HONDURAS Public Disclosure Authorized
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RETURN TO RESTRICTED REPORTS DESK -21a W¡THtN ~~~~~~~~~~~~~~~ReportNo. PA-a WI¡THINNL Ln OrNE WEEEK Public Disclosure Authorized This report was prepared for use within the Bank and its affilioted organizations. They do not accept responsibllity for ¡ts accurocy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONALDEVELOPMENT ASSOCIATION Public Disclosure Authorized LIVESTOCK DEVELOPMENT PROJECT HONDURAS Public Disclosure Authorized December 16, 1969 Public Disclosure Authorized Agriculture Projects Department CURRENCY EQUIVALENTS US$ 1 = Lempiras 2 Lempira1 = Us$o.50 Lempiras1,000 = US$ 500 Lempiras 1,000,000 = Us$ 500,000 WEIDHTS AND MEASURES Metric System 1 kilogram (kg) = 2.20 pounds 1,000 kg = 2,200 pounds 1 kilometer (km) = 0.62 mile 1 hectare (ha) = 2.47 acres 1 square kilometer(km2) = 100 ha = 0.39 square mile = 247.11acres 1 liter = 0.26 gallon 1,000 millimeters = 39.37 inches GLOSSARY OF ABBREVIATIONS GNP = Gross National Product IDB = Inter-AmericanDevelopment Bank NÇDB = National DevelopmentBank PB = ParticipatingBank HOND~0AS LIVESTOCK DEVELOPMENTPROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ... ................................. ii I. INTRODUCTION . .................................... 1 II. BACKGROUND ........... ............................ 1 A. General ........ ........................... 1 B. The Livestock Sub-sector .................... 3 C. Animal Uealth . ............................. 5 D. Agricultural Services ..... .................. 5 E. Agricultural Credit ...... ................... 6 F. Government Policies on Livestock Development 7 Gr Land Tenure ............................... 7 III. THE PROJECT . .................................... 8 A. Description ..................... 8 B. Project Area ................................ 9 C. Cost Estimates ....... ....................... 9 D. Proposed Financing ................. .......... 10 E. Procurement ....... .......................... 11 F. Disbursements .................................. 12 G. Auditing .. ................................. 12 H. Organization and Management.. 12 Project Administration .................... 12 Technical Services ..... ................... 13 I. Lending Operations ...... .................... 13 Policies .................................. 13 Terms and Conditions ................. 13 IV. MARKETS, PRICES AND PRODUCERS' BENEFITS .......... 14 Markets ........ ........................... 14 Prices ..............................*.............. 15 Producer Benefits ...... ................... 16 V. BENEFITS AND JUSTIFICATION ..... .................. 16 VI. RECOMMENDATIONS..... 17 This report vas prepared by Messrs. F. Knobel, D. Argyle, A. Otten (IDA), and F. Thomas (Consultant), with Mr. Knobel having primary responsibility. ANNEXES 1. Composition of Exports 2. Organization Chart - Ministry of Natural Resources 3. The Banking System, pp 1-4 Table 1 - Loan Portfolio by Sector of the Banking System Table 2 - Amount and Per Cent of Agricultural Credit by Kind of Lending Institution Table 3 - Summary of Financial Account, Central Bank Table 4 - Consolidated Balance Sheet of Principal Banking Institutions 4. Model 1 - Developmentof Beef Breeding/FatteningRanch, 400 ha Table 1 - On-Ranch InvestmentCost Projections Table 2 - Herd DevelopmentProjections Table 3 - Projection of Sales and Operating Expenses Table 4 - Financial Projection 5. Model 2 - Developmentof Dairy-Steer Fattening Ranch, 150 ha Table 1 - On-Ranch InvestmentCost Projectiona Table 2 - Herd DevelopmentProjections Table 3 - Projection of Sales and OperatingExpenses Table 4 - Financial Projection b. Model 3 - Development of Beef Breeding Ranch, 1,500 ha Table 1 - On-Ranch InvestmentCost Projections Table 2 - Herd DevelopmentProjections Table 3 - Projectionof Sales and Operating Expenses Table 4 - Financial Projection 7. Project Costs and Foreign Exchange Component 8. Technical Services Budget 9. Phasing of Project Investments 10. Project OrganizationChart 11. Duties, Responsibilitiesand Authoritiesof Project Director 12. Projected Sources and Application of Funds - Central Bank Livestock Account 13. Projected Sources and Application of Funds - Participating Banks 14. Cattle Population - Supply and Demand Projections 15. Financial Rate of Return of Ranch Models 16. Economie Rate of Return MAP - Project Areas HONDURAS LIVESTOCKDEVELOPMENT PROJECT SUMMARY AND CONCLUSIONS i. This report appraises a livestock developmentproject in Honduras. This would be the first Loan/Creditmade by the Bank Group to Honduras in the agriculturalsector. It would also be the country's first project in the agricultural-livestocksector that vould provide long-termprivate commercial bank loans to ranchers on terms and conditions appropriatefor the develop- ment of their ranches. The banks vould make a sizeable contributionto the Project in the form of capital for ranch investmentsand operating capital, plus technical and administrativeservices. ii. The principal objectives of the Project are to assist Honduras in its national agriculturepolicy to raise its extremely low level (3.7 kg per capita, 1967) of beef consumptionand to assist in its diversificationof agriculturewith particular emphasis on production for exports. Today, its principal export earnings are from bananas, followed in much lesser amounts by coffee, timber and cotton. iii. The objectiveof the Project vould be achieved by financing the developmentof approximately135 beef ranches and dairy farma. Investment inputs, expert technical services and good management would increase na- tional livestockproduction by about 15% as compared with pre-project con- ditions. iv. The Project would be country-wide,but vould be carried out prin- cipally in the North Atlantic zone vhich has the greatest concentration of suitable ranches and most favorableresources for development. V. The coordinationof Project policies would be by a Project Comnis- sion representingthe various institutionsconcerned with livestock develop- ment in Honduras. The management and execution of the Project vould be under a Project Director, assisted by livestock techniciansemployed by participatingbanks but seconded to his office for purposes related to the Project. vi. Total Project cost, estimated at US$5.2 míllion, would be financed approximately as follows: Amount Percent (US$m) IDA Credit 2.6 50 Comercial Banks 1.8 35 Ranchers 0.8 15 5.2 100 - ii - The estimated foreign exchange component is US$1.1 millíon. This repre- sents about 20% of total Project cost and 40% of the Credit. vii. Goods required for the Project vould be obtained through exist- ing comercial channels in Honduras. Several retail sources are available and active competition exists to assure an adequate supply as vell as satis- factory servicing. Input items such as agricultural machinery and equip- ment, vire fencing, and veterinary supplies are imported from United States, Japan, Western European countries and are distributed through local fran- chised dealers. Disbursements from the Credit for ranch development would be a percentage (75%) of ranch development loans disbursed by participating banks. Such loans, based on ranch development plana approved by the Project Director, vould be granted by the banks at 9% interest for terms of 8-12 years including grace periods of 3-5 years. viii. The rate of return to the economy vould be about 18%. Partic- ipating ranchers would earn about 16% to 21% on their incrementalinvest- ments under the Project. Substantialincreased net earnings vould begin around Year-10 when full ranch development would be achieved. ix. The Project i8 suitable for an IDA credit of US$2.6 million. The Governmentvould on-lend about US$2.4 million of these funds to the Central Bank for channeling to private commercialbanks and a private finance company for long-ternranch development loans. The other US$0.2 million would be a grant by Government for technical services. Surplus funda not required to amortize the IDA Credit during the first 16 years of the Credit vould be relent by the Central Bank to participating banks, or other qualified finan- cial institutions, for livestock purposes. HONDURAS LIVESTOCKDEVELOPMENT PROJECT I. INTRODUCTION 1.01 The Governmentof Honduras has requested financialassistance to provide long-term funis for financinglivestock development,mainly beef cattle. An IBRD mission helped prepare the Project in March 1967. At that time a broadly-basedGovernment committee vas establishedwhich prepared the Project under directionof the Central Bank. 1.02 The original investmentprogram developedby the committeetotaled about US$14 million and an external fíinacing of about US$8 million vas re- quested. The other US$6 million vas to be provided by livestockproducers, commercialbanks, Central Bank and Government. The program involved a country-wide development of about 300 ranches; each ranch would be e.bout 300 ha in size, carrying on average 300 head of cattle prior to development, and about tvice this number at full development. The IDA found thae. this type of ranch was not suffícientlycharacteristic of the industry and pro- posed to Governmentthree types of ranching enterprises. Furthernore,in viev of the limited number of suitable ranches and the limited suppiy of female stock for breeding, and steers for fattening,the IDA agreed vith Government on a reduction of the investmentprogram to about US$5.2 million and about 125-150 ranches. Although the