World Bank Document

ReportNo. 1448a-PA Appraisalof SecondRural r DevelopmentProject Paraguay Public Disclosure Authorized April 12, 1977 Regional Projects Department Latin America and the Caribbean Regional Office FOR OFFICIAL USEONLY Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank Public Disclosure Authorized 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 disclosedwithout World Bankauthorization. CURRENCYEQUIVALENTS US$1.00 = G 126 G 1.00 = us$o.oo8 G 1,000 = US$T.94 G 1,000,000 = US$7,937 WEIGHTS AND MEASURES Metric System ABBREVIATIONS ARO - Auxiliary Rural Obstetrician IDB - Inter-American Development Bank BNF - National Development Bank CAH - Small Farmer Credit Agency (of the Ministry of Agriculture and Livestock) CB - Central Bank CENFAE - National Training Center for Auxiliary Nurses CNPS - National Council for Social Progress COMDESA - Paraguayan Development Company DGV - Highways Authority GOPA - Society for Organization, Planning and Training IBR - Institute of Rural Welfare IICA - Inter-American Institute of Agricultural Sciences KfW - Kreditanstalt fur Wiederaufban MAG - Ministry of Agriculture and Livestock MOPC - Ministry of Public Works and Communication M4SPBS - Ministry of Public Health and Social Welfare NGP - National Grain Program PAEN - Food and Nutrition Education Program RHP - Rural health Promoter SEAG - Agricultural Extension Service SENALFA - National Service for the Prevention of Foot and Mouth Disease SENASE - National Seed Service SNPP - National Service of Professional Promotion UNIFACO - Paraguayan Union of Cooperatives USAID - United States Agency for International Development GOVERNM4ENTOF PARAGUAY FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY PARAGUAY SECOND RURAL DEVELOPMENT PROJECT Table of Contents Page No. SUMMARY AND CONCLUSIONS ............................... i-iii I. INTRODUCTION ......... ........................ 1 II. BACKGROUND ................................. ......... I A. General ............................... 1 B. Agricultural Sector .......... .............. ........ 2 C. Rural Infrastructure and Services .................. 6 D. Government Strategy in Rural Development ...........7 E. Performance Under the First Rural Development Project .............................. 7 1II. THE PROJECT . ............................................9 A. Project Area ... ....................................9 B. Brief Description ............ ................................ 9 C. Detailed Features ...................... ... 10 D. Cost Estimates .. ...................................13 E. Financing ..................................................15 F. Procurement ......... ...............................16 G. Disbursements .. ...... 0 ...... 16 H. Organization and Management ................ ........ 16 IV. PRODUCTION, MARKETING AND PRICES, AND PRODUCER BENEFITS . 21 V. BENEFITS AND JUSTIFICATION ..............................23 VI. AGREEMENTS REACHED AND RECOMMENDATION ............. ...... 25 The project was appraised during September/October 1976 by a mission comprising Messrs. D.B. Parbery, G.G. Luhman, and W.A. Price (Bank), with B. Bilbo, P. Borrowman, and 0. Echeverri (Consultants). Thisdocument hu a restricteddistribution and may be used by recipientsonly in the performance of their officialduties. Its contentsmay not otherwisebe disclosedwithout World Bank authorization. TABLE OF CONTENTS (Continued) ANNEXES 1. Agricultural Background Table I - Balance of Payments, 1970-76 Table 2 - Production of Annual Crops Table 3 - Production of Permanent Crops 2. Land Demarcation and Titling Table 1 - Public and Private Colonies in the Department of Itapua, 1976 Table 2 - Land Titles Issued by IBR and Predecessor Agencies in Paraguay 3. National Development Bank Table 1 - Actual (1971-75) and Projected (1976-81) Balance Sheets Table 2 - Actual (1971-75) and Projected (1976-81) Income Statements Table 3 - Project Cash Flow 4. Performance Under the Small Farmer Credit and Rural Development Project 5. Description of Project Area Table I - Weather Data 6. On-farm Investments under the Project Table I - Model I: Crop Farming - 20-ha Farm with 4.8 ha Partly Cleared, Remainder Heavy Forest Table 2 - Assumptions and Enterprise Net Margins, Model I Table 3 - Model II: Mechanized Crop Farming - 40-ha Farm with 8 ha Fully Cleared, 6 ha with Stumps, Remainder Heavy Forest Table 4 - Assumptions and Enterprise Net Margins, Model II Table 5 - Analysis of On-farm Investment Costs - Areas A and B 7. Rural Infrastructure and Service Investments under the Project Table 1 - Roads Equipment Schedule Table 2 - Roads Cost Estimates Table 3 - Road Component - Project Costs and Disbursements Table 4 - Community Centers Schedule of Accommodation Table 5 - Community Centers Cost Estimates Table 6 - Coordination Agency's Costs Table 7 - Implementing Agencies' Costs Table 8 - Rural Health Promoters, Location and Referral Facilities - Western End, Area B Table 9 - Rural Health Promoters, Location and Referral Facilities - Northeastern End, Area B Table 10 - Staff for the Rural Health System Units TABLE OF CONTENTS (Continued) ANNEXES (Continued) Table 11 - Health Component - Project Costs and Disbursements Table 12 - Health Component - Operating Costs Table 13 - Foreign Exchange Component - Area B Table 14 - Summary of Project Preinvestment Costs for Civil Works Appendix 1 - Road Classifications and Standards Appendix 2 - Terms of Reference for Consulting Engineers Appendix 3 - Schedule of Duties - The Project Coordinator and Deputy Coordinator 8. Estimated Disbursement Schedule Table I - Area A Table 2 - Area B 9. Production, Prices and Marketing of Farm Commodities under the Project 10. Economic Rates of Return Table I - Model 1 - 20 ha Farm with 4.8 ha Partly Cleared, Remainder Heavy Forest Table 2 - Model II - Mechanized Crop Farming - 40 ha Farm with 8 ha Fully Cleared, 6 ha with Stumps, Remainder Heavy Forest Table 3 - Overall Sub-Project - Area A Table 4 - Overall Sub-Project - Area B MAPS 12550 - Project Area B 12551 - Project Area A 12552 - Department of Itapua and Project Areas PARAGUAY SECOND RURAL DEVELOPMENT PROJECT SUMIARY AND CONCLUSIONS i. This report appraises a Second Rural Development Project in Paraguay for which a loan of US$22 million is proposed. The project, in line with the Government's overall long-term land settlement policy, would be aimed mainly at helping small farmers in newly developing land colonies along the Parana River in the Southeastern part of Itapua Department. Besides supplying investment credit to farmers, the project would also provide supporting services such as roads, land demarcation and titling, community development and health care. These components would all be aimed at (a) expanding the area cultivated; (b) increasing mainly small farmer incomes; (c) improving the physical and social infrastructure in the project area; and (d) strengthening insti- tutions such as the National Development Bank (BNF), the National Council for Social Progress (CNPS), the Mlinistryof Agriculture and Livestock (MAG), and the Institute of Rural Wlelfare (IBR). ii. The Bank Group has made 18 loans to Paraguay, including 10 from IBRD and eight IDA credits amounting to US$103.8 million (US$58.3 million, IBRD; US$45.5 million, IDA) in support of livestock and rural development (45%), transport (32%), education (19%) and preinvestment studies (4%). The first Rural Development Project became effective on April 14, 1975 and is assisting small farmers in three public settlement colonies located in the Eastern Region of Paraguay. iii. Agriculture is a major sector of the Paraguayan economy 'and accounted, during 1975, for approximately 35% of GDP, 97% of export value (including wood and processed products), and 50% of employment. The expansion of crop, forestry and livestock production during 1969/74 resulted in an agricultural sector growth rate of 6%, compared with only 1.3% during the period 1964-69, mainly as a result of Paraguay's efforts to encourage production of exportable crops. During the period 1970/75, production of such commodities increased by an average of 16.6% annually compared with a rate of only 1.4% p.a. for domestically consumed crops. Out of a total land area of nearly 41 million ha, only about 1 million ha (2%) are used for crop purposes. An additional 7 million ha could be cultivated, but this land is currently used for extensive livestock farming or is covered with forest or bush. Aware of the country's unexploited agricultural potential, the Government is seeking to expand the area under cultivation through the colonization of virgin lands. The proposed project is consistent with this strategy. iv. More equitable distribution of potentially productive land in Paraguay has been achieved in recent years through colonization of both Government and privately owned land. IBR, which deals with all aspects of land reform and - ii - settlement, has so far established 250 colonies of over 40,000 families on unused state lands. This effort has helped ease the pressure on land, though distribution of land holdings is still uneven. The proposed Second Rural Development Project fits this general Government strategy for agricultural growth and rural development. v. Project cost is estimated at about US$42.8 million, including physical and price contingencies, with a foreign exchange component of US$24.6 million (57%) and a local cost component

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