Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 2743 PROJECT PERFORMANCE AUDIT REPORT Public Disclosure Authorized ISRAEL SECOND AGRICULTURAL CREDIT PROJECT (Loan 972-IS) Public Disclosure Authorized November 19, 1979 Public Disclosure Authorized 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. FOR OFFICIAL USE ONLY Project Performance Audit Report ISRAEL SECOND AGRICULTURAL CREDIT PROJECT (Loan 972-IS) TABLE OF CONTENTS Page Preface i Basic Data Sheet ii Disbursement Table iii Highlights iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. Summary 1 II. Main Issues 4 A. Extension Services 4 B. Research Program 6 Appendix I - Government's Comments 9 PROJECT COMPLETION REPORT I. Introduction 15 II. Project Implementation 17 III. Agricultural Impact 20 IV. Goals and Beneficiaries 24 V. Performance 25 VI. Conclusions 27 Annex 1 - Tables 1-15 29 Annex 2 - Second Agricultural Credit Project - Completion Report (Ministry of Agriculture - Israel) 44 Annex 3 - Supplement to Completion Report of IBRD Second Agricultural Credit Project (Ministry of Agriculture - Israel) 140 Annex 4 - Agricultural Extension Service 227 Table 1: Ministry of Agriculture - Extension Service, Available Manpower and its Distribution 229 Chart 1: Organization Chart - Extension Service 230 Annex 5 - Project Related Research Component 231 Table 1: Expenditures Agricultural Research Component 238 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. Project (Peiformance Audit Report ISRAEL SECOND AGRICULTURAL CREDIT PROJECT (Loan 972-IS) PREFACE This is a performance audit of the Second Agricultural Credit Project in Israel for which Loan 972-IS was approved in March 1974 in the sum of US$35.0 million. The final disbursement in respect of this loan was made on September 20, 1977. The audit report consists of an audit memorandum prepared by the Operations Evaluation Department and a Project Completion Report dated June 1979. The PCR was prepared by the Europe, Middle East and North Africa Regional Office on the basis of a Completion Report prepared by the Government of Israel and a country visit in February-March 1978. The audit memorandum is based on a review of the Appraisal Report (No. 234 R) dated March 13, 1974, the President's Report (P-1317A) of the same date, the Loan Agreement of April 3, 1974 and the PCR; corre- spondence with the Borrower and internal Bank memoranda on project issues as contained in relevant Bank files have also been consulted and Bank staff associated with the project have been interviewed. An OED mission visited Israel in May 1979. The mission held discussions with officials of the Ministries of Finance and Agriculture, the Rural Planning and Development Authority and the Israel Bank of Agri- culture. Field trips to visit some participating farmers were undertaken. The information obtained during that mission was used to test the validity of the conclusions of the PCR and permitted discussion of research and extension issues. A copy of the draft report was sent to the Borrower on September 6, 1979. Comments received are reproduced at Appendix I. The audit finds the PCR comprehensive and accurate with respect to the project'-s principal achievements and shortcomings. The points discussed by the audit have been selected because of their importance to this and to other Bank-assisted projects. The valuable assistance provided by the Government of Israel, the Israel Bank of Agriculture and their staffs as well as the farmers met during the preparation of this report is gratefully acknowledged. PROJECT PERFORMANCE AUDIT REPORT BASIC DATA SHEET ISRAEL - SECOND AGRICULTURAL CREDIT PROJECT (LOAN 972-IS) KEY PROJECT DATA Appraisal Actual or Item Expectation Current Estimate Total Project Cost (US$ million) 80.9 88.8 Overrun () - 10.0 Loan Amount (US$ million) 35.0 Disbursed )- 35.0 Cancelled ) June 30, 1979 - - Repaid to )- 3.97 Outstanding to )- 31.03 Date for Completion of Physical Components Proportion Completed by Appraisal Target Date (%) - 100 Proportion of Time Overrun () - 0 Incremental Economic Rate of Return (%) 21 19 OTHER PROJECT DATA Original Actual or Item Plan Revisions Current Estimate First Mention in Files or Timetable - 02/15/72 Government's Application - - 11/29/72 Negotiations 09/19/73 - 09/19/73 Board Approval 03/27/74 - 03/27/74 Loan Agreement Date 04/03/74 - 04/03/74 Effectiveness Date 07/03/74 - 07/01/74 Closing Date 06/30/78 - 09/20/77 Borrower Israel Bank of Agriculture, Ltd. Executing Agency Fiscal Year of Borrower April 1 - March 31 Follow-on Project Name none MISSION DATA Month, No. of No. of Date of Item Year Days Persons Manweeks Report Pre-appraisal 06/72 8 2 3 06/15/72 Appraisal 03/73 30 4 24 03/13/73 Supervision I 09/74 11 1 2 10/29/74 Supervision II 06/75 15 2 6 06/16/75 Supervision III 12/76 10 2 4 12/13/76 Completion 02/78 17 2 7 03/27/78 Total 46 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Israeli Pound (IL) Year: Appraisal Year Average Exchange Rate: US$1 = IL 4.20 Intervening Years Average US$1 = IL 6.20 Completion Year Average US$1 = IL 8.90 - iii - Project Performance Audit Report ISRAEL - SECOND AGRICULTURAL CREDIT PROJECT (Loan 972-IS) DISBURSEMENT TABLE (US$ million, cumulative) Period Appraisal Actual Actual as % Ending Estimate Disbursement of Estimate 12/31/74 5.85 10.58 181 06/30/75 11.69 17.36 149 12/31/75 15.82 25.98 164 06/30/76 23.73 32.50 137 12/31/76 28.13 34.30 122 06/30/77 33.77 34.80 104 09/30/77 35.00 35.00 - - iv - Project Performance Audit Report ISRAEL SECOND AGRICULTURAL CREDIT PROJECT (Loan 972-IS) HIGHLIGHTS The Second Agricultural Credit Project provided funds for support of flower and fruit production, export handling facilities, :er development and livestock development. It also assisted an applied iearch program. The project was a major part of a 5-Year Economic Plan. The project had a considerable impact especially on Israel's wer and fruit production. Total agricultural output during the 1971/72 1975/76 period increased by 25%, slightly below the 28% assumed at oraisal. This was in part due to a slower than expected domestic market * dairy produce and turkey meat. The increase in production costs due to Elation contributed to an economic rate of return of 19%, which is .ghtly below the appraisal estimate of 21%. The following points may be of special interest: - the comprehensive planning of the agricultural sector no longer allows for interest rates performing an allocative function (PPAM, para. 2; PCR, para. 1.01); - high standard of planning contributed to project success (PPAM paras. 6, 7; PCR, paras. 1.01, 4.02, 6.01, 6.03, 6.05); - despite excellent performance of the agricultural sector, extension services continue to perform a useful function (PPAM, paras. 9 to 14; PCR, para. 3.05, Annex 4); and - an interesting methodology to assess the economics of agricultural research programs has been developed in Israel (PPAM, paras. 15 to 21; PCR, Annex 5, paras. 1, 2). Project Performance Audit Memorandum ISRAEL - SECOND AGRICULTURAL CREDIT PROJECT (Loan 972-IS) I. SUMMARY 1/ 1. The project was a repeater project following the very successful First Agricultural Credit Project (Loan No. 709-IS). In addition to con- tinued support for flower and fruit production, export handling, and water development components of the first project, it included a livestock com- ponent and support for applied research in agriculture. The project was an integral part of a 5-Year Economic Plan and was prepared entirely by the Ministry of Agriculture. Detailed long-term economic planning and development formed the basis for identification. 2. The on-lending rate was the only substantive pre-project issue arising from the appraisal. In view of the prevailing rate of inflation (10-12% p.a.), the appraisal mission recommended interest rates to be increased to 11% but the Government insisted on maintaining them at 9% as part of its overall subsidy package to agriculture. Because the degree of planning and centralized allocation of credit left interest rates with no allocative function in Israeli agriculture, and because Government could not alter the price of one input without restructuring the entire input-output price package, the Bank accepted the 9% rate. Subsequently, due to con- tinued increases in domestic inflation, the interest rate was raised twice (to 11% and 12.5%) during the project, but at no time did it perform any allocative function. Although a novel concept at the time and involving some discussion in the Bank, the mission's recommendation to include the research component was accepted. Project organization remained exactly as for the first project with the Israel Bank of Agriculture being the borrower and principal on-lender, together with two other participating commercial banks. The Project Coordination Committee of the first project remained in place to act as general coordinator and policy-maker as required. Funds were allocated among components and subprojects by the Ministry of Agricul- ture in accordance with the overall economic plan. Subloans were restricted to investments approved by the Ministry of Agriculture as part of overall farm development plans, which ensured the availability of the necessary physical inputs. The three participating banks were responsible for assess- ing the financial aspects of the subloans. In fact, the Committee's role was minimal. The objectives of the project were purely economic; namely to improve the balance of trade by producing more export (flowers and fruit) and import substitute (meat and milk) products and to improve the efficiency of the use of water, the scarcest resource in Israeli agriculture.