Document of The World Bank
FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 3271 Public Disclosure Authorized
PROJECT PERFORMANCE AUDIT REPORT
GUYANA LIVESTOCK PROJECT (CREDIT 221-GUA) Public Disclosure Authorized
December 31, 1980
COPYI Public Disclosure Authorized FILE 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. ABBREVIATIONS
AGRIBANK - Guyana Agricultural and Industrial Cooperative Development Bank
LIDCO - Livestock Development Company
LPD - Livestock Project Division
LDF - Livestock Development Fund
CP - Cooperative Program FOR OFFICIAL USE ONLY
PROJECT PERFORMANCE AUDIT REPORT
GUYANA LIVESTOCK PROJECT (Credit 221-GUA)
TABLE OF CONTENTS
Page No.
Preface ...... i Basic Data Sheet ...... ii Highlights ...... iii
PROJECT PERFORMANCE AUDIT MEMORANDUM
I. Summary ...... 1
II. Main Issues ...... 3...... 3 A. Project Feasibility and Design ...... 3 Background ...... 3 Technical ...... 4 Institutional ...... 5 B. Changes in Project Design during Implementation ...... 8 C. Conclusions ...... 9
Annex 1: Comments from the Borrower ...... 11
PROJECT COMPLETION REPORT
I. Background ...... 13
II. Project Formulation ...... 14
III. Project Implementation ...... 15
IV. Agricultural Impact ...... 27
V. Rate of Return ...... 28
VI. Institutional Performance and Development ...... 29
VII. IDA Performance ...... 30
VIII. Conclusions ...... 31
Annexes 1 - 6 ...... 33-40
Map
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.
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PROJECT PERFORMANCE AUDIT REPORT
GUYANA LIVESTOCK PROJECT (Credit 221-GUA)
PREFACE
This is a performance audit of the Livestock Project in Guyana, for which Credit 221-GUA in the amount of US$2.2 million was approved in November 1970. The final disbursement was made on November 26, 1979, and the Credit was closed on June 30, 1979, two and one-half years after the original closing date, with a small cancellation.
The audit consists of a memorandum prepared by the Operations Evaluation Department and a Project Completion Report (PCR) dated July 9, 1980. The PCR was prepared by the Latin America and Caribbean Regional Office, following a visit to the 'country in November 1979. The audit memo- randum is based on a review of the Appraisal Report (No. PA-61a) dated November 9, 1970, the President's Report (P-874) of November 10, 1970 and Credit and Project Agreements dated November 27, 1970, OED Report No. 2946, Operational Policy Review, Delays in Project Implementation, the Supplement: Selected Case Studies, of April 11, 1980, and the PCR. Correspondence with the Borrower and internal Bank memoranda on project issues as contained in relevant Bank files have been surveyed and Bank staff associated with the project have been interviewed.
A copy of the draft report was sent to the Borrower on September 23, 1980 for comment. Borrower comments have been taken into account in the PPAR and are attached as Annex 1.
The audit suggested some minor changes to the PCR which were accepted and included therein. The audit finds that the PCR presents a full description of the project's history, achievements and shortcomings. The audit further elaborates on project design defects and their origins because of their importance in Guyana and for other Bank-supported projects.
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H 00 O <0 0 0<00000<00 '0 l >0 - -020'0<0 ""000 -0i <00U 0-I-'0 - iii - PROJECT PERFORMANCE AUDIT REPORT GUYANA LIVESTOCK PROJECT (Credit 221-GUA) HIGHLIGHTS The project's objective was to increase beef production in Guyana by about 2,500 mt (about 45% of the annual supply of 1970) at full development which was expected to improve the foreign exchange balance by around US$1.0 million annually by import substitution. Imports of beef had been rising rapidly prior to the project because of stagnating supply and rising demand. The credit was expected to assist in financing the development of 25 large individual and cooperative ranches plus two demonstration ranches to be operated by a newly created, publicly and privately owned, livestock company. The project also included financing for equipment, special studies, ranch manager training, and consultants. The goal of developing large cooperative and private ranches has not been achieved, mainly because demand for such development has not been forth- coming in an environment beset with natural and institutional obstacles. Only eight individual and four cooperative ranches received any development financ- ing under the project. Due to this lack of private development, funds were shifted during project implementation to develop four public ranches (or dairy farms) in addition to the two planned at appraisal. At completion, development assistance to the six public ranches and farms accounted for 80% of the IDA credit. The project has had a minimal impact on beef production in Guyana and the rate of return to the project is likely to be negative compared with 20% estimated at appraisal. Other points of interest are: - project had a long gestation period because of the livestock sec- tor's infrastructural problems (PPAM para. 12 and PCR paras. 2.01 and 2.02); - design and size of cooperative ranches proved to be impractical (PPAM paras. 6, 21 and 22 and PCR paras. 3.06 - 3.08); - private banks were reluctant to participate in the project because of institutional obstacles and high risk (PPAM paras. 26 - 28 and PCR paras. 3.13 and 3.14); - special advisory committee set up under project was ineffective (PPAM para. 31); and - Borrower resisted the appointment of expatriate managers for Project Unit and Government livestock company and was dissatisfied with performance of one that was hired (PPAM paras. 32 and 33). PROJECT PERFORMANCE AUDIT MEMORANDUM GUYANA LIVESTOCK PROJECT (Credit 221-GUA) I. SUMMARY 1. The Government of Guyana, concerned with the stagnant supply and rising demand necessitating increased imports of beef, requested IDA financing for a livestock project in January 1970. Project design had been evolving since the project had been tentatively identified by a Bank economic mission in 1967. The project was prepared by an expatriate consultant assisted by a Government commission in the later months of 1969. 2. The objective of the project was to increase Guyanian beef produc- tion by about 2,500 mt at full development (about 45% of the annual supply of 1970) and, at the same time, improve the foreign exchange balance by around US$1.0 million annually. 3. Increased beef production was to be achieved by developing 27 large private and cooperative ranches in the coastal and Rupununi Savannah (fron- tier) zones. Two of these ranches were to be operated by a newly created Livestock Development Company (LIDCO) owned jointly by the Government and private interests, with the Government as the majority stockholder. The project also provided funds for: tractors and equipment to clear ranch lands; studies of livestock production systems, processing and marketing; and techni- cal services, including ranch management training, consultants and equipment. The project was expected to cost US$4.4 million, of which IDA would finance US$2.2 million. 4. All funds were to be channelled through the Bank of Guyana, as the executing agency; on-lending was to be carried out by six commercial banks. A Project Unit under an internationally recruited director was to be set up in the Bank of Guyana to help ranchers to prepare loan applications which would include detailed ranch development plans. A Livestock Advisory Committee, consisting of high level Government officials, was to be responsible for overall livestock development policy in Guyana. The Project Director was to be the executive secretary of this committee. 5. The goal of developing large cooperative and private ranches was not achieved. Most of the project funds were used to develop six farms (two were expected at appraisal) by the LIDCO and the rest of the credit assisted in financing development of only four cooperative and eight private ranches. A number of problems beset the project, preventing its prompt implementation. 6. At appraisal it was expected that farmers in the coastal zone who cultivated small plots of rice and owned herds averaging about 10 head would be interested in joining cooperative ranching enterprises of 10,000 acres and - 2 - 5,000 head of cattle. The farmers had practiced communal herding of their cattle in the past and the mission met with several large groups that were very enthusiastic about participating in the project as it was described to them. These groups were discouraged early in the project period by the proposed cooperative ranch structure, by delays in clearing lands which were to be used for cooperative ranches, delays in approving loan applications by private banks and delays in providing funds by these banks after loans were approved. Most of these same factors discouraged lending to private ranches as well. A number of private ranches drew down only part of the approved loans when land acquisition terms or technical assistance was less than expected and they could find other sources of financing. However, the failure to draw down loans was more generally associated with a decision not to invest than unachieved expectations coupled with the availability of other sources of financing. 7. At appraisal clearing of trees in the coastal zone was expected to be done by chaining (pulling a chain between two tractors). This method turned out to be impractical because trees were too large and too dense to be uprooted by a chain. Furthermore, no contractor could be found to take up the work. Later a contractor agreed to purchase two bulldozers for blade land clearing, which had been the traditional method. The land for the few farms in the coastal zone that participated in the project were either cleared by this contractor or by hand methods. 8. Less ranch manager training took place than planned under the project. All cooperative ranches were required to have an experienced and approved ranch manager. These managers were expected to be given practical training by the LIDCO and would be drawn from a pool of students who were receiving formal animal husbandry training in the USA. Lack of need or demand for ranch managers as the project developed was the main reason for not pursuing this training program. 9. Little progress was made on the planned studies of tropical legumes, animal nutrition, marketing and processing. Pasture trials of tropical legumes were carried out but for only one year, an inadequate period to achieve valid results. Because of slow project development, both the Borrower and IDA agreed that the studies of marketing and processing were unnecessary. Consequently, the Borrower requested - and IDA agreed - that part of these funds be allocated to the importation and development of meat type buffalo herds. Presently, there are three herds in Guyana in varying states of development. 10. In 1975, the anticipated completion date of the project, it became apparent that there would be little further demand for development financing by cooperatives or private ranchers and IDA agreed to finance a greatly expanded LIDCO operation instead. At actual project completion, LIDCO had received additional loans to further develop two dairy farms and two beef ranches. All of these enterprises had been previously operated by another Government agency (the Ministry of Agriculture) or by private companies. At completion, LIDCO had received almost 80% of the IDA credit. - 3 - 11. Of the US$2.2 million IDA credit, US$1.7 million was disbursed for development of 18 ranches and farms, US$0.16 million for development studies, US$0.23 million for technical services, US$0.65 million for equipment and US$0.02 million was cancelled. Subborrowers contributed US$630,000 equivalent to on-farm investment. The re-estimated economic rates of return range from -2.5 to 1 percent. II. MAIN ISSUES A. Project Feasibility and Design Background 12. IDA moved slowly and cautiously toward preparing and appraising a livestock project in Guyana after it was first mentioned as a possibility in 1967. A reconnaissance mission consisting of Bank and FAO/IBRD Cooperative Program (CP) staff visited Guyana in mid 1968 and reported that prospects for early expansion of beef production and exports were not encouraging, citing as constraints widespread cattle stealing, unsanitary conditions at one abattoir, and substantial capital investment required per unit of cattle. Later (1969) CP cited other constraints on livestock production as: lack of livestock, problems of ownership and titles to land, heavy infrastructural cost, absence of suitable supervised credit channels, and the absence of an adequate tech- nological base for pasture development. CP recommended that initial livestock operation in Guyana be on a small scale and linked with other Bank operations in the country. 13. Despite these known problems, the Government was enthusiastic and insistent about developing the livestock industry to take advantage of the conceived potential for livestock development and new opportunities for exporting beef to the Caribbean area with the formation of Caribbean Free Trade Association. 14. A project was prepared by an internationally recruited consultant assisted by a Government commission. The appraisal mission found that a shortage of cattle would likely inhibit the project, and that commercial banks were very reluctant to get involved because cattle were not acceptable as security under Guyanese law; also, they disliked the conditional nature of land titles. The mission made a few changes in the project: The development of a private livestock marketing company was dropped. Ten ranches were to be developed in the Rupununi (a frontier area), replacing 10 of the 25 ranches in the coastal zone proposed in the preparation report.1/ The project unit would be directed by an animal husbandry specialist supported by two deputies, 1/ The preparation report had already considered ranch development in the Rupununi as a relevant option for the project and had provided background material for such an eventuality in an annex. one a livestoce specialist and the other a specialist in administration and cooperatives.V 15. Project implementation was delayed and results fell short of appraisal goals. An OED study concluded that delays encountered in imple- mentation had been primarily due to the inappropriate and incomplete project design, which did not take fully into account local conditions and con- straints. The Borrower attributed these delays to the undue reliance the Bank placed on foreign consultants, but the Bank attributed them to the incomplete and incorrect data made available to the appraisal mission2/ together with (a) inadequate institutional arrangements, (b) lack of experienced local technicians and livestock producers, and (c) changes in Government policies and goals (PCR paras. 7.01 - 7.03). There are, obviously, some interrelations among all these factors. Project design needs to take into account the capabilities of domestic institutions and the experience of local people on whom the success of the project depends, as well as local ecological, resource and infrastructural conditions. 16. The following sections investigate and highlight in what ways the project design was defective, how the design was changed over the course of the project, whether these changes addressed the real defects, and what lessons are to be learned from the conception and implementation of this project. Technical 17. The development of 27 large private, cooperative and public ranches in the coastal zone and Rupununi was the largest and most important project component. The appraisal report is not explicit on the number of cooperative ranches that were expected to receive financial assistance through the pro- ject, but the preparation report specified 15. As noted above, only four cooperative ranches received any financial support. Only eight of the ten private ranches expected to be developed through the project received finan- cial assistance. Most of the ranches financed were much smaller than those envisaged at appraisal. Particularly, the cooperative ranches involved only a few members in contrast to 200 to 500 expected at appraisal. 18. The ranch development model at appraisal was essentially based on the Bank-s experience with livestock projects in South America and on one highly successful ranch being operated in Guyana -- the Booker's Kabawer ranch that encompassed 8,000 acres. Model ranches ranged from 10,000 acres and 5,000 animals in the coastal zone to 64,000 acres and 2,200 animals in the 1/ During preparation it was envisaged that the project director would be a cooperative specialist. 2/ OED Operational Policy Review. Delays in Project Implementation, the Supplement: Selected Case Studies, Report No. 2946, April 11, 1980, p. 57. Rupununi. Clearly, operations of such size require a high level of entrepre- neurship and management, especially in a country lacking in transport, com- munications and other infrastructure. There was no road transport in the Rupununi and only to part of the coastal zone. Much of the area in the coastal zone was accessible only by water transport and for the Rupununi the only practical means of transport was by air. 20. At the commencement of the project there was a lack of livestock technicians and managers in Guyana, especially of the skills required to operate ranches of the large sizes envisaged. Because ranch managers were expected to be needed soon, the general manager of LIDCO was expected to set up manager training schemes; the Bookers ranch was to provide practical training. No managers were actually trained at the Bookers' ranch and, because of long delays in appointing a general manager for LIDCO (not until February 1975), the training program was not initiated. By that time the lack of demand for managers was evident. Under the circumstances -- physical environment and size of ranches envisaged -- it is doubtful that even an outstanding training program could have developed managers who could have successfully operated the ranches. 21. All cooperative ranches of the project were required to be under the direction of a trained ranch manager who had to be approved by the Project Director. At the time of appraisal, it was customary that cooperatives were managed by elected officers and committees. 22. That cooperative ranches were required to have a professional manager turned out to be one of the strongest deterents to their formation in the coastal zone. At the time of appraisal, the owners of small herds in the zone were enthusiastic about forming ranching cooperatives. When they learned what the exact structure of the ranching cooperatives was to be under the project, they were convinced that they would have no control over the cooperative and would be without any assurance of benefits. Moreover, with the political developments of that period, under such an arrangement they foresaw the eventual take-over of the ranches by the Government. 23. As noted in para. 7, clearing of ranch lands in the coastal zone was expected to be done by chaining. Now, there is general agreement that this method was inappropriate considering the high water table and the tree stands and that the usual method of clearing by a bulldozer is definitely the supe- rior method. Institutional 24. A crucial element in the project design was the establishment of a Livestock Project Division - LPD - in the Central Bank whose function was inter alia to help prepare loan applications and ranch development plans for submission to commercial banks. It was also the responsibility of LPD to convince small farmers of the merit of pooling their livestock to form cooperative ranches. As noted above, LPD had little or no success in this -6- activity and the project suffered. For the first four years the Director of LPD was an expatriate without prior experience in Guyana. While this lack of experience likely was a slight handicap, it was not overwhelming. He was considered to have an adequate technical background (See PPAM para. 34). 25. IDA insisted that LPD be located in the Central Bank at the time of appraisal much to the concern of the Central Bank's Director and the Govern- ment. The Government wanted to locate LPD in an agricultural development bank (AGRIBANK) which it planned to establish. However, this bank was only estab- lished in 1973. The Bank readily agreed to such relocation of LPD in June 1974, but it was only transferred by the Government in December 1976. A major reason for this delay was the drawing up of an acceptable charter.!/ 26. Throughout the first five years of the project LPD's efficiency was hampered by this organizational location uncertainty. It never was fully staffed because of salary limitations vis a vis regular Government employees and lack of applicants for vacant positions. To fill essential positions, employees were seconded from the Ministry of Agriculture. After LPD was transferred to AGRIBANK it was assigned additional non-project work. More recently its staff has been reduced and its importance in AGRIBANK has declined. Similar project units have been established and have functioned well in other livestock projects supported by the Bank. In this case, there were too many physical and institutional obstacles for the LPD to achieve the objectives of the project (See PPAM para. 34). 27. A key institution building feature of the Guyana Livestock Project was to encourage and develop a program of long-term lending for agricultural development by commercial banks. As noted in para. 14 these banks were reluctant to commit themselves to the project during appraisal. They were concerned about making long-term loans for livestock development because under existing tradition and statute laws few ranchers held title to land which could be used as security. To remedy this situation, the credit agreement required that the Government grant renewable and transferable leases of 25 years to subloan applicants within 60 days of application. As further induce- ment to initiate long-term loans, a condition of effectiveness was that a law be enacted to permit cattle to be used as loan collateral. Further, the Borrower was to guarantee loans made for the development of cooperative ranches to be operated by Amerindians in the Rupununi. 28. Despite these changes to improve the security for lending for livestock development, the commercial banks never enthusiastically promoted such lending, partly because long-term land leases provided limited security and the prevalence of cattle stealing negated the use of chattel mortgages on cattle. When commercial banks did approve subloans, disbursements were delayed, inter alia, because most of their branches had to obtain final approval from regional offices located outside of Guyana. By the end of 1975 only eight subloans had been approved by commercial banks. 1/ See Borrower's comments, Annex 1, p. 2, para. 2. - 7 - 29. Because of the small amount and slow activity of the commercial banks, IDA encouraged and approved the inclusion of AGRIBANK as one of the participating banks in the project. It was anticipated and turned out to be true that AGRIBANK was more flexible in loan security requirements. It thus reduced the time between loan application and disbursements, and quickly processed a number of loans towards the end of the project. But because of the infrastructural and institutional environment that continued to exist, long-term lending for agricultural development by commercial banks was not developed as expected. 30. A factor related to prompt project implementation, essentially under the authority or control of the Government and a condition of effectiveness, was that the Government had surveyed and taken all steps necessary to grant leases for not less than 30,000 acres of coastal lands to ranchers within 60 days after sub-loan applications were made. It was anticipated at appraisal that because of the difficult access to the area and the need for quick surveys, aerial photography would be used. This approach proved to be not feasible because legal requirements prevented the use of aerial photography to demarcate boundaries and because of a complicated land tenure situation in the area - a mixture of freehold, leasehold and squatter-occupied lands. Eventually, aerial photography was used for part of the surveys carried out in the Rupununi but only ground surveys were employed in the coastal zone. The Government apparently had not understood the full implication of this survey covenant prior to negotiations. Delays in carrying out the survey work prevented the issuance of long-term leases, the lack of which was considered by supervision missions as one of the chief deterrent to granting of subloans until the last part of 1974. At that time about ten would-be Borrowers had been waiting for leases for up to one year. When this fact was brought to the attention of the Government, the problem was solved either through direct action or by an evolution of events, i.e. needed land surveys were completed by that time using on-site methods. 31. The Government was required, also as a condition of effectiveness, to set up a Livestock Advisory Committee consisting of the Governor of the Bank of Guyana, representatives of the Ministries of Agriculture and Economic Development, participating banks, cattle producers and the Project Director. The committee was to be responsible for general livestock policy. Although it was set up promptly, the committee seldom met and had little influence on the project. Its inaction has been noted as being responsible for not overcoming bottlenecks such as land surveying and granting of leases. 32. Under the project, LIDCO was expected to further develop and manage two existing Government-owned ranches, one in the coastal zone and one in the Rupununi, as models for other ranch development and to train ranch managers. It never fulfilled this role. The strong interest of banks and others in this investment noted during preparation and appraisal never materialized. Such private investment was a condition of effectiveness but was waived by IDA after some delay when the required funds were not forthcoming. Eventually, about a dozen private entities invested funds in LIDCO, but at the end of -8- 1979, the total of these amounted to less than 20% of total share capital, part of this represented token investment. LIDCO was to be directed by an international recruited general manager. Although some effort was made to employ a general manager early in the project, it was not until June 1973 that one was hired. He stayed only a few months. There is no information available on why he left. A new search was initiated without any success. Finally, an advertisement was placed in USA and Australian livestock journals that elicited a number of replies from candidates. These, together with a few other applicants, were reviewed by the LIDCO's Board of Directors. They selected a local applicant who was appointed and confirmed in January 1975. He has performed outstandingly up to the present time. The Bank may have con- tributed to this delay in finding a general manager because it only provided a short list of expatriates and did not suggest that the Borrower consider local experts. 33. The Government was not satisfied with the performance of the expa- triate Director of the LDP at the time the general manager of the LIDCO was appointed; having some reason then to appoint a Guyanian to the post. The Borrower did not like the arrangement of the Project Director's appointment. He was hired by IDA and seconded to the project. Because of the nature of this appointment the Borrower felt that the Project Director was more inter- ested in following directions from IDA than it carrying out its wishes and objectives. IDA staff maintain that the secondment arrangement was necessary to obtain a competent person for the position because of the uncertainty involved in two year contracts and of costs involved in finding and trans- ferring to another job if the incumbent's contract was not renewed or the project was completed. The Project Director's contract, after being renewed once, was not renewed a second time in 1975. 34. Cattle stealing or rustling, which was known to be widespread and a deterrent to livestock development during project preparation, has plagued the project up to the present time. IDA repeatedly brought the problem to the attention of the Borrower through supervision mission and correspondence. The Government tried to solve the problem by enacting special legislation and by providing military personnel to protect certain ranches. But because of their isolation, these efforts had little effect on cattle losses. B. Changes in Project Design during Implementation 35. After two years had elapsed and little progress had been made in lending for beef ranches, the Government requested in mid-1974 that part of the funds for ranches be shifted to the development of dairy enterprises. This request was prompted not only by the lack of lending but also by the increasing demand for dairy products in Guyana. The Bank, finally, approved this request in June 1975. However, it is not clear why approval took so long. At the same time, the Bank also approved the financing of imported water buffalos, see para. 9. - 9 - 36. Funding for dairy development was initiated by a subloan for devel- opment of the Moblissa Dairy farm, which had been owned by the Ministry of Agriculture and transferred to LIDCO in 1975. The Borrower later expanded the development plan to include a dairy settlement scheme which would accommodate 28 to 30 operators of small dairy farms -- 50 acres each -- in proximity to the Moblissa Dairy. These farmers were being driven from communal pastures around Georgetown by the expanding city. They were expected to receive vital support services including technical advice, artificial insemination, water, milk cooling, marketing and transport of supplies and milk from the Moblissa Dairy farm. The dairy settlement scheme was registered as a cooperative society in June 1977. Because of staffing and institutional problems neither the Moblissa Dairy farm nor the settlement scheme has been singularly success- ful. The dairy farm has been operating at a deficit and only five members of the settlement cooperative moved their cattle to the development area. The sub-project was hampered by confusion in the Government about implementation and follow-up responsibility. Further, a specialist in cooperative dairy farming which IDA stipulated as a condition for approving this scheme could not be hired. Finally, the water that was to be supplied by the Moblissa Dairy to the dairy cooperative turned out to be much more expensive than estimated and the cooperative scheme was finally abandonned. 37. The imported water buffalos were divided into three herds for investigating their potential for improving livestock production Guyana. Although the animals have shown some potential to perform well in Guyana they have been difficult to control and handle because of their ability to run over conventional fences and their destruction of improved pastures. Their useful- ness for supporting beef industry development in Guyana is still in doubt. 38. With the appointment of the general manager of the LIDCO in early 1976 and the lack of demand for subloans from cooperative or private ranchers the Government requested - and IDA agreed - to finance further development of other Government dairies and ranches that it planned to transfer to LIDCO. By the end of the project, the IDA credit had assisted in financing two additional beef ranches and two additional dairy farms. Another farm was transferred to LIDCO by the Government but did not receive financing and was closed in 1977. Although some progress has been made in raising the remaining farms and ranches to thriving commercial operations, their full development is hampered by their isolation, natural resource base and cattle stealing. LIDCO has had increasingly large deficits since 1977 (PCR para. 3.20). In order for LIDCO and the farms and ranches to survive individually, they will need a higher level of management and a large capital infusion from the Government. C. Conclusions 39. Shifting financial support from private to public enterprises has not succeeded in developing a thriving livestock industry in Guyana and the future looks bleak. Financing the expansion of the LIDCO has only served to disburse the remainder of the Credit; it has not resulted in the development - 10 - of a viable livestock industry in Guyana as envisaged at appraisal. The Government's current development program includes only a small project for the dairy industry and none for beef cattle development. The present development emphasis is on tree crops and agro-industries. 40. From the beginning, the project confronted too many obstacles. IDA's initial apprehension about financing livestock development has been borne out by the project history. Most of the anticipated problems materi- alized. The consensus of Bank staff and the audit is that livestock develop- ment should have been initiated more in the nature of a pilot project which would have sought to find economical solutions to existing problems. For example, a pilot project could have been initiated to determine the work- ability of cooperative ranches, which were the core of the project. Moreover, such a pilot project could have tested the viability of the technical package, as envisaged under the project, at the same time. -w11i- Rlt ANNEX 1 lie Phone: 68411. P.O. Box: 1007 Page 1 126, PARADE& BARRACK STREETS Cable: GUYAGBANK KINGSTON, GEORGETOWN, GUYANA Bankers: Guyana National Co-operative Bank Guyana Co-operative Agricultural &Industrial Development Bank Novembet 27, 1980 Mt. S. S. KapuA DiAectoA OpeAa,tions Evatua,tton Dept. I.8.R.D. 1818 H St., Wa6hington, D.C. u.s.A. DeaA Sik: In repty to youA tette&o Sep.tembet 23, 1980 Ae Pwject Petomance AudLt Repo.,t on Guyana .ivestock P&oject (CLedit 221 - GUA). I wUah to make the comment6 below. I have attached jot teJeAence, the Aeflevant z ection, oi the da6t utes 4ot tiveztock coope&ativeh and hope that you witt 6Znd theme uze6ut. Yown oopeAativety John C. VZ a Managing Dite oA JCY:ne - 12 - ANNEX 1 Page 2 COMMENTS ON THE WORLD BANK DRAFT PROJECT PERFORMANCE AUDIT REPORT Mot o6 the Repott z baicafU 6actual. The 6ottowing points, howeve.L, need cZtaigcation, expamion o coAAection as the case may be. 1) PaAa 6: The statement 'a numbet o6 pAivate tanches dum down on?y pat o4 the app'wved Loans when they 6ound otheA moe convenient souAces o6 6inancing" i, somewhat isle.ading. The 0amcunem who did not with- dcw afU o6 the 6uwc appatently joined the p- wject not because they coutd not 6inance the poject themfeflve6 noA became they wee genuinety inte.ested in the type o6 development outtined in the pu'ject but 6ot some otheA Aea.6on e.g. The acqui6ition oJ t-and on Leasonable teAms oA the p-'wmised technicat assistance. As poainted out Latet in the pawagAaph, the p)Loblem "was mo)Le geneaUy asociated with a decision not to invet". 2) Pa&a 17: "ALL Aanches actuatjI 6inanced' wete hot much 6matte:Athan those envisaged at appAalsal. Rupu-nuni Development Company's &anch at Dadanawa and Lidco'.6 PhaAa Aanch in the Rupununi, as well a6 Lidco'ls Kabawe& &anch and the AbaAy Cattle Company'. -anch at Ro66 Field weAe aLL elativetf LaAge Aanches. It mat be kemaAked, howeve, that the Dadanawa and Kabawe)L Aanches we.L establshed Aanche.s at the time o6 appALEa and we.e not anches at which the ctedit was oAiginaly aimed. Pa,ta6. 21-22: It is wr'ong to iAeA that the Law did not allow 6oA pw6esionally tained manageA o6 co-opeAative enteAp&sez; not wa,5 the Law changed to attow 4o thih pa&ticipation, &6nece .such change wab not necezzaU. The impoAtant change L the co-ope&ative Law deatt with how suApZu.6es we.Le to be attocated and attowed membe,m to be paid zuAptus6e in ptopo&tZon to theiA shaas above the 6% that the Law aflowed. 1) 1) Dia6t Rufe 46 [e) ..... /2..... - 13 - ANNEX 1 Page 3 The Committees o6 management 5tiU contAotted the a66iAz o6 the societies but thete. was the pAesumption that the P"ject Ditectot woutd have contAoing ingfuence on the Ranch Managew on tehncat rnatte,A. Th'ad Aee - 35, 36 and 37 ouftine the retation,ship between the Com4ittee and the Managet. PtLa. 25: The tvwth L that when it was (iAut estabfthed Live,5tocz PAoject VDivision took the Aeam of the Live,stock men then setving with the Misntathj o Agtlcuttke. The puobens auwse because: a) Bank o Guyana neve tAeated L.P.0, zta as tegutat Bank o6 Guyana 5ta4j and allowed plbten that coutd have been settled by 6Lum dec,sion to stide. b) Othe) inztLtutions establ:shed age L.P..D. we,w able to ojje,%mote attactive conditionA e.g. Lidco and Ag Bank. PaAa 35: It was haAdty tikely that Lidco would have been unwa,te o6 any assignment o Lesponzlbility to the Mobtiz.a Daiy 6a4mets. The 6o)tmeA Executive ChaiAman o Lidco was at the time the MobLL6a P'wject was prepaAed, the Pineipal AgacuLtuat O6ice& (Vet and Live,6tock Science). The pAesent chamian bA at6o the pAz6ent P)rncipat AgAicuttuAal 06ice. (Vet and Livestock Science) and was the 6oAmeA acting P-wject DiiLectoA - L.F.D. The tote oj Lideco wLthA pect to the MobZiAsa Co-op. had been woaked out by a Comittee which included both the 6oAme)L and the pAe- sent chaixmn oj Lidco. The 6uppLy o6 wate,L to the Co-opeAative Sociedty has not been e cgested because o6 the iniLtiat pubtema 6aced by the society. PROJECT COMPLETION REPORT GUYANA LIVESTOCK DEVELOPMENT PROJECT (Credit 221-GUA) - 15 - PROJECT COMPLETION REPORT GUYANA LIVESTOCK DEVELOPMENT PROJECT (Credit 221-GUA) I. Background 1.01 Agriculture and mining are the two main industries of Guyana. Within agriculture, the principal crops are sugarcane and rice, accounting for 44% of export earnings (1977/78 average). Fruit and vegetable production is adequate to allow self-sufficiency while grain crops and milk and milk by-products are imported to meet domestic demand. In 1978 the total import of milk and by-products amounted to US$13.2 million. Poultry and swine production are well developed and only eggs for hatching and chicks for rearing are imported. Indirectly these products represent high import costs, however, since practically all of the ingredients for feedstuffs are imported. While no reliable data are available on beef production, Guyana officials interviewed believe that annual per capita consumption continues to decline from the 16 lb reported at appraisal. No beef has been imported since 1976 when the Government prohibited it. Seafood is an important item in the local diet and is also a significant export product. 1.02 Guyana is divided into four distinct agricultural zones, the most important being the north coast where all of the rice and sugarcane is produced. It is also the most important area of animal production, with all poultry, pork and milk and at least 80% of the beef produced here. In general, dairy and beef cattle are part of a farming system which includes cattle and rice, with individual farmer cattle holdings varying from five to 200 head. Special- ized cattle farms do exist but in very small numbers. The second most impor- tant area for cattle production is the Rupununi savannah located in the southern part of the country. This is a region of highly acid soils with low innate fertility and with a marked dry season of about six months' duration. Beef production is the only industry of this region but, due to steadily worsening cattle rustling, it is estimated that the regional herd is on the decline. The Intermediate Savannah located south of the fertile coastal region consists of white and brown sandy soils with low fertility. This has been considered as an area with a good potential for cattle production but it has not developed due to sparse population and lack of infrastructure. The last geographical area is the northwestern part of the country. This area has cattle production potential but land clearing costs are high and there is very little infrastructure. Additionally, the region is very sparsely populated and there is almost no interest in migration to the area. 1.03 In spite of the existing physical potential, prospects for the growth of the cattle industry in Guyana do not appear to be very promising. Problems of land tenure, lack of commercial-scale cattle production tradition and experienced managers, and high risk of loss due to rustling indicate a stable or slightly decreasing production panorama in the immediate future. To the extent that cattle come to be included as a sub-component of the farming system in the development of drainage and irrigation districts, there could be an increase of milk and beef production, in the future, by smallholder farmers. There seems to be more of a trend, however, toward a double-cropping-rice production system, which, if successful, will tend to decrease the cattle population. - 16 - II. Project Formulation Identification and Preparation 2.01 The project was the first Bank Group livestock sector operation in Guyana. FAO in various missions previous to 1969 made mention of the livestock sector, indicating that pilot studies were needed to determine production techniques particularly relating to pasture production potential. The Deputy Prime Minister first mentioned Government interest in a livestock credit project at the Bank annual meeting in Washington in 1968. 2.02 A Bank mission in March 1969 discussed such a project with the Government, and the Deputy Prime Minister advised the Bank by letter in April 1969 that a Livestock Project Action Commission had been established to begin project preparation and that Government would contract a consultant familiar with Bank projects to coordinate this activity with the goal of presenting a formal proposal in late 1969. Further Bank missions visited Guyana in June and December 1969 to discuss the project, and the preparation report, prepared by a Bank consultant, along with the formal application for an IDA credit, was received in January 1970. Appraisal 2.03 At the invitation of Government, a four-person (two Bank staff and two consultants) appraisal mission visited Guyana for four weeks in February and March 1970. A follow-up, one-person mission visited Guyana in July 1970 to discuss outstanding issues. The appraisal mission found that a credit project to finance on-ranch development, purchase of land clearing equipment, performance of development studies and provision of technical services was technically and economically feasible. Final project costs were estimated at US$4.4 million, with 50% being provided by IDA, which would cover all foreign exchange costs and US$0.4 million equivalent of local currency costs. This financing would provide for on-ranch development subloans to 27 private, cooperative and Government ranches in the northern coastal and Rupunini areas. 2.04 The major problems encountered during appraisal dealt with: (a) institutional location of the Livestock Project Division (LPD); (b) terms and conditions of commercial bank participation; (c) organization of LIDCO, specifically with regard to the Government and private sector participation; (d) land tenure; and (e) lack of ranch managers in particular and ranching tradition in general. 2.05 Discussions with regard to location of the technical unit (LPD) revolved around the Guyana National Cooperative Bank, the Guyana Development Corporation and the Bank of Guyana. In spite of the objection of the Governor of the Bank of Guyana, Government finally decided that the LPD should be assigned to this institution. In retrospect, this seems to have been the only reasonable decision at that time since an agricultural development bank was still only an idea. Once such an institution, the Guyana Agricultural and Industrial Cooperative Development Bank (Agribank), was operative, LPD was transferred to it. -17 - 2.06 Both Government and the appraisal mission attached great importance to the formation of a livestock development corporation with public and private participation. 2.07 In the early stages of project discussion, consideration was given to granting or selling crown lands but at appraisal it was decided that the Government would provide 25-year leases which would allow for long-term invest- ments and theoretically would provide a viable guarantee to on-lending banks. After much discussion the Government promised to accelerate land surveying in order to provide leases within 60 days after application was made for subloans. The Government was to study use of aerial photography and compass bearings in addition to normal surveying to facilitate this activity. 2.08 At appraisal it was decided that the lack of farm managers would be remedied when a group of ranch manager trainees returned from a course at Tuskeegee University in the US and by training courses that would be provided by the LPD in cooperation with LIDCO. The related problem of lack of tradi- tional commercial livestock producers would be solved by establishing coopera- tive ranches of 5,000 to 10,000 acres. 2.09 The Yellow Cover Report for the project was distributed in June and the Green Cover in September 1970. Negotiation and Board Presentation 2.10 Negotiations for the project were held in Washington from October 12 to 15, 1970, and the project was presented to the Board on November 24. The primary issues during negotiations were (a) the necessity for new or revised legislation regarding long-term livestock loans and guarantees, provision for 25-year leases, and acceptance of aerial photograph and compass references in lieu of traditional surveys for allocating leases; (b) changes in rules for cooperative ranches to allow management by third parties without direct member participation; (c) establishment of a Livestock Project Division, the Livestock Development Fund, and a Livestock Advisory Committee within the Bank of Guyana; (d) surveying of 30,000 acres of land in the project area on the east coast prior to project effectiveness; (e) unrestricted importation of cattle and ranch inputs; (f) non-imposition of price controls; and (g) conditions of subsidiary loan agreements with commercial banks. All of these points were eventually resolved and all supporting legislation was subsequently approved by the Government of Guyana. Description 2.11 The project was to have provided credit and technical assistance to about 25 cooperatives, private or company ranches as well as to two ranches of the newly formed LIDCO. The General Manager of LIDCO would be internationally recruited and satisfactory to the Bank. Subloans would also be provided for purchase of heavy equipment for chain clearing of coastal forest land. Funds would be made available for developmental studies and technical services. -18 - 2.12 Activities of the project were to be carried out by LPD in the Bank of Guyana acting under the direction of a Livestock Advisory Committee consist- ing of representatives of the Ministry of Agriculture, the Bank of Guyana, the Ministry of Economic Development, the private sector and the LPD. The Project Director would be an expatriate employed by the Bank and seconded to Guyana. He would have two local assistant directors, one technical and one administra- tive. 2.13 On-lending would be carried out by participating commercial banks (PB's) and 75% of long-term loans would be discounted by the Bank of Guyana. PB's would provide all short-term working capital and 25% of the long-term loans. The five participating banks which eventually signed subsidiary loan agreements received a 3% spread on discounted funds other than for Amerindian cooperatives when it was reduced to 1% due to Government guarantee. On-ranch investments would include breeding cattle, pasture improvement, water points, fencing, ranch buildings, and machinery and equipment. The total long-term on-farm investment would be divided among IDA credit funds, participating banks and sub-borrower on a 60:20:20 ratio. Terms would provide for 12-year subloans with up to four years of grace. Technical and credit studies would be carried out by the LPD; participating banks would determine final credit- worthiness. Subloans of over US$150,000 would have to be approved by IDA. There was considerable doubt by the commercial banks as to the real value of a mortgage guarantee on leased lands, even when leases were for 25 years, and of the security of chattel mortgages on cattle with the high level of rustling; eventually, however, the banks accepted both as guarantees for the subloans. 2.14 An important feature of the project was the pooling of cattle owned by large numbers of smallholders to form large cooperative, commercially operated ranches (5,000 to 10,000 acres). The smallholders would receive shares in the cooperative according to number of cattle contributed but would not be involved in the operation of the ranch which would be carried out by a hired manager selected and supervised by the LPD. Cooperative ranches would also be organized in the Rupununi on Amerindian tribal lands. 2.15 Developmental studies would include pasture production, molasses-urea feeding and other cattle production trials, meat marketing and processing studies, and land clearing by chaining. Funds were also provided for local and overseas training of project technicians and local training for selected ranch managers. Targets and Goals 2.16 The primary objective of the project was to increase beef production in Guyana in order to increase domestic beef supply, reduce imports and develop an export potential to the Caribbean area. Most of the cattle were owned by smallholders on the coast who combined cattle and rice production and had an average of about 12 animals per family. Three large rice and sugarcane planta- tions on the coast also raised cattle and, although their numbers were insig- nificant in the national herd, they were considered important since these herds had relatively high productivity compared to the smaller farms and could serve as models for project farms. In the Rupununi area, there were a few exten- sively managed herds owned by private companies or Amerindian groups. - 19- 2.17 Given these circumstances, the project was designed to correct poor management practices by financing improved pasture, developing infrastructure and improving levels of management. So that coastal smallholder cattle could be handled more efficiently and productively, animals would be grouped on farms of 5,000 to 10,000 acres with a minimum of 2,500 head as the initial inventory per farm. LPD would provide extension services to private and cooperative reaches and would organize ranch manager training courses to overcome the scarcity of such managers in the country. III. Project Implementation 3.01 The credit was signed on November 22, 1970 and became effective on September 15, 1971 after two extensions, from March 1 to July 31 to September 15. The Association waived the condition of effectiveness which required the final structuring of LIDCO with private and public capital contribution. 3.02 Delays were caused by failure of the Government to implement legis- lation required for long-term lending, establishment of mortgage guarantees for lease land, authorization of Government guarantees for Amerindian subloans, provision for 25-year leasing of public lands, and exemption of the project cooperative farms from legal requirements which required member participation in ranch management. Slowness in establishing the Livestock Advisory Committee (LAC), creating the Livestock Development Fund (LDF) and organizing the LPD in the Bank of Guyana, as well as in surveying 30,000 acres of coastal lands (a condition which was eventually waived), also contributed to the delay in effectiveness. 3.03 In compliance with the credit conditions, the Association, after consultation with the Government, appointed a Project Director in September 1971 and seconded him to Guyana. The Government, with IDA approval, then appointed two assistant directors, Dr. Patrick McKenzie for technical matters and Mr. R. Harricharan for administration, as well as two credit technicians. 3.04 The expatriate resigned as Project Director in 1975 after one renewal of his contract and Mr. McKenzie was made Acting Director at that time. Mr. B. Phillips was appointed as assistant director, administration in 1974 and became Acting Project Director in 1976 when the LPD was transferred to Agribank and Dr. McKenzie returned to the Ministry of Agriculture. Seven credit technicians were attached to the LDP over the life of the project but never more than two served at the same time. During negotiations, the Bank of Guyana resisted having the LPD located within its organization since this was not considered a normal Central Bank function and there were problems regarding the hiring of employees. This was partially resolved by seconding high level technicians from the Ministry of Agriculture although the credit technicians had to be hired directly without being classified as employees of the Bank of Guyana or of the Ministry and thus did not have the normal civil service benefits. This problem persisted since, in fact, the LPD was never accepted as an integral part of the Bank of Guyana, and, after the resignation of the expatriate Project Director, i. .as not possible to obtain Government approval of a local director so that the post was filled by an acting director until - 20 - transfer of LPD to Agribank. In addition, LAC did not function and the administrators of LPD had great difficulty in resolving the problems they encountered. Since there was no viable alternative institution to house the LPD at project initiation, there should have been greater IDA and GOG efforts to convince the Governor of the Bank of Guyana of the desirability of cooperating with project implementation. IDA staff assumed that this was a temporary location of LPD pending the establishment of a more appropriate institution. 3.05 While the performance of the expatriate Project Director has been criticized by Government officials and in an OED study, it is difficult to place too much of the blame for poor project implementation on him, given the many problems which confronted the project. He could possibly have been more forceful in seeking earlier resolution of a few of the problems and could have been less tied to appraisal development models, but it is doubtful that he could have been successful in avoiding the major underlying difficulties which delayed implementation. The Project Director was technically competent and, he, along with the local assistant directors and the credit technicians, performed reasonably well under the circumstances which existed. Coastal Cooperatives 3.06 As indicated earlier in this report, one of the more innovative aspects of the project was the proposed establishment of large cooperative ranches to be operated on a commercial basis by managers appointed by LPD. During preparation and appraisal, local technicians and producers assured IDA staff of the practicality of this system. However, after the project started, it became clear very quickly that owners of small herds were not interested in participating in such a scheme in spite of heavy promotion by project staff. Perhaps the appraisal mission should have anticipated this problem from previous Bank experience. These coastal farmers had traditionally practiced a mixed farming system with rice and cattle, under which cattle grazed fallow land and community pastures as well as harvested rice lands. At the same time, cattle represented a "bank account" for the farmers and animals could be converted to cash whenever emergencies arose or rice income was depleted. Understanding this, it should have been no surprise that these farmers were unwilling to turn over their animals in exchange for a document which they knew from the start would represent no income for several years. Also, under the scheme, they were not to have the right to withdraw cattle or to participate in decisions on management. The problem must also be analyzed against the background of widespread cattle rustling which the farmer felt that he could partially deal with when cattle were kept close to his house but doubted that surveillance would be sufficient on a large ranch. There were also rumors at the time that the Government planned to nationalize all cattle and the movement to a Government-sponsored ranch may have been seen as a first step in this process. The fact that the country lacked adequately trained and experienced managers to operate such ranches, while true, probably had little or no effect on the rejection of this project component. 3.07 The project administration sought to explain to potential beneficia- ries the benefits of this livestock management system but to no avail. Perhaps, if instead of maintaining the appraisal model of 5,000 to 10,000 - 21 - acres with a minimum of 2,500 head of cattle, the LPD had adopted a flexible approach to allow an individual or a family of farmers to develop a portion of their land for cattle production with improved pasture, fencing, disease control and other project-assisted management and infrastructure improvements, there could have been some success in increasing livestock production in this geographical area. 3.08 One smaller group of producers with larger-than-average cattle holdings (meeting the 2,500-head requirement) accepted in principle the idea of the cooperative ranch, but once they, along with project personnel, began to look at the lands which had been selected for these cooperative ranches, they found a number of problems. First of all, it was very difficult to locate 10,000 contiguous acres due to the variety of free-hold, lease-hold and squatter settlers. Second, the area was so isolated that it would be next to impossible to bring in supplies, keep personnel, control rustling, and provide supervision. Entry to the ranch designated for this group was by road, ferry, small boat, on foot, and horseback. Needless to say, the group decided against the loan. One of the members obtained 2,000 acres of lease hold-land closer to a highway and received an individual subloan. Private Ranches 3.09 Other factors also had a negative effect on the acceptance of leases and subloans by individual farmers. In late 1968, there was a rebellion of ranchers in the Rupununi and several of the larger producers had to abandon their herds and ranches and migrate to Venezuela and Brazil. One of the alleged reasons for the revolt was the fact that ranchers had to accept leases on a year-by-year basis which maintained their investment in jeopardy. At the same time, the Government was in the process of forming a "Cooperative Republic" and there was significant nationalization of private businesses. In the early 1970s the Booker ranch, which, at the time, was the most skillfully managed operation in the country, was nationalized and turned over first to the Guyana Sugar Corporation and later to LIDCO. Generally, in Guyana and especially in the Rupununi, there was little or no experience in regard to what returns could be expected from investments in ranch infrastructure, pastures and improved cattle. Also, the lack of land transportation in the Rupunini made it necessary to transport all inputs and production by air, and this increased operating costs considerably. Additionally, any investments made by the rancher committed him to higher levels of inputs (seed, fertilizer, spare parts, fuel, livestock, minerals, and such) but did not assure him that the income from increased production would cover his costs. There was the further complication of widespread, almost uncontrolled, rustling of cattle in both the coastal area and the Rupununi. In the latter, there were also sporadic outbreaks of foot-and-mouth disease which could prevent a rancher from marketing his cattle for six to 18 months or longer because of quarantines. 3.10 Considering all the uncertainties, it is perhaps more surprising that some producers did take subloans than that fewer than projected at appraisal participated in the project. Moreover, there seems to be little that the LPD or IDA staff could have done to remedy these problems quickly. Perhaps prior long-term research and demonstration efforts to provide data - 22 - on the returns to be expected from specific investments would have been helpful but such studies, which were financed by the project, were limited in scope, conducted concomitantly with project lending and were carried out only for one year. Amerindian Cooperatives 3.11 Lending to Amerindian cooperatives in the Rupununi did not materialize and this was due more to the absolute lack of experience with credit, commercial cattle raising and improving management than to the factors affecting private producers outlined previously. Land Surveys 3.12 One condition of project effectiveness was the previous surveying of 30,000 acres on the northeast coast for eventual leasing to project clients. It is not clear to what extent this condition was met, but, because of the innate problems of the area selected due to geographic isolation and extreme rainy season flooding, it would have had little effect on project progress. One thing that did seem to decrease project lending or at least land leasing, during the project was lack of adequate personnel in the Ministry of Agriculture to survey private and cooperative farms in more desirable locations. LPD and IDA staff continually but unsuccessfully pressed the Ministry to fulfill the project commitment to survey land within 60 days of submission of a credit application. This was not because of lack of interest by Ministry but because of severe budgetary limitations; inability of farmers to pay for the survey before receiving the credit, which could not be approved without a survey; and tremendous problems concerning land occupancy variations and claims encoun- tered by surveyors when they were working. Some delays were experienced in the Rupunini although aerial surveys and compass bearings for setting lease lines were accepted in lieu of normal surveys, but they probably had little effect on subloan demand. Participating Banks 3.13 Early supervision reports called attention to the problem of long delays on the part of the participating banks in subloan approval and legal- ization. This was undoubtedly complicated by the fact that some of bank branches did not have authority to approve such subloans locally and were required to forward applications to regional or head offices. Once a subloan was approved, the delay in legalization was primarily due to bureaucratic ineptness on the part of low level Government employees. Perhaps more significant than an analysis of delays incurred is a discussion of why these banks participated at all, considering that there was little tradition of long-term lending in the agricultural sector and none at all in livestock; the banks had serious doubts as to the real value of a mortgage on lease-hold land when such leases did not have an established market value; they bad little confidence in the value of chattel mortgages on cattle since there was such widespread rustling; they had not had previous contact with most of the proposed sub-borrowers; and they had no in-house expertise on which to draw to evaluate the subloan proposals prepared by LPD. The banks were required, except when Amerindian subloans were involved, to carry the full risk of the investment and short-term working capital loans. - 23 - 3.14 Given all these factors, one might think that perhaps the banks entered the project on paper but without any particular enthusiasm. Again, one must recall the political environment at the moment and the uncertainty of the private sector with regard to its future operations. 3.15 In 1973 the Cooperative Agricultural Development Bank, later named the Guyana Agricultural and Industrial Cooperative Development Bank (Agribank), was formed and the Government expressed an interest in transferring LPD from the Bank of Guyana to either this new bank or an Agricultural Development Corporation. Therefore, in 1976, a formal agreement was presented by the Government and approved by IDA to transfer all project responsibilities from the Bank of Guyana to Agribank. With this transfer, however, LPD seemed to be unable to continue giving full-time attention to the project since project personnel, in addition to handling subloans for 221-GUA, were assigned other responsibilities within the Agribank. However, given the low level of project activity, this did not adversely affect loan disbursement. 3.16 PBs that had previous subloans maintained them in their portfolio but did not participate in further lending after transfer of the LPD, and, in just over two years, the remaining project credit funds were fully committed and in three years completely disbursed due to the increased demand from LIDCO ranches. Livestock Development Company (LIDCO) 3.17 The second most significant component, after the coastal coopera- tives, was the formation of LIDCO. At appraisal this was projected to be a mixed capital corporation, with the Government holding 51% of the shares and the private sector 49%. The Government contribution was to be mainly equity transferred to the company in Government-owned farms while the private sector would purchase shares with cash which would provide operating capital in the early years. Originally, it was supposed that a portion of the private capital might be contributed in cattle. Two ranches, one on the coast (Mara) and one in the Rupunini (Pirara), were to be transferred to LIDCO from the Government, and, at the time of project identification, preparation and appraisal, discus- sions regarding participation were being conducted with two North American ranchers, the Commonwealth Development Corporation and Bookers Ltd., the latter having extensive agricultural and commercial holdings in Guyana. Dis- cussions were also held with private banks and insurance companies. Of the initial group, only Bookers (with .52% of the shares) invested in LIDCO. From the limited information available, it appears that other potential investors decided not to proceed because of a concern that the Government might inter- fere in management and operations to the detriment of the company. Eventually four banks (one a Government Bank), four insurance companies, three private agricultural companies and two Government corporations purchased 42.3% of the shares. In subsequent years with the transfer of Government equity in other ranches and a milk processing plant to LIDCO, this "private" participation has eroded to about 8.5% of which about half is held by other Government corporations (4.74%) (Annex 1). This change in equity is due to an increase in capital of LIDCO brought about by new acquisitions which were wholly Government contributions since no new minority holder participation was forthcoming. - 24 - 3.18 Project agreements required the hiring of an internationally recruited manager of LIDCO acceptable to the Bank and the Project Director sought diligently to find an expatriate for the post. Finally, in May 1973, he was able to name a candidate. This followed by three months the organiza- tion of the Board of Directors of LIDCO. However, for reasons which could not be ascertained, the General Manager resigned after a few months and a local General Manager was named in January 1975 after considerable discussion with IDA. IDA was not able to finance the contracting of this individual since a restriction existed in Project Documents, limiting expenditures to foreign exchange costs, but the individual contracted still holds the position and has done an outstanding job. There is no question that the delay in hiring a General Manager had a negative effect on LIDCO development and it is unclear as to why IDA and Government were not able to reach an earlier agree- ment on the contracting of a local manager. Given the changes which were made from time to time in the project documents, it would seem logical to have adopted measures to allow at least partial reimbursement of the salary for a local General Manager from project funds since he was to have certain obliga- tions to LPD, specifically in the provision of training programs for ranch managers. 3.19 In addition to the two original ranches with which LIDCO initiated operations, the Government has transferred five more ranches and a milk processing plant to the Company (Annex 2). Since all of the ranches are in the initial stage of development and have required, because of their geograph- ical isolation, rather large but non-productive infrastructure investments (housing, water and electric systems, roads, and such), the company suffered and continues to suffer from cash flow problems. This was further complicated by the transfer of the milk processing plant, which had been a financial drain, first for the Ministry of Agriculture and later for the Guyana Marketing Board. At present this facility is responsible for about 40% of the LIDCO's annual losses. These financial problems have been aggravated by the alarming rate of rustling at the Pirara, Mara, and Kabawer ranches and by the failure of Government to provide a G$ 1.25 million contribution as agreed at the takeover of the ranches. 3.20 LIDCO's financial situation is sufficiently serious to cause con- sideration to be given to possible bankruptcy. At present, it is not able to make interest payments to Agribank, which would be placed under great financial strain should the company fail to continue operations and meet its debt service obligations. There is still the possibility of salvaging the Company if the Government provides about G$ 3.5 million over the next three years, a period that would allow the herds of the various ranches to increase production of milk and meat to cover operating posts and debt service. During this time, the milk plant would increase capacity for processing fresh milk and reconstituting donated powdered milk with equipment provided by the EEC. This will alleviate, if not eliminate, deficits in current operations. The Company has already made significant reductions in operational costs of the plant and has increased efficiency. The main question with regard to this facility is whether the original buildings and equipment can be utilized for a few more years before large expenditures for renovation or replacement are required. The most recent financial data on LIDCO is presented in Appendices III and IV, which show a deficit of G$ 1.7, G$ 2.8 and G$ 4.4 million for years 1977, 1978 and 1979, respectively. 25 Land Clearing 3.21 A component of the project provided for a subloan to a contractor for,the purchase of heavy tractors for land clearing mainly on project farms. In both the preparation and appraisal reports, a clause was included which allowed clearing only by the chaining method, but, after the Project Director had consulted with equipment companies and knowledgeable individuals in neighboring countries, it was decided that, for the wet marshy lands of the project area, this system was not suitable and, in March 1972, the Project Director recommended that heavy equipment be financed for blade clearing of land. Local contractors, however, showed no interest in this subloan and it was suggested that the Ministry of Agriculture form a land clearing company utilizing project funds for equipment purchase or, failing this, that LPD should assume the function. Fortunately, neither proposal reached fruition, and in 1975 this category was amended to read "for farm and ranch development equipment." As a result, a subloan was approved in October 1976 for the purchase of two heavy tractors, which were then contracted for work on the clearing of the LIDCO Moblissa Dairy and the Moblissa Dairy Cooperative. Unfortunately, however, the beneficiary has had serious difficulties in obtaining work since this time and has failed to meet interest and capital repayments to Agribank. Demonstrations and Studies 3.22 The original project proposed demonstrations on pasture production, cattle supplemental feeding using sugarcane by-products, and animal production trials. A study was to have been conducted on improved marketing and process- ing of livestock products. 3.23 In 1972 agreements were reached between LPD and the Ministry of Agriculture that representatives of the latter would conduct trials on pasture production and livestock grazing trials, mineral feeding to cattle and use of urea molasses mixture in the Intermediate savannahs, the Rupunini and the Northwest District. Basically, the pasture trials consisted of planting a mixture of legumes and grasses with and without phosphate fertilization and obtaining clipping and grazing data. Observations were made and data were collected during one year. A rather complete analysis of the results of these trials is given in the summaries and conclusions presented for each in a report by the Ministry and LPD. The following are quoted from the report: (a) "The conclusions which can be drawn from the study are limited since only one sample was taken. In addition, there was no follow up to review the individual effect of the two types of phosphatic fertilizer." (b) "It was anticipated that additional samples would be taken at six-week intervals for a period of at least one year ... but this was not done." (c) "The result from this (one year) trial seems quite encouraging. It would seem advisable to persist with work of this nature to determine the optimum stocking rate of their grass/legume combination." "The trial was concluded on June 20, 1974 after 308 days." - 26 - (d) "Unfortunately, no results are available for chemical composition as the samples were mislaid at the plant analysis center at the Central Agricultural Station, Mon Repos." 3.24 The preliminary data produced by the trials will be used in designing demonstrations now being discussed by the Ministry of Agriculture and the International Tropical Research Center (CIAT) in Colombia. These studies will be conducted mainly in the Intermediate and Rupunini savannahs. 3.25 In 1975 the Government requested, and IDA approved, the expenditure of a portion of the funds meant for studies to import meat-type buffalo from Australia. The herd would be divided among three ranches--two operated by LIDCO, which would study the meat production potential, and one at Mon Repos, the Ministry of Agriculture Research Station, which would import milk-type buffalo bulls from Trinidad to upgrade the animals. In addition to covering the purchase of the animals, the project provided funds for construction of infrastructure, purchase of one tractor and improvement of stock-handling facilities for management of the herds. 3.26 At Ebini, the buffalo herd has been a source of continuous problems. It has destroyed fences and grazed on the improved pastures of both the beef and dairy units. The animals have also invaded a stream which was used for drinking water by cattle and humans as well as a bathing area, possibly causing serious gastro-intestinal problems for the workers, cattle and buffalo, but this has not been confirmed. The herd also crossed into an agricultural area of a nearby Guyana National Service camp and some of the animals died as a result of ingesting insecticides. The death rate of this herd has reached about 40% and plans are being made to transfer it to Mon Repos. 3.27 The second herd at Mara has been running free on this large ranch and the management has not been able to control it. Because of their tendency to tear down fences to get to areas of best pasture, the buffalo have basic- ally destroyed all recently planted improved pastures and have had a detri- mental effect on the cattle program. While it has not been possible to maintain production records on these animals, the herd is increasing and seem to have adapted well to the area. Also, there have been no problems-with rustling of these animals, possibly because of their temperament. 3.28 The third herd at Mon Repos has been the best managed of the three herds. Unfortunately, there was a long delay in the arrival of bulls from Trinidad and about one year was lost before the females were in calf. A 66% calving rate was achieved the first year with a three percent death rate. Average birth weights were 37.5 kg and average daily gains to weaning were 0.76 kg. This herd has also had management problems due to lack of adequate infrastructure. It has been necessary to limit grazing to 8.5 hours per day and enclose the herd at night to prevent rustling. The taming of the original herd to allow milking of the cows has not been achieved but efforts are being made to improve the temperament of the calves by separation from their dams and providing a more strict management program. 27 3.29 A study was to have been financed on marketing and processing of beef based on appraisal projections of an export potential to the Caribbean market. Terms of reference were drawn up and bids from international consult- ing firms were requested in 1974. After the bids were received, the Government indicated an interest in expanding the study to include the preparation of a second-stage Bank project, but, after discussions between IDA and the Government, it was decided, in late 1974, to postpone the study due to delays in project implementation. The study was never conducted. 3.30 The major shifts which occurred in the project were the change from a cooperative-type ranch to a commercial-type operation on state-operated farms; the inclusion of dairy farms in addition to beef; the importation of buffalo for development studies; the cancellation of the beef marketing and processing study; and the transfer of the Project Unit from the Bank of Guyana to an agricultural development bank. With such major changes in project orientation, a comparison of appraisal estimates with actual results is of limited value; however, the data on numbers of sub-borrowers and on-farm investments are included in the following tables: Disbursements by IDA 3.31 As has been indicated the Project proceeded at a slow pace until the last four years. Bank disbursements were 5, 7, 8, 11, 23, 45, 64, 97 and 99 percent of total credit in FY's 1972 through 1980 respectively. The Bank of Guyana and later the Agribank maintained the disbursement requests up to date and no major problems other than implementation delay were encountered in disbursement by IDA. - 28 - Table Sub-loan Approvals and Disbursements Number of sub-loans On-Farm Investment - US$'000 bub-borrower A.E. Actual Approved Disbursed contribution Coastal Ranches 14 7 Private 5 245 175 84 Cooperative 2 61 32 6 Intermediate Savannahs 1 1 Private 0 Cooperative 1 586 220 0 Rupununi 10 4 Private 3 99 76 201 Cooperative 1 35 32 6 Livestock Development Co. 2 6 2/ Coastal 1 2 910 892 1079-= Intermediate Savannah 0 3 759 757 1 30 4-/ 2/ Rupununi 1 1 117 117 76- Land clearing Equipment 1 170 170 79 1/ Appraisal Estimate 2/ Includes Government Equity and New Investments. - 29 - IV. Agricultural Impact 4.01 The impact of the project cannot be measured with any degree of accuracy at this time since the bulk of the credit was used by LIDCO during the last three years of project implementation and these herds are still in the developmental stage. The effect of the six LIDCO farms on beef and milk production in Guyana can, however, be significant, both through direct pro- duction and through serving as a model to be followed by other producers if the Company survives the present (1979-81) cash flow crisis. 4.02 Production data are available for only two of the remaining 12 credits and although there was an increase of 47% in herd size (1,092 to 2,069 head) the impact on national production is insignificant. Information provided by project technicians regarding the development of the other 10 ranches indicate little or no growth in either production or productivity and, in any case, the combined size of their herds would only be approximately equal to the two ranches which did report. 4.03 A summary of changes in herd size of the six LIDCO Company ranches, one private Rupununi ranch, and one Rupununi cooperative is proviie in the following table. Subloans were made to Rupununi Development Company in 1973, Pirara Ranch in 1976, Amai Livestock Producers in 1975, Mara Ranch in 1976, Kabawar and Moblisa in 1977 and Ebini Beef and Dairy in 1978. Changes in Herd Size on Eight Farms Before Project Actual (1979) Mature Bulls 461 445 Young Bulls 40 391 Cows 5,640 6,063 Calves 2,232 1/ 2,232 1/ Heifers 1-2 1,340 2,267 Heifers 2-3 1,020 829 Heifers 3-1 6 161 Steers 1-2 944 1,637 Steers 2-3 561 265 Steers 3-4 226 35 Steers 4-1 195 6 Total: 12,514 14,055 1/ May be due to difference in time of inventory since one would expect more calves in 1979 as occurs in other categories. - 30 - 4.04 The analysis of these limited data indicates an increase of about 12% in reproduction based on number of 1-to-2-year-old stock although the average calving rate is probably still well below 50%. It must be remembered, however, that on at least four of the eight ranches, rustling has been and continues to be a major problem so that biological productivity cannot be accurately measured and the reproduction rate may be considerably higher than indicated. V. Rate of Return 5.01 The rates of return presented are based on the six LIDCO ranches which have completed only two to three years of production after investment. The major indicators of productivity are based on projections and make the assumption that rustling will be brought under control and sufficient operat- ing capital will be available to LIDCO to maintain minimum levels of animal and pasture management. .The rates of return on other beneficiary ranches may be assumed to be about the same since although productivity may be lower, the administrative and infrastructure development costs will not be nearly as high as on LIDCO ranches. 5.02 Financial rates of return for six LIDCO ranches range from -0.8% to 3.6% and overall rate of return is about 2%, as shown in Annex 5. No financial rate of return was calculated at appraisal for comparison. Slow production increases adversely affected the financial performance of these ranches and caused LIDCO serious financial problems (para 3.20). Sensitivity analysis of these rates are shown below to indicate that financial performances are not sensitive to changes in parameters, but that the changes in benefits will have more impact than those in costs. Sensitivity Analysis (b) (c) (a) Benefit Operating Combination LIDCO Ranches Base Case Down 10% Cost Up 10% of (b) and (c) Kabawer 3.6% -0.4% 0.6% -4.4% Mara -0.8% -2.2% -1.5% -3.1% Ebini (Beef) -0.2% -2.0% -1.3% -3.2% Pirara 3.3% 2.2% 2.8% 1.5% Moblisa 1.8% 0.4% 1.3% -0.2% Ebini (Dairy) -0.1% -0.8% -0.1% -0.8% Total LIDCO 1.9% -0.7% 0.2% -2.8% - 31 - 5.03 Economic rate of return was calculated on the following assumptions: (a) 1979 constant price of beef, based on Georgetown CIF price of US$2.95/kg carcass weight in 1980 as projected by the Commodities and Export Projections Divisions; (b) shadow foreign exchange rate of G$ 3.00 per US$1.00 was applied; (c) no changes were made for milk price, since financial price of US$0.15 per liter happened to be the same as the reconstituted milk price; (d) all taxes and duties were excluded from financial costs; and (e) technical assistance costs were assigned to LIDCO ranches with proportional share similar to the investment amount. The economic rate of return calculation was made for LIDCO ranches, as explained in para 5.01, as well as the sensitivity analysis as shown below and Annex 6. The resulting economic rate of return was 1%, as compared with 20% at appraisal. The project is not expected to be viable economically nor financially. Sensitivity analysis also shows that future increase in production would affect the economic viability more than changes in costs. Sensitivity Analysis (a) Base Case 1.0% (b) Benefits Down 10% -1.0% (c) Operating Cost Up 10% -0.3% (d) Combination of (b) and (c) -2.5% VI. Institutional Performance and Development 6.01 The formation of a project preparation committee for this project was the first programmed activity in Guyana to promote the development of livestock production and long-term credit. The members of this committee constituted the local staffing base for project implementation, and the directors as well as the credit technicians are still actively engaged in the livestock sector in the country. Thus, some 10 individuals were trained in the preparation of farm and ranch development plans, credit studies and financial projections. Three of the project technicians continue to work with Agribank and, in addition to their responsibilities for supervision of project beneficiaries, are working in credit programs for livestock producers using local funds and assisting in the training of other Agribank staff in credit analysis. The Chief Livestock Officer of the Ministry of Agriculture, - 32 - who was Acting Project Director, credits the IDA program and specifically the Project Director with the training of the local staff. Thus, in spite of the difficulties suffered by the Project Unit in the Bank of Guyana and Agribank, which were discussed earlier, and dilution of LPD functions, there remains a small group of trained individuals to provide a basis for future projects in livestock development utilizing local or foreign source financing. Unfor- tunately, neither the state of development of the ranching industry nor the investment climate is favorable for a major project at this time. 6.02 One of the goals of the project was the development of a training program for local ranch managers. While mention is often made in the files of preparation of such a program, none was ever initiated. This training was to have utilized the facilities of Bookers ranch and the LIDCO ranches; how- ever, the former was nationalized and the latter suffered delays in organiza- tion and program implementation. While this training program was needed due to a serious deficiency of middle-level technicians, the lack of development of projected project farms would have caused frustration for trainees due to unavailability of employment opportunities. The manager of LIDCO is providing on-the-job training for the managers of the company's six ranches. 6.03 The development of LIDCO was a direct result of the project. The failure of the original private investors to participate would have been fatal to the organization if it had not been for the efforts of project staff, and specifically the Project Director, to convince local banks, insurance companies and Government corporations to participate in LIDCO. However, project manage- ment should have been more influential in slowing the too rapid growth from the originally planned two ranches to seven production units in a relatively short time and before management could be consolidated. At the same time, however, the project would have been delayed even further or a larger balance would have been cancelled if the development of the additional ranches had not been financed with credit funds. VII. IDA Performance 7.01 Discussions with Bank personnel involved with the project at the early stages led to the conclusion that the project was prepared because the Government was very keen to have it. However, there certainly should have been strong warnings to the preparation and appraisal missions that the lack of: (a) a basic local cadre of practically trained livestock credit techni- cians; (b) an appropriate institution desirous of promoting long-term livestock development and credit; (c) commercial livestock production tradition; (d) an established system of land tenure provisions; and (e) experience in long-term lending would create serious difficulties in project implementation. Given these factors and the additional uncertainties created by the rancher uprising in the Rupununi and the socio-political environment created by the change to a Cooperative Republic, it seems natural to question whether it was propitious to attempt a full scale, albeit small, project in lieu of a pilot program to determine recommended production systems and create the infrastructure for a credit project. In retrospect, it seems that the preparation and/or appraisal mission should have suggested a different format for the project. - 33 - 7.02 In spite of this inauspicious environment for a project, there are specific lessons to be learned from project preparation and implementation. First, local project personnel felt that the appraisal mission had taken the preparation report too much at face value instead of carefully analyzing the project components. Specific problem areas which perhaps should have been perceived by the preparation and appraisal teams and given more attention were: (a) probable lack of credit demand due to investment climate and lack of livestock tradition; (b) impracticality of widespread acceptance of cooperative production schemes by small-scale livestock holders; (c) problems of develop- ment of the proposed new coastal area due to lack of infrastructure and severe flooding and drainage problems; (d) difficulty of attracting private capital for LIDCO formation and development; (e) inability of Government to provide leases at the rate anticipated, given the lack of previous land surveys and land tenure studies in the entire coastal region; and (f) inadvisability of placing such a rigid restriction on the land clearing technique to be utilized. 7.03 During implementation, particularly in the early stages, there are indications of inflexibility in the application of credit conditions. However, both project leadership at the local level and supervisory personnel should have been aware of the inappropriateness of these conditions and adapted the design to better fit the local situation. In the case of local staff, their lack of experience with such projects might explain their failure to respond, the expatriate Project Director eventually initiated several changes but at such a later date that it appears that he was not aware of his authority or responsibility in this area. In the case of supervision, the lack of contin- uity in supervisory personnel leads to the conclusion that, although these problems were frequently mentioned in reports, there was no individual follow- ing the project closely or frequently enough to effectively initiate required changes. Some of these problems were: (a) lack of Government activity to provide a permanent status for LDP; (b) restrictiveness and inapplicability of chaining as a land clearing method; (c) unrealistic cooperative farm size and herd numbers, requiring a reduction in both; (d) inability to locate an expatriate manager for LIDCO and the availability of qualified locals to fill the position; (e) unacceptability, for various reasons, of the geographical area originally designated for new cooperative ranch development and the necessity to identify new areas; (f) failure of cooperatives to be organized as quickly or in the numbers anticipated, which required a shift in project emphasis; (g) inability of the Government to provide survey service as rapidly as required; (h) extreme delays by PBs to formalize approved credits; (i) lack of follow-through on demonstration studies; and (j) failure to organize ranch manager training courses. 7.04 It should be noted that IDA did amend the project to allow for lending to dairy producers even though the credit demand was not as high as anticipated. There was also a significant change in allowing the importation of buffalo as part of the demonstration studies. An additional IDA input of importance was the selection for EDI training of two Guyanese technicians, one of which became project director in Agribank and the other is General Manager of LIDCO. - 34 - VIII. Conclusions 8.01 At appraisal great emphasis was placed on the development of large cooperative farms but this goal was not achieved and instead a total of 77% of credit funds were utilized by Government farms which are still in an early developmental stage thus making an analysis of project impact difficult. Data were not available to measure the effect of the project on the 12 nougovernment farms but project staff indicated that it was not significant. 8.02 Project implementation was delayed and results fell short of appraisal goals due to: (a) inadequate institutions through which to develop the Project; (b) lack of experienced local technicians and livestock producers; (c) changes in Government policies and goals; and (d) inappropriate project design. - 35 - ANNEX 1 DESCRIPTION OF LIDCO SHARE DISTRIBUTION Initial Contributions and Percentage Holdings Acquisitions Share 1970 1975 1976 1977 1977 1978 Holder Initial Ebini Moblissa Kabawer Arakaka Milk Plant $G '000 Z Z Z % Government 1,154 52.1 77.4 86.6 88.1 88.9 89.2 Banks Barclays 150 4.8 3.2 1.9 1.7 1.6 1.5 Noeva Scotia 100 4.5 2.1 1.3 1.1 1.0 1.0 Guyana National Coop. 150 4.8 3.2 1.9 1.7 1.6 1.5 Royal 150 4.8 3.2 1.9 1.7 1.6 1.5 Insurance Companies Hand-in-Hand 25 1.1 0.5 0.3 0.28 0.26 0.25 Guyana and Trinidad Fire 50 2.2 1.1 0.63 0.6 0.5 0.5 Guyana and Trinidad Life 50 2.2 1.1 0.63 0.6 0.5 0.5 America Life 10 0.45 0.2 0.12 0.11 0.11 0.1 Agriculture Companies Rupununi Development 20 0.9 0.4 0.24 0.22 0.21 0.2 Bookers 50 2.2 1.1 0.6 0.56 0.52 0.5 Fraser 1 0.1 0.02 0.01 0.01 0.01 0.01 Government Corporations Guyana Bauxite 300 13.5 6.4 3.8 3.4 3.1 3.0 Demarara Sugar 5 0.22 0.11 0.1 0.1 0.1 0.1 -36 - ANNEX 2 Page 1 GUYANA LIVESTOCK PROJECT I - CREDIT 221-GUA LIDCO Land Holdings Mara 1. Formerly a Government station, the Mara ranch of 20,000 acres was ceded to LIDCO in 1970. There were no cattle on hand at takeover and the infrastructure was in a state of disrepair. Initial purchase of cattle and other investments were made from capital reserves of the company. In 1975, when the Ebini Livestock Station was transferred to LIDCO, the Government made a cash contribution to LIDCO of G$ 750,000 which was all invested in Mara. In 1976, the ranch received a long-term loan from LPD for G$ 942,000 and a short- term operating capital line of credit of G$ 380,000. The ranch has had serious problems with maintaining adequate management due to the isolated location on the northeast coast and rustling has been a serious problem. During one period from April 1976 to October 1977, a total of 532 head were stolen, and, while there has been a decrease in this activity since then, there are still signif- ican losses from time to time. Pirara 2. The Rupununi ranch of about 180,000 acres is made up of a portion of two ranches confiscated by the Government after the 1968 rebellion in the Rupunini. At time of takeover, cattle which had belonged to these ranches were scattered over a large area and even now, nine years after becoming part of LIDCO's operations, it has not been possible to ascertain how many cattle existed originally nor at present (inventories conducted in 1973, 1976, and 1978 counted 3,786, 5,139 and 3,100 head, respectively). A portion of the herd has been brought under control with fencing and improved management but it is thought that some cattle belonging to the ranch are still on open range. The added problem of rustling on an apparently large scale further complicates an assessment of the situation of the ranch. 3. Since this is an area of extensive cattle production, very little infrastructure other than housing existed prior to 1968 and what existed was completely destroyed. A minimum of housing, storage sheds, fencing and water points were constructed by LIDCO. Initial investments were made with capital funds and in 1975 loans for G$ 258,300 long-term and G$ 288,400 for short-term working capital were obtained from LPD. 4. In spite of the overwhelming problems, the ranch now seems to be recuperating slowly. - 37 - ANNEX 2 Page 2 Ebini Beef and Ebini Dairy 5. These two ranches were formed from an existing Government research farm prior to being taken over by LIDCO in 1975. They are located in the Intermediate Savannahs south of the Berbice river and transportation of inputs and products is either by air or river. An acceptable infrastructure had been developed over the years so that the primary additional investments required were for construction of dairy facilities and purchase of additional cattle. In addition to the expenditure of G$ 263,000 of company funds, loans have been received from LPD of G$ 512,000 for long term and G$ 1,300,000 for short term for Ebini beef and loans of G$ 150,000 each for long and short term for Ebini dairy. 6. Fortuntely, this area is free from rustling since there are no other farms or urban areas in the region. The major problem after lack of operating capital has been with marketing of the milk and meat. The farms have had a limited market in a camp of the Guyana National Service located nearby but additional milk output will have to be shipped downriver, a slow and costly operation. The beef marketing problem has been resolved since all weanling males and excess females are shipped to the Kabawer ranch for fattening and sale. Moblissa 7. Moblissa farm in the Intermediate Savannahs' brown sand area was being developed into a dairy farm by the Ministry of Agriculture before it was transferred to LIDCO in 1975. A very small percentage of necessary infrastruc- ture had been constructed and a large number of high grade Holstein cattle had been imported. These animals, however, had a high mortality rate and relatively low productivity. Studies to determine methods for producing pastures in the region have shown that good quality grass can be produced only through the application of chemical fertilizers but the economics of this practice have not been analyzed due to lack of adequate data. 8. Milk is marketed through the processing plant in Georgetown, a distance of abour 100 km. 9. Initial deficits in operating costs were met with LIDCO capital funds. Government was committed to provide G$ 1 million to complete develop- ment works and provide working capital but these funds have not yet been received. A long-term loan of G$ 1 million and short term of G$ 1.7 million was obtained through LPD in 1977. A good infrastructure has been developed but further pasture development is required and additional cattle must be obtained in order to achieve a level of self-support. Kabawer 10. The Kabawer ranch, which belonged to the Booker organization before nationalization in 1976, was transferred to LIDCO in 1977. The approximately - 38 - ANNEX 2 Page 3 8,000 acres of land is located on the coast and has a high productivity potential albeit with serious problems of drainage during the wet seasons and a high level of well-developed rustling operations surrounding it. In addition to having its own breeding herd, this ranch also receives weanling cattle from Ebini, Moblissa and Mara for fattening. In general, this ranch has the chance to become financially self-sufficient faster than any other of the LIDCO group. 11. In 1977, a long-term loan of G$ 1 million and a short-term loan of G$ 550,000 were obtained from LPD. Bel Air Dairies 12. This dairy unit near Georgetown was part of the nationalized Booker holdings. LIDCO operated the dairy for about nine months and then transferred movable assets, including cattle, to Ebini, and the Government kept the land. Arakaka 13. This is another Government station in the northwest district of Guyana which was transferred to LIDCO in 1976 but, due to lack of resources, was closed in 1977. Georgetown Milk Plant 14. This facility was transferred to LIDCO in 1978 after having been previously managed by the Ministry of Agriculture and the Guyana Marketing Board. This unit obtained a loan of G$ 930,000 from local sources and has received technical assistance and grants from various donor agencies. - 3q - ANNEX 3 Balance Sheet of LDCO (as of December 31) (r'S '000) 1977 1978 Assets Current Assets: Cash azpd bank 73.2 28.4 Accounts receivable 205.9 340.4 Inventories 141.4 284.0 Cattle 523.7 348.5 Sub-total: 944.2 1,001.3 Other Assets: Investments 8.5 8.5 Obligation of Governmen./ 1,250.0 1,250.0 Preliminary Expenses 30.3 30.3 Sub-total: 1,288.8 1,288.8 Fixed Assets: Land and building 2,184.8 2.5A51 Plant and equipment 1,335.7 2,072.5 Work-in-progress 20c." 1,201.1 Cattle 4,351.2 6,084.2 Sub-total: 8,080.9 11.922.9 Total Assets: 10,313.9 14,213.0 Liabilities and Equity Current Liabilities: Accounts payable 925.4 2,452.3 Bank overdrafts 90.L 492.3 Sub-total: 1,015.8 2,94L.6 Other Liabilities: Long-term loans 1,813.1 3,839.. Non-current liabilities 15.6 156.2 Sub-total: 1,828.7 3,995.6 Total Liabilities: 2,84.5 6,9-.2 Equity: Share cavital 6,614.0 6,824.0 Share on cal2k/ 1,250.0 1,250.0 Grant - 661.3 Accumulated deficit (1,768.9) (2,836.8) Revaluation of cattle 1,374.3 Total Equity: 7,469.4 7,272.8 Total Liabilities and.Equity: 10.313.9 14.213.0 1/ According to the agreements for the take-over of the Moblissa and Ebini Ranches, the Government is supposed to purchase shares in the Company amounting to GS 1,250,000. 2/ Includes the revaluation of cattle amounting (A 1,371,337. - 40 - ANNEX 4 Income Statement of LIDCO (Years ended December 31) (G$ '000) 1977 1978 19791/ Sales 823.5 1,419.6 2,700.6 Operating Expenses.2 ,259.6 2,514.7 -4,217.7 Operating Income (1,436.1) (1,095.1) (1,517.1) Other Income3 552.5 27.2 - Total: (883.6) (1,067.9) (1,517.1) Accumulated Surplus/ (Deficit)4 / (1,768.9) (2,836.8) (4,353.9) 1/ Preliminary estimates only up to October 31, 1979. 2! Includes interest payments amounting to G$ 132,229 in 1977 and G$ 350,248 in 1978. 3/ Includes Government grant of G$ 500,000 in 1977. 4/ Excludes increased fixed asset values due to revaluations of cattle stock amounting to G$ 1,374,337 in 1977. 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