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Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 2161-PAN STAFF APPRAISAL REPORT PANAMA Public Disclosure Authorized TROPICAL TREE CROP DEVELOPMENTPROJECT Public Disclosure Authorized February 28, 1979 Public Disclosure Authorized Regional Projects Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = Balboa (B) US$1 = B/.1 Note: The issue of Balboas is restricted to coins. The US dollar (US$) bills and coins are legal tender in Panama. WEIGHTS AND MEASURES Metric System and 1 quintal (q) = 45.4 kilograms (kg) 22.0 q = I metric ton (m ton) 1 banana box = 18.2 kg GLOSSARY OF ABBREVIATIONS (see next page) GOVERNMENTOF PANAMA FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY PANAMA TROPICAL TREE CROP DEVELOPMENT PROJECT Glossary of Abbreviations BDA Banco de Desarrollo Agropecuario - Agricultural Development Bank BNP Banco Nacional de Pan.ama - National Bank of Panama CATIE Centro Agronomico Tropical de Investigacion y Educacion - Center for Research and Education on Tropical Agriculture CBN Comision Bancaria Nacional - National Banking Commission CFN Comision Financiera Nacional - National Finance Commission COBANA Corporacion Bananera del Atlantico - Banana Corporation of the Atlantic COBAPA Corporacion Bananera del Pacifico - Banana Corporation of the Pacific COFINA Corporacion Financier.aNacional - National Financial Corporation COMUNBANA Comercializadora Multinacional del Banano - Multinational Banana Marketing Corporation CONABA Consejo Nacional del Banano - National Banana Council DAD Decentralized Audit Division EMBACHI Empresa Bananera de Chiriqui - Chiriqui Banana Enterprise GOP Government of Panama IDIAP Instituto de Investigaciones Agropecuarias - Agricultural Research Institute IMA Instituto de Mercadeo Agropecuario - Agricultural Marketing Institute IRHO Institut de Recherches, pour les Huiles et Oleagineux - Research Institute for Oils and Oil-bearing Crops This documenthas a restricteddistribution and rnaybe usedby recipientsonly in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Glossary of Abbreviations (Continued) MIDA Ministerio de Desarrollo Agropecuario - Ministry of Agriculture and Livestock Development SIATSA Servicio de Investigacion Agricola Tropical S.A. - Tropical Agricultural Research Service UB United Brands Corporation UPEB Union de Paises Exportadores del Banano - Union of Banana Exporting Countries PANAMA TROPICAL TREE CROP DEVELOPMENT PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. I. BACKGROUND ........ ............................. I A. The Agricultural Sector ........................... 1 B. Agricultural Sector Development Strategies and Policies ........................................ 3 C. The Banking System and Agricultural Credit ........ 4 II. THE SUBSECTOR AND THE PROJECT AREAS .................... 7 A. The Subsector ...... ...............................7 B. Subsector Development, Strategies and Policies .... 9 C. The Project Areas .................................. 10 D. Institutions Participating in the Project .... ..... 13 III. THE PROJECT ............................................. 17 A. Introduction ....................................... 17 B. Brief Description ....... ...........................17 C. Detailed Features ................................. 18 D. Project Costs ..................................... 21 E. Financing ......................................... 22 F. Procurement ....................................... 25 G. Disbursements ..................................... 25 IV. PROJECT IMPLEMENTATION ................................. 27 A. Organization and Management ....................... 27 B. Lending Policies and Procedures .... ...............31 C. Accounts and Auditing ............................. 33 D. Progress Reporting, Monitoring and Evaluation ..... 33 V. ILLUSTRATIVE INVESTMENT MODELS; SPECIFICATIONS AND ASSUMPTIONS ..................................... 34 A. Production Coefficients ........................... 34 B. Illustrative Investment Models .................... 35 This report is based on the findings of an appraisal mission which visited Panama during February/March 1978. The mission comprised Messrs. G. Rioseco (Mission Leader), F. Portilla, J. Yaron and Ms. D. Babelon (Bank), and F. Connor, and R. Desrosier (Consultants). TABLE OF CONTENTS (Continued) Page No. VI. PROJECT PRODUCTION, MARKETS AND FINANCIAL ANALYSIS ..... 37 A. Production ........................................ 37 B. Markets, Marketing and Prices .... .................38 C. Benefits and Financial Rates of Return .... ........ 41 D. Financial Projections for Project Entities ........ 42 VII. ECONOMIC BENEFITS AND JUSTIFICATION .... ................44 A. Economic Benefits ................................. 44 B. Economic Rate of Return ........................... 45 C. Project Risks ..................................... 48 D. Environmental Impact .............................. 48 VIII. AGREEMENTS REACHED AND RECOMMENDATION .... ..............48 ANNEXES 1. Terms of Reference for the Oil Palm Feasibility Study 51 2. Progress Reporting, Monitoring and Evaluation of the Cocoa and Coffee Components ..... .....................56 3. Supporting Tables T. I - Agricultural Sector: Total Value of Production and GDP, 1973-77 61 T. 2 - Land Distribution by Tenure and Size, 1970 62 T. 3 - Total and Agricultural Credit, 1973-76 63 T. 4 - Banco Nacional de Panama (BNP) Comparative Balance Sheets for Fiscal Years 1973-77 64 T. 5 - Banco Nacional de Panama (BNP) Source and Application of Funds for Fiscal Years 1976/77 65 T. 6 - Banco de Desarrollo Agropecuario (BDA) Comparative Balance Sheets for Fiscal Years 1973-77 66 T. 7 - Banco de Desarrollo Agropecuario (BDA) Income Statement for Fiscal Years 1973-77 67 T. 8 - Banco de Desarrollo Agropecuario (BDA) Source and Application of Funds for Fiscal Years 1973-77 68 T. 9 - Corporacion Bananera del Pacifico (COBAPA) Source and Application of Funds and Change in Financial Position 1976/77 69 T.10 - Corporacion Bananera del Pacifico (COBAPA) Balance Sheet, Fiscal Years 1976/77 70 TABLE OF CONTENTS (Continued) 3. Supporting Tables (Continued) T.11 - Technical Assistance 71 T.12 - Monitoring and Evaluation - Cost of Surveys 72 T.13 - Phasing of Lending and Investment 73 T.14 - Total Project Costs by Main Investment Items 74 T.15 - Technical Assistance Requirements and Phasing of Incremental Staff for Cocoa and Coffee Development 75 T.16 - Supply, Demand, Imports, and Exports 76 T.17 - Financial and Economic Prices 77 T.18 - Project Cash Flow - Banco de Desarrollo Agropecuario (BDA) 78 T.19 - Project Cash Flow - Banco Nacional de Panama (BNP) 79 4. Related Documents and Data Available in Project File 80 MAP IBRD 13675 - Project Areas PANAMA TROPICAL TREE CROP DEVELOPMENT PROJECT I. BACKGROUND A. The Agricultural Sector Agriculture in the Economqy 1.01 Over the last five years (1972-77), the total GDP increased at an average annual rate of 4.1% (1960 prices) whereas the agricultural sector increased at an annual rate of only 2.1%. Agriculture's share of the GDP was 16%, including 13% from the crop subsector, 2 to 3% from the livestock, and the balance, less than 1%, from forestry and fisheries. Fifty percent of the Panamanian population lives in rural areas and 30% of the national labor force is employed in the agricultural sector. 1.02 During the three-year period 1975-77, 53% of all exports of goods (US$238 million per annum) and over 85% of non-petroleum merchandise exports (US$147 million) were of agricultural or marine origin for a total of about US$127 million. Bananas and sugar alone accounted for, respectively, 34% and 18% of non-petroleum exports, shrimps for 15%, and coffee and beef for about 2% each. In spite of the low overall rate of growth, the agricultural sector has been able to supply most of the food products required by the domestic market. Total imports of agricultural products during the 1975-77 period averaged about US$53 million, equivalent to 8% to 10% of total imports. Apart from wheat and wheat products, temperate fruits and vegetables, the main imports, which could be replaced by domestic production, are meat, dairy products, vegetable fats and oils, feed grains and concentrates, and wood products. Performance 1.03 During the 1960s, agricultural GDP increased at an average rate of 5% per annum. Since 1970, however, overall performance has been more modest and erratic, with an average annual growth rate of 3.1% between 1970 and 1972; -1.5% in 1974, 4.8% in 1975 0% in 1976 and an estimated 1.1% in 1977. The overall performance of the sector is quite sensitive to fluctua- tions in banana production, which accounted for 35% of GDP of the crop subsector in 1972 and 27% in 1976. 1.04 Although the production of rice and sugarcane has been increasing rapidly, performance of the sector was adversely affected in 1974-76 by a substantial fall in banana production and exports, which resulted from dis- agreements between the Government of Panama (GOP) and United Brands Corpora- tion (UB) 1/ over land tenure and the Level of export taxes on bananas (both resolved in January 1976 para 2.02). Although banana production subsequently increased it still has not regained its 1970-72