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No. L-170-
RESTRICTED Public Disclosure Authorized
This report is restricted to use within the Bank
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized FILECOPY
TECHNICAL REPORT an the
Public Disclosure Authorized AGRICULTURAL MACHINERY PROJECT
for PERU
June 27, 1952 Public Disclosure Authorized
Loan Department Rates of exchange used in this report $1 15 Soles I Sole 6.7 cents I mnillon Soles $66,667 TECHNICALREPORT on the AGRICULTURALMACHINERY PROJECT for P E R U
I. Purpose and Scope of this Report
The purpose of this report is to present a description and technical Justification of a project for importing agricultural equipment and machinery at a cost of 01.3 million over a period of 12 months, to enlarge the equipmentpools operated by SCIPA (ServicioCooperativo Inter-Americano de Produccionde Alimentos).
The informationcontained herein was obtained from the writer's two- month stay in Peru and is based on records kept by SCIPA as well as obser- vation and discussions during field trips to locations where work was being performed by tractor units of SCIPA.
II. Background Information
A. Agriculturein Peru
Agriculture has been, and continues to be, the principal enterprise of the Peruvian people, in which two-thirdsof the working population are occupied. Nevertheless,Peru has to import such foodstuffs as wheat, meat and milk. Cotton and sugar exports, on the other hand, account for 5O0%of Peru's foreign exchange income.
Peru is divided into four widely different agriculturalregions:
1. The Costa, where productionis concentratedin some fifty small river valleys and which is dependent on irrigation. About one-third of the cultivatedland consists of large estates, some of which are operated by modern methods. The most important crops are cotton, sugar and rice.
2. The Sierra, a region of high plains with a seasonal rainfall of relative sufficiency. In this area, food crops are pro- duced in the valleys, and the upper lands are used for grazing. However, the food crops (wheat,barley, corn, and potatoes) are raised on small landholdingsby primitivemeans and simply suffice to supply the rural Indian populationwith their limited requirements. About one-half of the total population of Peru lives in this area.
3. The Montana, a tropical rainfall region on the eastern slopes of the Andes, with conditions favorableto the growing of tropical and sub-tropicalproducts, but lacking the means of transportation and the necessary labor force, - 2 -
4. The Selva, an area of flat tropical jungle land, east of the 1'lontana, without communications except by river.
Food productionover the last fifteen years has increased by some 20%. Nevertheless,it is lagging far behind the increase in populationwhich has expanded by about 30% in this period. Cotton and sugar production has fluctuated considerably,but steadily increasingdomestic consumptionis causing a downward trend in exports of these commodities. The problem of increasingagricultural production in Peru can be approachedon two fronts:
1. by enlarging the cultivated area;
2. by improving the output of land already under cultivation.
On the coastal plain, the former necessitatesa program of irrigationworks for rehabilitatingland and bringing new land under cultivation,and on the Tontana a program of highway constructionand colonization. On the other hand, on the Sierra a substantialincrease in food productioncould be brought about by introducingmore modern methods of production.
B. SCIPA
SCIPA originated in a request from the Peruvian Covernmentto the institute of Inter-AmericanAffairs of the United States for assistancein the development of a program w^rhichwould both increase production of food during the war period and at the same time lay the foundation of long-range agricultural improvements. It operates as a semi-autonoInous agency (Reparticionp of the Ministry of Agriculture, aided by a technical agricultural field staff composed of agricultural and administrative personnel provided by the Institute.
Since the beginning of its operations in llay1943, SCIPA has proved an organization of unusual effectiveness and is a remarkable instance of a little going a long raTy. All its activities from the time of its inception to June 1951 have been carried on for the equivalent of a little over $6 million, of which the United States has contributed 26%, the Peruvian Government44%, the remaining 30% being income earned from its own operations.
SCIPA's activities fall into two main categories,namely: (a) the non- reimbursable, whichi consist of technical asssiftme to farmers largely in the form of extension services for which the recipient of the service makes no payment; and (b) the reimbursable, those in which SCIPA provides services and materials for wfhich it is paid 1y the recipient of the services.
The extension services in Peru are carried on by a country-wide system of over 40 field offices which perform such varied functions as education in the techniques of control of insects and plant disease, improved agricultural practices, planning of crop adjustment programs, establishment of commodity centers and the conducting of dietary and nutritional studies. - 3 -
SCIPA's reimbursablefunctions consist of the contractual operation of agriculturalmachinery and equipment,the provision of materials to improve agriculturalproduction, and the developmentof new land by promoting coloni- zation and new irrigation projects.
One of the most important reimbursableactivities is the operation of pools of tractors and power equipment for the purpose of assisting farmers in preparing and seeding their lands, harvesting their crops and operations for rehabilitatingold and developingnew lands, such as clearing,levelling, draining and irrigating, SCIPA trains and employs operators for all of this machinery, and crewrsfor maintaining and repairing it. This training forms a vital adjunct of the project.
Farmers have to enter into a written contract with SCIPA for these "custom!'services, and are charged a fee, payable in advance, which covers the cost of renderingthe services including depreciationof the equipment.
Although the number and location varies from season to season, there are generally some 18 machinery pools in operation on the Costa . There are two groups of machinery pools in this region, one to the north of Lima, and one to the south, each with an over-all supervisorwho is in charge of dis- persing the machines in his area to coincide most effectively with the crop season. Recently, four demonstration pools have been started on the Sierra.
As of December 31, 1951, the equipment in use in the various pools vms carried on the books of SCIkA at a nominal value of about V300,000. The machinery consists of:
79 tractors ...... , 3180,000 37 threshers ,...... 20,000 64 other equipment including plows. 100,000
Total $300O000
The schedule of charges for the various services is based on the cost of operating the pools and the amortization of the machinery over a period of five years or less. It is not SCIPIA'sobjective to make profits over and above these costs. However, as shown by the following table, costs on this basis have been more than covered every year since June 1948. -.4 -
FINANCIAL SUMDiRYOF SCIPAiU4CHI=ERY POOLS
JULY 19L7 THROTJGH.1951
Ycrr Costs Earnings Returns (including Profit Loss depreciation)
Total 31.7,939,710.14 S/.8,259,819.21 S/.320,10G.07 S/.
1947 (2nd half) 493,578.00 455,540.35 - 38,037.65
1948 1,380,771.25 1,416,733.65 35,962.40 -
1949 1,539,822.04 1,540,686.05 864.01
1950 1,907,739.58 1,937,916.71 30,177.13 -
1951 2,617,799.27 2,908,942.45 291,143.18
III. Dc-;crintionof the Proiect
SCIPA's machinerypools need to be increased so that the valuable work now being undertaken by SCIPA in this field may be further developed. 3-scussions with iir.John N-e.l,te head of SOTPA, and 11r. Luis Dibos, iMlinister of A ricslture, and field -tudiesmade by Bank representatives,indicated that these pools will be most effecti.velyaugmented by new machinery and equipmentto perform the following functions:
A., Reclamation of old and opening up of new land.
B. Rehabilitatingand constructingirrigation ditches.
C. Seeding and tillage.
D. Harvesting and threshing of crops.
E. Constructingfarm feeder roads.
The list of agriculturalmachinery i4hichcan be absorbed by SCIPA over a period of 12 months is attached as mnnexA.
For the lmost part, this machinery wAll be used to expand SCIPA's work on the Costa but it ill also aid in the pioneer *rorkwhich SCIPA has just started on the Sierra and iontana. With further help from the PeruvianGovernment, SCIPA plans to extend its work on the Sierra and iMontanain about 18 months and at that time intends to approach the Bank for another small loan for agricultural machinezy to be used in these areas. - 5 -
IVU Estimateof Costs and Earnings
Based on operations over the last five years, SCIPA has estimated the annual rate of depreciation on each machipe to be purchased with the proceeds of the loan, which s:lows that an amount of m i en to 2700oC be available each year to apply towards the service of theq oan. The detaile l figures are attached as Annex B. The number of hours worked each year has been conservatively estiraated and it is probable that most machines will be depreciated in a shorter time, in which case even larger amounts would be availableto SCIPA for use in servicing the loan.
lir.YTeale estimates that a period of about six months will be required, once funds have become available, to purchase and put the machinery into opera- tion. Thereafter, earnings will start to accrue imraediately.
V. Justificationof Project
All Peru has insufficientanimal power to maintain the volulmeof agricultural production necessary to feed her increasingpopulation and produce the industrial crops which constitutethe bulk of her foreign exchange earnings. Small farm operators leaving the land have disposed of their work oxen and an estimated minimum of 20,000 teams of oxen had disappearedfrom the coastal farms since 1943. The cost of obtaining a team of oxen has risen markedly, In any event, it is cheaper to work the land wdth tractors than with oxen. SCIPA estimates that it takes a team of oxen six days to work a hectare of land which, at current prices, would cost a mininum of 360 soles. The cost of doing a hectare of land by tractor would be less than half this figure and the work would be done in one day. ^gricultural labor is in short supply and seasonal peaks (planting anc harvesting) can only be met with difficulty. Industrial development and mining are increas- ingly drawing farm workers away from agriculture. The machinery to be imported under this program would supplement tlhe i.minishing reserves of animal and man power as well as increase efficiency of production.
B. Most of the machinery listed in Annex A will be used on the Costa. Here an estimated 50,000-75,000hectares of once productive crop land could be re- claimed with suitable equipment. Irrigationwater is availablebut because of un- checked erosion and careless land use, levelling operations are now required wthich are beyond the capacity either of men using shovels or of animals. The cheapest and most effective way of bringing this land into cultivationis by the use of machines for land levelling, drainage, relocation of farms, irrigation canals andI laterals.
As an illustration, Villa farm, immiediately south of Lima, has reclaimed during the four years 1947-50, more than 500 hectares (1,250 acres) of excellent crop lands, used in earlier days but of no agriculturalproductive use for more than fifty years past, This work was first laid out by SCIPA's engineers,begun by SCIPA machines anc later corapletedby more adequate equipment acquired by the farm owners. (SCIPA has not had enoug;hmachines of the type required for much of this work.)
C. In addition to the land referred to in B above, areas of land on the Costa are under cultivationwhich use irrigationwater wastefully. Such misuse results in substantialeconomic loss, not only because wasted water might be used to -6- enlarge irrigated areas but also because wasteful use reduces crop yields by increasing insect damage and destroyingsoil fertility. These facts are recog- nized by farmers but wasteful processes cannot be controlledwithout the use of machines needed for levelling, contouringand terracing. lany farmers in Peru have the cash or credit to pay for such work if done by SCIPA but cannot either purchase or operate the heavy machinery required.
For example, on one farm in the Piura Department SCIPA machines contoured and terraced 500 hectares of rice lands to achieve a net increase of more than 13% in cropped area with a substantialincrease in output. This wvas accompanied by a decrease in the amount of vwaterrequired and in production costs.
D. Each additionalhectare of land introduced into cultivation on the Costa should be capable of producing crops worth approximately4,000 soles (estimated on the basis of the 1951 national average gross income per hectare). As a general rule, additionalproduction in this area will either increase Peruvian exports or decrease imports. Allowing for processing and transportationcost, each hectare, on the average, should contribute to Peru's foreign exchange position by an amount equivalent to abQut $200. ilith the machinery listed in Annex A SCIPA would be able to bring into cultivation land of the type referred to in B above at the rate of at least 5,000 hectares a year. This operation alone should contribute to Peru's foreign exchange position at the rate of the equivalent of
E. SCIPA estima-tes that the equipment to be filranced by the Bank will permit tillage pools to aork over an area of about 20,000 hectares (50,000 acres). One of the most important features of these tillage pool operations is their cumulative effect on the economy of the country. Past operationshave shown that once farmers have learned the advantages to be gained from modern methods of cultivation and have thereby been able to increase their earnings, mary purchase the necessary agricultural machinery and operate on their ovTnaccount. For example, SCIPA started a pool in the Huacho Valley in 1947. SCIPA has now been able to remove the pool of tillage tractors to other parts of the country, since farmers in this district are now sufficiently supplied wlith agricultural machinery which they have bought for themselves. Four demonstration pools have now gone into operation in the Sierra where the principal crops are wheat, barley, corn and potatoes. Some of the machines listed in Annex A can be used to expand operations in this part of Peru. The work of these tillage and threshing pools should result in a substantial increase in the production of these foodstuffs.
F. Lacking passable roads, a large amount of present agriculturalproduction is isolated and uneconomic,and extensive exploitationof many new areas is not feasible. SCIPA is aiding communities and farmers to develop feeder roads but their operations are very limited because of lack of equipment. The equipment listed in Annex A can be used for building such roads 4
G. Uith1 SCIPA running this project, the Bank wXill be assured of good and efficient management, as operations over the past five years have proved. It - 7 - has technicalpersonnel - mechanical engineers, civil engineers, agronomists and other essential tecmnicians - experienced administrative personnel, trained tractor drivers, machine operators, mechanics and repairmen, and experienced agriculturalagents throughout the counitry. It has the cooperationand confidence of farmers, business people and governmentofficials of Peru. Its accounting s-stem has been standardizedand is in excellent shape. Itemized records are maintained showing the earnings and cost of each machine for every hour of work.
SCIPh now conCucts a going concern of the kind which can be expanded to good advantageby the equipmentprovided for in this loan. It is possibly the best and most efficientorganization in the field cf mechanized power in agri- culture of any underdeveloped country in the world.
The original agreement between the Peruvian Government and the Govern- ment of the United States, whichlcreated SCIPA, was for one year only but has since been renewed several times. The present contract runs until 1955. Even should the contributionof the IIAA eventuallycease, the Peruvian Government plans to continue the organization.
VI. Conclusions and Recommendations
It is the consideredopinion and conclusion of the uriter that this project is technically soune and financially self-liquidating, and is w4orthy of considerationfor the Bank's participationin the financing of the foreign ex- change cost of this project.
J.T'homsenLund Agriculturalist
June 23, 1952 AQTGFXA LIST OF AGRICULTURAL MACHINERY TO BE FINANCED UNDER THE LOAN
IT14 QUANTITY DESCRIPTION UNIT COST TOTAL CIF OALLAO
1 50 CATERPILLAR Tractors, 43 H.P. in the dra.w-bar, crawler type, Model D4 4411 gauge $6,406.67 $320,333.50
2 25 CATERPILLAR Bulldozers, Model 4-A, Hydraulic control, angling blade, for use with tractor D44" 2,360.60 59,015.00
3 10 CATERPILLAR Scrapers, Model CAT 40 Hydraulically operated, for use with tractor D4-44"1 4,770.59 47,705.90 4 10 CATERPILIAR Tool-Bars, for use with D4 tractors. Hydraulically operated and tools as Sub-soiler, Ditcher, Spring shank cultivator bars, depth gauge wheels 2,447,10 24,471.00
5 3 CATERPILLAR Tractor, Model D-7 with 85 H.P. in the draw-bar, 74" gauge, with extra equipment 16,700.53 50,101.59
6 3 HYSTER Equipment, for use with the D-7 tractor, Drag Line Equipment and Boom or Clam shell Equipment 10,056.20 30,168.60
7 2 CATERPILLAR Motor grader, Model 112. With 70 H.P. Engine and 121 blade, plus extra T quipment 13,358.73 26,717.46
8 20 TURIIER Economy threshers, with Wisconsin engines 2 cylinder and clutch 8.6, to 13.3 H.P. 1,483.00 29,660.00 - 2- ANNEX A
ITEM ,UAN1ITY DESCRIPTIO14 UNIT COST TOTAL CIC' CALLAO
9 20 OLIVER Row Crop Diesel Tractors, Model 88 Wheel Tyne $3,905.60 $78,112.00
10 20 OLIVER Dis;c Plow. Model 144, 4 disc of 2811 825.25 16,505.00
l-1 25 OLIVEL Dis,cRlow. Model 166, 6 discof 28t 1,030.85 25,771.25
12 10 OLIVER Planters and Cultivators, Model Peru, front and rear gang, Groups Nos. 1, 2, 3, 4, 6. Hydrau- lically operated. For Cotton and Corn 1,758.20 17,582.00
4 EVERSMAN LandLevel.ersModel 289 Hydraulically operated, plus Hydraulic pump and hose 1,000.00 4,000.00
14 2 Concrete Mixers. Powered 1/2 yard 2,000.00 4,000.00 1-5 15 STAiThARD Disc Harrow off set tyne. 28 disc of 26"1 1,100.00 16,500.00
it 2 DITCHERS. Jack for control of the operation 1,000.00 2,000.00 4 TURNER Thresher. Peanut Model 3,000.00 12,000.00
-1-8 10 DODGE Four wheel drive Power Wagon, Capacity 1 ton 2,875.00 28,750.00
19 3 G.M.C. Trucks Model 635. Caoacity Ap. 9 tons 5,000.00 15,000.00 C 1 FLECO Root Rake, for use with the D4 Caterpillar tractor, 8 tooth 837.10 837.10 -3- ANNE A
ITEMC QUANTITY DESCRIPTION UNIT COST TOTAL CIF CALLAO
21 1 Air ccmpr4ssorwith gunnite machine (Jack Hammers) $13,000.00 $13o00O.OO
22 IC Allis Chalmers HD 5, 40.5 H.P. in the draw-bar. Crawler type. 6 911.50 69,11.5.00
23 2 Allis Chalmers tool bars for use with the HD5. Hydraulicallyoperated and Tocls as Sub-soiler, buck scraper, spring, cultivator,etc. 2,583.90 5,167.80
24 3 Bulldozer, HD 5. 2,583.90 7,751.70
25 10 JOHN DEERE Tractors, Model MC, Gasoline Engines Hydraulic control system. 2,595.26 25,952.60
26 10 JOHN DEERE AND OLIVER Equipment for John Deere MC Tractor includingTool Carrier, Bulldocer, Disc Flow Sub-soiler, Spring cultivatorand reardozer 920.11 9,201,10
27 1 Stationary Unit UD-14 3,500.00 3,500.00
28 1 Bullgrader & Rooter TD 14 5,000.00 5,000.00
29 Spare parts for above items and machinery actually in use 200,000.00 200,000.00 1,147,918,60 Plus 5% for shop equipment 57,395.93 Plus Contingencies 94,685.47 TOTAL, $1,300,000.00 PER ANNUMACCUMULATIONS OF RES7RVES FOR DEPPRECIATIONBY TYPE OF MACHINE
These are conservativeestimates based upon actual SCIPA operating practice and experience since May bf 1947.
TOTAL HOURS DEPRECIATION TOTAL P?,RANNUM QUANTITY DESCRIPTION OPERATION PER HOUR PER ANINUM OPFRkT1ON 12MR11110TATION
50 CATEPILLAR Tractors, 43 H.P. in the draw-bar, crawler type, Model D4, 44" gauge. 100,000 S|.12.00 S/.1,200,000.00 25 CATERPILLARBulldozers, Model 4-A, Hydraulic control, angling blade, for use with tractor D4-44"1 50,000 5.00 250,000.00
10 CATERPILLARScrapers, Model CAT 40 Hydraulically operated, for use with tractor D4-44" 10,000 18.00 180,000.00 10 CATERPLILARTool-Bars, for use with D4 tractors. Hydraulicallyoperated and tools as Sub-soiler, Ditcher, Spring shank cultivator bars, depth gauge wheels 10,000 5.00 50,000.00 3 CATERPILLARTractor, Model D-7 with 85 H.P. in the draw-bar, 7411 gauge, with extra equipment 4,500 25.00 112,500.00 3 HYSTER Equipment, for use with the D-7 Tractor. Drag line Equipment and Boom or Clam shell Equip- ment 4,500 20.00 90,000.00 2 CATERPILLARMotor gWader, Model 112. With 70 H.P. Engine and 121 blade, plus extra Equipment. 3,000 30.00 90,000.00 20 TURNEREconomy threshers,with Wisconsin engines 2 cylinder and clutch 8.6, to 13.3 H.P. 6,000 8.00 078,O00.00 - 2- ANNEX B
TOTALHOURS DEPRECIATION T014ALPER ANNUMf QUANTITY DESCRIPTION OPERATION PER HOUR PER ANNUM OPEIRATION DEPRECIATION
20 OLIVER Row Crop Diesel Tractors, Model 88 Wheel Type. 24,000 10.00 240,000.00
20 OLIVER Disb Plow. Model 144. 4 disc of 281 16,000 3.00 48,ooo.00
25 OLIVER Disc Plow. Model 166. 6 disc.of 2 8H 20,000 4.00 80,000.00 10 OLIVER Planters and Cultivators, Model Peru, front and rear gang, Groups Nos. 1,2,3,4,6. Hydraulicallyoperated. For Cotton and Corn. 5,000 10.00 50,000.00
4 EVERSi4A1'LaniLevelersModel 289 ±Iydraulically operated, plus Hydraulic pump and hose. 2,400 8.0o 19,200.00
2 Concrete- M1txs-.. Powered 1/2 yard. 1,500 10.00 15,000.00
15 STAhDARD Disc Harrow off set type. 28 disc of 26". 9,000 6.oo 54,000.00 2 DITCHERS. Jack for control of the operation. 1,000 6.oo 6,ooo.oo 4 TURNER Thresher. Peanut Model 2,000 15.00 30,000.00
10 DODGE Four wheel drive Power Wagon. Capacity * 1 Ton. 125,ool 0.70 87,500.60
3 G.M.C. Trucks Model 635. Capacity Ap. 9 Tons 4 5 ,0001t 1.00 45,000.00 1 PLECO Root Bake, for use with the D4 Cater- pillar tractor, 8 tooth 850 3.00 2,550.00
iI Totalkilometres per annum * Depreciation per kilometre _3 - ANNWEXB
TOTAL HOURS DEPRECIATION TOTAL PER ANIUMI (,UANTITY DESCRIPTION OPERATION PER HOUR PER ANYJM OPERATION DEPRECIATION
1 Air Compressorwith gunnite machine. (Jack Hammers) 1,000 45.00 45,000.00 10 Allis Chalmers HD5. 40.5 H.P. in the draw-bar Crawler type. 20,000 12.00 240,000.00 2 Allis Chalmers tool bars for use with the HD5. Hydraulicallyoperated and Tcols as Sub-soiler, buck scraper, spring, cultivator, etc. 2,000 6.oo 12,000.00 3 Bulldozer, HD5. 6,ooo 5.00 30,000.00 10 JOhN DEERE Tractors,Model MC. Gasoline Engines 12,000 7.00 84,000.00 hydraulic control system. 10 JOHN DEERE AND OLIVER Eouipment for John Deere MC Tractor includingTool Carrier, Bulldozer, Disc Flow Sub-soiler,Spring cultivator and rear dozer. 12,000 2.50 30,000.00 1 Bullgrader & Rcoter TD 14 1,000 15.00 15,000.00 1 StationaryUnit UD-14 2,500 5.00 12,500.00 Spare parts for above items and machinery actually in use. 750,000.00 Shop equipment 150,000.00
TOTAL: s/. L,c66,250.O0