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Document of -.- The WorldBaLnk FOR OFFICIAL USE ONLY Public Disclosure Authorized ReportNo. 3679a-YU STAFF APPRAISAL REIPORT YUGOSLAVIA Public Disclosure Authorized BOSNIA-HERZEGOVINA AGRICULTURAL DEVELOPMENT PROJEC April 15, 1982 Public Disclosure Authorized Regional Projects Department Europe, Middle East and North Africa Agriculture III Public Disclosure Authorized This documenthas a restricteddistribution and may be used by recipientsonly in the performanceof their official duties. Its contentsmay not otherwisebe ilisclosed without World Bank authorization. CURRENCYEQUIVALENTS* Calendar 1981 February 15, 1982* Currency Unit Yugoslav Dinar I US$ 1 Din 41.82 Din 43.678 Din 1 US$ 0.024 US$ 0.022 Din 1,000,000 US$ 23,910 US$ 22,895 WEIGHTS AND MEASURES 1 cubic meter (m3) 0.76 cubic yards 1 hectare (h) 2.5 acres 1 kilogram (kg) 2.2 pounds 1 kilometer (km) 0.6 miles 1 metric ton (ton) 2,200 pounds I square kilometer (km2) = 2.6 square miles ABBREVIATIONS AND ACRONYMS AIK = Agro-Industrial Kombinat BCO = Basic Cooperative Organization BOAL = Basic Organization of Associated Labor COAL = Composite Organization of Associated Labor HEPOK= Herzegovina Agricultural Kombinat ICB = International Competitive Bidding LCB = Local Competitive Bidding LDR = Less Developed Region PBS = Privredna Banka Sarajevo SDK Social Accounting Service SFRY Socialist Federal Republic of Yugoslavia SRBH Socialist Republic of Bosnia-Herzegovina WO Work Organization YUGOSLAV FISCAL YEAR Janury 1 - December 31 * The Yugoslav Dinar has been floating since July 13, 1973. The currency equivalents effective on February 15, 1982 have been used in this report. FOR OFFICIAL USE ONLY APPRAISAL OF BOSNIA-HERZEGOVINAAGRICULTURAL ])EVELOPMENTPROJECT YUGOSLAVIA Table of Content:s Page No. I. INTRODUCTION ............................................... 1 II. THE AGRICULTURAL SECTOR .................................... 1 A. Contribution to the Economy ..... .................. 1 B. Performance ............ .... .2 C. Land Resources ........................................ 3 D. Production Structure ...... ..................... 3 E. Food Processing Industry ...... ................... 4 F. Development Strategy ...... ..................... 6 G. Bank Strategy in the Agricultural Sector .............. 8 H. Performance Under Previous World Bank Projects .... .... 8 III. THE PROJECT ................. , 9 A. Concept and Objectives ................................ 9 B. Project Content ....................................... 10 C. Status of Design and Project Implementation .... ....... 11 D. Costs ................................................. 12 E. Financing ............................................. 14 F. Retroactive Financing ................................. 14 G. Environmental Impact .................................. 14 IV. PROJECT IMPLEMENTATION ..................................... 15 A. Organization and Management ........................... 15 B. The Borrower (PBS) ..................................... 15 C. Lending Policies and Procedures ....................... 16 D. On-Lending Terms ....................................... 16 E. Procurement ........................................... 17 F. Disbursements ......................................... 18 G. Accounts and Audit .................................... 19 H. Monitoring, Reporting and Evaluatioa .................. 19 V. PRODUCTION, MARKETS, PRICES AND FINANCIAL ANALYSIS .... .... 20 A. Production and Cost Recovery ..... .....................20 B. Marketing ............................................. 21 C. Prices ................................................23 D. Financial Analysis .................................... 23 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwlse be disclosec without World Bank authorization. Table of Contents (Con'd) Page No. VI. PROJECT BENEFITS AND JUSTIFICATION ........................ 25 A. Benefits and Distribution ............................. 25 B. Employment Effects .................................... 25 C. Economic Analysis ..................................... 26 D. Risks ................................................. 28 VII. RECOMMENDATIONS ........................................... 29 ANNEXES 1. Disbursements Table 1; Schedule of Bank Disbursements .... ..............31 2. Financial Analysis Table 1: Agroindustries - Subproject Cash Flows and Analyses ....... ............. ....................32 Table 2: Popovo Polje - Cash Flow and Analyses .... ....... 33 Table 3: Agroindustries - Financial Prices .... ...........34 Table 4: Popovo Polje - Financial Prices .... .............36 Table 5: Agroindustries - Detailed Project Costs including Phasing .......................................... 38 Table 6: Popovo Polje - Detailed Project Costs including Phasing ....... ............. .....................40 3. Economic Analysis Table 1: Agroindustries - Cash Flow and Analyses .41 Table 2: Popovo Polje - Cash Flow and Analyses .42 Table 3: Overall Project - Cash Flow and Summary Results 43 Table 4: Agroindustries - Economic Prices .44 Table 5: Popovo Polje - Economic Prices .45 4. Popovo Polje Irrigation Component .47 5. The Borrower: Privredna Banka Sarajevo Table 1: Statement of Income and Expense .49 Table 2: Balance Sheet .50 6. Project Implementation File - Table of Contents .51 7. Project Background File - Table of Contents .52 8. Investors and Locations of Project Components .53 MAPS IBRD No. 16067 - SFRY - Location of Project Investments IBRD No. 16025 - Popovo Polje - Proposed Irrigation System APPRAISAL OF BOSNIA-HERZEGOVINAAGRICULTURAL DEVELOPMENTPROJECT YUGOSLAVIA I. INTRODUCTION 1.01 The Socialist Republic of Bosnia-Herzegovina (SRBH) is located in the south central part of the Socialist Federal Republic of Yugoslavia (SFRY) adjoining the Adriatic Sea with about 20 km of coast line. Triangular in shape, it comprises 51,129 square kilometers or 20% of the total area of SFRY. It has a population of 4.2 million or 19% of the total population of SFRY. Bosnia-Herzegovina is one of Yugoslavia's least developed regions; 1979 per capita income was $1,695, 68% of the national average. 1.02 The proposed project consists of two separate components; agroindustries, consisting of a number of different food processing plants in Bosnia, and Popovo Polje development, a small somewhat experimental investment in irrigation, drainage and on-farm production in a karst valley in Herzegovina. Agroindustries comprise about 80% of the estimated investment cost. The project would follow and support three agricultural credit projects (1129-YU, 1477-YU and 1801-YU) in which SRBH is participating and an agricultural and agroindustry project supported by the Bank in the Bosanska Krajina region of SRBH (1616-YU). A three-volume preparation report of the proposed project, dated February 1980, was received in the Bank at the end of March 1980 and a Bank identification mission held discussions in mid-April with officials of the SRBH government and the proposed borrower, Privredna Banka Sarajevo (PBS). The Government indicated that the proposed project included the highest priority investments of the 1981-85 plan period for which IBRD support was sought. Bank missions during October and December 1980 and February/March 1981 advised and guided PBS and the investors in further project preparation. This report is based on the findings of an appraisal mission of Messrs. R. Hunt (Leader/Economist), M. Tirmazi (Irrigation Engineer), S. Ahmed (YP/Economist), F. Wright (Financial Analyst), Bank, and Mrs. E. Garibaldi (Horticulturalist) and Mr. C. Cronberg (Agroindustries Engineer), Consultants. II. THE AGRICULTURAL SECTOR A. Contribution to the Economy 2.01 The contribution of agriculture to the overall economies of SFRY and SRBH is summarily quantified in Table 2.1. - 2- Table 2.1: CONTRIBUTION OF AGRICULTURE IN THE SFRY AND SRBH ECONOMIES 1971 1978 1979 Indicator --------------- %_-----------___ Social Product SFRY 17.5 13.8 13.6 SRBH 14.5 15.0 15.1 Economically Active Population SFRY 42.9 38.5 37.2 SRBH n.a. 41.3 39.9 Export SFRY 12.9 5.4 4.6 SRBH 7.01/1 4.2 n.a. Investments /2 SFRY 7.1 8.0 (5.3) (4.8) SRBH 5.4 6.2 n.a. /1 1972 figure. /2 In current prices, except for data in parentheses, which are in 1972 prices. 2.02 As expected in an industrializing economy, agriculture's share of total material output is declining. However, in SRBH, agriculture's share of the total output is increasing marginally. This is all the more remarkable in view of agriculture's relatively small share of total investment, which peaked in SRBH at 7.7% in 1973 and declined to around 6% thereafter. This was due to a very large build up of investment in the individual sector, which also peaked in 1973 and declined to more normal levels in the following years. Agriculture's shares in population and exports are, as to be expected, declining in both SFRY and SRBH though still significant. B. Performance 2.03 Recent performance in agricultural production in both SFRY and SRBH is summarized in Table 2.2 below; Table 2.2: SFRY AND SRBH - AGRICULTURAL PRODUCTION INDICES (1969-71 = 100) Total Agricultural Production SFRY Food Production Year SFRY SRBH Total Per Capita 1968 93 94 97 99 1971 103 101 102 101 1975 112 116 117 111 1976 119 120 123 116 1977 125 135 127 119 1978 117 124 122 114 1979 124 131 126 116 1980 120 128 n.a n.a. Growth Rate 1968-79 2.65% 3.1% 2.4% 1.45% 1968-80 2.15% 2.6% - - Sources; I. Statistical Yearbook