearing eliminated much of the forest cover which had previously been exploited for firewood and charcoal production. Yields 3.03 Yields increased for cotton (44%), maize (40%) and soybeans (100%). Most of the yield increases were due to stump and log removal from partially cleared fields. Better weed and insect control also were con- tributing factors. Yields of other crops remained relatively constant. There was little use of fertilizers before the project. This situation remained unchanged although evidence is mounting that with continued crop- ping, soil fertility and cotton yields are beginning to decline. Neverthe- less, farmers remain unconvinced and still obtain satisfactory yields without fertilizer. Traditionally, only recommended varieties of cotton are grown in the area, which means that greater use of improved varieties was not a factor in incremental cotton production. Roads 3.04 Almost everyone involved in the project believes that roads contributed greatly to increasing farm income, agricultural production and general development of the project area. 4/ In view of what happened, however, it does not appear that roads were the only important factor. Start of road construction was delayed by two years. MOPC used this delay to carry out extensive maintenance on the existing roads with the equipment which had been procured to expand the road network. During that time, cotton prices and production both began to increase dramatically. Perhaps this maintenance was all that was required to stimulate production. In the Colony of Chaco-re, the area in cotton expanded tenfold in three years, but 4/ The BNF manager in Mallorquin estimated that users' savings from improved roads contributed at least G 2/kg to the farmgate price of agricultural commodities in the project area. On that basis, the roads would have contributed G 13 million (US$103,000) annually (at full development) only for the transport of cotton and soybeans. - 23 - there was no evidence that roads were a factor. The sudden availability of investment and production credit seemed to have been the key factor in this particular case. The road component did, however, increase communications and commerce in the area, and the positive effect it had on the morale of the rural population is indisputable. Credit 3.05 The final report prepared by MAG included the results of a survey which compared beneficiaries with non-beneficiaries of BNF credit. The users of BNF credit were reported to have: (a) higher gross farm income (40%); (b) higher operating costs (300%); (c) higher net profits (15%); (d) more profit per man-day worked; and (e) higher investments and, hence, more permanent assets. Though the productivity of family labor was higher (37%) among farmers using credit, the productivity of capital was essen- tially the same. Credit users had about the same educational level as non-users, but enjoyed generally better living conditions after five years of project implementation. IV. RATES OF RETURN Financial Rate of Return 4.01 The actual financial rate of return (FFR) to farm investments financed under the project was estimated as follows: (a) a farm model of 15 ha was prepared from survey data obtained from the project area by consultants in 1981 (and by the Bank comple- tion mission in November 1981); projected yields and cropping pattern for the 1982-85 period are given in Tables 5 to 8 and correspond to the 1981 situation; this model is comparable to the one in the SAR, which is described as being between 10 ha and 20 ha; (b) all actual input and output prices from 1974 through 1980 were adjusted to 1980 price levels after conversion by the Paraguayan consumer price index (CPI); projected output prices for 1981 through 1985 were also expressed in 1980 prices but take account of variations in real prices according to projections by the Bank's Commodities and Export Projections Division; input prices for 1981 through 1985 were held constant at their 1980 levels; and (c) the calculation covers 10 years (cf. SAR model over 15 years). 4.02 Based on the above, the best estimate for the FRR came to 109%, which compares to 35% estimated for the farm model in the SAR. This improvement resulted mainly from increases in real commodity prices, espe- cially during the first three years of the project (1976-78), compared to the before development situation in 1974/75. Table 8 illustrates that for cotton, farmgate price increased by more than 180% by 1978; for tobacco, 140%; and for soybeans, 90%. - 24 - 4.03 A sensitivity analysis designed to eliminate the effect of prices and to focus on a comparison with technical developments expected at appraisal could result in a lower FRR than the best estimate given above. This exercise may not, however, be meaningful to the extent that it ignores the impact which constant prices could possibly have on other factors such as efforts to increase yields. Though substantial increases were achieved, yields did not reach the levels expected at appraisal (Table 8). The total area cultivated per farm was about as expected (10 ha at full develop- ment). Extension had only a limited effect in introducing improved farming practices; the significant increases in real prices were probably the major factor stimulating farm development, especially in areas which had some basic road infrastructure. This experience demonstrates that in situations where land is not a limiting factor, farmers will give greater priority to bringing new land into production than to increasing yields. Economic Rate of Return 4.04 The above financial assumptions were used in estimating the eco- nomic rate of return (ERR) to the project. In addition, the following adjustments were made: (a) 2,000 15-ha model farms were aggregated and phased according to records of actual rates of participation; (b) 2,000 other farms represented by a similar model, which were not beneficiaries of project credit but which benefitted from improved infrastructure in the area and clearing, were phased according to the best estimate of participation; (c) the imputed incremental cost of family labor was reduced by 20% to account for unemployment and underemployment in the project area; (d) the costs of all infrastructure and other overhead investments, including incremental operating expenditures, were included and adjusted to 1980 price levels; (e) no adjustments were made for customs duties or taxes since it is unlikely that these were significant; and (f) the calculation was over 15 years. 4.05 With these assumptions and adjustments, the best estimate for the project's ERR is 12%, which is about the same figure as projected at appraisal (Table 9). - 25 - 4.06 As in the estimation of the FRR, the result of excluding the effect of changes in commodity prices would be to reduce the ERR. The ERR was also estimated using essentially the same methodology as that used in the appraisal report, i.e., including incremental benefits for 2,000 BNF credit beneficiaries only (40% of the 5,000 farmers in the area), 100% of BNF's overhead costs, 85% of the costs of technical assistance (which focussed on credit beneficiaries), and 40% of other infrastructure costs (roads, health, schools and community centers). The ERR on this basis would be 13%. The SAR-projected ERR was 12% but would have been less if it had accounted for some incremental operating costs which were excluded. 4.07 The indirect or unquantifiable benefits from investments in infrastructure have not been included in the economic analysis. Increased living standards are widely evident throughout the area, as is the development of small centers of commerce, including artisanal activities. The increased mobility resulting from new and improved roads has complemented investments in schools and health facilities, improving school attendance and making .health and other social services more available. V.. IDA'S PERFORMANCE Borrower's Viewpoint 5.01 The Paraguayan authorities, in both their final report as well as in verbal comments, commented as follows: (a) there were too frequent changes in supervising staff; (b) the road component .was not well planned at appraisal; a lot of time was subsequently lost during implementation; and (c) the foreign consultants assigned to work in the project area. were not totally satisfactory: they did not speak the local idiom (Guarani), which limited their effectiveness; they did'not stay long enough; they cost too much; and they left few tangible results behind. IDA'S Viewpoint 5.02 IDA sent a total of 18 supervision missions to Paraguay during the 72-month implementation period. Fourteen different specialists partici- pated in these 18 different missions, with one person (a financial analyst) participating in eight. Three missions were one-man, specialized missions which dealt, respectively, with road building, agricultural credit, and monitoring and evaluation. Taking into account the Bank Group's budgetary limitations and the staff turnover, the level, frequency and continuity of IDA's supervision effort should be judged adequate. - 26 - 5.03 One Bank-group mission also noted that the appraisal mission did not determine the detailed alignments for the road component. Had final design and alignment been agreed upon at appraisal, construction might have been completed more in line with the original SAR timetable. On the other hand, it would not have been unreasonable for the MOPC to determine final design and alignment within six months, given the conceptional framework established by the appraisal mission. The team of foreign consultants was financed by a UNDP grant at no cost to the Paraguayan Government. Their total cost was US$5,454 per man-month, which is in line with costs for consultants employed on other foreign-financed agricultural projects. They could not, of course, speak Guarani. (Even many MAG technicians cannot.) However, their Spanish was adequate and since they were meant to work with Spanish-speaking staff and not directly with farmers, a requirement of fluency in Guarani hardly seems justified. The consultants themselves claimed that their stay was not long enough, but they insisted that the lack of continuity of local staff was a serious obstacle to training counterparts. 5/ Other Implementation Problems 5.04 The "empedrado," or hand-laid cobblestone surface, was finally adopted for the all-weather roads, mainly on the insistence of the MOPC. However, many users now complain that the cobblestone surface is too rough on their vehicles and they prefer the dirt berms except when it rains. The erosion brought on by routine maintenance was also unforeseen at appraisal. This problem was commented on in one particular supervision report, but no action was taken and the situation continues to worsen. 5.05 Construction costs for schools and health centers were underestim- ated at appraisal. However, IDA and the Paraguayan government were able to adjust their construction program to stay within the total credit amount without prejudice to the project's overall objectives. 5.06 The SAR did not include all operating costs for implementing agencies. Thus, total project costs (US$25.2 million) were 159% of SAR estimates (US$15.8 million). Financial problems were cited as the most important in 10 of the 15 supervision reports. It seems that the agencies would have been able to perform more promptly had they had a clear idea from the beginning of their budgetary needs for operating expenses. Supervision 5.07 BNF was in financial difficulties at the time of appraisal and IDA expressed its concern then and at appraisal of subsequent projects. To correct the problems, IDA made a large number of stipulations in both the Credit and Project Agreements. Except for one, supervision missions did not routinely check to see that these conditions were complied with, but concentrated their review on BNF's performance in the project area. This was partly because the covenants included in the Credit Agreement were superseded by others included in the 1418-PA Loan Agreement (Second Rural Development Project) and the first industrial credit loan (1419-PA). Compliance with covenants was being followed up in supervision of these 5/ Consultant's final report, May 1978. - 27 - later projects. BNF did improve and it was able to fulfill its mandate, though with some delay. 5.08 The average time between missions was 4.8 months, which was adequate. In view of the project's extension and agronomic problems, how- ever, more missions should have included an agriculturist. Also, more attention should also have been given to the non-agricultural components. Certain Credit Agreement conditions were either overlooked by supervision missions or alternatives were accepted. For example, the project field coordinator was to reside in the project area. Yet he never did. This fact was accepted by Bank Group staff who must have realized that the coor- dinator's job obviously required him to spend much time in Asuncion. However, the project did suffer from the absence of a full-time resident field coordinator. Provision for resident deputy coordinators has been made in subsequent rural development projects. 5.09 Generally, supervision was helpful to the project. Staff involved in supervision tried to understand the problems of rural development in Paraguay and the particular difficulties encountered during project imple- mentation. Usually they reacted constructively to these problems and worked with the Paraguayan authorities, helping and encouraging them to find solutions. Many times staff actually performed the chores necessary for project coordination during supervision missions, personally.moving requests and authorizations through the Paraguayan bureaucracy, helping to set up operating budgets, and obtaining local funding for project activities. An excellent rapport, clearly based on mutual respect, was established between Bank Group staff and their Paraguayan colleagues and it has continued with subsequent projects. July 30, 1982  PARAGUAY SMALL FARMER CREDIT AND RURAL DEVELOPMENT PROJECT Final Cost Table; Physical and Price Contingencies Already Included /1 ------------------------------------------Years--------------------------------------- Component 1975 1976 1977 1978 1979 1980 Total US$000 000) Agricultural Credit Investment Loans (long -term) 79,380 194,292 333,522 360,990 1,688 - 969,872 7,697.4 Production Credit (short-term) 26,082 56,826 126,630 201,600 112,014 - 523,152 4,152.0 Agricultural Credit Infrastructure Operating Expenses 6,969 8,418 9,385 11,633 12,999 14,827 64,231 509.8 Ministry of Agriculture Construction and Equipment Costs 2 - - - 4,536 - - 4,536 36.0 Operating Expenses 6,456 6,911 7,715 8,717 9,885 10,645 50,329 399.4 Consultants (COPA) 12,600 27,720 15,120 12,600 - - 68,040 540.0 Land Settlement and Titling Operating Costs 4,950 5,481 6,234 7,241 8,071 8,966 40,943 324.9 Rural Schools Construction and Equipment Costs - 78,521 101,815 16,513 - - 196,849 1,562.3 Operating Expenses 48,936 55,732 67,096 85,959 110,086 131,104 498,913 3,959.6 Health Construction and Equipment Costs - - 24,263 176,862 - - 201,125 1,596.2 Operating Expenses 1,807 1,993 2,199 13,714 15,531 17,486 52,730 418.5 Rural Roads Construction Costs (contracted) - - 20,000 29,513 134,762 100,000 2SA,280 2,256.2 Construction Machinery Costs /2 127,365 - - - - 12 ,365 1,010.8 Consultants - - - 63,655 - - 63,655 5U5.2 Operating Expenses /3 7,560 26,269 29,045 31,802 6,096 - 10(f,772 799.8 Sub-total F3Z72 3 m 6,269 -,X45 124,975 140,858 100,000 57-,072 4,572.0 Total Costs (Ag Credit Included) 322,105 462,163 743,024 1,025,340 411,132 283,028 3,24b,792 25,768.2 Total Costs (Ag Credit Not Included) 216,643 211,045 282,872 432,750 297,430 283,028 1,753,768 13,918.8 Total Construction & Equipment Costs 127,365 78,521 146,078 291,084 134,762 100,000 877,810 6,966.7 Total Operating Expenses 69,709 96,386 112,289 147,433 149,669 168,201 743,687 5,902.3 /1 Rased on actual prices. /2 Includes vehicles. /3 Including construction by force account. My 14, 1982 PARAGUAY SMALL FARMER AND RURAL DEVELOPMENT PROJECT Loan Performance by BNF /1 -------- Investment Loans (Medium and Long-Term) -----------------------------Production Loans (Short-term)------------ S-------No.-------- ----(%)--- -Av. Loan (US$)- ---(%)--- -------No.------------- --- -Av. Loan (US$)- (%) Appraisal Actual/ Appraisal Actual/ Appraisal Actual/ Appraisal Actual/ Actual Estimate Appr. Est. Actual Estimate Appr. Est. Actual Estimate Appr. Est. Actual Estimate Appr. Est. Date December 31, 1975 321 400 80 1,360 2,000 136 341 400 85 370 1,000 37 August 3-1, 1976 605 1,160 52 2,322 2,875 162 375 1,160 32 629 1,666 38 February 28, 1977 865 1,200 72 2,500 2,872 174 790 1,200 66 370 1,666 22 June 30, 1977 958 1,430 67 1,833 2,690 136 1,195 1,430 84 472 1,410 33 December 31, 1977 1,626 1,778 91 1,922 2,276 169 1,717 1,778 97 656 1,410 47 March 31, 1978 1,674 1,940 86 2,125 2,276 187 2,467 1,940 127 593 1,410 42 July 31, 1978 /2 2,002 2,000 100 2,250 2,276 198 3,303 2,000 165 473 1,410 34 0 /1 Figures for number of investment loans are cumulative; those for production loans are not cumulative and include some double counting; see Table for clarification. /2 In May 1978, the equivalent of US$1,000,000 was transferred from Cate:gory (4) short-term of ScheLule 1 of the Credit Agreement to Category (3), medium and long-term. Consequently, the new amount available for short-term lending became US$1,535,000 which, by July 31, 1970 was fully on-lent and the available funds for medium and long-term was US$6,410,000. (Source: SPN Report of 10/10/78) /3 Source: SPN Reports. May 25, 1982 PARAGUAY SMALL FARMER CREDIT AND RURAL DEVELOPMENT PROJECT NUMBER OF SUB-BORROWERS; LOANS, AND AMOUNTS DISBURSED AND REPAID JUNE 1975 - MARCH 1980 ($'000) LOAN APPLICATIONS BNF OFFICE BORROWERS PREPARED APPROVED DISBURSED LOANS REPAID LOANS OUTSTANDING and Colony Number Amount Number Iount Number Amount Number Amount (I'00O) ($'000) ('00o) (4'000) ($'000) CAAGUAZU Production Credit Col.Gral.Stroessner -- 1,716 187,664 1,676 186,315 176,285 1,130 110,208 538 66,077 Col. Repatriacion -- 2,003 192,430 1,880 175,000 161,693 1,271 99,142 609 62,552 Sub-Total -- 3,719 380,094 3,556 361,316 337,979 2,409 209,350 1,147 128,629 Investment Loans Col.Gral.Stroessner - 842 349,084 840 343,149 300,539 27 16,344 813 284,194 Col. Repatriacion -- 1,028 426,155 910 372,638 329,986 20 13,238 890 316,747 Sub-Total - 1,870 775,239 1,750 715,787 630,525 47 29,583 1,703 600,942 Col.Gral.Stroessner 2,558 536,748 2,516 529,464 476,824 1,165 126,532 1,351 350,272 Col. Repatriacion 3,031 618,586 2,790 547,639 491,679 11291 112,381 1,499 379,299 Sub-Total CAAGUAZU 1,660 5,589 1,155,334 5,306 1,077,104 968,504 2,456 238,933 2,850 728,571 J.L.MALLORQUIN Production Credit -- 1,251 172,017 1,230 166,919 142,286 784 71,672 446 70,613 Investment Loans 702 274,224 672 254,723 218 164 50 15 934 622 202,231 Sub-total J.L.Mallorquin 700 1,953 446,240 1,902 421,642 360,450 834 87,606 1,068 272,844 w CAAGUAZU AND MALLORQUIN Investment Loans 4,970 552,111 4,786 528,235 480,265 3,193 281,022 1,593 199,243 Production Loans 2,572 1,049,463 2 422 970,510 848,689 97 45,517 2,325 803,172 TOTAL 2,360 7,542 1,601,574 7,208 1,498,746 1,302,954 3,290 326,589 3,918 1,002,474 Source: Banco Nacional de Fomento (BNF); October, 1981 PARAGUAY SMALL FARMER CREDIT AND RURAL DEVELOPMENT PROJECT CROPS FINANCED THROUGH PRODUCTION CREDIT (1975-80) (ha) Soy- Toma- Bitter- Water- Year Cotton Beans Tobacco Cassava Maize Rice Mint Peanuts toes Peppers Beans Orange Melon Onions Other TOTAL 1975 956 .376 207 436 599 8 7 2 36 15 3 7 1 3 9 2,655 1976 2,437 572 519 680 1,017 1 - - 31 13 6 1 2 7 58 5,352 1977 5,597 1,610 234 1,594 2,244 79 7 32 33 13 103 22 2 8 32 11,608 1978 9,088 3,984 286 2,383 2,924 95 539 24 42 2 67 - 2 7 229 10,692 1979 2,981 2,465 132 1,023 1,324 42 102 21 19 2 184 - 14 - 31 8,340 1980 3,080 3,411 52 1,541 2,952 150 340 130 71 48 253 - 5 3 300 11,637 TOTAL 24,139 12,417 1,430 7,657 10,360 385 995 209 232 114 614 30 25 26 653 59,273 Source: Banco Nacional de Fomento (BNF); October, 1981. PARAGUAY SMALL FARMER CREDIT AND RURAL DEVELOPMENT PROJECT Area, Yield, Volume and Value of Major Crop Production on 15 ha Farm (BNF Client) Crops 1974-75 /1 1976 1977 1978 1979 1980 1981 1982-85 Cassava Area (ha) 1.0 1.1 1.1 1.2 1.2 1.3 1.3 1.3 (Mandioca) Yield (t/ha) 16.0 16.0 16.0 16.0 15.5 15.0 14.5 14.0 Production (Tons) 16.0 17.6 17.6 19.2 18.6 19.5 18.8 18.2 Price (g/t) 3,100.0 4,000.0 5,000.0 6,000.0 6,000.0 6,000.0 6,000.0 5,000.0 Value (F) 49,600.0 70,400.0 88,000.0 115,200.0 111,600.0 117,000.0 113,100.0 91,000.0 Cotton Area (ha) 2.5 3.0 3.5 4.1 4.4 4.5 4.2 4.0 Yield (kg/ha) 900.0 1,000.0 1,100.0 1,000.0 1,300.0 1,300.0 1,300.0 1,300.0 Production (kg) 2,250.0 3,000.0 3,850.0 4,100.0 5,720.0 5,850.0 5,460.0 5,200.0 Price (J/kg) /i 30.0 49.0 78.0 85.0 61.0 60.0 50.0 40.0 Value (0) 67,500.0 147,000.0 300,300.0 348,500.0 348,920.0 351,000.0 273,000.0 208,000.0 Maize * Area (ha) 1.3 1.4 1.5 1.5 1.5 1.5 1.5 1.5 Yield (kg/ha) 1,500.0 1,650.0 1,800.0 2,000.0 2,100.0 2,100.0 2,100.0 2,100.0 Production (kg) 1,950.0 2,310.0 2,700.0 3,000.0 3,150.0 3,150.0 3,150.0 3,150.0 Price (X/kg) 9.0 19.0 17.0 14.0 22.0 15.0 15.0 15.0 Value () 17,550.0 43,890.0 45,900.0 42,000.0 69,300.0 47,250.0 47,250.0 47,250.0 Soybeans Area (ha) 0.8 0.8 0.9 0.9 0.9 1.0 1.0 1.0 Yield (kg/ha) 600.0 800.0 1,000.0 1,200.0 1,200.0 1,200.0 1,200.0 1,200.0 Production (kg) 480.0 640.0 900.0 1,080.0 1,080.0 1,200.0 1,200.0 1,200.0 1 Price (V/kg) 19.0 35.0 36.0 33.0 31.0 19.0 20.0 20.0 Value (0) 9,120.0 22,400.0 32,400.0 35,640.0 33,480.0 22,800.0 24,000.0 24,000.0 W Tobacco Area (ha) 0.5 0.4 0.3 0.2 0.1 0.1 0.1 0.1 Yield (kg/ha) 1,200.0 1,200.0 1,200.0 1,200.0 1,200.0 1,200.0 1,200.0 1,200.0 Production (kg) 600.0 480.0 360.0 240.0 120.0 120.0 120.0 120.0 Price (J/kg) 45.0 96.0 86.0 92.0 107.0 79.0 79.0 79.0 Value (p) 27,000.0 46,080.0 30,960.0 22,080.0 12,840.0 9,480.0 9,480.0 9,480.0 Beans Area (ha) 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 Yield (kg/ha) 500.0 540.0 580.0 600.0 650.0 700.0 740.0 740.0 Production (t) 150.0 162.0 174.0 180.0 195.0 210.0 222.0 222.0 Price (/,/t) 44.0 48.0 52.0 57.0 60.0 55.0 55.0 55.0 Value (0) 6,600.0 7,776.0 9,048.0 10,260.0 11,700.0 11,550.0 12,210.0 12,210.0 Pasture Area (ha) - - - 1.0 1.3 1.4 1.6 1.7 Yield (kg/ha) - - - 100.0 100.0 100.0 100.0 100.0 (For beef Production (kg) - - - 100.0 130.0 140.0 160.0 170.0 production) Price (//kg) 74.0 79.0 76.0 63.0 90.0 92.0 92.0 92.0 Value (90 - - - 6,300.0 11,700.0 12,880.0 14,720.0 15,640.0 Forest Area (ha) 7.8 7.2 6.7 5.1 4.6 4.1 3.5 3.0 (Bosque) Yield (n2/ha) 2.0 1.8 1.6 1.5 1.4 1.2 1.1 1.0 Producti n (m2) 15.6 13.0 10.7 7.7 6.4 4.9 3.9 3.0 o Price (//m2) 1,500.0 1,600.0 1,750.0 1,875.0 1,950.0 2,100.0 2,250.0 2,325.0 r Value ( ) 23,400.0 20,736.0 18,760.0 14,343.8 12,558.0 10.332.0 8,662.5 6,975.0 -2- Fallow Area (ha) 1.1 1.1 1.0 1.0 1.0 1.1 1.8 2.4 Total Area per Farm 15.3 15.3 15.3 15.3 15.3 15.3 .T.. Total Value of Production 200,770.0 358,282.0 525,368.0 594,323.8 612,098.0 582,292.0 502,422.5 45. (per farm) Direct Production Costs /3 62,000.0 115,000.0 170,000.0 195,000.0 215,000.0 225,000.0 205,000.0 185,000.0 Net Benefit( before Debt Service) 138,70.0 243,282.0 355,368.0 399,323.8 397,098.0 357,292.0 297,422.5 229,555.0 Investment Loan 265,000.0 100,000.0 - - - - - - Annual Crop Production Loan /4 50,000.0 98,000.0 98,000.0 98,000.0 98,000.0 98,000.0 75,000.0 60,000.0 Sub-total of loans: 315,000.0 198,000.0 98,000.0 98,000.0 98,000.0 --n,000.U Debt Service: Investment Loan (I) - 15,900.0 21,900.0 21,900.0 21,900.0 20,805.0 13,930.0 16,000.0 -----------"Investment Loan (P) - - - - - 18,250.0 31,250.0 48,833.0 LL Production Loan (1) 10,000.0 7,840.0 7,840.0 7,840.0 7,840.0 7,840.0 6,000.0 4,800.0 Production Loan (P) 50,000.0 98,000.0 98,000.0 98,000.0 98,000.0 98,000.0 75,000.0 60,000.0 Sub-Total: 60,000.0 121,740.0 127,740.0 127,740.0 127,740.0 144,895.0 131,180.0 129 633.0 Total Income After Debt Service 78,770.0 121,542.0 227,628.0 271,583.8 269,358.0 212,397.0 166,242.5 9 /1 Estimates based on SAR prices of 1973-74 crop year. T H Based on following projected commodity prices: 1982- Rotterdam price (lint cotton) of US$1.72/k- equivalent to / 72/kg seed cotton. 1983- Rotterdam price (lint cotton) of US$1.72/kg equivalent to 78/kg seed cotton. 1985- Rotterdam price (lint cotton) of US$1.72/kg equivalent to . 84/kg seed cotton. Transport costs estimated at j 25/kg of seed cotton. Price reported by appraisal mission for 1974 (before project); prices for 1976-81 based on SPN reports and Covernment-supplied data. /3 Do not include depreciation; prices of inputs deflated by factor of 2.65 between 1980 and 1973. /4 Obtained from private merchants in 1974-75, at interest rates of 20% for crop season; after 1976, obtained from BNF at 8% for crop season. /5 Interest on long-term loans calculated at 6% annually. By 1980 only 5% of investment loans had been completely repaid. May 23, 1982 t4E I0 PARAGUAY SMALL FARMER CREDIT AND RURAL DEVELOPMENT PROJECT Area, Yield, Volume and Value of Major Crop Production on 16 ha Farm (not BNF Client) Crops 1974-75 /1 1976 1977- 1978 1979 1980 1981 1982-85 Cassava Area (ha) 1.0 1.1 1.1 1.2 1.2 1.4 1.4 1.4 (Mandioca) Yield (t/ha) 16.0 16.0 16.0 16.0 15.5 15.0 14.5 14.0 Production (Tons) 16.0 17.6 17.6 19.2 18.6 21.0 20.3 19.6 Price ( /t) 3,100.0 4,000.0 5,000.0 6,000.0 6,000.0 6,000.0 6,000.0 5,000.0 Value (f) 49,600.0 70,400.0 88,000.0 115,200.0 111,600.0 126,000.0 121,800.0 98,000.0 Cotton Area (ha) 2.5 2.6 2.7 2.8 3.0 3.2 3.0 2.8 Yield (kg/ha) 900.0 900.0 900.0 800.0 950.0 1,100.0 1,100.0 1,100.0 Product on (kg) 2,250.0 2,340.0 2,430.0 2,240.0 2,850.0 3,520.0 3,300.0 3,080.0 Price (/kg) /2 30.0 49.0 78.0 85.0 61.0 60.0 50.0 40.0 Value (/) 67,500.0 114,660.0 189,540.0 190,400.0 173,850.0 211,200.0 165,000.0 123,200.0 Maize Area (ha) 1.3 1.3 1.3 1.4 1.4 1.5 1.6 1.7 Yield (kg/ha) 1,500.0 1,550.0 1,650.0 1,750.0 1,850.0 1,900.0 2,000.0 2,100.0 Production (kg) 1,950.0 2,015.0 2,145.0 2,450.0 2,590.0 2,850.0 3,200.0 3,570.0 Price (t/kg) 9.0 19.0 17.0 14.0 22.0 15.0 15.0 15.0 Value (Z) 17,550.0 38,285.0 36,465.0 34,300.0 56,980.0 42,750.0 48,000.0 53,550.0 Soybeans Area (ha) 0.8 0.8 0.8 0.8 0.8 0.8 0.9 0.9 Yield (kg/ha) 600.0 650.0 750.0 850.0 900.0 1,000.0 1,000.0 1,000.0 Production (kg) 480.0 520.0 600.0 680.0 720.0 800.0 900.0 900.0 Price (/kg) 19.0 35.0 36.0 33.0 31.0 19.0 20.0 20.0 Value (/) 9,120.0 18,200.0 21,600.0 22,440.0 22,320.0 15,200.0 18,000.0 18,000.0 w Tobacco Area (ha) 0.5 0.4 0.3 0.2 0.1 0.1 0.1 0.1 1 Yield (kg/ha) 1,200.0 1,200.0 1,200.0 1,200.0 1,200.0 1,200.0 1,200.0 1,200.0 Production (kg) 600.0 480.0 360.0 240.0 120.0 120.0 120.0 120.0 Price (/kg) 45.0 96.0 6.0 92.0 107.0 79.0 79.0 79.0 Value (V) 27,000.0 46,080.0 30,960.0 22,080.0 12,840.0 9,480.0 9,480.0 9,480.0 Beans Area (ha) 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.5 Yield (kg/ha) 500.0 540.0 580.0 600.0 650.0 700.0 740.0 740.0 Production (t) 150.0 162.0 174.0 240.0 260.0 280.0 296.0 370.0 Price (/It) 44.0 48.0 52.0 57.0 60.0 55.0 55.0 55.0 Value (/) 6,600.0 7,776.0 9,048.0 13,680.0 15,600.0 15,400.0 16,280.0 20,350.0 Pasture /Beef Area (ha) - - - 0.4 0.6 0.6 0.6 0.6 Yield (kg/ha) - - - .100.0 100.0 100.0 100.0 100.0 Production (kg) - - - 40.0 60.0 60.0 60.0 60.0 Price (//kg) 74.0 79.0 76.0 63.0 90.0 92.0 92.0 92.0 Value (- - - 2,520.0 5,400.0 5,520.0 5,520.0 5,520.0 Forest Area (ha) 8.5 8.4 8.2 7.3 6.9 6.4 6.2 6.0 Yield (m2/ha) 2.0 1.8 1.6 1.5 1.4 1.2 1.1 1.0 Product on (m2) 17.0 15.1 13.1 11.0 9.7 7.7 6.8 6.0 Price ( m2) 1,500.0 1,600.0 1,750.0 1,875.0 1,950.0 2,100.0 2,250.0 2,325.0 Value ( ) 25,500.0 24,192.0 22,960.0 20,531.3 18,837.0 16,128.0 15,345.0 13,950.0 -2- Fallow Area (ha) 1.1 1.1 1.3 1.5 1.6 1.6 1.8 2.0 Total Area per Farm 16.0 16.0 16.0 16.0 16.0 16.0 16.0 16.0 Total Value of Production 202,870.0 319,593.0 398,573.0 421,151.3 417,427.0 441,678.0 399.425.0 34.05 0.0 (per farm) Direct Production Costs /3 62,000.0 74,000.0 84,000.0 95,000.0 105,000.0 115,000.0 105,000.0 95,000.0 Net Benefit( before Debt Service) 1070.07 Z53.7 TF-7 326,151.3 312,427.0 326,678.0 294,425.0 247,050.0 Investment Loan - - - - Annual Crop Production Loan /4 50,000.0 60,000.0 68,000.0 77,000.0 85,000.0 93,000.0 85,000.0 77 000.0 Sub-total of loans: 50,000.0 60,000.0 68,000.0 77,000.0 85,000.0 9 85,000.0 //00. Debt Service: Investment Loan (1) - - - - ------------ Investment Loan (P) - - - Production Loan (1) 10,000.0 12,000.0 13,600.0 15,400.0 17,000.0 13,600.0 17,000.0 15,400.0 Production Loan (P) 50,000.0 60,000.0 68,000.0 77,000.0 85,000.0 93,000.0 85,000.0 77,000.0 Sub-Total: 60,000.0 72,000.0 81,600.0 92,400.0 102,000.0 111,600.0 102,000.0 92 400.0 Total Income After Debt Service 80,870.0 173,593.0 232,973.0 233,751.3 210,427.0 215,078.0 192,425.0 1545 /1 Estimates based on SAR prices of 1973-74 crop year. T2 Based on following projected commodity prices: 1982- Rotterdam price (lint cotton) of US$1.72/kg equivalent to J 72/kg seed cotton. 1983- Rotterdam price (lint cotton) of US$1.72/kg equivalent to g 78/kg seed cotton. 1985- Rotterdam price (lint cotton) of US$1.72/kg equivalent to / 84/kg seed cotton. Transport costs estimated at f 25/kg of seed cotton. Price reported by appraisal mission for 1974 (before project); prices for 1976-81 based on SPN reports and Government-supplied data. /3 Do not include depreciation; prices of inputs deflated by factor of 2.65 between 1980 and 1973. 4 From private merchants; interest calculated at 20% for crop season. /5 Assumes these farmers did not take investment loans. May 23, 1982 PARAGUAY SMALL FARMER CREDIT AND RURAL DEVELOPMENT PROJECT Area, Yields and Production Before Project and at Full Development /1 ------ Before Project (1974-75)------ --------At Full Development-------- ------------Incremental----------- Models I, II and III: /2 Area Yield Production Area Yield Production Area Yield Production (ha) (units/ha) (0006) (fa) (units/ha) ('000) Tha) (unitslha) ('000) Model I: 1,000 farms Cassava (t) 1,000 16 16 1,000 16 16 - - - Cotton (kg) 2,500 900 2,250 2,500 900 2,250 - - - Maize (kg) 1,300 1,500 1,950 1,300 1,500 1,950 - - - Soybeans (kg) 800 600 480 800 600 480 - - - Tobacco (kg) 500 1,200 600 500 1,200 600 - - - Beans (kg) 300 500 150 300 500 150 - - - Pasture/Beef (kg) ( - - - - - - - - - Forest Products (m2) 8,500 2 17 8 500 2 17 - - - Sub-Total T2T,, oo 14,900 - Model II: 2,000 farms Cassava (t) 2,000 16 32 2,800 15 42 800 -1 10 Cotton (kg) 5,000 900 4,500 6,400 1,100 7,040 1,400 200 2,540 Maize (kg) 2,600 1,500 3,900 3,000 1,900 5,700 400 400 1,800 Soybeans (kg) 1,600 600 960 1,600 1,000 1,600 - 400 640 Tobacco (kg) 1,000 1,200 1,200 200 1,200 240 -800 - -960 Beans (kg) 600 500 300 800 700 560 200 200 260 Pasture/Beef (kg) - - - 1,200 100 120 1,200 100 120 Forest Products (m2) 17,000 2 34 12,800 1 15 -4,200 -1 -19 Sub-Total 29,800 28,800 -1,000 (3 Model III: 2,360 farms Cassava (tons) (t) 2,360 16 38 3,068 15 46 708 -1 8 Cotton (kg) 5,900 900 5,310 10,620 1,300 13,806 4,720 400 8,496 Maize (kg) 3,068 1,500 4,602 3,540 2,100 7,434 472 600 2.832 Soybeans (kg) 1,888 600 1,133 2,360 1,200 2,832 472 600 1,699 Tobacco (kg) 1,180 1,200 1,416 236 1,200 283 -944 - -1,133 Heans (kg) 708 500 354 708 700 496 - 200 142 Pasture/Beef (kg) - - - 3,304 100 330 3,304 100 330 Forest Products (m2) 18,408 2 37 9,676 1 12 -8,732 -1 -25 Sub-Total 33,512 33,512 - Total: 5,360 farms 78,212 77,212 -1,000 L. /1 Achieved in the 1979-80 crop year. Total Incremental: Models I,.II and III Appraisal Estimate E2 Model I farms did not benefit from the project. Area Volume Volume Model II farms did benefit from the project but never became BNF clients. ('0- Model III farms did benefit from the project and also became BNF clients. Cassava t 1,508 19 42,000 Cotton (kg) 6,120 11,036 3,000 11Expressed in kg of live weight of beef. Maize (kg) 872 4,632 3,000 Soybeans (kg) 472 2,339 5,000 /4 The net change in this area passed into fallow. Tobacco (kg) -1,744 -2,093 n.a. Beans (kg) 402 n.a. Beef/pasture (kg) 3,504 450 1,100 Forest Products (m2) -12,932 -46 n.a. June 16, 1982 Total increase in crop and pasture land: 10,932 ha PARAGUAY Small Farmer Credit and Rural Development Project Comparison of Farm Prices and Yields between Staff Appraisal Report and Actual Performance PRICES (Guaranie/kg)1/ SAR ACTUAL BD-/-FD/ BD4/ 1977 1978 1981 1982-8557 Cassava 3.1 3.1 3.1 5.0 6.0 6.0 5.0 Cotton 20.0 20.0 30.0 78.0 85.0 50.0 40.0 Maize 9.0 9.0 9.0 17.0 14.0 15.0 15.0 Soybeans 19.0 19.0 19.0 36.0 33.0 20.0 20.0 Tobacco 45.0 45.0 45.0 86.0 92.0 79.0 79.0 Beans6/ na na 44.0 52.0 57.0 55.0 55.0 Fores-6/ na na 1.5 1.8 1.9 2.2 2.3 Cattle (live wt) 42.0 42.0 74.0 76.0 63.0 92.0 92.0 1/ All adjusted to 1980 price levels. 2/ Before development -- prices prevailing in mid 1973. 3/ Full development -- no increase in prices provided for in farm model. / Before development -- prices prevailing for harvest of 1974/75 crops. 5/ Projected. 6/ Not included in SAR farm model. YIELDS (metric tons/ha) SAR ACTUAL BD FD Increment BD 1978 1981 1982-85 Increment Cassava 15.0 20.0 5.0 16.0 16.0 14.5 14.0 (2.0) Cotton 1.0 2.0 1.0 0.9 1.0 1.3 1.3 0.4 Maize 1.7 3.0 1.3 1.5 2.0 2.1 2.1 0.6 Soybeans 1.6 2.2 0.6 0.6 1.2 1.2 1.2 0M6 Tobacco 1.2 1.6 0.4 1.2 1.2 1.2 1.2 0.0 Beans na na - 0.5 0.6 0.7 0.7 0.2 Forest na na - 2.0 1.5 1.1 1.0 (1.0) Cattle (live wt) nil 0.2 0.2 nil 0.1 0.1 0.1 O)l PARAGUAY Small Farmer Credit and Rural Developme-c Project Economic Rate of Return (Guaranie '000) 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85-89/90 Incremental Net Benefits 1/ 15 ha Model (incl.BNF Credit)f/ (57760) (66680) (18750) 194770 386010 391200 304490 210460 140810 117600 16 ha Model (excl.BNF Credit)- 32610 103990 186440 246220 249910 225960 185120 145440 109710 92360 Total Incremental Net Benefits (25150) 37310 167690 440990 635920 617160 489610 355900 250520 209960 Overhead Investments Construction and Equipment 137410 222040 300210 154980 100000 Machinery 254730 Consultants 25200 48510 22980 100660 Incremental Operating Expend. 69650 109360 119410 151730 135880 143080 143080 143080 143080 143080 Total Overhead Investments 349580 295280 364430 552600 290860 243080 143080 143080 143080 143080 Net Incremental Flow (374730) (257970) (196740) (111610) 345060 374080 346530 212820 107440 66880 Economic Rate of Return 12.4% over 15 years 1/ 2,000 farmers phased 320 (yr. 1), 530 (yr. 2), 775 (yr. 3) and 375 (yr. 4). 2/ 2,000 farmers phased 400 (yr. 1), 600 (yr. 2), 500 (yr. 3) and 400 (yr. 4). n 56055 This map has been prepared by the World Bank's staff exclusively for the convenience of the readers of the report to which it is attached. The denominations used and the boundaries shown on this map do not imply, on the part of the World Bank and its affiliates, any judgment on the lega tatus of any territory or any endorsement or acceptance of such boundaries. Pas oreo 0 rp uv CaaguazuV To Asuncion IN Pto Presidente Stroessner r m PARAG UA Y SMALL FARMER CREDIT AND RURAL DEVELOPMENT PROJECT Location of three Colonies PROJECT COLONIES: BANCO NACIONAL DE FOMENTO 0 GENERAL SI HOESSNER (Former Pastoreo) BRANGHES SU I -260 2651 AMERICA REPATRIACION ; CATEGORY 1 JUAN LEON MALLOROUIN () CATEGORY 3 ROADS AGENCY -'r RIVERS CATEGORY 2 >. t "n - INTERNATIONAL BOUNDARIES 0 10 20 30 40 50 / KILOMETERS '0 560 50