Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No. 4216a-YU

STAFF APPRAISALREPORT Public Disclosure Authorized

YUGOSLAVIA

SERBIA REGIONAL DEVELOPMENTPROJECT Public Disclosure Authorized

March 2, 1983 Public Disclosure Authorized Projects Department Europe, Middle East and North Africa Region

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 EQUIVALENT** June 30, 1982 October 22, 1982 US$1 Dinars (Din) 46.0 Dinars (Din) 63.51 Din 1 US$0.0217 US$0.0157

WEIGHTS AND MEASURES

1 meter (m) 1.09 yards l,square meter (m2) 10.76 square feet i kilometer (km) 0.62 miles I square kilometer (km2) 0.384 square miles '1 hectare (ha) 2.47 acres 1 liter (1) 0.264 US gallons 1 hecto liter (hl) 100 liter I cubic meter (m 3 ) 1.31 cubic yards 1 kilogram (kg) 2.20 pounds 1 metric ton (m ton)= 1,000 kg = 0.98 long tons

ABBREVIATIONS AND ACRONYMS

Agrobanka = Specialized Agricultural Bank AIK Agro-industrial Kombinat ATK = Agro-trading Kombinat BCO = Basic Cooperative Organization BOCF = Basic Organization of Cooperative Farms

BOAL - Basic Organization of Associated Labor COAL Composite Organization of Associated Labor FC = Farmers Cooperative ICB = International Competitive Bidding IRC = Intercommunal Regional Community LCB = Local Competitive Bidding SDK = Social Accounting Service SFRY = Socialist Federal Republic of Yugoslavia SFUR = Serbian Fund for Underdeveloped Regions of Serbia Proper SIZ = Self vanaged Water Management Community of Interest for Water Economy SMA = Self Management Agreement among Participants in the Project SR SERBIA Socialist Republic of Serbia :JBB = Udruzena Beogradska Banka (Associated Belgrade Bank) WO = Work Organization

YUGOSLAV FISCAL YEAR

January 1 - December 31

** The Yugoslav Dinar has been floating since July 13, 1973. It was devalued by 20% against the U.S. Dollar effective October 22, 1982. The currency equivalents effective on June 30, 1982 have been used for project analysis. For cost estimates, unit costs are based on June 1982 Dinar estimates and have been updated to December 1982, reflecting the effects of the October 1982 devaluation and international price escalation. FOR OFFICIAL USE ONLY

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Table of Contents

Page No.

I. THE AGRICULTURAL SECTOR ...... 1

A. Agriculture in Yugoslavia ...... I B. Bank Strategy in Yugoslavia's Agricultural Sector ...... 3 C. Agricultural Development Issues in Serbia ...... 3 D. Performance Under Previous Agricultural Projects in Serbia. 4 E. Project Background ...... 5

II. THE PROJECT AREA ...... 5

A. Sectoral Context ...... 5 B. Topography, Climate, Land Use and Soils. 6 C. Present Land Use. 7 D. Agricultural Input and Support Services. 8 E. The Banking Institutions. 9

III. THE PROJECT ...... 12

A. Objectives ...... 12 B. Project Description ...... 13 C. Status of Design and Project Implementation ...... 14 D. Cost Estimates ...... 15 E. Financing ...... 16 F. Retroactive Financing ...... 17 G. Procurement ...... 17 H. Disbursement ...... 18 I. Environment and Health ...... 19 J. Role of Women ...... 19

IV. PROJECT ORGANIZATION AND MANAGEMENT ...... 19

A. Institutional Arrangements ...... 19 B. Project Coordination ...... 20 C. Project Organization and Implementation ...... 20 D. The Borrower ...... 21 E. The Implementing Agency - Agrobanka ...... 21 F. On-lending Procedures ...... 23 G. On-lending Terms and Conditions ...... 23 H. Other Participating Organizations ...... 24 I. Technical Assistance and Training ...... 26 J. Accounts and Audit ...... 26 K. Reporting, Monitoring and Evaluation ...... 27 L. Cost Recovery ...... 28

This report is based on the findings of an Appraisal Mission to Yugoslavia during June/July 1982, consisting of Messrs. H. von Pogrell, M. Tirmazi, R. Buller, M. Walshe, F. Wright and Ms. Ganguly (Bank) and Messrs. H. Huehne, C. Cronberg and V. Patankar (Consultants).

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. Table of Contents (Cont'u) Page No.

V. PRODUCTION, PRICES, MARKETS AND FINANCIAL ANALYSIS ...... 29

A. Production ...... 29 B. Marketing and Market Prospects ...... 30 C. Prices...... 31 D. Financial Analysis ...... 31

VI. PROJECT BENEFITS AND JUSTIFICATION ...... 32

A. Benefit and Employment Effect ...... 32 B. Economic Evaluation ...... 33 C. Risks and Uncertainties ...... 34

VII. RECOvMMENDATIONS...... 35

ANNEXES Annex 1 Project Cost and Phasing Table 1 Detailed Project Cost ...... 38 Table 2 Summary Project Cost ...... 39 Annex 2 Estimated Disbursement Schedule ...... 40 Annex 3 Financial and Economic Data Table 1 Financial Prices for Major Inputs and Outputs...... 41 Table 2 Summary Results of Financial Analyses ...... 42 Table 3 Economic Prices for Major Inputs and Outputs...... 43 Table 4 Summary Results of Economic Analyses ...... 44 Table 5 Socio-Economic Data and Agricultural Indicators...... 45 Annex 4 On-farm Production Investment...... 46 Annex 5 Description of Support Service Facilities ...... 57 Annex 6 Agriculture Extension, Technical Services and Applied Research 61 Annex 7 Description of Agroindustry Facilities ...... 65 Annex 8 Description of Drainage Component ...... 71 Annex 9 The Borrower: Udruzena Beogradska Banka. Table 1 Consolidated Income Statement ...... 77 Table 2 Consolidated Balance Sheet ...... 78 Table 3 Project Financing Plan...... Annex 10 Agrobanka - The Implementing Agency...... Table 1 Statement of Income and Expenses...... 80 Table 2 Balance Sheet ...... 81 Table 3 Project Financing Plan ...... 82 Annex 11 Description of Implementing Organizations .83 Annex 12 Main Provisions of Project Agreements among Participants in the Project ...... 85 Annex 13 Guidelines for Appraisal of the Project by Agrobanka ... 88 Annex 14 Selected Documents and Working Papers Available in the Project File ... 90

Charts Chart No.: WB 24323: Project Organization Chart No.: WB 24324: Implementation Schedule Chart No.: WB 24325: Institutional Arrangements

Maps IBRD Map 16607 : Danube Region and Location of Proposed Investments IBRD Map 16608 : Kolubara Region and Location of Proposed Investments APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

I. ThE AGRICULTURAL SECTOR

A. Agriculture in Yugoslavia

1.01 In Yugoslavia, the share of agriculture in social product and employment has declined steadily in the post-war period. However, the agri- cultural sector remains important in the overall development of the economy, contributing about 14% of social product, and engaging about 30% of the country's active population. The agricultural sector accounts for the income of one-thiro of the population--a group which is largely rural, under- employed, and in the relative poverty target group with per capita income under US$850 per annum. In addition, the agricultural sector makes an important contribution to reducing Yugoslavia's trade deficit. The country has a large agricultural resource base, and its favorable climatic conditions have fostered the growth of a well-diversified agricultural sector with a significant potential for future development.

1.02 Yugoslavia has a unique framework of economic management and decision-making based on a system of workers' self-management, a system characterized by social ownership and workers' control of the means of productLion. In agriculture this has led to the co-existence of social and individual (private) sectors. About 83% of agricultural land is owned and operated by nearly 2.6 million individual farmers making it the only predominantly privately-owned sector of the economy. With an average family holding of around 3.2 ha and possessing about 95% of the total agricultural labor force, the individual sector accounts for about 85% of maize production, 60% of wheat, 75% of vegetables, and owns between 85% and 95/. of all livestock. A considerable portion of production in the individual sector is, however, retained for home consumption and contributions to marketed output are low. The share of the individual sector in the marketed output of cereals is about 45%, with a similar situation prevailing in vegetables and fruits. In livestock, however, a much higher proportion of individual sector output is marketed. In an effort to increase income ana overcome under-employment, an increasing number of individual households are moving out of purely agri- cultural occupations into part-time agriculture supported by non-farm sector income. Current estimates indicate that as much as 10% of arable land is uncultivated because of a large influx of rural population into the urban sector.

1.03 The potential inherent in agriculture in the individual sector received scant attention until the early 70's and all investment funds were directed entirely to the social sector. Since then, the individual sector has received some support through various forms of cooperation and association with the social sector. The linkage between the two sectors is provided through agricultural cooperatives (Zadrugas). Cooperation with individual farmers is achieved through short- or long-term production contracts. Cooperatives sell agricultural inputs and buy agricultural outputs from all farmers cooperating in their area of operation and provide farm machinery - 2 -

services, technical advice, and credit to member farmers. The repayment of the credit is ensured through the sale of the produce. A farmer can have several contracts for production of different conmmodities. About half of Yugoslav farmers are involved in some form of cooperation with the social sector.

1.04 The Yugoslav food production system relies on integration of primary agricultural production, food processing, marketing and distribution of food products in agroindustrial complexes called agrokombinats (the integrated factory farms). The social sector controls about 17% of the total agricultural land in the country and produces 26% of total agricultural output. Social sector agricultural production grew 5.4/. annually during 1970-198U, compared to 1.2% for the individual sector. While social sector growth has been impressive in absolute terms, production efficiency needs improving. Overall, about 85% of total investment funds in agriculture still flow to the social sector.

1981-1985 Social Plan

1.05 The Federal 1981-1985 Social Plan calls for improved primary production to satisfy domestic demand; generation of surplus production to promote agricultural exports; modernization and reconstruction of existing agroindustry facilities; and utilization of currently unused and abandoned lands through land reclamation and social sector purchase. The growth of agricultural output has been targeted at 4.5% per year, with the social sector planned to grow at 6% and the individual sector at 4% per year. Agriculture is expected to play an important role in reducing the deficit in the balance of payments. Agricultural exports are expected to grow at an annual rate of 10% by the end of the Plan, and agricultural imports to be reduced by 5% per year. To achieve these objectives, the Plan provides for investments of Din 152 billion in 1982 prices, representing 9.6% of total investment in the economy. Overall, the Plan represents a relatively optimistic view of agricultural production possibilities. Policy and organizational changes well beyond those currently set out in the Plan will be needed to achieve the objectives.

1.06 The inaividual sector constitutes Yugoslavia's largest agricultural resource but its modernization and reduction of the disparity between individual farm incomes and those in the non-farm sector will be difficult to achieve, until a satisfactory policy framework is devised to progressively overcome the structural problems afflicting the agricultural sector. Agricultural issues constraining development include:

(a) inadequately developed institutional arrangements ana services for the large individual sector, including restricted credit access for individual farmers; (b) insufficient sector investments with the individual sector and an imbalance towards capital intensive social sector agro- processing; (c) the small size and fragmentation of individual sector holdings, and (d) weakly developed extension services for the individual sector. - 3 -

B. Bank Strategy in Yugoslavia's Agricultural Sector

1.07 In recent years, the Bank's lending strategy in Yugoslavia has given increasing importance to the agricultural sector. To accelerate agricultural growth, the Bank assisted in formulating the 1973 'Green Plan', a compre- hensive framework for agricultural development which, for the first time, emphasized the need to support the individual farm sector. The Bank has made 14 agricultural sector loans totalling about US$806.6 million, about 24% of total Yugoslav loans. The strategy has been to support the development of primary production in the individual sector in recognition of the fact that the major output increases can be expected to come from the largest resource block. Inivestments in agroindustries in the social sector which serve as the marketing channels for farm production have also been financed under Bank loans. This strategy has recognized the need to use investment to promote a more equitable income distribution by raising the incomes of the rural poor, and alleviating rural-urban migration. An agricultural sector review, terms of reference for which have been agreed with the Government, is expected to be completed by mid-1983. The review will be jointly financed by the Bank and the Government and would include participation of staff from the bank and selecLed Yugoslav institutes. Future Bank lending and sector activities which would draw on the conclusions of this report are expected to assist in the reorientation of investment, promote institutional development and training, and the evolution of a satisfactory policy framework. The Bank's project investments are expected to focus on:

(a) primary production (particularly cereals and industrial crops) in the social sector, in which it has a comparative advantage; (b) labor intensive production (livestock, vegetables, fruits) largely in the individual sector; (c) agroindustry investments limited to reconstruction and modernization; (d) export-oriented production; (e) research and extension services and agricultural inputs accessible to all farmers; (f) development-oriented banking institutions exclusively for agriculture which would provide credit to all farmers; ana (g) training of farmers, and staff engaged in research, extension and cooperative work, and (h) training of banking institution staff.

1.08 The proposed loan will be the secona Bank loan in Serbia in the agricultural sector and the fifteenth Bank loan for Yugoslav agriculture and agroindustries. The project objectives are consistent with Yugoslav and Bank development strategy.

C. Agricultural Development Issues in Serbia

1.09 About one-fourth of Yugoslavia's cultivated lana lies in Serbia and is farmed by 267. of the country's active agricultural population. Serbia contributes 22% of the agricultural social product of Yugoslavia and is one of the largest producers of fruit, milk, meat and eggs. One-fourth of the total cereal production of Yugoslavia is produced in Serbia. During 1970-1980, Serbia has maintained an average annual growth rate of 3.1A of agricultural social product which is above the Yugoslav average of 2.8%. The inaividual sector owns 94% of arable land in Serbia compared to 83% in Yugoslavia. This relative dominance of the individual sector is the most important factor - 4 -

underlying the low productivity of the agricultural sector in Serbia. Productivity of Serbia's agricultural labor force is only 79% of the Yugoslav average. Formal cooperation between the individeal and the social sectors between 1970 and 1980 has been declining as indicated by the reduction in the number of livestock cooperants and seed and fertiLizer sales to cooperants. Rural poverty and inco.e disparities between the social and individual sectors in Serbia are widespread.

1.10 The importance of agricultural development and the need to alleviate the constraints facing the individual sector have been recognized and are being addressed by the Government of Serbia in its Five-Year Plan (1981-1985). The Plan aims at an annual 4% agricultural production growth; the social sector is expected to grow at 10%, and the individual sector at 3.3%. Agroindustries are expected to grow at 7% per annum. The agricultural exports are planned to increase at an annual rate of 7-8%. The Plan strategy is primarily to encourage social sector growth while promoting increased cooperation between the individual and social sectors, with each sector drawing on its respective comparative advantage. Thus meat, milk, fruits and vegetables would be mainly produced by the individual sector, and cereals and processed food products mainly by the social sector. Provisions are included in the Plan to strengthen the extension serxvicefor the individual farm sector.

1.11 The pace and extent of individualfarm sector modernization will depend largely on the policy framework devised to progressively promotet

(a) allocation of adequate financial resources for investment in technically balanee-d agricultural development packages; (b) provision of techrical assistance, credit, markets, and an adequate supply of modern farm inputs; (c) adoption of consistent pricing policies; (d) development of a land plan which over time wilL provide for (i) consolidation of existing individual land holdings, (ii) increased average farm size, and (iii) improved opportunities for young farmers to take up farming as a career; (e) decrease in income disparities between, firstly, the social and individual farm sectors and. secondly, between the farm and non-farm sectors; and (f) adequate social benefits for retiring farmers.

D. Performance Under Previous Agricultural Projects in Serbia

1.12 Serbia has received one direct Bank loan for agriculture in the amount of US$87 million for the Morava Regional Development Project and a share of US$36.9 million under the three nation-wide agricultural credit projects. The Borrower under the Morava Regional Development Project (Loan 1951-YU of August 1981) is Investbanka which is one of the constituent banks of the Udruzena Beogradska Banka (UBB), the borrower of the proposed loan. The Morava project was well prepared and the present project drew heavily on the experience gained from that project in preparation ana design. The Serbian Fund for Underdeveloped Regions (SFUR) which would be financing part of the costs of the present project is, in conjunction with Investbanka, responsible for the implementation of the Morava project which is progressing satisfactorily. About 11% of the loan proceeds have been disbursed and procurement actions for all agroindustries have been completed. The participating bank in Serbia under the three agricultural credit projects is Beogradska Banka Belgrade, another constituent bank of UBB. The First Credit project (Loan 1129-YU) has been successfully completed and a completion report is presently being prepared. The Second Agricultural Credit Project (Loan 1477-YU) is delayed but Beogradska Banka has all funds committed and is expected to complete disbursements by the revised closing date of August 31, 1983. The Third Agricultural Credit Project (Loan 1801-YU) is in its third year of implementation. As of December 1982, 83% of the funds allocated to Serbia are committed, 25% disbursea, and no major delays are anticipated. The overall performance of Serbia under World Bank financed projects is good compared to other Republics, but it is not entirely satisfactory. Procurement continues to cause delays and delays have also arisen with regard to commitment of individual sector loans. Disbursements are proceeding, but slowly--mainly due to restrictions imposed on import licencing and granting of credit by commercial banks under the current stabilization program in Yugoslavia. These issues have been taken up with the Federal and Republican Governments and Bank-project related imports and credits have recently been exempted from the operation of the restrictive measures. Implementation and disbursements under the projects are, therefore, expected to show improvements.

E. Project Background

1.13 The Serbia Regional Development project was identified by the Serbian Government in 1980 and was prepared by experienced and well-known Institutes in Belgrade!/. The Bank was also provided with assistance from the FAO/CP program to review the proposed drainage component. The project preparation report was submitted to the Bank in February 1981 and, following preparation/ preappraisal missions in September 1981 and February 1982, the project was appraised in July 1982.

1.14 The Serbia Regional Development Project would be undertaken in the Danube and Kolubara regions, which are located in the northern part of Serbia (IBRD Maps Nos. 16607 and 16608). The concept and design of the project would follow an earlier project for agricultural and agroindustrial development in Serbia, the Morava II Regional Development Project (Loan 1951-YU, 1981). It would also be complementary to investments made under the Second (Loan 1477-YU) and Third (Loan 1801-YU) Agricultural Credit Projects, in which Serbia has participated along with other Republics and/or autonomous Provinces.

II. THE PROJECT AREA

A. Sectoral Context

2.01 The project area of the Kolubara and Danube Regions accounts for 29% of arable land, 26% of livestock, and 25% of orchards in SR Serbia. The area has a total population of about 1.03 million, of which about 58% reside in the rural areas representing about 27% of the agricultural population of SR Serbia. Individual farmers own over 93% of the agricultural land. The per capita income within the project area is the lowest in Serbia with the exception of the Morava Region. Pockets of rural poverty and considerable income disparities are also present. Of a total of 25 communes, 16 have been declared less developed (per capita income between US$1,200 and US$1,500) by the Government and qualify for assistance from the Serbian Fund for Underdeveloped Regions (SFUR). Development of agriculture in the project area is constrained due to a high level of migration from the rural to the urban centers, lack of credit and extension services to the individual sector, inadequate market arrangements, and lack of capital to improve land drainage and to replace out-dated equipment and machinery. The proposed project would address some of these development constraints.

1/ Institute for Agricultural Economics, Belgrade Institute for Industrial Economics, Belgrade Institute for Economics, Belgrade - 6 -

B. Topography, Climate, Land Use and Soils

Location and Topography

2.02 Kolubara Region: The Kolubara Region (IBRD Map No. 16608) covers 5,744 km' in the northwestern portion of SR Serbia encompassing 14 communes, of which 9 are classified as underdeveloped. The region is bordered on the north by the Sava River, on the south by the peaks of the Valjevo mountains, to the east by valleys of the Kolubara and Ljig Rivers and to the west by the Drina River. The principal relief forms are river valleys and basins, the Macva Plain, the hilly sub-Panonian belt, and mountains. Alluvial plains of varying widths stretch from the river valleys. The Macva plain constitutes a separate morphological unit sloping from southwest to northeast at 78 to 90 meters altitude. Higher land southward of the valleys pertains to the hills of the sub-Panonian belt at about 500 meters altitude, The mountainous area to the extreme south is characterized by a series of steplike plateaus with elevations from 600 to 1,100 m.

2.03 Danube Region: The Danube Region (IBRD Map No, 16607) covers 5,099 km2 in the mid-northern portion of SR Serbia, encompassing the broad territory of the lower course and confluence of the Danube and Velika Morava Rivers and comprising 11 communes, of which 7 are classified as under- developed. The Danube River forms a natural border to the north, the heights of the Somrda, Homolja and parts of the Kucaja and Beljanica mountains establish the southeastern and eastern boundaries, and the eastern fringes of the Sumadijan hills form the western border. Plains and rolling land, occupying 67% of the Region, extend from the confluence of the Velika and Danube Rivers and along the long valleys of the Mlava and Pek rivers, and the basins formed by the Jezgave and Godomina Rivers which flow into the Danube. Hilly-mountainous terrain to the east rarely exceeds 1,000 m except for the peaks.

Climate

2.04 A moderate continental climate prevails in the Kolubara and Danube Regions. The mean annual temperature is about 110C. July is usually the hottest month, averaging between the low to mid 20s. January is the coldest month, averaging just slightly above or below the freezing point. Mean annual precipitation exceeded 700 mm in 7 out of the past 10 years, with an average of 730 mm. Rainfall is reasonably well distributed, thus contributing to favorable conditions for agriculture. Maximum precipitation usually occurs in May and June, and February and March record the least. Snow cover can last from 20 to 50 days.

Land Use and Soils

2.05 Kolubara Region: Of the total area of 574,000 ha, 70/O is agricul- tural lanc, 25% is forests and about 5% comprises watercourses, roads, settlements and nonproductive land, In the north and northeast portions of the region agricultural land exceeds 80% of the total and in the south it averages around 60X. Good productive soil types occupy about two-thirds of the region, mostly below 600m elevation. These comprise the highly productive black and brown forest soils; the lesser productive parapodzols, many of which require land reclamation, and alluvial deposits and black marshy soils in the -7-

flatlands, also usually requiring drainage. Particularly, the Macva plain near the Sava and Drina Rivers is subject to periodic flooding. Under the project, about 7,000 ha of arable land in three different areas would be drained in order to enhance agricultural production. Upland soil types, at 600 to 800 m elevation, are formed on calcareous, serpentine, granitic and schistous parent material, many of which are subject to erosion.

2.06 Danube Region: The total surface area of the Danube Region is 509,000 ha and agricultural land ocupies about 70%; whereas, in the eight communes located primarily in the plains, the percentage exceeds 80%. Forests occupy 23% of the region although in the eastern upland area their presence is greater. The region is exceptionally endowed with fertile soils with close to 60% of the arable land belonging to the first three classes. Farmland located in alluvial plains near the Danube and Velika Morava Rivers suffer from annual flooding. Four separate drainage schemes (15,000 ha total) to be financed under the project would further increase the amount of good quality arable land.

C. Present Land Use

2.07 Individual farmers own 94% of the arable land, 93% of the orchards and vineyards, and 90% of the pastures and meadows. Average farm size is about 4.5 ha, of which 2.5 to 3.5 ha are arable. Most farms are fragmented and on the average comprise about 10 separate plots, often several kilometers from each other, a serious constraint to accelerated growth of agricultural production. The farms rely almost entirely on family labor and a large proportion of farm families supplement their incomes with earnings outside the farm. The typical farm combines mixed cropping and livestock production. Virtually all farms produce maize, wheat, alfalfa and vegetables. In addition, about 25% of the farm area is in natural meadows and pasture and an additional small area (about 5%) in orchards. The farming system in the project area is remarkably uniform and the effect of farm size is basically one of scale. Large farms market more of their crops and livestock and have more farm machinery, as would be expected. Home consumption of produce is an important aspect of the small farm economy. Not only is the typical household self-sufficient in flour, vegetables, fruits, firewood and brandy, but also in livestock and poultry products. Backyard poultry production is universal. Most farms produce their own firewood and plum brandy and, in construction and building work, these small farms are remarkably self-reliant. The farmers very often work together, sharing skills and equipment. For example, a large portion of the fire clay bricks used for constructing dwellings and farm buildings are producea on the farm, not to mention the wide use of home-grown timber. The general level of farming skill in both Regions is above average compared to other developing regions of Yugoslavia.

2.08 Both the Kolubara and Danube Regions have ideal conaitions for growing continental fruits, as evidenced by the fact that these two Regions alone supply 141 of Yugoslavia's total. The Danube Region has a long tradition of vineyard culture, particularly the production of "Smederevo" wines. Tobacco growing is gaining importance in the Kolubara Region with the introduction of broad-leaf varieties such as Virginia and Burley. About 90% of all the livestock in the project area belongs to the individual sector. In 1981 the livestock population consisted of about 402,000 cattle (including 373,000 cows and heifers), 565,000 sheep and 1,113,000 pigs (including 228,000 sows). The poultry flock is about 3.2 million. The project area accounts for - 8 -

about 22%, 28%, 43% and 23% of Serbia's cattle, sheep, pigs -and poultry, respectively. Animals are fed almost entirely on home-grown forage, pasture, hay and feed grains (maize, barley or wheat bran). Home-grown wheat is milled into flour in the local village ann both flour and bran are consumed on the farm. Milled wheat yields about 70% flour and about 30% bran which the farmer takes back for on-farm animal feeding. The total participation of the social sector in primary production is very low; however, tchissector owns a number of large commercial farms for rearing and fattening livesLoc. and poultry and several thousand hectares for grape and fruit productiorl0

D. Agricultural Input and Suppo> erv cz.

2.09 A significant element in the organization Of agriculture in the proiect area comprises eight large scale agricultural ani an'; strial kombinats (3 in Kolubara and 5 in Danube Region), through which various types of affiliated farmer cooperatives (B'1CF,BCO and FC's) supp y inputs anu technical assistance to the individual farmer i'n eturn for the pulrchaseof his production. Inputs include day old chicks, fruit tree seedlings, improved seed, fertilizer and plant protection materials. A limited number of seed processing facilities, livestock and poultry reproduction centers, and fruit tree and grape vine stock nurseries exist in the project area, but their output is insufficient to meet the full requirements of the ind-vidual sector.

2.10 In the past 15 years there has been a rapid increase in L-henumber of tractors, combines and farm implements in the individual sector. Currently in the project area, farmers own about 30,000 tractors and 2,980 grain combines. Average fertilizer use in the project area is 240 kg/ha of active substance, being slightly above the average for SR Serbia.

2.11 In SR Serbia there is no centralized republic or commuae level extension service, as in other parts of Yugoslavia. Technical assistance to individual farmers is provided exclusively by part-time extension ageats employed by agricultural working organizations and cooperatives. Collec- tively, this group of specialists is referred to as the Basic Agricultural Service. Currently, there is only one graduate agronomist and one veterinarian for 480 and 600 households, respectively. These ratios are inadequate to ensure effective coverage, a situation which is furi-her aggravatea by lack of mobility and housing (particularly in the remote areas), and excessive time devoted by the specialists to negotiating production contracts between the processing industry and the individual farriaers

2.12 The principal source of technical information in the project area is being provided by four agricultural stations. These agricultural stations are attached to the main Agrokombinats as independent, self-supporting w.;;orking organizations. They have no land of their own and applied research is done through short-term contracts, thus impeding long-term planning and continuity. Information is disseminated through seminars, conferences and special courses. The stations, with rather meager facilities, also attempt to perform a service function such as product quality control, soil testing, feed analysis and livestock improvement, but are unable to meet the increasing demand for these services. Veterinary stations are anot'her source of agricultural services providing animal health protection, artificial insemination, and sale of some veterinary products. The project would address the issue of improved technical assistance for the individual farmer through a - 9 - dual approach: firstly by strengthening that segment of the extension service which would be directly involved in supporting the project's incremental production, and secondly by financing a comprehensive study for the whole Republic, aimed at developing a more efficient and cost-effective technical assistance program.

E. The Banking Institutions

Udruzena Beogradska Banka (UBB) ; The Borrower

2.13 Udruzena Beogradska Banka, Belgrade (UBB), the Borrower under the proposed loan, is an associated bank!/ comprising 20 basic banks in SR Serbia representing about 4,300 working organizations with over 10,000 basic organizations of associated labor (BOAL's). All 20 member banks have mutual unlimited subsidiary liability for UBB obligations. UBB is the largest banking system in Yugoslavia.

2.14 UBB was constituted according to the new banking law on March 29, 1978. It is the dominant banking institution in SR Serbia and performs a wide range of services for its member banks, mainly in the field of foreign borrowing and exchange transactions, and has a staff of over 580 employees of which about 30% are graduates. Although UBB is not a direct borrower under previous Bank loans, its largest member, Investbank (IB), is the borrower under the Morava Regional Development II Project (Loan 1951-YU; US$87M). The second largest member, Beogradska Banka/Belgrade, is participating in the three agricultural credit projects (Loans 1129-YU, 1477-YU and 1801-YU totalling US$36.9M allocated for SR Serbia). UBB was also the lead bank to organize the co-financing for the Transyugoslav Highway project (Highways XI - Loan 1819-YU). UBB maintains representative branch offices in about 25 other countries. The consolidated balance sheet and income statement of UBB are attached as Annex 9. UBB was selected to be the borrower under the project since Yugoslav procedures and agreements between its basic banks stipulate that only the associated banks retain the right to borrow abroad. UBB, with support from the Republic Government of Serbia, has decided to entrust the responsibility for project implementation and coordination to the Specialized Agricultural Bank - Agrobanka. This procedure is in compliance with existing Yugoslav banking laws and regulations.

Specialized Agricultural Bank (Agrobanka);(The Implementing Agency)

Institutional Framework and Present Organizational Structure

2.15 The Specialized Agricultural Bank, Agrobanka, was created in June 1981 on the basis of a resolution of the Assembly of SR Serbia as a successor to the former Basic Agricultural Bank (BAB) which, in turn, had succeeded in 1977 the former Yugoslav Agricultural Bank. Agrobanka is also a member of the associating banking group of Udruzena Beogradska Banka (UBB) which is the borrower under the loan. On the basis of a self-management agreement, Agrobanka is presently owned by 277 members comprising BOAL's, COAL's,

1/ An Associated Bank is estaDlished as a legal entity through a self- management agreement of two or more basic banks. - 10 -

cooperatives and other organizations. The medium-term and annual plans of Agrobanka are approved in the annual meetings of its assembly which consists of representatives from the participating organizations and is managed by a nine-member Executive Board elected for a two year term. The day-to-day business of Agrobanka is conducted by a Board of Management consisting of a President and two Vice- Presidents appointed for a renewable term of four years. Eight departments operate directly under the Board of Management dealing with, among other things, organization, savings and credit, international banking and World Bank affairs. By mid-1982, Agrobanka had an aggregate staff of 273 including 165 professionals.

2.16 Agrobanka's transformation from a basic agricultural banK into a specialized agricultural bank neither created a totally new institution nor changed its nature as a "basic bank", nor its relationship to UBB. It was an evolutionary, institutional change resulting from the need felt by Serbian authorities to set up a specialized banking institution for the agricultural sector. Agrobanka is called upon, in particular, to serve the long-term loan capital requirements for the investments in the agricultural sector and agro- industry. In 1981 its credit and loan portfolio was divided about equally into Din 1 billion each for long-term loans and short-term credits. By 1985, this ratio is projected to shift to Din 20 billion for long-term loans and Din 6 billion for short-term credits.

Lending Operations

2.17 Agrobanka's long-term investment credit approvals (including that of its predecessor) amounted to Din 757 million in 1980 and declined to Din 666 million in 1981. The projections for 1982 to 1985 show a substantial increase in its long-term lending operations as shown below.

Long-term Lending Years Operations 1982 1983 1984 1985 ------Din Million------

Non-World Bank Projects Social Sector 4,029 2,083 2,527 2,207 Individual Sector 608 945 988 1,188 Sub-total 4,637 3,028 3,515 3,395

World Bank Projects Social Sector - 2,077 962 311 Individual Sector - 371 509 498 Sub-total - 2,448 1,471 809

Total Lending Operations 4,637 5,467 4,986 4,204 - 11 -

The number of lending operations is expected to increase from 334 in 1982 to a range of 450 to 500 annually during 1983, 1984 and 1985. Short-term credits. Agrobanka's short-term credits outstanding amounted to Din 2,115 million at the end of 1981 and are projected to increase to Din 3,300 million by the end of 1985. The share of short-term credits in Agrobanka's total assets will, however, be reduced from 44% to 12% over the same period. In view of the increase in lending operations, Agrobanka has already increased its staff capability from one medium-size appraisal group with about 30 staff members to two full project divisions with a total of 60 staff members, including 48 professionals with university education. With this increase in staff, it is expected that Agrobanka will cope with the increase in its operations.

Resource Mobilization

2.18 The main sources for Agrobanka's lending are expected to be drawn from (a) compulsory contributions of "net income" of enterprises (0.38%), (b) contributions from the "net credit potential" of the basic banks of SR Serbia (0.3%), (c) compulsory contributions from the "net credit potential" of the basic banks under the Green Plan (0.63%), and (d) loans from the Post Office Savings Bank (Decree 359 of July 3, 1982). World Bank funds are expected to contribute to the long-term operations. Agrobanka's total resources are projected to increase by Din 22,070 million over the period 1981-1985. The largest portion of that increase is expected to take place in long-term resources which will increase by Din 18,060 million, while short-term resources will contribute a total of Din 3,010 million. Agrobanka's long-term foreign exchange resources are projected to increase by the equivalent of Din 3,100 million by 1985, almost all of which would be provided by World Bank funds which should contribute about 14% of the total increase in Agrobanka's resources over the period 1981-1985.

Financial Performance

2.19 Statements of income and expenses and balance sheets for Agrobanka for 1980 and 1981 are contained in Annex 9. With total assets of Din 5 billion at the end of 1981, Agrobanka is one of the smaller of UBB's 20 member banks whose total assets amounted to Din 552 billion at that time. Agrobanka, as Yugoslav banks in general, is not expected to earn a high net income; its income needs only to be sufficient to cover its costs, statutory obligations and adequate provisions to its Joint Liability Fund and Reserves. Agrobanka's average earning margin amounted to 2.3% in 1981 which compares satisfactorily to other Yugoslav banks, while its administrative expenses amounted to 2.1% of its total average assets for that year. However, this is comparatively high, although it is explained by the fact that Agrobanka was in a transitional phase in that year. For 1985, Agrobanka's financial projections envisage an average earning margin of 1.6% which compares adequately with Yugoslav averages. Its corresponding administrative costs as a percentage of average total assets are projected to be reduced to 1.2% which is still comparatively high. These projections would result in a residual margin available for covering its statutory obligations and for the necessary strengthening of its Joint Liability Fund and Reserve Fund of only 0.4% of its average total assets in 1985, which is small. The financial projections also provide for only a small increase in these two reserve funds which are forecast to amount to only Din 88 million for the former and Din 69 milllion for the latter at the end of 1985. This would provide a coverage of only 0.7% of its risk bearing portfolio of an estimated Din 21,300 million at the end of 1984 which would not be adequate. Likewise, Agrobanka's total statutory funds (equity) would amount to Din 333 million against a long-term debt of Din 20,292 million at - 12 -

the end of 1985 which would reduce its debt/equity ratio from 2.5:1 in 1981 to 60;1 in 1985. In Yugoslavia, however, the debt/equity ratio cannot be used as a conventional approach for assessing creditworthiness. Agrobanka's equity base is small but, as a result of the self-management system, the bank's operational risks are backed by the subsidiary unlimited liability of its founding members, as well as by the member banks in the Associated System of the Udruzena Beogradska Banka (UBB). In addition, Agrobanka's financial structure is sound with a satisfactory liquidity; its portfolio has only an insignificant portion of arrears and does not appear prone to any extraordinary risks. The business of Agrobanka is being run in observance of sound banking principles. A detailed description and discussion of Agrobanka's organization, policies and procedures, operations and financial situation and projection is contained in Working Paper C-9.

Appraisal Techniques and Capability of Agrobanka

2.20 One of the departments of Agrobanka is organized exclusively for World Bank Projects with one appraisal and one follow-up division. Some appraisal work of agricultual suprojects is also handled by the Sources and Placements Department, resulting in some duplication of functions. Appraisal techniques and procedures applied by Agrobanka appraisal teams are unsophisticated and do not take into account the concepts of "present worth", financial and economic rates of return and cash flow projections. Market aspects and investors' implementation capabilities are not adequately dealt with. Other than ad-hoc field visits, no regular program of project monitoring and supervision is pursued. The proposed project is designed to improve Agrobanka's appraisal and supervision capabilities.

III. THE PROJECT

A. Objectives

3.01 The project would focus on development of the individual farm sector in the Kolubara and Danube Regions. The project is conceived to generate economic growth and would specifically aim at (i) increasing agricultural production; (ii) improving rural incomes and employment opportunities; (iii) reducing income disparities between developed and less developed communes; (iv) increasing processed food products for the domestic and export markets and (v) strengthening the technical support and credit delivery systems in the project area. The project strategy to achieve these objectives is based on fostering increased cooperation between the social and individual sectors with each sector drawing on its respective comparative advantages. Individual farmers offer the greatest potential for increasing primary agricultural production as they own 94% of the agricultural land in the project area and over 90% of the livestock. The social sector possesses the technical skills, means and institutional framework to undertake the agroindustry and support service investments. Subloans to the individual sector would finance investments for increased primary production; subloans to the social sector would finance investments in agroindustrial processing and support services, thus stimulating production on individual farm holdings. Agricultural crop production would also be increased and stabilized through land drainage and land improvement works. The strategy would include the strengthening of the role of Agrobanka as an agent of agricultural development in Serbia including its capability to prepare appraisals and maonitor the implementation of agricultural projects. These objectives of the project are in line with those of the Agricultural Development Plan 1981-1985 for Serbia. - 13 -

B. Project Description

3.02 The project would consist of six components: (a) on-farm investment; (b) support services, (c) extension services, (d) agroindustry; (e) drainage and (f) technical assistance to Agrobanka. A summary description of the main project components is given below. For a detailed description, refer to Annexes 4 to 8.

3.03 On-farm Production Investment: This component would aim to achieve an increase in the labor intensive production of livestock and fruit crops through provision of credit to about 10,900 individual farmers. About 6,400 farmers have already been identified who would be interested in taking up credit for deciduous orchards (65%), tobacco production (28%) and vineyards (7%). Another 4,500 farmers were identified to take up credit for livestock development whereby the majority would invest in pig fattening and piglet production (39%) and in mixed dairy/beef production (30%). The remaining numbers of farmers would invest in cattle 'fattening (16%), broiler and egg procuctioA (7%), sheep production (4%) and bee keeping (4%). Investment would include construction of farm buildings, purchase of machinery, provision for initial livestock and planting material for establishment of orchards and vineyards. The actual investments for various farm types would remain flexible according to market conditions and individual demands. Successful and proven technology already practiced in the social sector would be applied in the livestock and fruit production by the individual sector. Further details and key assumptions used for preparation of farm models are given in Annex 4.

3.04 Support Services: In Yugoslav agriculture, the social sector provides a series of services to the individual sector. The project would provide improved availability of inputs, access to markets and technical services. Financing of inputs would include farm mechanization particularly for sugarbeet, sunflower and vegetables; 2 nurseries for fruit and vine plantations; 2 seed processing centers; 8 repair workshops and 12 fuel storage depots; one poultry hatchery, and 2 social sector breeding farms for poultry and sheep. A forward linkage to the market and to agroindustry would be investment in collecting centers for milk, herbs, mushrooms and medicinal plants and drying facilities for plums and tobacco. A novel feature of this component would be the execution of a genetic pig improvement program based on performance and progeny testing. Good quality boars would be sold to the individual sector. A detailed description of the support service component is given in Annex 5.

3.05 Extension Services; The project would strengthen the existing agricultural extension services on the level of those basic working organizations and cooperatives which are directly involved in the implementation of the on-farm investments. The project would finance about 60 vehicles, 50 small apartments and 60 man/months of training abroad. The activities of the specialists would be extended to individual farmers particularly in less developed communes in the general spirit of Serbia's Five Year Development Plan. The project would also finance the preparation of a master plan in agricultural extension, technical assistance and applied research for SR Serbia. The objective would be to improve and adapt the existing services for providing more efficient and cost effective technical - 14 -

assistance to individual farmers. The study would include an analysis of the current situation and would make recommendations for the future, particularly for the extension service, applied research, artificial insemination, milk testing, animal improvement and soil and plant analysis. A more detailed summary of the extension service component is included in Annex 6.

3.06 Agroinaustries; Subloans would be provided for modernization and reconstruction of 14 agroindustry facilities (a detailed description of these agroindustries is in Annex 7) including 4 fruit and vegetable processing plants to produce fruit juice, dried plums, prune cakes and frozen vegetable products; 3 coldstores for storage of fruit and meat products; 2 livestock feed mills to produce concentrate feed to support livestock development, and five specialized facilities consisting of one oil mill, one potato processing plant for french fries, one small communal and one specialized poultry slaughterhouse, and the rehabilitation of one grain dryer with silo. The items to be provided would include reconstruction and rehabilitation of existing buildings, food processing equipment and transport equipment.

3.07 Drainage: The main objectives of this component are to increase and stabilize crop production and raise labor productivity. These would be achieved by providing drainage facilities in an area of about 27,000 ha gross (24,000 ha net). This area of 27,000 ha is divided into 7 sub-areas (3 in Kolubara Region and 4 in Danube Region). These drainage projects for the sub-areas would include flood control works; surface and tile drains; pumping stations; on-farm development including roads and equipment for operation and maintenance. Detailed features and a description of the seven drainage projects are given in Annex 8.

3.08 Technical Assistance to Agrobanka: The project would strengthen the role of Agrobanka as a development banking institution and would provide for financing the specialized services of a senior banking advisor for a period of 6 months, and the assistance of an experienced agricultural credit officer for a period of 20 months. In addition, the project would finance incremental computer equipment to upgrade existing computer facilities.

C. Status of Design and Project Implementation

3.09 Project implementation has already started in Fall 1982 and disbursement is expected to begin shortly after effectiveness. For all 14 agroindustrial facilities to be financed under the project, bids have already been invited in accordance with Bank Guidelines for ICB and contracts are expected to be finalized prior to effectiveness of the Bank loan. Most of the individual farmers and Basic Organizations participating under the on-farm investment component for livestock and fruit production have been identified. It is expected that Agrobanka would have appraised and approved about one-third of first year investments in the individual sector by the time the loan becomes effective. Detailed designs for drainage areas are being prepared and bids are expected to be invited during 1983 and 1984 to allow the signing of contracts and commencement of work during the 1984 construction season, with the exception of one sub-project (Lajkovac) for which construction woula begin in 1983. - 15 -

D. Cost Estimates

3.10 Total project cost, including permanent working capital, physical and price contingencies, but excluding interest during construction, is US$359.4 million (Din 22,826.0 million). The front-end fee on the Bank's loan amounts to $1,012.407. Taxes and duties estimated at US$9.5 million are included in the project cost. The foreign exchange component, which includes both direct and indirect foreign exchange costs, is estimated at US$176.9 million or about 50% of the total cost. Unit costs are based on June 1982 Dinar estimates and have been updated to December 1982 to reflect the effects of international price escalation of 3.9% and the effects of the October 1982 devaluation of the Dinar. Physical contingencies were estimated at 15% for drainage, 13% for agroindustry and 7% for the support service and on-farm development components, resulting in an average contingency provision of about 10% for the whole project. A weighted average price contingency of about 13% on base cost plus physical contingencies was included in the cost estimates. These contingencies reflect the expected movement of international prices. Cost estimates have been prepared in US dollars as the Government has decided to adjust the value of the Dinar to compensate for differences in domestic and international price movements. Cost estimates are summarized below in the following table; further details, including physical and price contingencies on each component, are in Annex 1, Table 1.

Project Cost Estimates

% of For. X of Total Component Local Foreign Total Local Foreign Total Exchange Base Cost (Din Mill…------_------us$Mill---…--

On Farm Investments 3,897.8 3,326.9 7,224.7 61.4 52.4 i13.8 46.0 39.2 Support Service 1,994.9 2,087.7 4,073.6 31.4 32.7 b4.1 51.0 22.1 Extension Service 96.4 89.4 185.8 1.5 1.4 2.9 48.1 1.0 Agroindustry 2,434.2 2,320.3 4,754.5 38.3 36.6 74.9 48.8 25.8 Drai.nage 970.5 1,190.3 2,160.8 15.3 18.7 34.0 55.1 11.7 Agrobank - 19.7 19.7 - 0.3 0.3 100.0 0.1

Total Base Cost 9,393.8 9,025.3 1B,4i9.1 147.9 142.1 290.0 49.U 100.0

Physical Contingencies 863.9 945.5 1,809.4 13.6 14.9 28.5 52.3 9.8 Price Contingencies/l 1,333.7 1,263.8 2,597.5 21.0 19.9 40.9 48.6 14.1

Total Project Costs/2 11,591.4 11,234.6 22,826.0 182.5 176.9 359.4 49.2 -

Front-end fee on Bank loan - 63.5 63.5 - 1.0 1.0 100.0 - Interest during Constr. 5,798.5 2,165.7 7,964.2 91.3 34.1 125.4 27.2 -

Total Project Financial Requirements 17,389.9 13,463.8 30,853.7 273.8 212.0 485.8 43.6 -

/I International Price Contingencies were used as follows: 1983 - 8%, 1984 - 7.5%, 1985 - 7%, 1986 and 1987 - 6%. /2 Taxes and Duties are included, amounting to Din 480.6 million (US$7.5 million) for agro-industry and support service, and Din 126.8 million (US$2.0 million) for the drainage component. - 16 -

E. Project Financing

3.11 The preliminary financing plan is shown below

Project Financing Plan /1 Total Total Interest Front-end Project % Share Project During Fee on Financial in Funds Cost Construction Bank Loan Requirements Required ------US$ Millions------

Funds Required 359.4 125.4 1.0 485.3 100.0

Funding Sources a) World Bank 127.5 7.5 /2 1.0 136.0 28.0 b) Agrobanka 53.9 71.9 - 125.8 25.9 c) SFUR 25.1 - - 25.1 5.2 d) Local Banks 81.0 45.0 - 127.0 26.1 e) Investors' Contributions 71.9 - - 71.9 14.8

1/ A financing plan using project cost estimates on local (Dinar) price contingency factors has been agreed during the negotiations and is included in this report as Annex 10, Table 3 2/ Bank is financing only a part of interest during construction on the Bank loan.

The proposed Bank loan of US$136 million would finance 28% of the total financial requirements and 64%o of foreign exchange costs. It would include part of the interest during construction and the capitalized front-end fee of $1.012 million. Bank financing of interest during construction of US$7.5 million is justified by the financial requirements of investors in orchards, vineyards and drainage with long gestation periods and slow build-up of cash flows. Without the inclusion of this provision, the cash flow position of sub-borrowers during the construction period would be unduly stretched. The Government has requested that the front-end fee be financed out of the Bank loan. Commencing 1984, the Borrower would prepare and submit to the Bank by January 31 of each year, an updated financing plan including a revised schedule of estimated expenditures, taking into account the effects of inflation on costs. An assurance to this effect was obtained during negotiations. The proposed Bank loan would be for 15 years, including three years of grace. A portion of the loan would be repaid within this period on the basis of an adjustable repayment schedule, reflecting repayments of subloans by the sub-borrowers. The balance of the loan which would not be on-lent to the sub-borrowers (technical assistance, studies, computer equipment for Agrobanka and drainage facilities) would be repaid on the basis of a fixed amortization schedule.

3.12 In view of the foreign exchange component of the project being US$176.9 million and the Bank loan being US$136 million, co-financing would be required to fill the external financing gap. The borrower is making efforts to secure financial credit from commercial banks and other bilateral sources. In this respect, the borrower has made contacts with commercial banks abroad - 17 -

and discussions are progressing. The Bank has been assured that a definite indication about the availability of co-financing would be provided by December 31, 1983. The borrower has agreed to fill any financing gap (direct and indirect foreign exchange) by increased commitment of domestic resources. Should co-financing be available, the contribution of Agrobanka and the local banks would be proportionately reduced. The Bank has agreed to consider partially guaranteeing or funding the later maturities of such commercial co-financing transactions up to an amount of US$10 million. In this event, the proposed loan amount would be reduced by the amount of the Bank's participation. If both local financing and co-financing abroad cannot be secured by December 31, 1983, the Bank and the Borrower have agreed to consider a reduction in the project scope.

F. ketroactive Financing

3.13 All final designs and tender documents for the first year investments, except for the drainage component, are expected to be finalized by about April 1983 and bids evaluated prior to loan effectiveness. Drainage designs are proceeding and are expected to be completed by December 1983. Expenditures incurred for the preparation of final designs, cost estimates and bidding documents for the drainage component up to an amount ot US$0.8 million would be financed retroactively from the proposed loan. In addition, expenditures incurred for investment in the on-farm development component, up to an amount of US$2.0 million, would be eligible for retroactive financing.

G. Procurement

3.14 Procurement for (i) agroindustries equipment estimated to cost about US$20 million, (ii) turnkey construction for four agroindustry facilities costing about US$27 million, (iii) major equipment and agricultural machinery for support services, including vehicles for the extension service amounting to about US$36.5 million and (iv) all drainage works including civil works and 0 & M equipment costing about US$45 million would be carried out following International Competitive Bidding (ICB) in accordance with Bank guidelines. Yugoslav manufacturers would be allowed a preference of 15% or the applicable customs duty, whichever is lower. Computer equipment for Agrobanka valued at US$50,000 would be procured through Limited International Tendering (LIT). Contracts for agroindustry equipment would include provisions to train local staff in operation and maintenance.

3.15 Civil works for agroindustry and support services, establishment of nurseries, fuel storages, workshops, poultry and sheep farms and extension services amounting to about US$63.8 million and procurement of miscellaneous goods estimated at US$1.9 million would be carried out under Local Competitive Bidding (LCB) procedures acceptable to the Bank. Works and equipment involved are not suitable for ICB as they are unlikely to attract foreign bidders due to the dispersion of investors, wide differences in the types of construction and equipment required and the relatively small size of each contract. Sufficient commercial channels and civil work contractors are available in Yugoslavia to provide adequate competition for the supply of goods and civil works needed under these components.

3.16 Procurement under this project is estimated to value about US$194 million and is expected to result in about 120 to 160 contracts. Of these, about 50 ICl contracts amounting to about US$130 million would be reviewed by the Bank representing roughly 70% of the total value of procurement. - 18 -

H. Disbursements

3.17 The proceeds of the proposed Bank loan of US$136.0 million would be disbursed over a 5 year period and would be made as follows:

% of Amount of Loan Expenditures to Loan Category Allocated be Financed --- us$ mill---

1. Subloans to Individual Sector 47,350,000 46% of amounts disbursed by Agrobanka

2. Subloans to Social Sector 100% of foreign Support Services 27,600,000 expenditures and Extension Services 1,077,593 50% of local Agroindustries 32,360,000 expenditure dis- bursed by Agro- banka

3.. Drainage Sub-Projects (a) Civil Works 11,100,000 55% (b) Equipment 2,000,000 100% of foreign expenditures and 100% of local expenditures (ex-factory cost) (c) Engineering 4,400,000 100% (d) Training 1,000,000 100%

4. Equipment for Agrobanka 50,000 100% of foreign expenditures and 100% of local expendiures (ex- factory cost)

5. Consultants services for Agrobanka and Master Plan for Extension Service 550,000 100%

6. Interest During Construction 7,500,000 Amount due

7. Front-end Fee 1,012,407 Amount due

TOTAL LOAN AMOUNT 136,000,000

3.18 Disbursement would be supported by full documentation in the case of foreign expenditures for agroindustries, support services and extension services; for the drainage component, and local expenditures for contracts above US$500,000. For sub-loans for the individual sector and local contracts below US$500,000, the Bank would disburse against statements of expenditure (SOE), since they would involve on-lending for small borrowers, and would finance small and numerous local expenditures. Agrobanka is considered - 19 - capable of using SOE procedures which would be audited by SDK (see para. 4.21). The documentation in support of SOE's would be retained by Agrobanka and would be available for inspection by the Bank during the course of project implementation. Annex 2 gives an estimated disbursement schedule summarized as follows:

Bank FY 64 85 86 87 88 … ------us$ mill ------

Annual 16.2 32.2 38.6 24.9 24.1 Cumulative 16.2 48.4 87.0 111.9 136.0

In preparing the disbursement schedule, account has been taken of the proposed project phasing (Chart WB 24324), and past Yugoslav agriculture sector disbursement profiles (Annex 2). Better disbursement than past averages is anticipated during the initial period, since project preparation is well advanced.

I. Environment and Health

3.19 The project would not have any adverse environmental impact on the area. It is likely to have beneficial effects by providing drainage to the water logged land in over 20,000 ha in several locations. The sub-borrowers for agroindustry investments would be required to have adequate effluent treatment facilities. No detrimental effects on the physical, chemical or biological regime of the rivers in the project area are expected.

J. Role of Women

3.20 In Yugoslavia, equality of women is neither a political problem nor a problem of legal status in society. Yugoslavia has made considerable progress with respect to ensuring equal opportunities for women. In the project area, the number of women as a percentage of the agricultural population is about the same as in SFR Yugoslavia and SR Serbia (53%). But women as a percentage of the active agricultural population in the Kolubara-Danube region is 46%, slightly more than for the country as a whole (42%). Women are expected to gain more than half of the employment opportunities created under the agroindustries and support services components of the project, and would participate significantly in livestock, crop and fruit production on individual farms. There are many women among the professional staff in the institutions with which the Bank would be involved in the proposed project.

IV. PROJECT ORGANIZATION AND MANAGEMENT

A. Institutional Arrangements

4.01 Udruzena Beogradska Banka (UBB) Associated Belgrade Bank as Borrower of the proposed loan would sign a loan agreement with the World Bank under the guarantee of SFR Yugoslavia (para 2.14). UBB would pass on the proceeds of the proposed loan to its Specialized Agricultural Bank - Agrobanka. The Bank would sign a project agreement with Agrobanka, the agency responsible for project implementation, and with the two Intercommunal Regional Communities of the Kolubara and Danube Regions. A Consortium Agreement (CA) has been executed between UBB, Agrobanka, Investbanka, Yugobanka, Beogradska Banka and the basic banks in the Kolubara and Danube Regions to ensure the availability of local funds for the project. In addition, Agrobanka would sign a Project - 20 -

Implementation Agreement with the Serbian Fund for Underdeveloped Regions (SFUR Agreement) to provide for SFUR's contribution to the financing of the project. Agrobanka would enter into separate implementation and financing agreements with four investors responsible for the seven drainage projects, three of whom are in charge of two subprojects each. Physical implementation of works for the agroindustries, support service and drainage components would be carried out by about 48 different Working Organizations (WO), Basic Organizations of Associated Labor (BOAL's), and Agrokombinats. The lending to about 10,900 individual farmers and the extension services would be done through about 50 Basic Organizations of Cooperative Farms (BOCF's) and Farmers Cooperatives (FC's). These institutional arrangements are shown in Chart WB 24325.

B. Project Coordination

4.02 The Borrower, Agrobanka, SFUR, Intercommunal Regional Communities, local banks, organizations of associated labor and Self Management Communities of Interest for management of water resources and for land reclamation involved in project implementation would sign a Self-Management Agreement (SMA) among themselves regulating their mutual rights, responsibilities and obligations (Annex 12). There would be a separate SMA for each region. In addition, for guaranteeing certain financial obligations with respect to the carrying out of the project, Agrobanka and investors would enter into an agreement on financial participation (Kolubara and Danube Participation Agreements). The approval and sigiing of these documents would be a condition of effectiveness of the loan.

4.03 Project implementation would be coordinated at three levels: (i) one Interregional Coordination Board under the chairmanship of the Agrobanka would meet at the Republic level in Belgrade and include representatives from the SR Serbia Executive Council, the Republic Committee for Agriculture, Agrobanka, SFUR, UBB, the two Intercommunal Regional Communities (IRC's), and the Union of Cooperatives. The Institutes for Economics, Agricultural Economics and Industrial Economics woula serve as ex-officio members of this Board. (ii) At the regional level, each region would have its own coordination board under the chairmanship of the President of the IRC, which would comprise representatives from the local Chamber of Commerce, the Association of Cooperatives, Communes, Basic Banks and Composite Work Organizations. (iii) A third level of coordination would be established at Kombinat level to coordinate the on-farm investments in the Individual sector. These organizational arrangements are shown in Chart WB 24323. Coordination Boards have already been established at republic and regional levels. The regional SMA's (para 4.02) to be signed prior to the effectiveness of the loan would ensure that coordination under this project would be maintained during the implementation period.

C. Project Organization and Implementation

4.04 Project implementation commenced in the fall of 1982 and would continue over a period of 5 years. Provisions would be made for a joint mid-term review of project implementation by Agrobanka and the Bank not later than September 1985. The purpose of this mid-term review would be to evaluate progress made, objectives achieved and to consider modifications as may be required. Assurances to this effect were obtained during negotiations. The major organizations involved in project implementation and their responsibilities are described below. - 21 -

D. The Borrower: Udruzena Beogradska Banka (UBB)

4.05 All loan proceeds from the Bank would be channeled through UBB to Agrobanka under the same terms and conditions as the Bank loan. For that purpose UBB would enter into a Subsidiary Loan Agreement with Agrobanka (UBB-Agrobanka Agreement) under terms and conditions satisfactory to the Bank. The signing of the UBB-Agrobanka agreement would be a condition of effectiveness. While the role of UBB in implementing the project would be limited, UBB would be expected to assist Agrobanka in mobilizing local funds and obtaining foreign funds through co-financing arrangements.

E. The Implementing Agency: Agrobanka (SAB)

4.06 Agrobanka would implement the project with the assistance of the two Intercommunal Regional Communities of Kolubara and Danube Regions. To ensure availability of local funds, Agrobanka has organized and signed a Consortium Agreement (CA) with several basic member banks of UBB, in particular between Agrobanka, Investbanka, Beogradska Bank, Yugobank and basic banks in the Kolubara and Danube Regions. In addition, assurances were obtained during negotiations that, prior to effectiveness, Agrobanka would sign separate sub-project implementation and financing agreements with the investors of the 6 drainage projects in regard to special financing, procuremnent and implementation arrangements and the investors would sign a Self Management Agreement with appropriate organizations of associated labor. Signing of similar agreements for the Zabari drainage project would be a condition of loan disbursement.

4.07 Agrobanka is a young institution and has been called upon to serve the long term capital requirements for the agricultural sector in SR Serbia. Agrobanka is in the process of evolving a strong development orientation in its policies and procedures, and formulating a strategy to promote agricultural development through its credit operations. A major objective of the project is to assist Agrobanka in its efforts to become a development banking institution. The current staff and organization, structure, lending policies and procedures, which have been described in Chapter II (paras 2.15 to 2.20) are considered generally acceptable for their present workload. The project would add to the responsibilities of Agrobanka. The following measures would be undertaken for efficient discharge of its responsibilities:

(i) Internal Auditor: The position of internal auditor exists in the Business Secretariat of Agrobanka but has not been filled. Agrobanka would employ not later than December 31, 1983 a full-time qualified internal audit specialist. Assurances to this effect were obtained during negotiations.

(ii) Training of Agrobanka Staff: The majority of Agrobanka staff have received higher education and 30% have university qualifications. The lack of regular in-house training is a serious constraint. Agrobanka would therefore employ, not later than December 31, 1983, a qualified, full-time training officer whose qualifications and experience are acceptable to the Bank and who would prepare a comprehensive staff training program acceptable to the Bank. Assurances to this effect were obtained during negotiations. - 22 -

(iii) Specialized Consultant and Credit Officer: Agrobanka agreed to speed up future project identification and loan application processing, and promote a more development oriented approach towards the individual farm sector. For this purpose Agrobanka would employ a specialized development consultant for a period of b months. The consultant would be assigned to the President's office as senior advisor and be available for assistance to Agrobanka's senior staff and the project implementation unit (see (v) below). He would assist the management in the implementation of the various recommendations. In addition, Agrobanka would engage an experienced agricultural credit officer to be assigned to the project unit for a period of 20 months to train and assist Agrobanka project staff in project appraisal, procurement, project monitoring and end-use supervision. Cost of the consultants estimated at US$10,000 per man/month has been included in the project cost. Assurances were obtained during negotiations that Agrobanka would employ the senior advisor and the agricultural credit specialist under terms and conditions acceptable to the Bank not later than December 31, 1983 and select them according to Bank guidelines.

(iv) Computer Support for Agrobanka: Agrobanka is upgrading its existing computer facility. The project would finance incremental computer equipment for use in subproject appraisal, monitoring and end-use supervision, including four interactive terminals, connections, financial modelling package, data base management system and FORTRAN (required to use IBRD COMPASS project analysis).

(v) Organization and Management: Agrobanka would review its present organization and management system and implement a number of recommendations made to strengthen its performance as follows: (a) Monitoring of Operational Activities: Agrobanka has no department which systematically monitors its operational activities (appraisal work, end-use supervision) and there are no systematic target schedules or target supervision. A monitoring operations unit at the Business Secretariat to report to the Vice-President, Operations would be required. (b) Project Department: Two project departments presently exist under different vice-presidents. There is duplication of functions and staff, lack of coordination and different standards of project appraisal due to departmental separation of IBRD projects. Recommendation is made to reorganize these two departments, preferably into one general but exclusive project department. (c) Project Operation Evaluation: Agrobanka has no facilities and services in the field of post-evaluation. A recommendation is made to prepare suitable policies and procedures and to establish an appropriate service within Agrobanka. (d) Internal Audit Office: Considering the importance of this position, an independent office reporting directly to management would be required rather than the existing arrangement operating through the Business Secretariat. (e) Support Staff: Agrobanka does not have a sufficient number of support staff. By 1985 Agrobanka's professional staff would have increased from 162 to 238 whereas support staff is not expected to - 23 -

increase adequately. Agrobanka would be required to assess the future requirements for non-operational and support staff. These measures have been discussed and agreed in principle with Agrobanka. Assurances were obtained during negotiations that Agrobanka, with the assistance of the senior specialized consultant and in close collaboration with the Bank, would prepare a plan of action no later than June 30, 1984 and would subsequently implement the agreed plan not later than September 30, 1985.

F. On-lending Procedures

4.08 The investors under the project would submit loan applications simultaneously to Agrobanka, SFUR and local banks for approval. Separate loan applications are necessary since, under local regulations, the credit board of each financier must approve loans. However, to avoid duplication of work and speed up subloan approval, Agrobanka alone would appraise each subproject and would make the appraisal report available to SFUR and local banks concerned. Detailed appraisal guidelines and methodology have been developed and agreed betwen the Bank and Agrobanka (Annex 13). For individual sector loans, farmers first apply to their cooperatives which assist with investment plan preparation and appraises the applicant's creditworthiness. Then, the applications are grouped together (minimum 20) before being forwarded to the basic bank. For all legal purposes, the BOCF's are the borrowers and on-lend to farmers who make debt service payments to the BOCF. Loan processing usually takes about 6 months, although in exceptional cases applications can be completed within 30 days. Agrobanka would analyze the procedures for the individual sector loans and try to simplify and shorten the appraisal method. Assurances were obtained during negotiations that Agrobanka would follow the Bank's criteria for appraising agricultural subprojects as outlined in Annex 13.

4.09 Appraisal Methodology: All social sector investments in the agroindustry, support service and drainage components were fully appraised by the Bank and found financially viable and technically feasible. A further review by the Bank will not be necessary unless there is a major change in the design of subprojects and/or investment costs increase by more than 20% of the appraisal estimate, including contingencies. In case of major changes in social sector sub-projects, Agrobanka would be required to prepare, and send to the Bank for its approval, a full technical and economic appraisal report. Sub-loans to the individual sector would be made by Agrobanka in accordance with the methodology already agreed to by the Bank (para 4.08) and prior review by the Bank is not considered necessary. All subproject appraisal reports would be available for inspection by the Bank on request and/or during project supervision to ensure that agreed methodologies are followed. All sub-loan approvals would be reported to the Bank at semi-annual intervals (para 4.25). Assurances were obtained during negotiations that Agrobanka would follow the above procedures.

G. Un-lending Terms and Conditions

4.10 Project subloans would be based on cash flow projections for each investment. The repayment period of individual sector subloans for orchards and vineyards would range up to 15 years, with a grace period of 5 years; while tobacco production and livestock subprojects would normally not exceed - 24 -

10 and 13 years respectively, including a grace period of 3 years. For agroindustry subprojects repayment periods would normally not exceed 13 years including grace periods of up to 3 years and for the drainage subprojects, repayment would be in 15 years with a three year grace period. Subborrowers would normally be required to contribute 20% of total investment costs in either cash, kind or labor.

4.11 The interest rates for on-lending under the project would be as follows: (a) The proceeds of the bank loan would be passed on by the Borrower to Agrobanka on the same terms and conditions as the IBRD loan. (b) Agrobanka would on-lend to the social sector sub-borrowers at the same rate as the Bank loan plus a spreaa of 1.25% to cover administrative costs, except in the case of the drainage investors where a fee of 0.5% will be charged. In the case of the individuai sector sub-borrowers, a minimum rate of 18% will be charged. The foreign exchange and variable interest rate risk of the IBRD loan will be borne by the social sector sub-borrowers and, in the case of the individual sector, the foreign exchange and variable interest rate risks will be borne by the Government of the Socialist Republic of Serbia. (c) For the portion of domestic funds provided from resources of Agrobanka and other local banks, the interest rate would be a minimum of 18/. for the social and individual sectors. (d) For the portion of domestic funds to be provided from SFUR resources, their prevailing interest rate would apply (currently 5% to 5.5%). Assurances were obtained during negotiations that Agrobanka would adhere to the above on-lending terms and conditions.

4.12 Despite a prevalent view in Yugoslavia that the role of interest rates in investment allocation is subordinate to that played by social planning and group consensus, a more active use of interest rate policy has increasingly become the object of Government policy. Indeed, the new Federal Social Plan and the National Assembly has resolved that interest rates should play a more important role in resource mobilization and allocation. The medium term objective is to introduce over time a structure of positive real interest rates by gradually adjusting nominal rates upwards and concurrently reducing inflation. In this respect, Government anti-inflationary measures, applied in accordance with agreements reached with the IMF, have succeeded in bringing inflation down from an annual rate of over 50% in the first half of 1981 to about 30% in 1982. A minimum interest rate of 18% to be charged for local commercial bank funds would be positive in real terms, taking into account the Government policy to bring about a reduction in the inflation rate by 1985 to the level of around 13-15%. In any event, the Government is in the process of making commitment to annually adjust interest rates to positive real levels within the next three years. In this context, it is also expected that interest rates on subloans under this project, as well as subloans using uncommitted proceeds from ongoing Bank loans which would be approved subsequent to Government decision on applicability, would be annually adjusted.

H. Other Participating Organizations

Serbian Fund for Under-developed Regions (SFUR)

4.13 SFUR was created as a legal entity in 1961 to stimulate and support the accelerated development of economic activities in the under-developed regions of SR Serbia. SFUR receives more than 80% of its total resources through contributions from social sector organizations in Serbia which are legally obliged to contribute 0.5% of their annual gross social product for - 25 - the development of less developed areas of Serbia. SFUR supports enterprises directly through loans or joint venture participation, or indirectly through interest rate subsidies and grants. SFUR is managed through a 51 delegate Assembly elected by municipal and regional assemblies and the Assembly of Serbia. SFUR's Assembly elects an Executive Committee which is responsible for all policies and operations of SFUR and appoints its Director.

4.14 SFUR would enter into a Project Implementation Agreement with Agrobanka (Annex 12) in respect of its share of financing of investments in the lesser developed communes of the project area. SFUR would also be part of the regional SMA's (paras 4.01 and 4.02). Signing of the agreement would be a condition of loan effectiveness.

Intercommunal Regional Communities (IRC)

4.15 Within Serbia, the regional association of communes into so-called "Intercommunal Regional Community" (IRC) goes back to 1975 and is based on social compacts signed by the participating communes. The main objectives of a regional association of communes are to promote and ensure inter-communal cooperation; initiate and support regional development; pooling of resources, and provide common services for its members. Each IRC is a legal entity with its own statutes, an assembly of delegates elected by the commune assemblies and a president-elect. The Kolubara and Danube Regions together comprise 25 communes out of which 14 are located in Kolubara and 11 in Danube region. IRC's of both regions have actively pursued and financially participated in the preparation of this project. The performance of each IRC in managing thorough project preparation and in mobilizing Government and participant commitment so far has been excellent. Both are fully committed to the success of this project and are expected to play an important role in its implementation. For this purpose, IRC's in both regions have established Regional Implementation Units under managing directors. The head offices of the regional units are located in Valjevo for the Kolubara Region and in Pozarevac for the Danube Region.

4.16 The IRC's of the Kolubara and Danube Regions would be responsible under the project for (a) mobilizing and strengthening participant commitment for project implementation, (b) maintaining Regional Project Implementation Units; (c) reviewing progress in project implementation on the basis of monitoring and evaluation arrangements (para 4.23) and taking appropriate remedial actions, (d) adjusting the targets and quotas between the organizations participating in the project if needed, (e) consulting Agrobanka on a regular basis, particularly concerning any major reorganization of participating organizations under the project which may affect project implementation and, (f) assisting the participating investors and work organizations in project implementation. Assurances were obtained during negotiations that IRC's in both regions would maintain the regional implementation units adequately staffed.

Implementing Organizations

4.17 Physical implementation of project works for 'agroindustry, support services and drainage would be carried out by about 48 different working organizations. Three Composite Organizations of Associated Labor (COAL), namely Valjevo, Sabac and Loznica, are engaged in the Kolubara Region in a - 26 - wide variety of activities ranging from cooperation with individual farmers to agricultural production; fruit, milk and meat processing, and retailing food and other products and service facilities in the project area. In the Danube Region, there is one Composite Organization (COAL-AIK Pozarevac) and a number of smaller organizations such as AIK Srbija - 10 October, AIK Godomin, ATK Mlava and some other working organizations not yet associated. The major implementing organizations are described in detail in Annex 11.

I. Technical Assistance and Training

4.18 Pig Breeding Program: The social sector pig breeding enterprises, AIK Letnjikovac and Velika Plana, would undertake a pig breeding improvement program by (a) expanding their existing pig improvement activities, (b) establishing a performance and progeny testing program, (c) selecting superior breeding boars on the basis of growth rate and feed conversion efficiency, and (d) organizing sales of high quality boars to the individual sector. The assistance of an specialized expert in pig breeding would be required and superior boars and sows would be imported to broaden the gene pool. Assurances were obtained during negotiations that the investment proposal and plan would be submitted to the Bank for approval not later than December 31, 1984.

4.19 Master Plan for Agricultural Extension, Technical Services and Applied Research: Agrobanka, in cooperation with the Serbian Republic Committee for Agriculture, would engage an experienced consulting organization or consultants acceptable to the Bank to elaborate a master plan for agricultural extension, technical services and applied research for SR Serbia. The objective of the study would be to review the existing services available, determine the need for such services to maximize the potential development, and prepare a detailed plan and program to improve the existing agricultural services. The study is expected to take one year to complete and is estimated to cost US$300,000. Terms of reference were prepared by the Committee for Agriculture and were reviewed during negotiations. Assurances were obtained during negotiations that Agrobanka, in cooperation with the Republic Committee for Agriculture, would employ consultants under terms and conditions acceptable to the Bank to prepare the master plan for agricultural extension, technical services and applied research and to submit the plan to the Bank not later than December 31, 1984.

4.20 Training of Extension Staff: Training requirements for staff of different participating organizations under the extension service component are estimated at 60 man/months abroad. Training emphasis would be on pasture and sheep production, artificial insemination technology, forage quality, agricultural mechanization and agronomy of industrial crops, principally sugarbeet. The IRC's of each region would be responsible for coordinating the preparation of the training program through the various working organizations concerned. Assurances to this effect were obtained during negotiations.

J. Accounts and Audit

4.21 The accounting arrangements and capability of UBB and Agrobanka have been examined and found satisfactory in their scope and accuracy. Agrobanka would maintain separate accounts for subloan disbursements and other project expenditures under the project. The Borrower (UBB) and Agrobanka would have their accounts and financial statements (balance sheets, statements of income - 27 - and expenses and related statements) for each fiscal year audited in accordance with appropriate auditing principles consistently applied by the Yugoslav Social Accounting Service (SDK), an independent auditing organization acceptable to the Bank. UBB and Agrobanka would furnish to the Bank, as soon as available but in any case not later than 6 months after the end of each fiscal year, certified copies of their financial statements for the year, audited as above, and the report of SDK. The auditors would also give a separate opinion as to whether satisfactory procedures are in operation to ensure that Statements of Expenditures (SOE) supported withdrawals have been used for project purposes. Assurances were obtained from UBB and Agrobanka during negotiations that these accounting and auditing requirements would be followed.

K. Reporting, Monitoring and Evaluation

4.22 Monitoring and evaluation of the project would be done at two levels. The first would be at the Regional level; the second at Agrobanka level. To this effect, the regions and Agrobanka would be assisted by a suitable experienced Yugoslav institute (or institutes) whose qualifications and experience are acceptable to the Bank. The institute would be employed by Agrobanka no later than December 31, 1983 under terms and conditions satisfactory to the Bank. Assurances to this effect were obtained during negotiations.

4.23 Monitoring at Regional Level. The Regional Project Implementation Units familiar with the local situation would be responsible for supervising the physical project implementation at the investor level. These units, assisted by Agrobanka, would be responsible for gathering key indicators of progress of works (number of livestock farmers coming into production, number of hectares planted, yields obtained). The units would identify bottlenecks affecting project implementation and report them to their regional coordination board and to Agrobanka who would take appropriate action if necessary.

4.24 Monitoring at Agrobanka level. Agrobanka would monitor the project during implementation through field supervision of subprojects and review of key indicators provided by the Regional project implementation units. It would monitor the number of subprojects under preparation and implementation, subloan approvals and the number of farmers financed, overall status of commitments, disbursements, loan recoveries and the impact of price policies on the project.

4.25 Reporting. Agrobanka would prepare semi-annual progress reports to the Bank in an agreed format and in line with similar reporting requirements in other Bank financed Yugoslav projects. The format would reflect the information provided through the above monitoring system (paras 4.23 and 4.24). Assurances to this effect were obtained during negotiations.

4.26 Evaluation. To evaluate the impact of the project, Agrobanka assisted by the two IRC's and respective institute(s) referred to in para 4.22 above, would carry out an on-going evaluation of investments. Data on costs, benefits and financial viability of main investments on the basis of suitable sampling methods would be collected and analyzed. Agrobanka would prepare an annual evaluation report and submit it to the Bank no later than 3 months after the end of each fiscal year. Assurances to this effect were obtained during negotiations. - 28 -

4.27 Project Completion Report. Promptly after completion of the project, but not later than six months after the closing date, Agrobanka would prepare and furnish to the Bank a report on the execution of the project, its costs and the benefits derived and to be derived from it. The report would discuss the performance by the Bank, UBB, Agrobanka, SFUR and IRC's, and their respective obligations under the proposed loan and project agreements. During negotiations assurances were obtained for the timely submission of the report in a format acceptable to the Bank.

L. Cost Recovery

4.28 The drainage investment costs would be financed by a 20% equity contribution, and 80% borrowed funds. Assurances were obtained during negotiations that debt service (principal and interest) would be recovered from the subproject beneficiaries in the form of an annual per hectare subproject levy which would be charged commencing 2 years after completion of construction. The subproject levy is being collected from the local commune and is expected to be about Din 9,950 per hectare at full development. In addition, the individual farmers pay a land tax calculated on the basis of the cadastral value of the land determined every few years by local authorities according to the land's estimated productivity and any incremental land tax revenue accruing as a result of the drainage subproject can be considered to be an indirect recovery of capital outlays made on behalf of the individual sector from community budgets. It is estimated that this tax would increase f as a result of land improvement from the current level of Din 3,800 per hectare to Din 4,180. The agricultural social sector enterprises in Serbia pay a tax equal to about 30% of gross income. As in the case of land taxes, any incremental income tax revenue accruing to the commune as a result of the subproject would be considered an indirect recovery of subproject costs. The direct and indirect charges are expected to secure full cost recovery.

4.29 Operation and maintenance costs associated with the drainage system would be recovered commencing in 1985 through an appropriate annual per hectare charge collected by the local fiscal agency of the commune. This charge is estimated to be about Din 1,480 per hectare at full development. The drainage charges would be gradually increased to the full development level in order to alleviate the financial burden of farmers during the early years of operations. Any deficits during the construction would be covered by provisions of additional funds by Agrobanka. Assurances to this eftect were obtained during negotiations.

4.30 In order to evaluate the adequacy of the proposed drainage charges, two indices have been used which are defined as follows for this subproject; (a) Cost recovery index. The ratio of the present value of subproject charges to be paid by the beneficiaries to the present value of project investment, operation and maintenance costs. This ratio, discounted at 12% and denominated in constant pricesl/, indicates a cost recovery of 47% of the costs. (b) Subproject charges/incremental benefits ratio. The ratio of the present value of subproject charges to be paid by beneficiaries to the present value of incremental benefits accruing to the beneficiaries. This ratio, discounted at 12% in constant terms, is 33%. The above 'cost recovery index and the subproject charges/incremental benefits ratio are in parity with the

1/ Debt service payments and the related project levy are deflated by the estimated long-run inflation rate (15%) to express them in constant values. - 29 -

ones estimated in recent drainage projects in Yugoslavia. The ratios indicate that farmers will retain a sufficient portion of their incremental income to provide incentives for them to participate in the project. The two ratios also indicate that a reasonable portion of the drainage subproject costs can be recovered, and the level of charges seems to be in line with the beneficiaries' ability to pay. Assurances were obtained during negotiations that the level of subproject charges would be acceptable to the Bank and the level of O&M charges would be reviewed annually.

4.31 Costs of all other project components would be recovered through loan debt servicing.

V. PRODUCTION, PRICES, MARKETS, AND FINANCIAL ANALYSIS

A. Production

5.01 As a result of investments in livestock and horticultural production, drainage and support services under the project, farmers would be able to intensify production, raise yields and shift to higher value activities. The farmers would benefit from increased efficiency through greater use of mnechanization and other essential inputs ranging from day-old chicks to fruit tree seedlings, plant protection, chemicals and technical assistance. Total arable land would increase by 29% as a result of reclaiming marshes and converting degraded natural grassland and periodically flooded arable areas into cultivable land. The project would thus induce annually the following quantities of incremental output of primary agricultural products, valued at Din 9,381 million (US$204 million);

IncremaentalOutput and Value of Primary Agricultural Products Incremental Value Incremental Production at Full Development Product Unit at Full Development (Million Dinars)

Fruit Tons 26,831 332.4 Tobacco " 1,983 171.5 Cereals " 74,045 792.1 Industrial Crops " 530,085 1,592.4 Vegetables " 39,599 429.6 Milk (cows) '000 litres 13,952 209.3 Milk (sheep) " 492 9.8 Cattle Tons l.w. 29,182 2,905.5 Sheep " " 250 41.6 Pigs " 19,895 1,578.7 Poultry I f 9,052 503.9 Eggs Mill. Pcs. 150 808.9 Wool Tons 32 5.7 - 30 -

5.02 As a result of investment in 14 agroindustries, a substantial increase in the production of processed products would be obtained; the estimated output at full development is presented in Annex 7, Table 2. The total value of annual incremental output from agroindustries is estimated to be about Din 4,426 million (US$96 million) at June 1982 prices. The above estimates are based on an assortment of products and are consistent with market opportunities, but are subject to variations with changing market conditions.

B. Marketing and Market Prospects

5.03 Market prospects for primary products have been analyzed in relation to raw material intake requirements of existing and proposed processing capacities of agroindustries in the project area, as well as demand from other areas. Market prospects of finished products from agroindustries were the subject of detailed market feasibility studies carried out by the consultants employed by proposed investors. The market analysis shows that good market opportunities exist for projected output in view of both future incremental domestic demand and export prospects. There is a shortfall of production relating to demand, which is likely to increase due to population growth and real per capita income growth during the life of the project.

5.04 A majority of the agroindustries subprojects involve reconstruction and modernization of their existing facilities which are very old with technologically obsolete equipment. A slight increase in capacity was simultaneously proposed in the case of many subprojects since their present capacities are based on past requirements. In most cases, the investors have experience with the products which will be marketed and have established marketing systems which would be suitably expanded in the future.

5.05 There is a surplus production of cereals in both Regions which is not fully utilized due to lack of capacities. The increased requirements, therefore, of wheat and corn for seed processing centers, grain elevators, flour mills and animal feed factories can be easily met. This is, however, not true of fruits, vegetables, oilseeds and livestock. Currently, there is not enough surplus available within the region to meet the anticipated raw material requirements of some of the subprojects. In order to meet the needs of these processing industries, production of fruits, vegetables, sugarbeets and oilseeds is being promoted under the project.

5.06 The incremental processing capacities have been analyzed in relation to projected demand for the concerned output and the available processing capacities in the region as well as nationally. Only those capacities which meet these criteria were included in the project. Capacity increases are fully justified for cereal-based agroindustries and meat slaughterhouses. In regard to fruit processing and cold storage, only those subprojects which would be consistent with raw material availability were included during appraisal.

5.07 The regions can absorb the entire output which passes through the seed processing centers, grain elevators, animal feed factories and meat slaughterhouses included in the project. The remaining processed outputs (such as frozen fruits, vegetables and french fries, prune cakes, fruit juice, edible oil and poultry meat) would be surplus, but the balance after meeting regional requirements can be easily marketed in the deficit areas of Serbia and Yugoslavia. The processed products of the subprojects in the two regions will not directly compete with each other on the domestic market as there is no overlap of production. - 31 -

5.08 Substantial quantities of frozen fruits and vegetables, processed seeds, processed prunes, fruit juice and prune cake would be exported. The target for exports of frozen fruits is high; nevertheless, all these exports are of a national priority and are feasible. These products enjoy a strong demand in the Western European market and the market prospects for all the processed output of various agroindustries appear good.

C. Prices

5.09 Prices are established under the law through negotiated, multilateral agreements (social compacts, etc.) between production units and executive councils of socio-political communities. Floor prices are established for farmgate purchases while ceilings are set for products at the consumer level. All prices are calculated on a cost-plus basis. Production of basic commodities is contracted on the basis of a negotiated contract price known as the agreed price. Production in excess of the contract may be sold on the open market. Financial prices used in this report are based on farmgate prices for primary products and ex-factory wholesale prices of processed products prevailing in June 1982 (Annex 3, Table 1). A price freeze became effective on July 28, 1982 and it is expected to apply till the end of the year. The Dinar devaluation which took place on October 20, 1982 is, therefore, not expected to affect the prices significantly.

D. Financial Analysis

5.10 Primary Production: The financial analysis has been carried out through representative models for each major investment type to be financed. Actual investments may differ from the models since they may be of different sizes and local conditions and sub-borrower demand may vary. The underlying assumptions for changes in cropping patterns, yields and input requirements are presented in Annex 4, and are based on interviews with farmers and operational experience obtained under similar Bank-financed agriculture projects in Yugoslavia. The Financial Rates of Return (FRR) (Annex 3, Table 2) for the major investment types vary between 13% and 60%. Effects of delays in implementation are tested by lagging the benefits and operating costs. The switching values for the cost and revenue streams are acceptable though somewhat low for investments in pig fattening, broiler, ana grapes. The financial viability of each investment will be re-examined by Agrobanka prior to approving subloans. Details of farm models are given in Working Paper No. C-4.

5.11 Drainage: Financial analysis of the representative Zabari drainage subproject indicates that the component is financially viable. The base financial rates of return for the individual sector 19%, the social sector 16%, and the subproject as a whole, 17%, exceed the opportunity cost of capital of 12% by a reasonable margin. The financial performance is also scrutinized by sensitivity analysis assuming plausible changes in cost and benefit estimates and by examining the switching values (Annex 3, Table 2). Key assumptions relating to technical features and cropping patterns are given in Annex 8 and details are in Working Paper No. C-8.

5.12 Agroindustries: Detailed feasibility studies for agroindustry investments included in the project have been carried out and provide the basis for financial analysis. Details on projections of investment and operating costs, revenues and cash-flows are presented in Working Paper No. C-7. Table 2 (Annex 3) presents the FRR for the major agroindustry - 32 -

investments and the key operating assumptions; FRR's range from 13 to 28%. The investments are sensitive to changes in operating costs and revenues, and the switching values for these are quite low. Some of the investments are also sensitive to slow build up of capacity utilization. While this is extremely important in Yugoslavia, where capacity utilization for some food processing industries is low, subproject screening and evaluation during preparation and appraisal ensures that, as a risk, it is not significant for the project.

VI. PROJECT BENEFITS AND JUSTIFICATION

A. Benefits

6.01 Project benefits would derive from; (a) improved productivity and incomes of individual farmers through investments in livestock, horticultural and crop production in which the individual farmers have a comparative advantage due to the labor intensity of the operations; (b) improved cropping patterns and stable yields on an area of some 22,700 ha, and increase in arable land by 29% with completion of drainage works; (c) strengthening of an infrastructure formed around social sector enterprises which is the source of a multitude of essential inputs to the farmer, ranging from day-old chicks to fruit tree seedlings, improved seeds, and greater availability of mechanization; (d) increased employment opportunities created through expansion of support services and agroindustries, and through reduction of un- and under-employment at individual farms; (e) incremental output (para. 5.01) together with the value added through processing and storage of grains, ( poultry, fruit and vegetables; (f) increased export of processed food products from the area; while increased self-sufficiency in wheat and industrial crops would help to save foreign exchange; and (g) strengthening of the development institutions in the project area, including the specialized Agricultural Bank of Serbia.

6.02 Beneficiaries. About 15,000 individual farm families would benefit directly from subloans for livestock, horticulture and drainage. An additional 16,000 farm families would benefit from increased efficiency through greater use of mechanization. The incomes of the direct beneficiaries are expected to increase by about 120% as compared to the pre-project incomes which are at an average of US$2,500 per capita in Serbia and about US$1,200 to US$1,500 in the less developed communes. The investments under the agroindustries and the support service components of the project would result in indirect benefits to an estimated additional 33,000 families by providing steady market outlets for their production as well as inputs and services.

6.03 Employment. The project's contribution to employment would be substantial. Based on technical parameters of the models, it is estimated that at full development the project investments would result in 1,630 permanent full-time jobs, 765 man-years!1 of increased employment of hired seasonal labor and 3,065 man-years of increased family labor requirements on participating farms, which would reduce under-employment and pressure to migrate from the project area.

6.04 Production and Foreign Exchange Effects: Most of the incremental production due to the project would be used to satisfy domestic consumption needs. However, part of the incremental processed output valued at about

1/ A man-year is treated as equal to 200 working days. - 33 -

US$8.0 million annually or US$160 million over the 20-year life of the project would be exported, resulting in foreign exchange earnings. In addition, the increased self-sufficiency in wheat and industrial crops would enable the country to reduce imports. These savings in scarce foreign exchange are important in view of Yugoslavia's 1980 trade deficit of US$6.1 billion.!/

6.05 Institution Building Effects: The project's non-quantifiable benefits would include; (a) the institutional development of Agrobanka through provision of training and through experience gained in preparing, implementing and evaluating a regional development project of this size and scope; (b) fostering of increased cooperation between the individual and social sectors; and (c) improved extension service to the individual sector through existing institutions.

B. Economic Evaluation

6.06 Benefit and Cost Streams; Economic evaluation of the project has been done using internal Economic Rate of Return (ERR) and Net Present Value (NPV) estimations. Quantifiable benefits include (i) total project incremental production; (ii) reduction of grain losses and costs saved from mechanization; and (iii) value added by storage and processing facilities. Benefits from the extension service component of the project were not quantified directly, but accrue to all other components of the project. Hence, the cost of the extension services has been included in the total economic cost for the project. Costs quantified include all capital and operating costs, excluding price contingencies and transfer payments such as taxes and subsidies, but including physical contingencies.

6.07 Economic Prices: With the exception of some construction costs and all labor and internal transportation costs, all inputs and outputs are priced as tradeables based on their border equivalent values with adjustment for quality differentials and transportation, as appropriate. Economic prices for tradeable project outputs of cereals, meat, industrial crops and related processed outputs, and of inputs of fertilizer and concentrate feed are based on World Bank Commodities and Export Projections Division forecasts. Prices for other tradeable commodities are based on the recent average unit value of Yugoslav foreign trade. Appropriate conversion factors have been applied to the local cost component of non-tradeables. Key economic prices and conversion factors used in the economic analysis are presented in Annex 3, Table 4. Details of individual economic price derivations are shown in Working Paper C-2.

6.08 Sensitivity Analysis; Sensitivity analysis has been done on individual project components (Annex 3, Table 4) and on the total project. With the exception ot the individual sector broiler model (ERR 11%), all other representative models show an ERR above the estimated opportunity cost of capital of 12%. Despite a marginal ERR, the broiler model was not excluded because of the complementary nature of poultry investment in general, and the satisfactory Financial Rate of Return of 19%. The aggregate result (ERR 25%) indicates that the project is economically viable. ERR and NPV for all project components except the extension services component (para. 6.06), and the switching values on capital investment costs, operating costs and benefits are presented below:

1/ Yugoslavia: Adjustment Policies and Development Perspectives, Volume III, Table A.3.1. - 34 -

Economic Rate of Return and Sensitivity Analysis % of Base Invest- Incremental Total ERR NPV /a ment Operating Benefits Component Costs (%) (Din M) SV /b Costs SV SV

Livestock 33.8 26 2,161 125 10 - 8 Horticulture 5.4 32 1,046 191 41 -22 Drainage 10.9 28 1,694 162 58 -24 Support Services 21.7 23 1,102 62 7 - 6 Agroindustries 27.0 24 1,748 90 6 - 5

Total 100.0/c 25 7,624 /d 107 10 - 9

a/ Based on an Opportunity Cost of Capital (OCC) of 12%. b/ Switching Value - percentage change which reduces the NPV to zero. c/ Extension Service component is 1.2% of Total Costs d/ P.V. of investment costs of extension service component (Din - 127 mill.) as been included.

6.09 The agroindustries component is sensitive to changes in revenues and operating costs. So is the support services component, because of the inclusion of some processing facilities. This is common in the basic food processing industry where gross margins are characteristically low. The overall and individual economic rates of return are higher than the financial rates of return for almost all of the agroindustry subprojects. This results from the domestic pricing system, in which factory gate prices (consumer prices) are rigidly controlled while raw material prices are permitted much more flexibility. The whole issue of maintaining correct input/output parity is being addressed by both the Agricultural Setor Review and SAL.

6.10 The livestock component appears to be sensitive to variations of revenues and costs. The dairy/beef and pig fattening investments were found to be extremely sensitive to changes in revenues and operating costs. So a further sensitivity analysis was undertaken. Switching values were calculated for key parameters and show that a decrease in milk price by 13Z, or a decrease in beef meat price by 18%, or an increase in concentrate feed costs by 13% will be necessary to reduce the ERR of the dairy/beef investment to 12% i.e. equal to the opportunity cost of capital. However, a decrease in pig meat price by 5% will be required to reduce the ERR of the pig fattening investment to 12%. To ensure that proposed investments for livestock production to be financed under the project have a minimum economic rate of return of 12%, Agrobanka would annually update the typical farm models on the basis of the prices and economics of livestock production which are to be monitored as part of evaluation arrangements for the project to be used for approval of new investments.

C. Risks and Uncertainties

6.11 The institutional arrangements for implementing the project are satisfactory, and the project is in an advanced stage of preparation. A strong commitment to ensure successful project implemenation exists with the Serbian Government, the two regions, and the local communes. All subprojects including drainage, support services and agroindustries, have been identified. Project procurement is at an advanced stage. Although most of - 35 -

the individual farmers have been identified, an important risk is the possibility of restrained farmer response for some investments, due to possible changes in input/output ratios. These will have to be dealt with on a case-by-case basis as new price ratios develop. The detailed identification of sub-borrowers done so far should reduce these uncertainties.

6.12 Marketing presents some uncertainties. While the internal market analysis shows that market prospects are good, the export market analysis indicates that export targets, particuarly for frozen fruits, are somewhat high. Therefore, these export targets may require some changes in product mix, after taking into account the operating margins, protits, long-term agreements and market preferences.

6.13 Availability of adequate local counterpart investment funds also poses some risk. Current economic problems as well as the stabilization measures being implemented to correct them by Yugoslav and Serbian authorities can adversely affect the timely availability of local funds. The mechanism under this project by which annual financing plans are to be prepared by the Serbian authorities, and to be reviewed by the World Bank, should help to reduce this risk. Also, import restrictions have hampered implementation of Bank-financed projects in Yugoslavia. However, the Federal Government has recently decided to exempt Bank project-related imports from restrictions.

6.14 These uncertainties are minimized through the proposed project design which has taken into account the complementarity of investments, the commitments made by the borrower, and the continuing dialogue with the Serbian authorities on project-related issues. Considering the potential benefits, both direct and indirect, to the economy and individuals, these are prudent and acceptable risks.

VII. RECOMMENDATIONS

Assurances

7.01 During negotiations, assurances were obtained from Agrobanka that it would:

(i) Submit to the Bank by January 31 of each year an updated cost and financing plan for those investments to be financed in the following year (para 3.11).

(ii) Carry out, in cooperation with the Bank, a mid-term review of project implementation not later than December 31, 1985 (para 4.04).

(iii) Employ a suitable and qualified full-time internal auditor and training officer not later than December 31, 1983 (paras 4.07(i) and 4.07(ii).

(iv) Employ suitably qualified institute (or institutes) not later than December 31 1983 to carry out the evaluation of the project (para 4.22).

(v) Engage one senior development banking consultant for a period of six months and an agricultural credit consultant for a period of 20 months under terms and conditions acceptable to the Bank, not later than December 31, 1983 (para 4.07(iii)). - 36 -

(vi) Prepare and submit to the Bank a plan of action to strengthen its performance not later than June 30, 1984, and subsequently implement the agreed plan not later than September 30, 1985 (para 4.07(v)).

(vii) Follow the terms and conditions for on-lending procedures described in paras 4.08 to 4.11.

(viii) Submit investment proposals and plans for the pig breeding improvement program of the Work Organizations Letnjikovac and Velika Plana to the Bank no later than December 31, 1984 (para 4.18).

(ix) Employ, in cooperation with the Republic Committee for Agriculture and under terms and conditions acceptable to the Bank, consultants to prepare the master plan for agricultural extension, technical services and applied research and submit the plan to the Bank not later than December 31, 1984 (para 4.19).

(x) Follow the accounting and auditing procedures outlined in para 4.21 and furnish to the Bank not later than 6 months after the end of each fiscal year certified copies of its financial statements and audit reports by SDK (para 4.21).

(xi) Submit semi-annual progress reports within 45 days after the due date and annual evaluation reports not later than 90 days after the end of the year (paras 4.25 and 4.26).

(xii) Submit a project completion report not later than 6 months after the closing date of the project (para 4.27).

7.02 During negotiations, assurances from the two IRC's were obtained that they would:

(i) Carry out their responsibilities under the project as described and maintain adequately staffed project implementation units (para 4.16).

(ii) Implement the training program for extension staff through various working organizations (para 4.20).

(iii) Cause appropriate per hectare charges to be levied, said charges to cover debt service and operation and maintenance costs (paras 4.28 and 4.29).

(iv) Ensure the annual review of operation and maintenance charges (para 4.30).

7.03 During negotiations, assurances were obtained from UBB that it would:

(i) Follow the accounting and auditing procedures outlined in para 4.21 and furnish to the Bank not later than 6 months after the end of each fiscal year certified copies of its financial statements and audit reports by SDK (para 4.21). - 37 -

7.04 Conditions for Loan Effectiveness

(i) Signing of an Agreement between UBB and Agrobanka (para 4.05).

(ii) Signing of two Self-Management Agreements (SMA) among all participants in the Kolubara and Danube region(para 4.02).

(iii) Signing of the Kolubara and Danube Participation Agreement (para 4.02).

(iv) Signing of the Project Implementation Agreement between Agrobanka and SFUR for participating under the project (SFUR Agreement)(para 4.14).

(v) Signing of agreements and related SMA's between Agrobanka and the investors for 6 drainage projects (para 4.06).

7.05 Condition for Disbursement

(i) Signing of an agreement and related SMA between Agrobanka and the investor for the Zabari drainage subproject (para 4.06).

7.06 Subject to these agreements, the project is suitable for a Bank loan of US$136 million equivalent with a term of 15 years, including a 3-year grace period.

A2POAMSAT.OP SERBlA REOIU:.,ALOEVCL0OSPMET PROJECT YU(GOSLAV%IA

P095T95CUSPS

9490 S44ICE 5 99,3 1,091.8 949.3 - 2,393,3 S6I6 0,438.3 LA29VAC 7 99,1 999.6 - 1,497.7 56,5 646.3 69L503C4 2,25,1 .29,553 2,290,9 r,O1034 943 3.316.2 94M399EVSK- 19839.1 1.s19,1 1,293.s6 4,749.0 53.7 0,5923. 3RLA19-A 1,399,2 1.215.7 1,314,0 3,359,3 94.3 1,329,0 JA9ARI 0595202 3,944,9 4. USO9 13,599,9 05,3 7,544.5 VELIRA -7 P2,1 702,2 602.5 2,196,9 95.9 1.215,5

Pusb-leTS DRAINAGE 11.983,5 P,9e62.233.279.5 34,232,0 55,1 330742,6 PSa-es1 1etoe7ces-2.54, 1,794,3 1r526 7 5,10330 19,1 2,911.4 P,,se lortir9ec,cees - 1.s46,9 2,713.8 3,271,49 7,69215 54,4 4,199.4

1SU-eTei INCLUDINGCONTINGENCIES 15.312,7 '11.933,3 34,900,? 469619,9 52,3 25,042,9 Sixe 68?e9,0 743.9 174.30 2,336.9 3,3 3,3 Fe, eys E:shacs - 8,39,05 3.934.9 932 - 28,0021',42.4 3.3 3,3 9, 9393I4539T98P3

JUICE9433910034 6,299.1 3,389,0-7 9,6994k 63,2 9,126.9 FR9NEPACKAGING 4,006,3 2,301.07 7 ,340,0 4?,2 3,639,0 CUL39039A9E, A991 5,993,3 0,00s,0 - - - 9,217,1 49.9 4,59920 C3L390T9A99, ALJEVO 2,990,4 1,554,0-7 4.447.139.3 3,733.3 C0L90TOR90E,PEPSR. 3,963,3 2,391.2 - - 5 ,946.290,3 3,107.9 VEGETABLEPROCE49SI3 2,985.6 1,930.6 - 4,543,252,9 2,423,9 P340 E401313 ,929,5 1,9. - 5 ,429-491,9 2,909,9 C3MKU4A9SLAUGHTERHOUSE 1,257,9 6'7.3 - - - 1,935,0 43.9 9469, POULTRY5(.9039TE993339 - 4,052,0 2,343,4 - - - 6,s09,0 49,3 3,29-99 PRUE CAKE - ,69912 1,4. - - 4,3430. 595 2,422.

FODDERFACTORY P3, 1,1, ?49.7 - 71001. 642 9 "I,393.3 994ELEAO 1,423,:2 764,?72- ,144.9 43,1 943.6 DILFACTORY , VELIK3 5,92I1093,21. --- ,949.3 30.5 2,935.3

lS-IsOtl 93RD1N933TRIE3 43.96633 2s,~21~:1,0 - 74,490,3 49 36:934, Oh--sol tCs, Licace6 9610.3 0513 - 33.6- - 3,3, 5,43 0,0 o ,casoe 22 3 ,5993 ,9 -- 581,2 49.4 2,964,4

3s9-o.teI CLU01NGCD4T393E4ClE3 57,5213,3 33,301.95 9399496 49.4 44P89.3 Pec-e EsRn4 - 299402,3 19.4?70,2 - 44,979,3 3.3 3, U. 3iAPR9PEY99.399997

34R4993DS 4,970,9 4D,0.3 3.701.0 2,274,1 499.1 19,943.4 21.3 097,0 C11E30015 - 36,~~~~105,22',303.2 29.7395, 22,02,,6 U,352.5 99.3192 1.43 49.1,

PrcF snierce 912,9 31,93.1702.200 0,31, 1.0343 2393.I440 9,029.3~

6s6-TRtalIJ4EL9E1N9 CONTINGENCIES 23,930.3 30,603,092,347.333,"4)4,3 ,26941,42,533.9 46.1 65,765.3 feres,,P,ch,ce 1,90,2 1,9, 3,9, 3,1, 3,031.075,06.0 0.0 0.3 D. 569P33T R94ICE3

IECH99IZOTIO9CEREALS 3,733,:122713.0 0,273,3 7,927,3 00,~1455,993 9,739.94 1EC494330ATIUK 52GAR8E1T1 - ,69, 33,i19.33,339.7 - - 954. 9. ,47.9 39413 446639 1R.95OP3 - - - - 355.4 69,7 9DA. PJELTRIL - 7R,9 -AND- 09.4T5.5E49Y 90(9 94 9 90AP ,2000 -1 - ,207.6,93.04 4 439.4: 59E9PPARM - 77,2 213.0 - 55,3 e I9. S99EPR0CES33NG, P33. 693393-0- 3.3 44,311 209. SED P91C913.399 -A 433TI.6 2,363.4D-- - ,441 43. ,9. 405ICI4ALAED 47'1'4,3 - - ,734.3 813. 2,419.4

139403 D4999 - 3,5392 0.790,9 594.2 - ,93. 49.9 2,93. PLU440 -R 49.4 -- 4,99. 441 23,339.4 VIP4L4649940 1107.7 309.0 73.34211RIT - - 317.1 94.3 173,9 009 409390 129, 8. 1. 7.93 40.2 3132 P35LTRY6994 , 3999- 3292 1,934,9 - 33163.71 49.9 3,453,9~ P93L0493633341911--9999, 2 -,06 7 ------139--7 31.5- 735.9--

4s9-7olel 90PP39239903193 39,8243.6 12,932.1 4,079,1 097,977 - 64,141,52 S5.3 30,779. PhssiccI Cntinc-e- 3.79, 627:,9 19.1B - - 4,949,9 49.9 2,32.92 9,cCeri nce ,739.4 359. 9692 .190 ,413.9 93.5 3,429.4

3s9-Toial INCLUDINGC39T1N9ENC3E3 44,89, 4.1, 5,23,0 9,6909,3 75,135.0 91.1 34,3401.2

E.999T33E 71,57. 774.2 77.2 -Y- 0435, 44.1 1,439.

PTsc Csrtinser.... a 63.4 337.3 339.95 350,2 44.3 155.3

Sub-Petal 341L134 130N14GENCIE0 3,947.73 997, 1.3069: - 3,714,7 47.4 3,774. F.rii Echee - 40,7 4194 449. - - 1,774,7 9.9 3. P. A9R394N4DEYEL3P4ENT

TECHNICALAS0ISTACE - 3,7 133. 96.7 -6 - 319.9 904.0 313.3 9s9-0i9.al393EL3P494 9393949 36. 379.0- 96.7------313- 099.0- 313.0---

Price C~~99n9eroles - 3.9~----- .5- 07.5------37.4- 9---.0 37.4--- Sub-Totel INCLUDING1341349941395 991 323.1 304.0 - 4744199.0 340.4 Piceic Eoce e- 931 39. 334. - 347.4 3.5 3.

0ote3 347951494713803 310,494,5 9211 02,99959i477003,33 7,49c,5 293,914,6 44.0 142.154.4 P9ric9 Coterereis- 132939 3.492 ,94.43,173. 49. 09,493.3 52.3 14,E97.4 Prc er-iiet ee 4931,4 03,994.9 13,969.9 13,703.2 1,394.3 43,913.5 44.9 34,903. Tetsi 3N1LU0IN3CONTINGENCIES 327.999,5 333,377,7 95,972,9 99,1469, 5,399.4 399,4233,5 49.2 176.900.2

Taxs -i-lsge Os1y) -6 94. 74,9 64.9 - 2,3391.4 39O 3. q eeecEse.ee. - 63,223.1 53,134.120,234.42 60,95,21,031.0 179,9002, 5.9 .

Potel BASELIN13909IT 113,444,9 92.919,9 93),9398.742,273.13,9339.5 24O0319,6 44,0 142,8134.9.: p9s-cel letcece 2.950,0 ,0. 4,094,4 3,:173.3 44.9 29,490.3 13. 94947.9 Price Ctl-rseece - 4.931,4 30.974,9 13.?9436 1233. 3,2394.3 45',41. 4.9 9 3.406

7 TeE, 243291123911 327.999,5 300,22.77~63.,972.s 5,1~46.- 3,099.4 19,2S3,0 a 1?36-913.2 ------c, l.2 - 22 U

------2, -- . 3------

- 39 - ANNEX 1 Table 2 APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Summary Project Cost

(US$'000)

Base Costs I ------_------PY1 PY2 PY3 PY4 PY5 Total

A. ON- FARMDEVELOPMENT 21,076.6 31i318.5 33,007.5 24P517.5 3,836.5 113,756.6 B. SUPPORTSERVICES 39,283.612,502.1 4,778,1 7,577.8 - 64,141.5 COBfINGE - 11,83.5 11i962.210i178.1 - 34,023.7 D. AMIN TSRIES 48,660.3 26t201.7 - - - 74P862,1 E. EXTENSION 1,377.3 774.2 774.2 - - 2,925.7 F. A4ROBANK 86.7 136.7 86.7 - - 310.0

TotalBASELINE COSTS 110,484.582,816.6 509608.7 42,273,3 34836.5 290,019.6 PhysicalContingencies-' 12Y550.5 8f426.5 4P294.4 3,170#3 48.6 28,490.3 Price Contingencies 4,921.4 10,934.510t969.6 12,703.2 1,384.3 40,913.0

Total PROJECTCOSTS 127,956#5 102,177,765,872.6 58,146.9 5Y269.4 359,423.0

Taxes - 689.1 743.9 674.0 - 2,106.9 ForeignExchange 63,220.151i104.1 32i239.9 28,605.2 1,731,0 176,900.2

1/ International Price Contingencies used ANNEX 2

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Schedule of Disbursements (US$ million)

Cumulative Disbursement IBRD Disbursement Cumulative Profilel/ Fiscal Period Disbursement at end of Disbursement Agriculture Year Ending During Period Period (x) x

1983 06/30/83 - - - 0.6

1984 12/31/83 7 .3 2/ 7.3 5.3 5.8 06/30/84 8.9 16.2 11.9 12.7

1985 12/31/84 13.1 29.3 21.5 22.3 06/30/85 19.1 48.4 35.6 35.0

1986 12/31/85 21.1 69.5 51.1 49.5 06/30/86 17.5 87.0 63.9 64.0

1987 12/31/86 13.2 100.2 73.6 76.8 06/30/87 11.7 111.9 82.3 86.8

1988 12/31/87 12.0 123.9 91.0 93.5 06/30/88 12.1 136.0 100.0 97.6

1989 12/31/88 100.0

1/ Yugoslav Agriculture Sector Profile constructed using historical data from operations covering the period FY71-80, accelerated to eliminate the "long tails" and, in effect, to create a 5% targeting element. 2/ Including US$2.8 million allocated for retroactive financing. - 41 -

APPRAISAL OF ANNEX 3 Table 1 SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Financial Prices 1/ for Major Inputs and Outputs (Constant 1982 Dinar Value/Kg)

Financial Financial Inputs Prices Outputs Prices

Home-grown maize 9.20 Bulls (0-1 yr) Silage 0.90 Bulls (1-2 yrs) Concentrate Feed 12.3-18.1 2/ Cull Cow 75 Breeding Heifer 156 Seeds Heifer (0-1 yr) 120 Wheat 22 Cattle 100 Maize 100 Rams 95 Barley 19 Ewes 80 Sugarbeet 1,900 Hoggets 110 Sunflower 150 Lambs 140 Alfalfa 440 Piglets 120 Soyabean 56 Cull Sows 65 Potato 22 Cull Boars 65 Tomato 2,000 Pigs 85 Other Vegs. 20.2 Broilers 60 Day-old chick (pce) 15 Seedling Eggs (pce) 5.39 Plum 50 Cull Hens (pce) 50 Blackberry 15 Cow's Milk (liter) 15 Sheep's Milk (liter) 20 Grapes (pce) 20 Sheep's Wool 85-120 3/ Plum (fresh) 7 Tobacco (seedling) Prunes 35 Virginia 0.15 Blackberry 25 Burley 0.25 Grapes 11 BB Jaka 0.25 Wheat 10 Barley 10.5 Nitrogen 25.9 Maize 11 Phosphate (P205) 30.6 Sugarbeet 2.7 Potash (K2 o) 23.2 Sunfltwer 25.6 Foliar Nutrients 75.0 (avg.) Soyabean 26.8 Manure (ton) 600.0 Rapeseed 26.8 Pesticides 175.0 (avg.) Alfalfa hay 8.75 Meadow hay 6.25 Fuel Alfalfa (green) 2.0 Gasoline (liter) 26.50 Forage rape (green) 2.0 Diesel (liter) 28.50 Potatoes 8.5 Motor Oil (liter) 68.50 Tomatoes 6.25 Other Vegetables 10.85 (avg.)

Tobacco Virginia 108 Burley 74 BB Jaka 94

1/ Liveweight - farmgate or at village collection center. 2/ Depending on livestock species. 31 Depending on quality. APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Summary Results of Financial Analysis

Financial Rates of Return Switching Values /1 Oper. Invest. Benefits and Capacity Base Benefits Costs Costs Operating Costs Utilization Bene- Invest. Oper. NPV at 12% Case (-10%) (+10%) (+20%) Lag 1 yr. Lag 2 yrs. (-10%) fits Costs Costs ('000 Din) Livestock Dairy/Beef 16 9 11 13 13 10 NA /2 -6 28 9 169 Cattle Fattening 29 17 21 23 22 19 NA -15 99 21 1,886 Pig Fattening 51 39 44 43 38 30 NA -31 279 52 3,542 Broiler Production 19 4 7 15 16 13 NA -5 42 6 831

Horticulture Plums 12 10 11 11 11 9 NA -2 5 4 9 Blackberries 37 33 36 33 31 26 NA -53 298 194 786 Grapes 13 11 12 11 11 10 NA -3 5 8 21 Tobacco 60 45 52 49 40 30 NA -29 267 50 761

Support Services I Mechanization -Cereal 27 18 23 19 18 12 NA -17 45 38 128,771 -Sugar 24 15 19 16 16 10 NA -13 36 25 136,352 Seed Processing -Sabac 14 * * 11 12 11 NA - 1 16 1 49,262

Drainage Zabari 18 13 16 16 15 12 NA -12 76 26 436,718

Agroindustries Vegetable Oil, V. Gradiste 18 * * 15 7 2 * -1 40 1 70,584 Feed Plant Pozarevac 20 * * 16 14 10 * -1 52 1 71,540 Cold Store Sabac 15 6 8 12 12 11 11 -4 19 4 74,533 Fruit Juice Valjevo 25 13 16 21 21 18 19 -11 95 14 399,282 Prune Packing Valjevo 16 -1 2 13 14 12 9 -3 29 3 93,056 Vegetable Processing, Lajkovac 28 21 24 24 24 20 24 -20 141 31 249,703 Poultry Slaughterhouse, * Vladimirci 17 -9 14 14 12 8 -3 35 3 109,201 H > Potato Processing, Krupanj 13 8 9 11 11 10 10 -3 10 4 23,170

/l At 12%. 77 NA = Not applicable. * No internal rate of return ANNEX 3 Table 3

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Economic Prices 1/ for Major Inputs and Outputs (Constant 1982 Dinar Value/Kg)

Cereals and Economic Livestock Economic Industrial Crops Prices (Liveweight) Prices

Wheat 11.7 Beef 84.3 Flour 17.6 Cull Cow 63.2 Maize 6.3 Heifer 101.2 Barley 8.4 Breeding Heifer 131.5 Sugarbeet 1.3 Pig 71.3 Soyabean Seed 17.9 Weaner 85.6 Soyabean Meal 15.2 Lamb 91.6 Soyabean Oil 33.1 Hoggets 72.4 Sunflower Seed 20.2 Culls 62.3 Sunflower Meal 12.3 Broiler 50.3 Sunflower Oil 37.8 Sheep's Milk (liter) 13.5 Rape Seed 16.5 Cow's Milk (") 9.8 Rapeseed Meal 11.7 Rapeseed Oil 30.9 Concentrate Feed Tobacco (Burley) 102.2 Pig grower 10.7 Tobacco (Virginia) 91.8 Pig fattener 9.4 Calf starter 13.4 Fertilizers (active substance) Dairy Cow 10.7 Nitrogen 27.1 Sheep 9.4 Phosphorus 22.7 Broiler finisher 14.0 Potash 11.4 Broiler starter 14.7 Home-grown maize 5.9 Fruits and Vegetables Home-grown barley 6.0 Fresh: Grapes 17.9 Plums 11.7 Blackberries 18.8 Conversion Factors Potatoes 3.2 Standard 0.75 Tomatoes 23.7 Transport 0.66 Intermediaries 0.75 Frozen: Stringbeans 17.6 Equipment 0.74 Brocolli 44.1 Consumption 0.75 Paprika 17.6 Construction 0.65 Cauliflower 36.0 Investment 0.70 Strawberries 43.3 Labor (Unskilled) 0.70 2/ Raspberries 84.3 Blackberries 49.8

1/ Ex-farm/ex-factory prices. 2/ Shadow wage rate is assumed to be 70% of average social sector net personal income. It increases by 2% per annum in real terms over the project life. APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Summary Results of Economic Analysis

Economic Rates of Return Switching Values /1 Oper. Invest. Benefits and Capacity Base Benefits Costs Costs Operating Costs Utilization Bene- Invest. Oper. NPV at 12% Component Case (-10%) (+10%) (+20%) Lag 1 yr. Lag 2 yrs. (-10%) fits Costs Costs (Din Mill) Livestock 26 9 12 23 22 19 NA /2 - 8 125 10 2,161

Horticulture 32 24 27 28 25 20 NA -22 191 41 1,046

Drainage 28 19 25 24 22 17 NA -24 162 58 1,694 JS Agroindustries 24 -4 -1 20 20 18 13 -5 90 6 1,748

Support Services 23 4 7 18 18 15 NA -6 62 7 1,102

Total Project 25 9 13 21 21 17 NA - 9 107 10 7,624 /3

/1 At 12%. 7X NA = Not Applicable. P.V. 73 of investment costs of extension component (-127 Mill. Din) has been included.

o. z 4 Li APPRAISAL OF

SERBIA REGIONAL DEVELOPMENTPROJECT

YUGOSLAVIA

SOCIO-ECONOMIC DATA AND AGRICULTURAL INDICATORS

YUGOSLAVIA SERBIA PROPER KOLUBARA DANUBE COMBINED KOLUBARA/DANUBE Unit (National) Actual % Nat'l Actual x Serbia Actual % Serbia Actual % Serbia

Demographic Total Population (1981 Census) '000 22,354 5,694 25 543 10 485 9 1,028 18 Agriculture Population " 7,844 1,514 19 227 15 183 12 410 27 Active Agric. Population " 4,208 1,076 26 143 13 130 12 273 25 No. of Communes Unit 527 114 22 14 12 11 10 25 22 No. of Less Dev. Communes " - 51 - 9 18 7 14 16 31 No. of Households '000 6,209 1,655 27 153 9 130 8 283 17

Agriculture Total Land Area '000 ha 25,580 5,597 22 574 10 509 9 1,083 19 Total Agric. Area " 14,371 3,405 24 401 12 357 10 758 22 Arable Land (Annual Crops) 7,153 1,872 26 289 15 251 13 540 29 Orchards 484 236 49 36 15 22 9 58 25 Meadows 2,055 532 26 37 7 43 8 80 15 Pastures 4,346 682 16 37 5 31 5 68 10 Forests 10,300 1,838 18 141 8 117 6 258 14 Agric. Land owned by Social Sector % 17 6 - 7 - 6 - - - Agric. Land owned by 5 Indiv. Sector % 83 94 - 93 - 94 - - Average Farm Size (1971) ha 3.9 3.6 - 4.5 - 4.4 - 4.5

Major Agricultural Outputs Wheat '000 tons 5,019 1,283 26 231 18 159 12 390 30 Maize 9,317 2,363 25 451 19 520 22 971 41 Sugarbeet 5,213 349 7 30 9 95 27 125 36 Sunflower 302 25 8 5 20 6 24 11 44 Potato 2,440 569 23 60 11 54 9 114 20 Beef 351 112 32 14 13 14 13 28 25 Pork 738 191 26 23 12 20 10 43 23 Lamb 58 19 33 3 16 1 5 4 21 Milk Mill. Lit. 4,211 1,187 28 134 11 98 8 232 20 Eggs Mill. Pcs. 4,393 964 22 124 13 76 8 200 21 Plums '000 tons 666 466 70 109 23 45 10 154 33 Plum Trees(fruit bearing) 000 trees 73,636 47,275 64 8,348 18 4,697 10 13,045 28

Livestock 1/ Cattle '000 head 5,474 1,682 31 213 15 159 9 372 22 Pigs 7,867 2,561 33 632 25 481 19 1,113 43 Sheep 7,384 2,013 27 351 17 214 11 565 28 Poultry " 65,690 14,349 22 1,831 13 1,399 10 3,230 23 V

1/ 1981 data. The rest of the data is for 1980 unless stated otherwise.

Source: Statistical Yearbook 1981; Statistical Bulletin 1981. - 46 - ANNEX 4 Page 1

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

On-farm Production Investment

1. An estimated 10,900 farmers would participate under the on-farm investment program through receipt of credit from Agrobank. Most of these farmers have already been contacted during the project preparation stage. The various types of investments would be prepared and implemented by about 50 farmer cooperative organizations (BOCF, BCO and FC's) existing in the project area. In the Kolubara Region, about 5,100 farmers have been identified as investors for deciduous orchards and tobacco, and 1,550 farmers for livestock. In the Danube Region about 1,300 farmers were identified for deciduous orchards and vineyards and about 2,950 for livestock. A list of on-farm investments and their locations in both regions are summarized in Tables 1 and 2 of this Annex. Further details of the individual farm models, are contained in the Working Paper No. 4 of the Project Implementation File.

Deciduous Fruit Production

2. A total of 4,200 individual farms in both regions would establish 1,845 has of rainfed fruit trees and berries. The species include apple, pear, quince, apricot, plum, sour cherry, black cherry, raspberry, blackberry, black currant, strawberry and walnut. Plum would be the most abundant among the new tree plantings, representing 71% of the total; for the berry fruit it would be blackberry with 45%. The average size orchard and berry planting per farm would be 0.5 and 0.3 ha respectively. The investments for all fruit species in the Kolubara Region (1,446.5 ha) are phased over four years at the annual rate of 30, 30, 20 and 20%. In the Danube Region (398.5 ha), plantations are phased over three years at the annual rate of 40, 30 and 30% (Table 3). Sub-loans would be for investments in plantation establishment using modern technology and for small scale mechanization.

Grape production

3. Sub-loans would finance 474 individual farmers to plant 237 ha of rainfed vineyards in the hilly western portion of the Danube Region. Average vineyard size per farm would be 0.5 ha. Many of the new vineyards would replace existing degenerated ones between 25 and 40 years old. Investments, which include vineyard establishment and small scale mechanization, would be phased over three years at the annual rate of 40, 30 and 30% (Table 3). The design of the vineyards would allow for efficient mechanization and labor use, and modern fertilizer and pest control practices. Ninety percent of the production would be the Yugoslav variety, Smederevo, which is widely accepted in the region. ANNEX 4 Page 2

Tobacco Production

4. The project would expand the area cultivated to tobacco by 1,048 ha, involving 1,782 producers in 10 communes in the Kolubara Region. Emphasis would be on tie broad-leaf varieties, Burley and Virginia. Sub-loans would provide investments over four years (Table 3) for small scale farm machinery and irrigation equipment and tobacco dryers.

Livestock Production

5. About 4,480 individual farmers are expected to take up credit for the various livestock investments. The majority would invest in pig fattening and piglet production (39%) and in mixed dairy/beef production (30%). The remaining number of farmers would divide their investments between cattle fattening (16%), broiler and egg production (7%), sheep production (4%) and beekeeping (4%). A detailed list of identified on-farm livestock investments indicating village names and numbers of farm units is provided in Tables 1 and 2 to this Annex. The phasing of investments is listed in Table 4. Further details of the individual livestock farm models are contained in Working Paper No. 4 (b) of the Project Implementation File.

Milk Production

6. Simmental-type cattle, which is an excellent dual purpose animal, is the dominant breed in the project area. Dairy cows are housed in tie-up barns and usually milked by hand if the number does not exceed four or five. The standard of stockmanship and husbandry is high. Typically, the bull calves are also fattened and, under the project, this dairy beef model would reflect the system presently in operation. It is estimated that the model be used in a flexible manner and the number of incremental cows financed is expected to range from 1 to 10. A total of about 1,340 farmers have been identified to participate as potential investors. Investment would include new or reconstructed cattle stables, silage and manure pits, automatic drinkers, milking machines and provisions are made for some agricultural machinery for fodder production, if required.

Beef Production

7. Under the project about 735 farmers (70% in the Danube Region) would undertake contract beef production. The participating farms, fattening batcnes of 40 head, are expected to have a good potential for expanding forage production whereby investments are aimed at providing maize silage and good quality hay, and reducing concentrate feeding. Average growth rates of intensively fattened bulls are extremely high and exceed 1 kg liveweight gain/day on many farms over the weight range of 130 to 450 kg. At constant 1982 prices, beef production is profitable and the financial rate of return is aoout 29%. Investments would include new or reconstructed cattle housing, water systems, silage and manure pits and some agricultural equipment, if required. - 48 _ ANNEX 4 Page 3

Sheep Production

d. About 195 farmers would increase their sheep production through investing in new or improved shelter, pasture, breeding stock and agricultural machinery such as mowers and fodder rakers, which would be shared between five farmers. The number of ewes would be increased from 15 to 50.

Pig Fattening and Piglet Production

9. Serbia has a strong tradition of pig production on small farms. The standard of management is high and productive. Coefficients are satisfactory. Pig farms under the project would be developed mainly on farms which have good potential for expansion of feed grains, and they would either expand their production of young pigs for sale at about 25 kg liveweight (piglet production model based on 10 sows), or purchase weanling pigs and fatten them (the pig fattening model is based on batches of 80 pigs). Investments for both types of production would consist of new or reconstructed buildings, provision of water and electricity, manure pits, feed equipment, ventilation and, in the case of piglet production, include the provision of improved gilts and boars. In the Kolubara Region, about 89 farm units would invest in piglet production and 255 in pig fattening; while in the Danube Region the numbers would be 757 and 647 respectively.

Poultry Production

10. Poultry is kept on nearly every farm. Under the project poultry ( contracts, either for broiler or egg production, would be developed mainly on farms which have a good potential for expansion of feed grains. In Kolubara Region, about 123 farmers have been identified for production of broilers and 13 for eggs, whereas in the Danube Region the respective numbers are 64 and 105. In the broiler production model, the farmer would purchase one-day-old chicks and fatten 5,000 broilers (5 batches per year). The egg production model is based on 5,000 layers. Investments for both types of production would include housing facilities, provision of water and electricity, ventilation and other miscellaneous operational equipment. The social sector support services would provide individual farmers either with one-day-old chicks or with the laying hens.

Bee Keeping

11. Both regions within the project area offer rich flora and an excellent resource bases for honey production. About 162 farmers (98 in Kolubara and 64 in Danube) are expected to benefit from this subproject. One individual apiary would consist of 50 beehives. The time for formation of one beehive would be 1 year. Technical support is being provided by the social sector, in particular the agricultural kombinat in Belgrade which produces the queen bees. The Kranj type bee has proven to be well adapted in the project area. Investments costs include the beehives, the basic swarms with a queen bee, frames of honey comb and various accessories and tools. Appraisal of

Serbia Regional Development Project

Yugoslavia

List of Identified On-Farm Investments - Kolubara Region

6-cow Sheep Cattle Piglet Pig Broiler Egg Bee Orchard Thbacco Investor Place milk/beef Production Fattening Production Fattening Production Production Keeping ha

COAL-AIK Valjevo WO Poijocoop Valjevo 44 2 6 1 2 92.00 WO VOCAR Valjevo 4 - 2 2 - 26.00 W Sloga Ljig 18 2 35 - 2 35.00 WO Podgorka Osecina 59 5 18 - - 93.00 WO Mionica Mionica 125 6 27 5 3 13 229.00 WO Pik UB UB 100 2 12 15 17.00 FC Lajkovac Lajkovac 73 6 14 75.00

COAL-AIK Sabac WO Macvanin Bogatic 23 10 26 48 8 WO RATARCOOP Sabac 22 1 23 9 74 7 45 97.80 WO 4 October Vladimirci 8 2 19 6 32 16 3 52.30 BOAL Veterinarski Vladimirci - - - - - 83 WO 7 July Debrc 4 - 1 1 8 - 2.00 WO 23 September Koceljeva 31 - 15 22 25 9 354.10

COAL-AIK Loznica WO Loznica Loznica 95 6 18 2 44 8 18 19.15 WO Jedinvsto Krupanj 78 14 15 1 1 19 72.80 WO NAPREDAK Mali Zvornik 2 3 1 1 5 3.30 FC CER Jadarska - - - - 2.80 FC Ljubovija Ljubovija - 16 18 - 265.55 WC Zitoratar Loznica - - - - 9.70

WO DUVANSKA Various - - - - 878

WOINST. ZA Duvan Sabac - - - 112 a WO INST. ZA Duvan Bogatic _ _ 58 Tbtal Unit 686 59 226 89 255 123 13 98 - - Total ha 1.446. 50 1048 Appraisal of

Serbia Regional Development Project

Yugoslavia

List of Identified On-Farm Investments - Danube Region

Investor Place Type of Investment 6 Cow Sheep Cattle Piglet Pig Broiler Egg Bee Orchards Vinyards Beef/Milk Production Fattening Production Fattening Production Production Keeping ha

COAL-AIK Pozarevac Pozarevac 296 85 266 221 229 30 24 34 BOAL letnjikovac Maruljevac 120

COAI-AIK Srbija

10 October Velika Plana 29 16 35 175 6 42 3

AK Sumadija Sm. Palanka 38 7 29 213 35 14 6 4 BOCF Poljoprivreda Ratari 2.50 BOCF Poljoprivreda Banicina 13.50 BOCF Poljoprivreda Golobok 2.00 BOCF Poljoprivreda Kusadak 15.00 0.5 FC Selevac Selevac 12 11 9 30 2 2 2.50 0.5 ° FC Azanja Azanja 6 8 7 9 2 3 2 5.00 ATK Mlava Mlavi 184 14 129 94 83 12 25 5 62.50 FC Zajednica Rasanac 24.50 FC 7 Juli V. Laole 40.50 FC Bolji Zivot Ranovac 59.00 FC Dragasevo Oreskovac 24.50 BOAL Sloga Busovac 14.00

AK Godomin Smederevo 20 46 8 15.00 BOCF Kolari Kolari 26.50 79.0 BOCF Snederevo Srederevo 26.0 BOCF Drugovac Drugovac 42.00 105.0 a

BOCF Mihajl.ovac Mihajlovac 42.50 26.0 D x WD Agropromet Kuzevo 79 30 26 47 11 4 FC Lozovik Lozovik 4 3 7 23 1 1 FC Milosevac Milosevac 5 1 4 6 2 1

BOCF Mala Djresna Mala Dresna 7.00

Total Unit 653 136 509 757 647 64 105 64 -- -- Total ha 398.50 237.00 APPRAISAL OF

SERBIA REGIONAL DEVELOPNENT PROJECT

YUGOSLAVIA

Phasing of Orchard Plantations, Vineyards and Tobacco by Regions - Ha

Kolubara Region Danube Region Both Regions Combined Commodity 1 2 3 4 Total 1 2 3 Total 1 2 3 4 Total ------Project Year------…------______

Apple - - - - 14.40 10.80 10.80 36.00 14.40 10.80 10.80 - 36.00 Pear - - - - - 14.80 11.10 11.10 37.00 14.80 11.10 11.10 - 36.00 Quince 10.80 10.80 7.20 7.20 36.00 0.60 0.45 0.45 1.50 11.40 11.25 7.65 7.20 37.50 Apricot 21.45 21.45 14.30 14.30 71.50 3.80 2.85 2.85 9.50 25.25 24.30 17.15 14.30 81.00 Plum 251.10 251.10 168.40 168.40 839.00 74.00 55.50 55.50 185.00 325.10 306.60 223.90 169.40 1,024.00 Sour cherry 21.30 21.30 14.20 14.20 71.50 41.20 30.90 30.90 103.00 62.50 52.20 45.10 14.20 174.00 Black cherry 13.26 13.26 8.84 8.84 44.20 10.00 7.50 7.50 25.00 23.26 20.76 16.34 8.84 69.20 Raspberry 41.01 41.01 26.34 27.34 136.70 - - - - 41.01 41.01 27.34 27.34 136.70 Blackberry 48.24 48.24 32.16 32.16 160.80 - - - - 48.24 48.24 32.16 32.16 160.80 Black currant 12.39 12.39 8.26 8.26 41.30 - - - - 12.39 12.39 8.26 8.26 41.30 Strawberry 13.80 13.80 9.20 9.20 46.00 - - - - 13.80 13.80 9.20 9.20 46.00 Walnut - - - - - 0.60 0.45 0.45 1.50 0.60 0.45 0.45 - 1.50 Subtotal, Orchards 433.35 433.35 289.90 289.90 1,446.50 159.40 119.55 119.55 398.50 592.75 552.90 409.45 289.90 1,845.00

Vineyards - - - - - 95.00 71.00 71.00 237.00 95.00 71.00 71.00 - 237.00 H y

Tobacco 524.00 210.00 210.00 104.00 1,048.00 524.00 210.00 210.00 104.00 1,048.00 e 3

GRAND TOTAL 957.35 643.35 499.90 393.90 2,494.50 254.40 190.55 190.55 635.50 1,211.75 833.90 690.45 393.90 3,130.00 W - 52 - Annex 4 Table 4

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT YUGOSLAVIA

Phasing of Livestock Investment (Number of Equivalent Mbdels) % of Model Type Year 1 Year 2 Year 3 Year 4 Total Total

Danube Region

Dairy-Beef Mix 120 173 180 180 653 22 Cattle Fattening 102 152 153 102 509 17 Sheep Production 28 40 40 28 136 5 Piglet /1 152 226 227 152 757 26 Pig Fattening 130 193 194 130 647 22 Broiler 13 19 19 13 64 2 Eggs 21 31 32 21 105 4 Bee Keeping 13 19 19 13 64 2

2,935 100

Kolubara Region

Beef-Dairy 136 185 185 180 686 44 Cattle Fattening 45 68 68 45 226 15 Sheep 12 18 18 11 59 4 Piglet 18 26 27 18 89 6 Pig Fattening 51 76 77 51 255 16 Broiler /2 26 37 37 23 123 8 Eggs 3 3 4 3 13 1 Bee Keeping 21 28 28 21 98 6

1,549 100

Kolubara & Danube Region Total

Dairy-Beef 256 358 365 360 1,339 30 Cattle Fattening 147 220 221 147 735 16 Sheep Production 40 58 58 39 195 4 Piglet 170 252 254 170 846 19 Pig Fattening 181 269 271 181 902 20 Broiler 39 56 56 36 187 4 Eggs 24 34 36 24 118 3 Bee Keeping 34 47 47 34 162 4

Total 891 1,294 1,308 991 4,484 100

/1 Original request was 462. 120 were added to replace Letnjikovac and 175 to replace Velika Plana. /2 Original request was 46 and 77 were added to replace 2 million broilers planned in Social Sector. 5T3 Annex 4 Page 1

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Key Technical Assumptions Underlying Models

A. Deciduous Fruit, Berry, Grape and Tobacco

Individual Sector

Trees/ Init. Production Full Development Plants Project Yield Project Yield Fertilizer No/ha Year t/ha Year t/ha kg/ha

Plum 500 4 4.5 10 15.5 295 Blackberry 2,222 3 3.0 6 14.0 250 Grape 3,333 4 6.0 10 15.0 360 Tobacco, Virginia 25,000 - - 1 1.8 210

B. Zabari Drainage Subproject

Individual Sector

Without Project With Project Yield Fertilizer Yield Fertilizer Crop t/ha kg/ha t/ha kg/ha

Wheat 2.5 155 4.5 240 Barley 2.0 150 - - Maize 3.5 185 6.0 275 Sugarbeet 25.0 295 40.0 415 Other industrial crops 1/ 1.0 148 2.1 230 Vegetables 2/ 17.6 192 25.0 295 Cabbage (SC) 3/ - - 25.0 270 Natural meadow hay 2.0 100 - - Alfalfa hay 5.0 108 9.0 162 Annual forage green chop (SC) 3/ - - 40.0 250

1/ Includes sunflower, soybean and rapeseed 2/ Includes tomato, pepper, onion, strong bean, carrot, potato and cabbage 3/ Second crop - 54 - Annex 4 Table 5 Page 2

C. Livestock

With Project Without Project

Dairying Number of cows/farm 6 2 Calving Rate % 80 75 Milk yield/cow (liter) 3,500 3,000

Sheep Number/batch 40 Number of batches/year 1.1 Liveweight gain/day (kg) 1.00 1.00 Weight at slaughter (kg) 450 450 No. of ewes/farm 50 15 Lambing rate % 115 115 Sheep mortality % 2 4 Milk yield (liter) 50 35 Wool/ewe/year (kg) 2.6 1.7

Pigs (weanling production) Number sows/farm 10 Sow replacement rate % 35 Farrowings/year 2.0 Number weaned/sow 17 Sale weight (kg) 25

Pig Fattening Number per batch 80 Number of batches/year 2.75 Fattening period (days) 125 Purchase weight (kg) 25 Sale weight (kg) 100 Feed conversion efficiency (kg feed/kg liveweight) 3.5:1.0

Broilers Number/batch 5,000 Feed conversion efficiency (kg feed/kg liveweight) 2.42:1 Feeding period (days) 52 Batch es/year 5 Sale liveweight (kg) 1.65

Egg Production Average number of layers/farm 4,899 Mortality and culling rate % 6 Production period (days) 52 Number of eggs/hen/year 250 Feed consumption/hen 44

Beekeeping Number of beehives/farm 50 Beehive life (years) 19 Honey production/beehive/year (kg) 40 - 55 - ANNEX 5 Page 1

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Description of Support Services

A. Kolubara Region

1. A total of 15 support service facilities would be constructed under the project, excluding the pig breeding program (para 17) which would be carried out by two existing social sector farms in Letnjikovac and Velika Plana. Key assumptions and a detailed description of technical features are given in Working Paper No. C-5 of the Project Implementation File. A summary description of the support service facilities is given below.

Plum Drying

2. Kolubara Region, and particularly the communes of Valjevo, Lajkovac and Ljubovija, are famous for their plum production. The present drying facilities within AIK Valjevo and Ljubovija are old and obsolete, resulting in inadequate and inferior production of prunes. The project would finance reconstruction and modernization of 14 plum drying facilities (9 at WO Poljokoop, 3 at WO Vocar, 1 at Slovac and 1 at Ljubovija). Each plum drying plant would have between three and five tunnels. The total drying capacity is expected to increase from about 2,500 tons to about 6,400 tons annually. About 4,800 tons of prunes would be taken up by the Center for Prune Processing in Valjevo (see Annex 6, para 3) for pasteurization, sterilization and packing and the balance (1,600 tons) would go to the prune cake plant.

Service Repair Shops

3. Farmers experience difficulty in obtaining repair and maintenance services for their farm equipment due to inadequate existing facilities. Currently, many farmers travel from 25 to 100 km to obtain service. The project would construct and equip eight workshops for the repair and maintenance of agricultural machinery in eight communes of the Kolubara Region, namely in Krupanj, Lajkovac, Loznica, Ljubovija, Osecina, Ub, Ljig and Valjevo. The new workshops would be organized as BOAL's, each workshop providing employment for 20 people with various skills. Training would be provided by existing workshops and machinery factories.

Fuel Storage

4. The project would help to construct 12 new fuel storage stations in the subregions of Valjevo and Loznica. The investors would be Work Organizations and Cooperatives in the following locations; Lajkovac, Mionica, Kadina Luka, Loznica, Draginac, Lesnica, Badnja, Mali Zvornik, Ljubovija, Slatnik, Brezjak and Valjevo. It is estimated that about 4,500 tractors will be serviced by these stations. Currently farmers are obliged to travel considerable distances (averaging 30 km round-trip) to refuel at the public stations. Investment includes storage tanks, fuel pumps, platforms and fencing. - 56 - ANNEX 5 Page 2

Milk Collecting Centers

5. The investments under this subproject would be for the expansion of the bulk milk collecting system supplying three dairies in the regions of Lajkovac, Ub and Loznica. The dairy in Lajkovac would construct a total of 27 collecting centers (4 at 2,000 liters and 23 at 1,000 liters capacity) and the dairies in Ub and Loznica would each construct 12 centers (2 at 2,000 and 10 at 1,000 liters capacity). The expanded milk collection system would have a nominal holding capacity of 59,000 liters and, together with the existing system (old and new), would be able to handle about 107,000 liters of milk daily, which would match the processing capacity of the three dairies.

Seed Center, Sabac

6. Existing facilities in the Kolubara region for seed processing and finishing are inadequate and technically outdated. Against the estimated requirements of 36,000 tons, the seed processing center at Sabac produces 10,000 tons of processed seeds. The project would increase the capacity of the seed processing center to 28,000 tons, which would meet about 80% of the current demand. About 70% of the output would be wheat seed. The investment would include the supply of a multipurpose seed processing line, a packaging line for processed seeds, storage facilities for raw material and processed seed and civil works construction. The objective of this subproject would be to provide the region of Kolubara with sufficient high quality seed in order to improve the crop yields.

Chicken Hatchery

7. The project would support the existing poultry farm at Vladimirci to expand its present stock breeding program and to modernize its hatchery. At present, the unit produces about 5 million Ross one-day-old chicks per year and would be expanded to produce about 10 million/year. Grandparent stock are purchased in Slovenia, who in turn import their base stock from the Ross company in Scotland. The increase is necessary to meet the requirement of the social and individual sectors (including contract farmers under the proposed project). Investment consists of a poultry farm with 6 units and one incubator station with 6 tunnels.

Mechanization

8. The project would finance mechanization of 7,800 ha of sugarbeet within the subregion of Sabac. The investor would be COAL-AIK Sabac who would distribute the equipment to 7 of its Working Organizations located in seven communes, which in turn would rent the equipment to individual farmers. Complete mechanization of 7,800 ha of sugarbeet would be achieved over a period of three years and would involve about 4,000 farmers. The equipment would include tractors, cultivators, planters, sprayers and harvesters. Investment includes the construction of 15 machinery sheds and one consignment storage. - 57 - ANNEX 5 Page 3

Fruit Nursery

9. The project would establish a modern 50 ha fruit nursery three kilometers from the town of Loznica to produce 650,000 seedlings, 480,000 rootstocks and 450,000 scions annually which would contribute substantially to requirements for the establishment of orchard and berry plantations under the project. The new nursery would replace and relocate two 15 ha nurseries which were recently abandoned due to urbanization. The layout proposes plant collection and material source (10.5 ha), propagation (17.5 ha), crop rotation (20 ha), and a service area (2 ha). The collection area will contain 14 species, including the currently recommended varieties of each. The investment includes office buildings, greenhouse, equipment and basic source nursery.

Center for Medicinal Herbs

10. A center for collecting and processing medicinal herbs and forestal fruits would be established in Krupanj, with a capacity to handle about 3,900 tons of raw material annually of different products such as linden flowers, oak and sage leaves, juniper berries, mushrooms and essential oil plants such as coriander. Collection of herbs and forest fruit would employ up to 2,000 collectors during the greater part of the year. At present, about 1,500 tons of dried medicinal herbs are purchased per year through six existing collection centers with drying facilities. The new plant would produce about 260 tons of tea, 2 tons of essential oils and 150 tons of forest fruits. The investment consists of (i) civil construction works, (ii) equipment for handling incoming raw material, (iii) a distillation line, (iv) drying and milling lines, (v) a packaging line and (vi) supply of utilities.

Tobacco Drying - Ljubovija

11. The project would finance a tobacco dryer plant with a capacity of 2,500 tons of tobacco leaves per year, mainly the Virginia, Burley and Jaka varieties. The tobacco would be treated by a process know as "redrying". The basic principle is to expose the tobacco leaves after cutting and removing the stems at a temperature of 900C for 20 minutes and 11X absolute moisture. After that, the tobacco is slowly cooled and the leaves will undergo natural fermentation for one month. The drying facility would be constructed under the turnkey concept and would include civil works, utilities, equipment and transport vehicles.

B. Danube Region

Seed Processing Pozarevac

12. The existing seed processing facilities in Pozarevac are inadequate and insufficient to meet the increasing demand for improved seed in the Danube region where more than 120,000 ha of maize and wheat are sown annually. The - 58 -

ANNEX 5 Page 4

subproject would finance the relocation and reconstruction of the existing seed center to process improved seed of 3,u00 tons of maize and 6,000 tons of wheat, barley, alfalfa and sunflower annually. Investment would also include laboratory facilities and the construction of 3,000 tons of silos for raw material.

Sheep Farm - Zagubica

13. The existing sheep station at Zagubica would be further developed and strengthened to provide high quality rams, and female hoggets for sale to individual farmers. The station would be expanded from about 500 ewes to 2,000 at full development. Emphasis would be placed on developing a select Wuertenberg Merino Flock of which about 200 rams and 950 hoggets would be sold for breeding in the individual sector. Investment would include reconstruction of hogget house, artificial insemination station, administration building, sheep barn, hay barn, equipment and basic flock.

Poultry Farm

14. The project would support the existing commercial poultry (layer) farm at Pozarevac to establish a poultry breeding farm to supply its own hatchery. At present this hatchery, with a capacity to hatch about six million eggs annually, is supplied by Pancevo Belgrade. The Yugoslav poultry producers association decided that Pozarevac should establish its own breeding farm because the production from Pancevo is badly needed elsewhere. Layer-type day-old chicks would be imported. Investment costs would include 6,OOOm2 poultry housing, technical equipment and day-old parent chicks.

Mechanization, Pozarevac

15. The project would finance agricultural machinery for about 12,000 farmers on a total of 22,600 ha in seven communes to meet mechanization of wheat (5,000 ha), maize (13,500 ha), sugarbeet (3,000 ha) sunflower (3,000 ha) and vegetables (100 ha). The main investor, AIK Pozarevac, would distribute the equipment to 28 affiliated work organizations and the second investor, AIK Srbija, would serve 8 cooperatives. Mechanization service would be provided in a variety of ways. Those farmers owning tractors of adequate horsepower would rent only the equipment; service to other farmers would include tractor, driver and implement. Combine operators would be trained on social sector farms already possessing these types of machines.

Wine Nursery

16. A 25 ha nursery for production of high quality grape vine rootstock would be established in Kobrinje. The output would be used to replace a total of 1,200 ha of old vineyards in the inaividual sector over a period of 4 years. The annual replacement would be in the range of 300 ha a year. The investment includes farm equipment, planting material, planting stock and operational expenses for three years. 59 - ANNEX 5 Page 5

Pig Breeding Improvement Program

17. The project would support a pig breeding improvement program on two existing social sector pig farms in Letnjikovac and Velika Plana. Both farms are well established and are achieving good production coefficients. The existing breeding program would be expanded by (a) modernizing the existing houses to enable performance and progeny testing, (b) importing superior boars and sows to broaden the gene pool, and (c) installing individual feeding facilities, group feeding facilities and weighing equipment. Each farm would establish a performance testing program for boars. Superior breeding boars would be selected on the basis of growth rate and feed conversion efficiency; later, high quality boars would be sold to the individual sector. In addition to the performance testing of boars, a progeny test scheme would be established to select such traits as number of piglets born and the mothering capability of sows. The cost of the program is estimated to be US$500,000 for each of the two farms.

18. The pig breeding farms Letnjikovac and Velika Plana would engage an internationally experienced pig breeding expert to assist in the design of an efficient, cost effective breeding program, to assist with the detailed specifications of facilities and to help design a recording and evaluation system. The proposal would detail the staff allocated to this work and their qualifications. It would provide details of the buildings, equipment, breeding stock and facilities to be financed. - 60 - ANNEX 5 Table 1

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Support Services - Summary of Investments and Procurement

Type of Procurement and Estimated Cost Type of Name of Equipment Civil Works Investment Place Investor ICB LCB LCB Total ------US$ Milion …------…

A. KOLUBARA REGION COAL-AIK Valjevo 1. Plum Drying Valjevo WO Poljokoop (9) 2.987 - 3.453 6.440 Valjevo WO Vocar (3) Valjevo BCO Slovac (1) Ljubovija AC Ljubovija (1)

2 Service Repair Shops!/ Valjevo BOCF Valjevo - 1.039 2.181 3.220 Lajkovac BCO Klas Ub BOCF Ub Osecina WO Podgorka Bela Crkva BOCF Zadruga Loznica BOCF Loznica Ljubovija AC Ljubovija Ljig BOCF Ljig

3. Fuel Storage Valjevo BOAL Valjevo (4) - 0.084 0.201 0.285 Loznica AIK Loznica (8)

4. Milk collecting Ctrs. Ub WO AIK Ub (12) 0.414 - 2.173 2.587 Lajkovac BCO Lajkovac (27) Loznica AIK Loznica (12)

5. Seed Center Sabac AIK Sabac 2.954 - 4.819 7.773 BOAL Semenarstro

6. Chicken Hatchery Vladimirci BOAL Veterinarska 1.098 - 3.227 4.325

7. Mechanization Sabac BOCF Sabac 10.101 - - 10.101

8. Fruit Nursery Loznica AIK Loznica - 0.114 0.243 0.357 WO Loznica

9. Center Med. Herbs Krupanj WO Jedvinsto 2.128 - 3.247 5.375

10. Tobacco Drying-/ Ljubovija BOAL Duvan (1) 6.900 - 3.247 6.907

B. DANUBE REGION

11. Seed Processing Pozarevac WO Zitostig 1.188 - 6.379 7.567

12. Sheep Farm Zagubica BOAL Poljopromet - 0.040 1.050 1.090

13. Poultry Farm Pozarevac WO Center Zivinarstvo - 0.634 3.478 4.112

14. Mechanization Pozarevac Various Cooperatives 8.459 - - 8.459

15. Wine Nursery Kobrinje ATK Mlava 0.067 0.257 0.324

TOTAL 36.228 1.978 30.708 68.914

1/ Turnkey LCB 2/ Turnkey ICB - 61- ANNEX 6 Page 1

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Agricultural Extension, Technical Services and Applied Research

General Background

1. In SR Serbia, education and some research are provided by two university faculties of agriculture, eight secondary agricultural schools and several technical schools. Specialized investigation and research is carried out by 14 agricultural research institutes located throughout the Republic. The Institute for Applied Science for Agriculture in Belgrade is reported to have a coordinating role for professional agricultural services in SR Serbia. At present it employs 22 graduate specialists, 15 of which are working in livestock and 7 in crop production. Its research and development activity is carried out on a contract basis in collaboration with other specialized research institutes, agricultural stations and many other production oriented working organizations in SR Serbia. Although the staff of the Institute, which are qualified and experienced, have frequent contact with extension agents of the cooperatives and specialists from the agricultural stations, their role as coordinators is minimal. Direct technical assistance to individual farmers is provided by extension agents employed by agricultural working organizations and cooperatives supported by back-up services from regional agricultural stations, veterinary stations and centers.

Current Status.

2. Contact with individual farmers is made by about 1,220 extension agents employed by 50 different social sector organizations (WO, BOCF, BCO and FC). Collectively, this group is referred to as the Basic Agricultural Service. At the current level there is one graduate agronomist for 480 farm households, one agricultural technician to 240 households, and one veterinarian to about 1,800 head of cattle. The ratio of extension personnel to farmers is inadequate to ensure effective coverage, a situation which is further aggravated by lack of mobility and the fact that these specialists devote considerable time to promoting and negotiating production contracts between the processing industry and the individual farmers.

3. Four agricultural stations (two each in the Kolubara and Danube Regions) are the principal sources of technical information. They are basically organized as independent working organizations affiliated to the major agrokombinats. These stations have no land of their own and office buildings and laboratories are rather modest. Besides applied research, which is conducted on the land of the contracting employer, staff performs quality control of agricultural produce, soil testing, feed analysis and selection of breeding stock. As most contracts are for less than 5 years, the continuity of research is impeded. Information is transferred from the stations to the - 62 - ANNEX 6 Page 2

extension personnel in the organizations referred to in para 2 above informally, through personal contact and, more formally, through periodic seminars and conferences, particularly during the winter. Special courses are offered to farmers in addition to field days on the experimental plots. Except for those occasions, station staff do not provide assistance directly to farmers.

4. Additional services to individual livestock farmers are offered through veterinary stations: 13 in the Kolubara Region and 15 in the Danube Region. They are strategically distributed in the project area, located on a range of about 10 km from each other, except in the hilly-mountainous areas where adequate housing is a serious constraint. Veterinary stations vary in their organizational status. Some are affiliated with work organizations of agrokombinats; some are independent. They provide for animal health protection, disease control, artificial insemination and sanitary control of livestock produce. By law, they are the sole institutions able to render these services. In addition, many stations are involved in the production and/or sale of day-old chicks, mineral licks and some veterinary products. All veterinary stations are self-financed from fees and charges paid by the individual livestock producers and profit margins from veterinary medicaments.

Strengthening of the Basic Agricultural Services

5. The project would assist in strengthening the Basic Agricultural Service engaged in implementing the on-farm investments in livestock and crop production. A total of 91 additional extension specialists (46 for livestock and 45 for fruit and crop production) would be employed by those working organizations and cooperatives which have been identified as investors under the project, and which would require additional staff to service the requirements of the incremental production. Fifty-one would be located in the Kolubara Region and 40 in the Danube Region. Details are given in Table 1 of this Annex. The project would finance 60 vehicles and 50 small apartments for the 91 incremental extension agents to help alleviate these constraints, which seriously impede the effectiveness of the current service. In addition, 60 man/months of training abroad would be provided under the project. Training emphasis would be on pasture and sheep production, artificial insemination technology, forage quality, agricultural mechanization and agronomy of industrial crops, principally sugarbeet. The Inter-Communal Regional Communities (IRC's) of Kolubara and Danube would be responsible for implementing and coordinating this component in collaboration with the working organizations and cooperatives which employ the new personnel.

Feasibility Study

6. The project would also finance preparation of a master plan in agricultural extension, technical services and applied research for SR Serbia. The objective would be to come forward with recommendations to improve and adapt the existing services to providing efficient, cost effective technical assistance to the individual sector. The following principal activities and services would be covered by the study: - 63 - ANNEX 6 Page 3

(i) extension service: organization, staffing, facilities and training, present situation and requirement for the future; attention should be given to the suitability of the "Training and Visit System" or a variant thereof under Yugoslav conditions;

(ii) veterinary service: organization; staffing; facilities and training, present and future, with particular attention to those services that could be delegated to the farmer, and the cost of providing those services;

(iii) applied research: emphasis on ruminant nutrition, forage quality, technology of forage conservation, grassland production and utilization, soil fertility and crop response, and linkages with extension;

(iv) artificial insemination (AI): improvement of AI technology, policy decisions on use of AI in animal improvement, and the role of AI in commercial pig and sheep breeding;

(v) milk testing: development of an efficient milk testing service for the Republic, and appropriateness of centralized milk testing for animal improvement and commercial testing;

(vi) development of a cost effective animal improvement program using (iv) and (v) above; and

(vii) soil and plant analysis: explore the concept of a centralized service for the Republic.

7. To carry out the above study, the Republic Committee for Agriculture of SR Serbia would be responsible for preparing the terms of reference by the time of negotiations and would engage an experienced consultant or group of consultants acceptable to the Bank not later than June 30, 1983. The study is expected to take one year to complete and is estimated to cost US$300,000. - 6 4 - Annex 6 Table 1 APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Estimated Number and Distribution of Incremental Agriculture Extension Staff

Extension Support for Livestock Production

Kolubara Region Danube Region Total No. of No. of No. of No. of No. of Activity Farms Experts Farms Experts Experts

Dairy cattle 686 7 653 6 13 Beef cattle 226 2 509 5 7 Pig Fatt. & piglets 344 3 1,404 13 16 Sheep 59 1 136 2 3 Broilers 123 2 169 3 5 Layers 13 105 2 2

Total 1,451 15 2,976 31 46

Extension Support for Horticulture and Crop Production

Kolubara Region Danube Region Total No. of No. of No. of No. of No. of No. of No. of Activity Farms Ha Experts Farms Ha Experts Experts

Fruit 3,402 1,446 17 797 398 4 21 Grape - - - 474 237 2 2 Tobacco 1,782 1,048 9 - - - 9 Indust. Crops 3,190 6,380 10 883 1,767 3 13

Total 8,374 8,874 36 2,154 2,402 9 45

The above requirements were calculated on the basis of the following coefficients: For livestock - one extension agent for 100 dairy farms, 100 beef farms, 100 pig farms, 50 sheep farms and 50 poultry farms. For horticulture and crop production - one extension agent for 200 farms with orchards, 200 farms with vineyards, 200 farms with tobacco, and 300 farms with industrial crops. - 65 - Annex 7 Page 1

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENTPROJECT

YUGOSLAVIA

Description of Agroindustry Facilities

1. A total of 14 agroindustry facilities are being reconstructed and modernized under the project, eleven of them in the Kolubara Region and three in the Danube Region. They are described below.

A. Kolubara Region

Fruit Juice Factory - Valjevo

2. The present fruit juice factory has been operative for over 15 years and has a capacity of 15,000 tons of various fruit juices. The processing lines are old, incomplete, technologically imbalanced and obsolete and would be reconstructed and modernized. One obsolete juice filling line would be replaced and a modern tetrapack packing line introduced. Capacity would increase to 18,000 tons of fruit juice. Most of the raw materials (mainly fruits) would be available locally in the subregion but part of the raw material supplies would depend on yields from the new plantings. Although fruit juice capacity utilization is about 70% at the national level, this plant's present capacity utilization is almost 100% and would remain so even after expansion. About 1,200 tons of fruit juice are earmarked for export, which represents only 7% of likely Yugoslav exports of 17,000 tons by 1985. The plant can aim at a higher export target. Consumer acceptance of medicinal herb drinks needs to be watched carefully, as these are being introduced for the first time.

Coldstorage Plant - Valjevo

3. The present coldstorage plant at Valjevo is incomplete in its structure and has outdated equipment. It is proposed to reconstruct and modernize it. Although the technical capacity would remain the same at 9,000 tons, the volume handled would increase from 13,400 tons to 20,000 tons by improving internal transport and introducing the pallet system. The total raw material requirements are 20,000 tons of fruits, vegetables and medicinal herbs. Raw material procurement would not be difficult. About 3,000 tons of the total output of 16,500 tons (the remaining output of about 3,500 tons is service storing of meat), are for the reconstructed fruit juice plant, another 7,000 tons would be sold on the domestic market and the balance of 6,500 tons would be for export.

Prune Processing - Valjevo

4. An existing center for prune processing with a capacity of 5,000 tons of prunes would be closed and a new facility constructed to process and pack about 7,000 tons at full capacity. Reconstruction and modernization would -66-

ANNEX 7 Page 2

include equipment for (i) drying 3,320 tons of plums, and (ii) sterilizing, pasteurizing and packaging 7,000 tons of prunes of which 6,000 tons will come from the plum dryers rehabilitated under the project and the balance from its own dryer. The increased production of 2,000 tons is earmarked for export.

Vegetable Processing Plant - Lajkovac

5. An existing plant belonging to the farmers cooperative Lajkovac would be expanded by adding three new vegetable preparation lines, one boiler house and one continuous deep freezing tunnel with a capacity of 2-3 tons per hour, to process about 5,700 tons of vegetables into 4,700 tons of individual quick frozen (IQF) products. It is planned to export about 1,500 tons. Investments include bulk and retail packing lines and transport equipment.

Grain Storage & Dryer - Valjevo

6. The capacity of an existing wheat flour mill would be expanded by construction of a vertical silo with a capacity of 10,000 tons of wheat. The present capacity of 4,000 tons of silo and 3,000 tons of ground storage is totally inadequate and does not guarantee safe warehousing of the raw material. Investments would include the construction of a dryer with 12 tons per hour capacity, a bulk reception unit and a material handling system. Investments would improve the capacity and utilization of the connected flour mill and improve the quality of flour and bread.

Feed Plant - Ub

7. The animal feed factory at Ub (present capacity 10,000 tons) is technically outdated. The plant would be reconstructed and modernized to process about 17,500 tons of concentrated and premixed feed annually, including (i) 4,000 tons of cattle feed; (ii) 10,200 tons of pig feed, and (iii) 3,300 tons of poultry feed. In addition, storage facilities with a capacity of 5,000 tons would be constructed to store the raw material and finished products. The animal feed produced would be just adequate to meet the increased demands of the farms owned by the Kombinat and individual farmers who have contracted livestock production.

Coldstore Sabac

8. A new coldstore with a capacity of 5,000 tons!/ of frozen product would be constructed outside the town of Sabac to replace an older storage facility of 2,500 tons capacity at Sapcana. Equipment to process and freeze berries and fruit would be included. At full capacity, the new coldstore would handle about 11,000 tons of fruits, berries and vegetables per year.

1/ Based on meat - 67 -

ANNEX 7 Page 3

Poultry Slaughterhouse - Vladimirci

9. The present slaughterhouse in the city of Sabac (capacity 1 million birds per year) is worn down and has serious sewerage problems. A new slaughterhouse would be constructed in Vladimirci about 25 km south of Sabac. The expanded slaughtering capacity of 6 million birds per year at full capacity with two shifts would produce about 8,000 tons of poultry meat. The present supply of broilers in the Kolubara region is 6 million birds and the slaughterhouse would be adequate to process the available number. Consumer demand for poultry meat is high.

Potato Processing - Krupanj

10. A potato processing plant in Krupanj would be established to process an input of about 8,300 tons of fresh potatoes. The investor already has a potato processing plant producing flakes and the region of Krupanj has favorable climatic and soil conditions for potato production. The output of the new plant would be 3,600 tons of deep frozen french fries of which 690 tons would be sold through the retail network and the balance of 2,000 tons directly to hotels, restaurants and market centers.

Prune Cake Plant - Ljubovija

11. The plant is currently manufacturing 2,000 tons of cakes with sugar glazing and chocolate-covered cakes both with fruit filling. The investment would add a prune-cake line of 3,000 tons capacity including the processing unit for the prune filling. In the face of restricted imports of cocoa base for chocolate, the introduction of prune filled cakes is a right strategy since this subregion is surplus in plums and prunes. Raw material supplies will not be a problem as the production of 3,000 tons of prune filled cakes requires 1,200 tons of prune paste which would be made from 5,600 tons of fresh plums. The plant belongs to the famous Kombinat Belgrade (PKB) which itself operates in the confectionary market. Sales on the domestic market will be easy to achieve; in fact, even higher quantities can be sold in the domestic market with proper promotion.

Communal Slaughterhouse - Ljubovija

12. The existing communal slaughterhouse, located in the center of the town, is very old and obsolete and does not meet the minimum hygenic standards required by the sanitary regulations. The slaughterhouse would be reconstructed and relocated at a new site. The slaughterhouse would remain basically a slaughter operation and would have very limited processing facilities. Planned raw material input would total 2,600 tons liveweight of cattle, pigs and lambs per year to produce about 1,000 tons of fresh meat, 270 tons processed meat, 100 tons of edible giblets and 540 tons of offals. - 68 - ANNEX 7 Page 4

B. Danube Region

Oil Factory - Veliko Gradiste

13. An existing oil factory would be reconstructed and modernized by a solvent extraction unit to increase the processing capacity from the present 18,000 tons to 42,000 tons of oilseed inputs. The expanded facility is expected to process 21,000 tons of sunflower, 8,400 tons of soya bean and 12,600 tons of rapeseed at full capacity. The edible oil production would increase from the current level of 6,000 tons to 16,000 tons. In addition, oil cake output (a valuable by-product of the oil mill) would increase from 11,000 to 25,000 tons.

Livestock Feed Plant - Pozarevac

14. An existing livestock feed plant would be expanded by increasing the storage capacity (silo) from 30,000 tons to 50,000 tons. At full capacity the plant is expected to produce (a) 37,000 tons of poultry feed, (b) 40,000 tons of pig feed and (c) 11,000 tons of cattle feed to satisfy the need of the livestock production in the region.

Coldstore - Mlava

15. The investment is to construct a new cold storage plant with a capacity of 2,500 tons for processing and storing of fruits and livestock products. Apart from freezing 2,500 tons of fruits and vegetables for selling on the domestic and export markets, the coldstore would also serve the needs of the recently completed adjacent fruit processing plant (2,500 tons), and provide service to the slaughterhouse of the same organization at Petrovac (2,000 tons of meat per year). Construction of the coldstore would include one processing line for fruits (with stones), a freezing tunnel (2.5 ton capacity per hour) and a packaging line. At full development, the processing plant is expected to process 1,000 tons of sour cherries, 1,000 tons of plums and 500 tons of other fruit. APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Agroindustry - Summary of Investments and Procurement

Type of Type of Procurement and Estimated Cost Agroindustry Name of Equipment Civil Works Turnkey Facility Place Investor ICB LCB ICB Total ------US$ Million------

A. KOLUBARA RFGION

1. Fruit Juice Factory Valjevo WO Srbijank 6.086 4.407 - 10.493

2. Coldstore (9,000 ton) Valjevo BOAL Vocar Frigo 1.516 2.734 - 4.250

3. Prune Processing Valjevo BOAL Vocar Prerada 2.245 5.975 - 8.220

4. Vegetable Processing Lajkovac BCO Lajkovac, BOAL Hladnjaca 2.091 2.384 - 4.475 5. Grain Storage & Dryer Valjevo WO 15 September 0.547 2.269 - 2.816

6. Feed Plant Ub WO-AIK Ub, BOAL Zitopromet - - 2.382 2.382

7. Coldstore (5,000 ton) Sabac AIK Sbac, WO Vocar - 10.100 10.100

8. Poultry Slaughterhouse Vladimirci BOAL Veterinarski Center - - 7.881 7.881

9. Potato Processing Krupanj AIK Loznica, WO Jedinstvo 2.883 3.695 - 6.078

10. Prune Cake Ljubovija BOAL Ljubovija 1.695 2.471 - 4.166 11. Com. Slaughterhouse Ljubovija BCO Ljubovija 0.397 2.059 - 2.456

B. DANUBE REGION

12. Oil Factory Veliko Gradist AIK Pozarevac, BOAL Dunavka 0.243 1.976 - 4.407

13. Livestock Feed Plant Pozarevac WO Sitzanka 0.654 2.839 - 3.493

14. Coldstore Mlava Petrovac na Mlavi ATK Mlava - - 6.791 6.791

TOTAL 20.045 30.809 27.154 78.008 ANNEX 7 - 70 - Table 2

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Quantity and Value /1 of Projected Output from Agroindustries

Full Development Annual Exports Product Unit Quantity Value Quantity Value ('000 Din) ('000 Din)

Fruit Juice tons 16,800 549,500 1,200 51,400 Frozen Fruit " 11,980 610,865 5,300 208,640 Frozen Fruit Pulp " 3,350 107,548 Frozen Vegetables " 4,700 205,700 1,500 35,400 Dried Vegetables " 250 41,250 Dried Fruits & Grain Products " 1,330 214,645 Prunes " 7,000 385,800 Prune Cake " 2,400 259,200 600 54,000 Fresh Meat 1,020 147,934 Fresh Potatoes " 1,650 18,150 French Fried Potatoes " 3,600 155,700 Processed Meat 370 37,697 Offals " 540 28,618 Poultry Meat " 8,080 803,550 Livestock Feed " 43,650 741,412 Vegetable Oil " 1,790 93,000 Press Cake " (1,790) (30,092) Savings in grain losses " 73,486 21,830 Cold Store Services (a) Meat & Eggs " 9,800 27,800 (b) Fruits & Vegetables " 2,500 6,000

Total 4,426,107 349_440

/1 Incremental. - 71 -

ANNEX 8 Page 1

APPRAISAL OF

SERBIA REGIONAL DEVELPMENT PROJECT

YUGOSLAVIA

A. Drainage

1. Drainage facilities under the project would extend over about 27,000 ha gross, (about 24,000 ha net), covering 7 separate sub-projects, three of which are located in the Kolubara Region (about 8,670 ha net) and the remaining four in the Danube Region (about 15,370 ha net). The sub-projects aim at safeguarding the areas from external and internal waters and at land improvement through the following works:

2. Lajkovac Drainage (Net drainage area 921 ha)

(a) construction of a peripheral interceptor surface drain, about 7.5 km in length;

(b) reconstruction of an existing 5.7 km long surface drain;

(c) construction of a new main surface drain about 2.8 km long;

(d) secondary and tertiary surface drainage network for about 921 ha (net);

(e) underground tile drainage network for about 408 ha (net);

(f) on-farm development of about 921 ha, consisting of clearance of brushwood, cutting of trees, removal of stumps, clearing of land works and land levelling; and

(g) operation and maintenance roads along all main and secondary drains, about 16 km in length.

3. Kalovica Drainage (Net drainage area 6,427 ha)

(a) reconstruction of existing surface drains (main and secondary) of about 160 km in length;

(b) construction of new surface drains (main and secondary) in a length of about 63 km;

(c) underground tile drainage to drain an area of about 1,150 ha;

(d) operation and maintenance roads along all main and secondary drains; and

(e) on-farm development of about 6,427 ha, consisting of clearance of brushwood, cutting of trees, removal of stumps, clearing of land works and land levelling. - 72 -

ANNEX 8 Page 2

4. Orlaca Drainage (Net drainage area 1,326 ha)

(a) construction of a new interceptor surface drain, about 3.5 km in length located at the base of the highland;

(b) construction of new main, secondary and tertiary surface drains in a length of about 35 km to an area of about 1,326 ha;

(c) construction of a new electric pumping station with an installed capacity of 3xO.8m3 /sec (=2.4 mJ/sec)( to lift the drained water to a height of about 9m over the dyke and into the Sava River) and repairs and reconstruction of an existing pumping station having a discharge capacity of 0.4m3 /sec;

(d) on-farm development of about 1,326 ha consisting of clearance of brushwood, cutting of trees, removed of stumps, clearing of land marks and land levelling; and

(e) operation and maintenance roads along all main and secondary drains, about 12 km gravel roads and about 27 km dirt roads;

5. Zabari Drainage (Net drainage area 6,628 ha)

(a) construction of new main surface drains about 38 km long;

(b) construction of about 240 km of new secondary and tertiary surface drains to serve about 6,628 ha;

(c) underground tile drainage network to drain an area of about 4,200 ha;

(d) construction of a new electric pumping station with a capacity of 1.5 m3 /sec to lift the drained water by a height of about 7m into the Morava River;

(e) operation and maintenance roads along all main and secondary surface drains; and

(f) on-farm development of about 6,628 ha, consisting of clearance of brushwood, cutting of trees, removal of stumps, clearing of land marks and land levelling.

6. Malo Crnice Drainage (Net drainage area 1,748 ha)

(a) construction of an interceptor surface drain, about 1 km in length;

(b) construction of about 34 km of new main surface drains to serve an area of 1,748 ha;

(c) construction of a new electric pumping station, with a capacity of about 0.5 m3 to discharge into the Mlava River; - 73-

ANNEX 8 Page 3

(d) maintenance and operation drains along all interceptor and main drains in a length of about 35 km; and (e) on-farm development of about 1,748 ha, consisting of clearance of brushwood, cutting of trees, removal of stumps, clearing of land works and land levelling.

7. Smederevska Palanka Drainage (Net drainage area 3,600 ha)

(a) construction of new interceptor surface drains in a length of 29 km;

(b) construction of new main surface drains in a length of 26 km to serve an area of about 3,600 ha;

(c) underground tile drainagenetwork to drain an area of about 3,600 ha;

(d) operation and maintenance roads along interceptor and main drains; and

(e) on-farm development of about 3,600 ha, consisting of clearance of brushwood, cutting of trees, removal of stumps, clearing of land marks and land levelling.

8. Velika Plana Drainage (Net drainage area 3,400 ha)

(a) reconstruction of interceptor surface drains in a length of about 16 km;

(b) construction 26 km of main and secondary drains to serve an area of about 3,400 ha;

(c) reconstruction of existing pumping station to a carry a discharge of 3m/sec over a lift of Sm.

(d) operation and maintenance drains along all interceptors, main and secondary drains; and

(e) on-farm development of about 3,400 ha, consisting of clearance of brushwood, cutting of trees, removal of stumps, clearing of land works and land levelling.

9. All seven drainage projects would also provide operation and maintenance equipment, engineering services, monitoring and evaluation of the drainage systems and agricultural development and training of key personnel. - 74 -

ANNEX 8 Page 4

B. Agricultural Aspects of Drainage Component

10. Each one of the seven drainage areas are alluvial plains bounded by one river or more containing internal depressions of varying sizes and depths. The soils are of heavy texture, unstable structure and unfavorable physical characteristics with poor aeration in the root zone. The most commonly occurring soil types are fluvisols, eugleysols and semigleysols. Land classification indicates that, generally, the soils are potentially good for intensive crop production but they require drainage measures to regulate the water regime which, under present conditions, is the principal constraint. With the project, the amount of arable land increases by an average of 82% as a result of reclaiming marshes and converting degraded natural grassland and periodically flooded arable areas into cultivable land.

11. The individual sector owns an average of 88% of the terrain in the seven drainage subproject sites. The current and future cropping pattern with the project is as follows.

Cropping Pattern Present Future

Cereals 57.2 52.7 Industrial crops 5.4 25.8 Vegetables 3.1 8.4 Natural meadow-pasture 23.9 - Alfalfa 10.1 11.8 Annual forage-fodder 0.3 1.3

Total 100.0 100.0

The major changes in cropping pattern are (i) greatly increased area devoted to industrial crops, consisting mainly of sugarbeet and vegetables; and (ii) elimination of natural meadow and pasture land in favor of increased crop land.

12. Within each of the drainage subprojects there are areas which are less subject to flooding and waterlogging, permitting limited crop farming. Current crop yields were based on experience from these areas. Crop yields would increase with completion of the drainage works due to (i) improvement of soil/plant/water relations; (ii) greater and more efficient use of inputs, and (iii) an expanded and more efficient agricultural extension service. The estimated crop yields at full development are based on land capability classes after land reclamation and improvement; yields on farms in the vicinity of the drainage areas not affected by waterlogging, and the experience and advice of the agricultural stations in the two Regions. Incremental crop production at full development is presented in Table 1 of this Annex and is summarized as follows: ANNEX 8 - 7 - Page 5

'000 Tons Cereals 19.8 Industrial crops 122.4 Vegetables 40.2 Forage and grassland 39.2

Total 221.6 APPRAISAL OF

SERBIA REGIONAL DEVELOPMENTPROJECT

YUGOSLAVIA

Drainage Cconponent

Incremental Crop Production at Full Development

Kalovica Orlaca Lajkovac Zabari V. Plana Sned. Palanka M. Crnice Total ------000 Tons ------… ------

Cereals Wheat 292.0 799.0 728.0 7,624.8 3,390.5 4,361.5 1,112.0 18,307.8 Barley - 808.0 - (225.0) - - - 583.0 Maize 662.9 135.5 (1,312.5) (4,885.0) (284.0) 4,517.4 2,083.7 918.0

Total Cereals 954.9 1,742.5 (584.5) 2,514.8 3,106.5 8,878.9 3,195.7 19,808.8

Industrial Crops Sugarbeet 54,700.0 8,240.0 - 31,250.0 7,430.0 10,345.0 3,666.0 115,631.0 Sunflower 145.2 (52.5) - 1,734.0 375.0 675.0 178.7 3,055.4 Soybean 877.5 497.0 364.0 414.0 325.0 500.0 425.0 3,402.5 Rapeseed - - - 342.0 - - - 342.0

Total Indust. Crops 55,722.7 8,684.5 364.0 33,740.0 8,130.0 11,520.0 4,269.7 122,430.9

Vegetables (741.0) - 4,750.0 7,975.0 8,880.0 13,890.0 5,445.0 40,199.0

TOTAL FOOD CROPS 55,936.6 10,427.0 4,529.5 44,229.8 20,116.5 34,288.9 12,910.4 182,438.7

Forage - Grassland Natural meadow (252.0) (577.5) (644.0) (900.0) (1,589.0) (6,352.5) (1,239.0) (11,554.0) Natural pasture (180.0) ------(180.0) Sawn meadow - - - - 400.0 - - 400.0 Alfalfa 2,794.0 1,766.0 1,040.0 330.0 2,340.0 2,920.0 (556.0) 10,634.0 Maize silage - - - - 7,460.0 8,800.0 5,600.0 21,860.0

Forage rape - - - 18,000.0 - - - 18,000.0

Total Forage-Grass 2,362.0 1,188.5 396.0 17,430.0 8,611.0 5,367.5 3,805.0 39,160.0

TOTAL NON-FOOD 2,362.0 1,188.5 396.0 17,430.0 8,611.0 5,367.5 3,805.0 39,160.0

GRANDTOTAL 58,298.6 11,615.5 4,925.5 61,659.8 28,727.5 39,656.4 16,715.4 221,598.7 ANNEX 9 - 77 - Table 1

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Udruzena Beogradska Banka (UBB) Consolidated Income Statement

1978 1979 1980 1981 Dinars US $ INCOME ------Mill------

Interest on Loans and balances with foreign banks 9,901 12,322 17,232 22,783 545 Commissions and fees 386 661 838 20 Other income 2,503 3,589 1,809 3,262 78

TOTAL INCOME 12,404 16,297 19,702 26,883 643

EXPENSES

Interests on Dinars and foreign exchange borrowings 6,932 8,229 11,656 15,546 372 Operating Expenses 1,569 2,407 3,423 4,474 107 Commissions and Fees 174 228 370 9 Debts written off 1,180 75 125 413 10 Other expenses - 3,480 2,338 2,866 68

TOTAL EXPENSES 9,681 14,365 17,770 23,669 566

NET INCOME 1,155 1,932 1,932 3,214 77

US$1 = Din 41,8225 - 78 -

Annex 9 Table 2 Page 1 APPRAISAL OF

SERBIA REGIONAL DEVELOPMENTPROJECT

YUGOSLVIA

Udruzena Beogradska Bank (UBB)

Consolidated Balance Sheet

Dec. 31, 1981 ASSETS Dec. 31 Dec. 31 Dec. 31 us$ (Din Mill) 1978 1979 1980 Dinars Million

Cash & Other Liquid Assets 12,033 9,915 13,789 20,361 487 In Dinars 5,057 5,877 6,852 9,491 227 In Foreign Exchange 6,976 4,038 6,937 10,870 260

Obligatory reserve & deposit with National Bank of Yug. 12,541 11,148 20,590 27,599 660

Assoc. funds, time deposits and securities 8,519 13,702 27,373 39,943 955

Short-term deposits 5,349 9,852 21,797 30,893 739 In Dinars 5,349 9,256 13,700 14,446 346 In Foreign Exchange 0 596 8,097 16,447 393

Long-term deposits 3,170 3,850 5,576 9,050 216 In Dinars 3,168 3,848 5,574 9,042 216 In Foreign Exchange 2 2 2 8 0

Short-term loans 33,350 43,670 67,322 110,416 2,640 In Dinars 33,032 43,424 62,227 107,144 2,562 In Foreign Exchange 318 246 5,095 3,272 78

Long-term loans 139,512 170,148 211,449 249,036 5,955 In Dinars 120,203 145,973 174,174 201,088 4,808 In Foreign Exchange 19,309 24,175 37,275 47,948 1,147

Interbank relations 7,904 8,465 12,083 13,820 330

Fixed Assets 2,938 3,760 4,619 5,701 136

Other Assets 6,396 9,522 13,609 27,038 646

Transactions on behalf and for account of legal entities and citizens 16,900 16,101 19,823 26,701 639

TOTAL ASSETS 240,093 286,431 390,657 520,615 12,448

Other banking transactions 248,895 303,130 378,192 561,104 13,417 Letters of credit 7,820 3,982 7,520 5,994 144 Guarantees 160,999 191,238 223,713 302,030 7,222 Bills for collection 1,870 1,032 2,464 7,322 175 Other transactions 78,206 106,878 144,495 245,758 5,876

TOTAL 488,988 589,561 768,849 1,081,719 25,865

US$1 = Din 41.8225 - 79 - Annex 9 Table 2 Page 2 APPRAISAL OF

SERBIA REGIONAL DEVELOPMENTPROJECT

YUGOSLVIA

Udruzena Beogradska Bank (UBB)

Consolidated Balance Sheet

Dec. 31, 1981 LIABILITIES Dec. 31 Dec. 31 Dec. 31 us$ (Din Mill) 1978 1979 1980 Dinars Million

Funds 9,445 10,297 11,992 14,466 346 Joint & Several Liab. Fund 3,211 3,330 3,666 4,353 104 Reserve Fund 2,715 2,882 3,216 3,716 89 Fixed Assets Fund 3,278 3,937 5,022 6,313 151 Other Funds 241 148 88 84 2

Short-term assoc. funds & other deposits 79,149 93,242 132,548 182,344 4,360

By legal entities 62,086 71,215 103,987 141,255 3,377 In Dinars 48,644 57,691 75,199 94,482 2,259 In Foreign Exchange 13,442 13,524 28,788 46,773 1,118

Short-term personal deposits 17,063 22,027 28,561 41,089 983 In Dinars 11,198 13,839 15,044 18,927 453 In Foreign Exchange 5,865 8,188 13,517 22,162 530

Long-term assoc. funds & deposits 48,720 61,917 77,959 101,535 2,428

By legal entities 33,993 42,390 50,568 63,994 1,530 In Dinars 33,791 42,186 50,281 63,814 1,526 In Foreign Exchange 202 204 287 180 4

Long-term personal deposits 14,727 19,527 27,391 37,541 898 In Dinars 7,878 9,674 11,403 15,818 378 In Foreign Exchange 6,849 9,853 15,988 21,723 520

Securities 7,211 8,007 9,698 10,294 246

Short-term borrowings 14,061 15,564 31,866 50,070 1,197 Domestic 13,461 14,551 24,125 40,790 975 Foreign 600 1,013 7,741 9,280 222

Long-term borrowings 53,242 65,331 84,712 99,213 2,372 Domestic 33,950 41,940 47,307 46,945 1,122 Foreign 19,292 23,391 37,405 52,268 1,250

Interbank relations 475 393 4,287 7,348 176

Other liabilities 7,339 11,545 14,950 23,816 569

Trans. on behalf and for account of legal entities and citizens 20,451 20,135 22,645 31,529 754

TOTAL LIABILITIES 240,093 286,431 390,657 520,615 12,448

Other banking trans. 248,895 303,130 378,192 561,104 13,417 TOTAL 488,988 589,561 768,849 1,081,719 25,865

US11 = Din 41,8225 - 80 -

ANNEX 10 Table 1 APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Agrobanka - Statement of Income and Expenses: 1981 and 1980

Rearranged by Auditors but not Covered by Auditors' Opinion in Din '000

1981 1980

Interest Income 198,188 142,003 Interest Expenses 77,457 41,897

Net interest income 120,731 100,106 Otner Operating Income 15,770 11,056 136,501 111,162 Less: Provisions for doubtful loans and interest 21,490 _ Other Operating Expenses 99,180 84,672 Income before statutory obligations 15,831 26,490 Less: Statutory Obligations 7,787 6,034

Net Income 8,044 20,456

Appropriation of Net Income Proposed distribution to members 12,776 Unappropriated income--interest not collected (4,732) 20,456

Total appropriations 8,044 20,456 - &1 -

ANNEX 10 Table 2 APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA Agrobanka - Balance Sheets at Year-end 1981 and 1980

Rearranged by Auditors but not covered by Auditors' Opinion in Din '000

1981 1980

ASSETS - Cash and due from banks 727,813 219,470 - Deposits with National Bank 216,097 189,856 - Securities and discounted bills 80,554 108,789 - Short term loans up to one year and current maturity of long-term loans 2,233,045 1,211,246 - Accrued interests and other assets 93,628 58,231 3,351,137 1,787,592 - Long term loans over one year less current maturities 1,437,807 942,979 - Long term investments 105,351 81,861 - Deferred foreign exchange losses - 15,374 - Property and equipment 160,433 119,729 Total Assets 5,054,728 2,947,535

LIABILITIES - Demand deposits 1,690,278 1,125,522 - Savings and short-term deposits up to one year 130,847 84,346 - Short-term borrowings and current maturity of long-term borrowings 1,065,313 363,897 - Accrued interests and other liabilities 95,225 43,807 2,981,663 1,617,572 - Savings and long-term deposits over one year 564,571 282,900 - Long-term borrowings less current maturities 1,208,666 787,082 Total Liabilities 4,754,900 2,687,554

FUNDS EMPLOYED - Property and Equity Fund 176,151 133,682 - Reserve Fund 13,833 14,496 - Joint Liability Fund 74,038 71,264 Total Funds Employed 264,021 219,442

UNAPPROPRIATED INCOME NOT COLLECTED 35,807 40,539

TOTAL 5,054,728 2,947,535

Collective consumption assets/funds (per cont.) 21,471 20,928 APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

PROJECT FINANCING PLAN 1! In Yugoslav Dinars (million)

Total % Share Interest Front-End Total Project % Share Project In Project During Fee on Financial In Funds Cost Cost Construction Bank Loan Requirements Required Funds Required 30,815.2 1O0.0 7,963.2 64.8 38,843.2 100.0 Funding Sources a) World bank 8,572.6 27.8 476.0 3/ 64.8 9,113.4 23.5 b) Agrobanka 4,622.3 15.0 4,381.6 - 9,003.9 23.2 c) Equity 6,163.0 20.0 - - 6,163.0 15.8 - Investors 3,528.3 11.4 - - 3,528.3 9.0 - SFUR 2,634.7 8.6 - 22,634.7 6.8 d) SFUR 2,283.4 7.4 - - 2,283.4 5.9 e) Local Banks 2/ 9,i73.9 29.8 3,105.6 - 12,279.5 31.6

1/ Based on Yugoslav price inflation rates: 1983 - 25%; 1984 - 20%; 1985 - 15%; 1986 - 15% 2/ Should co-financing in an estimated amount of US$50 million (Din 3,175.5 million) be available, the local bank's slhare would be proportionately reduced 3/ US$1 = Din 63.51

03 - 83 - ANNEX 11 Page 1

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Description of Implementing Organizations

1. The on-farm production investment, support services, extension services, agroindustry and drainage components of this project would be implemented by about 70 different organizations within the project area of the Kolubara and Danube Regions. A brief description of the major groups of investors, Composite Organizations of Associated Labor - COAL's, Agrokombinats and Work Organizations, is given below.

2. COAL -AIK Vaijevo (Kolubara) unites 67 Basic Organizations of Associated Labor (BOAL's) widely dispersed in the communes of Valjevo, Osecina, Ub, Lajkovac, Mionica and Ljig, of which 32 BOAL's and Working Organizations would participate under this project. COAL-AIK Valjevo employed about 3,830 people at the end of 1979 and its gross revenues exceeded Din 2,419M.

3. COAL- AIK Sabac (Kolubara) covers the northern part of the Kolubara Region with the communes of Sabac, Bogatic, Vladimirci and Koceljeva. It unites 91 BOAL's with a total of 5,021 employees and a gross revenue of Din 2,790M. The drainage areas of Kalovica and Orlaca are located in this sub-region.

4. COAL-AIK Loznica (Kolubara) was founded only recently at the beginning of 1982 It unites 19 BOAL's within the communes of Loznica, Krupanj, Mali Zvornik and Ljubovija, all of which would participate under the project.

5. COAL-AIK Pozarevac (Danube) has its main office in Pozarevac and unites 29 basic work organizations widely dispersed throughout the communes of Pozarevac, Veliko Gradiste, Golubac, Petrovac na Mlavi, Malo Crnice, Zagubica and Zabari. COAL-AIK Pozarevac is engaged in agricultural production in the individual sector. It unites several important agroindustry facilities to process grains, milk, meat, fruit, grapes and vegetables. It processes edible oil and owns a network of retail shops. In 1980 the organization employed 5,622 persons and during the last two years had gross revenues above Din 5,090M. PIK Pozarevac would be the investor for the Zabari and Malo Crnice drainage projects.

6. AIK-Srbija-10 Octobar (Danube) is the second largest organization of associated labor in the region. Its head office is located in Velika Plana. It unites 6 BOAL's and 10 basic cooperative organizations (BCO's). In 1980 it employed a total of 1,895 persons and had gross revenues amounting to Din 2.605M. AIK-Srbija-10 October is active in agricultural production of livestock, fruit and grapes and unites a number of processing industries including the meat processing plant in Velika Plana. - 84 - ANNEX 11 Page 2

7. Other organizations in the Danube Region participating under the project include the two Agrokombinats Godomin and Scumadija together with 15 BOAL's, the agricultural Trade Organization ATK Mlava with 3 BOAL's, the Work Organization WO Agrarpromet in Kucevo with 2 BOAL's and 4 Farmers Cooperatives Selevac, Azanja, Milosevac and Lozovik.

Drainage Investors

8. Farmer's Cooperative Lajkovac. This cooperative was founded in 1930. It is a member of the COAL Vaijevo/Kolubara Region and is composed of 3 basic organizations of associated labour (BOAL). The internal organization of the cooperative consists of four collection units and another unit for common services. A dairy complex now under construction would be controlled by a new BOAL, and would also join the Cooperative. Relations between the cooperative and the individual farmers are well developed. The Cooperative presently - employs 184 workers, of which 14 hold university diplomas, and is well suited to serve as the investor for the Lajkovac Drainage Project.

9. Self-management Community of Interest for Land Improvement (SIZ) Sabac. The investor for the Kalovica and the Orlaca Drainage Project would be SIZ Sabac (Kolubara Region). This organization was established in 1976 for land improvements on the Macva and Posavina plains; however, its origins date back to 1924 when the inhabitants of village Glusac and surrounding villages, troubled by continuous flooding, established the first Water Cooperative in Macva. The activities of the SIZ are managed by a two chamber assembly. The first chamber consists of the representatives of the users of the services and have 54 delegates elected by local communities and BOAL's. The second chamber consists of 16 delegates elected by the Water Management Organization and represents the supplier of services. The area covered by the operations of SIZ Sabac encompasses about 170,000 ha in the north-western part of Serbia. The investor would implement the project by entrusting the work through separate SiMA's to two suitable existing BOAL's in the project area within the complex Working Organization AIK Sabac.

10. Farmers' Cooperative Buducnost. Six Basic Organizations of Associated Labour are a part of this Cooperative, which also maintains a separate unit for common services. The farmers' cooperative would be the sub-borrower and the investor for the Malo Crnice Drainage Project. The physical implementation would be entrusted to the largest of the six BOAL's, namely BOAL for Production and Trade, Malo Crnice. The present activities of the cooperative center around cereal production, animal husbandary, fruit growing, wine making, supplying individual farmers with production materials and buying and selling agricultural products as a result of mutual cooperation with the individual farmers.

11. Self-management Community of Interest for Drainage and Irrigation (SIZ), Smederevska Palanka. This SIZ covers the territory of Velika Plana and Smederevska Palanka in the Danube Region and would be the sub-borrower and the investor for these two drainage projects. Project implementation would be entrusted to suitable existing BOAL's in the project area. - 85 - ANNEX 12 Page 1

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Main Provisions of Consortium Agreement (CA), Self-Management Agreement (SMA), SFUR Agreement and Participation Agreement 1/

A. Consortium Agreement (CA)

1. The purpose of the proposed CA is to ensure sufficient domestic resources and their timely availability for financing of the Serbia Regional Development Project. The CA establishes the procedures to be used for pooling local funds. The signatories of the CA would be Agrobanka, Beogradska bank, Investbank, Yugobank and other basic banks in the two project areas. Other banks may join. The main provisions of the CA are:

(i) Signatories undertake to combine their resources with those from SFUR and the World Bank for implementation of the Serbia Regional Development Project.

(ii) Signatories agree to nominate Agrobanka as the lead bank to handle all project related matters including appraisal, approval, disbursement, procurement, supervision and recovery of subloans.

(iii) Signatores agree to transfer resources to Agrobanka within three days of such a request and provide Agrobanka with short-term loans up to 60 days if required to cover payments.

B. Self-Management Agreement (SMA)

2. There would be two SMA's, one for each region. The purpose of the proposed SMA is to generally define the mutual rights, obligations and responsibilities of a large number of organizations involved in implementation of the Serbia Regional Development Project. The signatories of the SMA in each region would therefore include (a) the investors under the project (Organizations of Associated Labor), (b) SFUR as financing partner, (c) UBB, (d) Agrobanka and the Intercommunal Regional Community as project implementation agency and local Government body, (e) the Chamber of Commerce

1/ Copies of all three agreements are available in Working Paper No. 8 in the Project File. - 86 - ANNEX 12 Page 2 of Serbia, (f) the Regional Association of Cooperatives, (g) scientific organizations such as the Institutes for Agricultural and IncdustrialEconomics and (h) major trade organizations such as General Export, PKB and Centropromet from Belgrade. The main provisions of the SItAare:

(i) The investors are obliged to carry out their respective investments under tne project on a timely basis in accordance with the provision of the preparation reports and the loan agreement with the World Bank.

(ii) Intercommunal Regional Communities (IRC's) are obliged to coordinate preparation and implementation of the project and take remedial action as needed, and all necessary measures to approve the sites and conditions necessary for project implementation.

(iii) Signatories agree that Agrobanka would be the implementing bank and would sign a subsidiary loan agreement with UBB.

(iv) Signatories agree to form a Coordination Committee in each region composed of delegates from the Composite Organizations of Associated Labor, IRC, SFUR, the Chamber of Commerce, the Association of Cooperatives and local banks.

(v) Signatories agree to establish project implementation units in each region, namely in Valjevo and Pozarevac, with full time employees assigned from the IRC, the Regional Chamber of Commerce and regional farmer cooperative associations. Each of these two units would be headed by an acting project manager.

(vi) The "Green Plan" funds would be combined with other sources of funds for financing investments in the individual sector.

C. Project Implementation Agreement (SFUR Agreement)

3. The statutes of the SFUR forbid the Fund from entering into any speciffic financing or bank consortium agreement as proposea under this project. Therefore, a separate agreement between the SFUR and Agrobanka is proposed to establish the mutual rights ana relationship between the SFUR and Agrobanka. The main provisions of the SFUR Agreement are:

(i) Signatories agree on procedures for subloan appraisal, approval and implementation.

(ii) The SFUR agrees to provide 18.1% of total investment cost, provided that its share in project investments in under-developed communes amounts to 28%. - 87 - ANNEX 12 Page 3

(iii) The SFUR would assist Agrobanka in bridging liquidity gaps towards the investor by extending 60 day short-term credit to Agrobanka proportionally to its share in financing, if required; and

(iv) To assist in mobilization of financial funds from domestic sources and to participate in project preparation and coordination.

D. Participation Agreement

4. There would be two Participation Agreements, one for each Region, the purpose of which would be to guarantee the financial participation of the investors under the Serbia Regional Development Project. The signatories of the Participation Agreements would include Agrobanka and the various organizations of associated labor in the KoluDara and Danube Regions. -88-

ANNEX 13 Page 1

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Guidelines for Appraisal of Subprojects by Agrobanka

1. All social sector investments proposed under this project, including the support service, agroindustry and drainage components, have been technically and economically appraised by the Bank. At the time of subloan application, Agrobanka would therefore only be required to appraise the financial capability of the investors and ensure the availability of investors' equity and other domestic resources. Individual sector investments have been appraised on the basis of typical farm models developed during appraisal. Agrobanka would not be required to prepare farm models for each subloan request, but would still have to appraise the subloans. Agrobanka would appraise subprojects submitted to it for financing under the project in accordance with general guidelines presented below.

Social Sector Subprojects

2. Agrobanka will prepare a detailed subproject appraisal report for each investment project, taking into account the following: (a) subprojects provide satisfactory financial and economic rates of return on the basis of detailed and realistic cost and benefit estimates and would generate sufficient cash flow to cover debt service, legal claims, compulsory alloctions to enterprise funds, and reinvestment needs. Subprojects would have a minimum financial and economic rate of return of 12% in constant Dinars; (b) subprojects are technically feasible; (c) subborrowers are credit worthy, and their organization, management, and financial structures are satisfactory for subproject implementation; (d) appropriate attention is given to the economic impact of subprojects, including employment, income, and import/export effects, and (e) the necessary amount of long-term credit to finance permanent working capital requirements would be available for the project.

3. An outline of the subjects to be covered in each subproject appraisal report is given below.

(i) Summary and Conclusions (essential elements of subprojects, purpose, size, benefits, total value, main components and stages, period of investment, financial and economic results, conclusions). (ii) Introduction (iii) Investor (background information and analysis) (iv) Conditions for Subproject Implementation (social, economic, environmental) (v) Subproject (description, purpose, capacities, technical aspects, procurement, implementation schedule) (vi) Raw Material Supply _ 89 _

ANNEX 13 Page 2

(vii) Marketing (viii) Financing (ix) Organization (x) Economic and Financial Effects of Investment in the Subproject individual Sector Subprojects

4. For the individual sector, a simplified appraisal methodology would be used. The present practice, under Bank-financed agricultural projects in Yugoslavia, is to examine the production and financial viability aspects of individual sector subprojects by preparing detailed farm budgets, cash flows and investment projections for each subproject. The simplification proposed under this project is to examine the production and financial viability aspects of the individual sector subprojects for primary agricultural production, by relating them to typical farm models developed during appraisal of the Serbia Regional Development Project. Thus, it would not be necessary to prepare farm models for each subloan request. The resultant savings in time are expected to be substantial. Agrobank will update the general farm models at least annually, in collaboration with the Agricultural Institutes, to taKe account of price changes and experience gained from monitoring and evaluation during project implementation, and will make sure that investments financed nave an economic rate of return of at least 9%.

3. Agrobanka will prepare a brief (1 page) appraisal report for each Individual Sector subproject for primary agricultural production, which would comment on the following:

(a) Creditworthiness of the loan applicant in accordance with the Yugoslav regulations.

(b) Adequacy of technical assistance provisions for helping the individual farmers in implementing the investment.

(c) Adequacy of marketing arrangements.

(d) Reasonableness of investment cost estimates, and

(e) Expected range of financial rate of return, by comparing it to the typical farm model valid for the current year, and

(f) Availability of seasonal credit. - 90 -

ANNEX 14 Page 1

APPRAISAL OF

SERBIA REGIONAL DEVELOPMENT PROJECT

YUGOSLAVIA

Selected Documents and Data Available in the Project Files

A. Selected Reports and Studies on Socialist Republic of Serbia

A-I Agreement on the Basis of the Social Plan of the Socialist Republic of Serbia for the period 1981 - 1985 concerning Development of the Agroindustrial Complex (52 pages).

A-2 Yugoslavia; Adjustment Policies and Development Prospectives (3 Volumes) Country Programs Department I, May 27, 1982, Green Cover.

13. Selected Reports and Studies Related to the Project

K-I Toe Podrinje-Kolubara Region Agricultural and Agroindustrial Project - Preparation Report February 1981. Institute for industrial Economics, Belgrade. Four volumes;

Vol I. Project Area and Market Products Study for Program Identification.

Vol. II Agriculture

Vol. II Agroindustry

Vol. IV Drainage and Irrigation System

B-2 Danube Region Agricultural and Agroindustrial Project - Preparation Report, March 1981. Economic Institute and Agricultural Economic Institute, Belgrade. Three volumes;

Vol. I Basic Project Characteristics.

Vol. II Project Area and Market Analyses

Vol. iLL The Project

B-3 Regional Development Project, Podrinje-Kolubara and Danube Regions. Part I Main Report Agrobank, March 1982

3-4 Regional Development Project, Podrinje-Kolubara and Danube Regions. Institute for Economics and Institute for Agricultural Economics, Belgrade, May 1982 Part Li - Market Analysis Part Ill - Primary ProdutLion - Individual Sector Part IV - Support and Extension Services Part V - Agroindustrv ANNEX 14 - 91 - Page 2

C. Project Implementation File

C-1 Working Paper No. 1: Project Costs.

C-2 Working Paper No. 2: Financial and Economic Analyses

C-3 Working Paper No. 3: Market Analysis

C-4 Working Paper No. 4: On-farm Production Investment

C-5 Working Paper No. 5: Support Service Component

C-6 Working Paper No. 6: Extension Service Component

C-7 Working Paper No. 7: Agroindustry Component (2 Volumes)

C-8 Working Paper No. 8: Self-Management Agreement (SMA), Financing Agreement (CA) and Project Implementation Agreement (PIA).

C-9 Working Paper No. 9: Agrobanka: The Implementing Agency

C-10 Working Paper No. 10: Drainage Component I YUGOSLAVIA APPRAISAL OF SERBIA REGIONAL DEVELOPMENT PROJECT ProjectOrganization and Coordination

Coordinating Board for Podrinje-KolubaraRegion

Coordinating Boardfo; BeogradskaBanka DanubeRegion Beograd A

ExecutiveCouncil tnvestbanka of SR Serbia Beograd

Repubic Secretariat Jugobanka for Finance UDRUZENA Beograd BEOGRADSKA BANKA BORROWER _.: ! Republic Secretariat BR E BBBa1c Banb ! for Agriculture __Sabac for__Agric__ AGROBANKA i Fund for Underdeveloped IMPLEMENTING BANK BB-BauicBane Regions- Beograd

|Cooperative Association Cooperatiw ~~~~~~~~~~~~~~CoordinatingCoodInter-regionalBoard RB-Basic of SR Serbia

I-ntitute for BB-BasicBank Industrial Economics _Pearecuc

Agricultural AGROBANKA Ljubaa ank EconomicsInstitute PROJECT UNIT Economic Institute

Intercomunal Regional Intercomanal Regional Community IRCI Community tIRCI Kolubara Region DanubeRegion

Regional Coordinating Regional Coordinating BelbardfRai- Boardfor DanubeRegion VALJEVO POZAREVAC

Regional Unit for Regional Unit for Project Implementation Project I0ple-entation

r: ::1 I IlI I I T ~ 1 COAL-AIK COAL-AIK COAL-AIK OTHER COAL-AIK AIK SRBIJA OTHER Valjevo Sabac LoTnica INVESTORS Pozarevac ATK MLAVA 10 OCTOBER INVESTORS

Fruit Juice Coldstore Potato Processing BOAL DUVAN Oil Factory Coldstore Mechani-ation BCO IZOR TobaccoDrying Coldstore Poultry PruneCake Feed Plant Wine Nursery 306 L-seutock SheepFarm Plum Processing Slaughterhouse Farms |Plum Processing | | Coin. Slaughterhouse SeedProcessing 546 Livestock P A o i SeedCenter Farms AK SUMADIJA Vegetable Fruit & Nursery Poultry Farm 37 L-estock Processing Chicken Hatchery CenterMed. Herbs 625 ha 346 Lioestock Farms l l l l | ~~~~~~~~~~~~~~~~~~~Mechanization| Orchards | Farms gj Gram Elevator Mec-ahnatio- Tobacco Dry,ng t- B Euh-OrcOrdhads and Dryer 1305 Li-istockl Various 0.5 ha Vineyard 581 Livestock 365 Livestock Farms WO Agroyprono Feed Plant Farms Farms 280 ha 33 ha Orchatds ZABARI Orchards 197 Livesmock Plum Drying 170 ha 878 ha FC Selevac Farms Tobacco Tobacco 6628 ha SeruiceRepair Drainage 66 Lioestock FC Lozorik Shops 506 ha 373 ha Farms Orchards Orchards BCO M. CRNICE 39 Lvesot.c i Fuel Storage S S 1 h 2.5 ha Orchard Farms | | ~~~~SIZSABAC l 1749 ha T Milk Collecting Drainage 0.5 ha Vineyard FC MLosevII - Centers 7753 ha 603 L,,|stk DieDrainag AK Godomin 19 Livesto-k | 603 Livestock | Farmsi Farms 74 Livestock

1 567 ha l l | | l l 567 ha ~~~~~~~~~~~~~~~~~~~~~~~~~Farms S_SPIZ FA L2K Orchards 15 ha Orchards 7000nh. BCO Laikovac 236 ha Vineyards Droivage

921 ha Drainaeg

WorI Barn- 2477 YUGOSLAVIA APPRAISAL OF SERBIA REGIONAL DEVELOPMENT PROJECT Implementation Schedule

1982 1993 1984 1985 1986 1987 1989

Descrnpt,on~ 4 1 2 4 3| | | 3 4 1 2 3 4 1 3 2 41

PROJECT MANAGEMENT

ApPoint--en of Projec- Unit

Appointm-nt of RegionalCoordCnatio- Unit

ON FARM INVESTMENTS

ORCHARDSIVINEYARDS AND TOSACCO IHECTARES)

PY1 Fruit Ochards i593 hal Vin-yard (95 to 1212 n. T ooan-o 15241 .... *..s.... s. 12 2h 834 PY2 Fruit (533 hal Vineyatd 1771ha. Tfobaco (2101 ...... * .. _

PY3 Fr,it 1409 hal Vineyards (71 hal Toba.co (2101 ...... 690 hn

PY4 Frtit 1299 hal Tobaccn (104hal 1 . ... n...... 9. ha

LIVESTOCK (NUMBER OF FARMSi

PYI Dairy (2561Fa-tening (147) Sheepi401 Piglet (170) 991 PigFatt-ning (11111roi3nt (39) Egg124) Be (34) ...... * ...I I _ i

PY2 Dary (358) F.t1ein 1220i Sheep (51) PiglAt 2521 1294 9 Pig Fatttning (2591 Eroilr 156) Egg 1341 Ba 1471 lmI,s,H ll.e... I ...lol l... i

PY3 Dairy 1365Fattening 1221)Sheep (591 Piget 1254i Pig Fattening (2711 BroilC, 156) Egg (36) B6f (47) i"1s..,,;. S lIEU II 11112111

PY4 Daity (360) Fattaning 1747) Sheep (391 Piglet (170) Plg Fatteng (1911 9toihr 1361 Egg (241 Be (311241 tn ... a... ..a ..... 9

SUPPORTSERVICES

Plrn Dyinig .... I... d...0_

Serice Repei, Sho.t ... I....** 0 _

Fu.l Stot-g ...... W

Mi k Cl-leting Centet ......

Seed Canter Sabac & Poareev. 1...... 1

Chicke natonernHag ...... I

Medina; Herb CatnP Krupanj *... * *...... _

Toac-o D1ying ...... II.... _._

Sheep Farm In IlIlsIll|X1

PoShtty Farm .... I...... t...

No,setes Frein 150Ohal Vin 125 hal I ......

MFanfl -ation ...... a...

AGRO-INDUSTRY

Ft.itJunie Vj-avo ...... s. _

ColdstoteVa;evo .. *s***...a. ....

Prnen Psoa-saimt Velj - IIS **......

Veetaebl Pro-e-ing Ltjkovac ...... s

GSainSeonge & DtyerVe1i-a_

Fed Plant U9 .. I Ca,dttoteSaban | ||| 4| ||

Pou tnySla,ghtethos Vladimiri ..... I...... I.I...... *-

PotatoPton-sing Kruparj ... I...... _ Prtn-Cake Li4uboviaKa | l lialellellal CommunaSluanthfha- Liuboniia ......

Oil Fentoty Veliko Gradiste .. sa ... "|I .....*| Live-tookFed PlantPttrovan ... A.....E

-alostoteMlavi 1 .... .

DRAINAGE Lajko-ec1921 ht) el I I I I Kaluiem 16.427hal ..... email ..... llegl .... _

Orlac ;1.326 hal ...... _

Zabati 16628 hal mil ...... l i l.

MaInCnenie (1.748 .a. I...... I......

Sm Pelarka. 3.6 h.hal) Olli "|||" ..ANIM111 .... l.

Vlika Plane(3.400 h.al ......

EXTENSION SERVICE

Apernmemn (501Vehicnes 160 ......

Py= p tiect Y.ar

lii*8 = Appraval of Sugl-an, Prepatatianof Do -umene, Fina DesignAdetsing and E-sUetion-A-ard and Signingof Contman

= Constructionand Implementation Periwd and et Bnk-24324 Staff Appoinnmeae. YUGOSLAVIA APPRAISALOF SERBIA REGIONAL DEVELOPMENT PROJECT InstitutionalArrangements

| WORLD BANK

|ILoa,, Agrement

Project Agreement , .|.UDRUZENA BEOGRADSKA S*RSR ABANKAT-NBORROWERAR-'''''''''-''''

S'b- Lon A ngrobtnks Agrernt

lBEOGRADASKA BANKA SFUR SFUR A9reernt A OBANKA-IMALEMECAINGs_S YUGOBANKA AGENCY Consortium INVESTBANKA Agreement (CA) BASIC BANKS

SKb-Loan Agreeg rntseem.nt

KOLUBAEA REGION

KOLUBARAlPROJEC INVESTOR KLAJKBVAC -BCO LAJKOZVAC INTERCOMUNAL _ SMA .KALOVICA -SIZ SABAC ANUEREGION ...... MCREGIONALORLACA-SIZ SABAC KOLUBARA COMMUNITYL DriaeAemnt; REGION L _ _ _ ,amg_ _ e_t__ __ INVESTORS A

DANUBE" ~~~~~~~~~~~~~~DANUBEREGIONl I I ~~~~~~~~~~~~~~~~~~~PROJECTINVESTOR INTERCOMUNAL _ ._ ZABAR I -PIK PtiZAREVAC DANUBE REGION REGIONAL ... ~~~~SMA MALO CRNICE -- PIK POZAREVAC INVESTORS COMMUNITY S. PALANKA -SIZ S. PALANKA f ~~~~~~~~~~~V.PLANA- -SlZS5. PALANKA SELF MANAGEMENT AGREEMENT (SMA) SMA Would EnsureCommitment so Project Impiementation and Specify Rights and Obligations - Signedby AanoeAe ...... Loa ak,adAlPriiaig ...... Local Bun,ks,an,d All Participatin,g...... OrganizationsIn Project, Chamberof Commerce, Interregional Communities, Trade Organizations,and Institutes for Economicsand Agriculture. World Bank-24325

IBRD 16607 YUGOSLAVIA AIL'STRA ._-2'0- SEPTEMBER1982 HUNGARY YUGOSLAVIA 4 ' S ROMANIA

SERBIA REGIONALDEVELOPMENT PROJECT 0 A F V0JI4DINA 4

DANUBE REGION R M Nd H_GgN e

* \ g=, i V

Q Fggs Prod.ocf,on P ;bz/a ®1 Beekeeping Fru,it Orchards E~tiension Sete,ees Drainage Areas a V-ieyards PODRUCJE Te N t-er:r- LL 0iFtoyEOGRADA Meclanizat o-, u: Paul try 'orm Vine Rootstock Nersety t-

Prase~ mary Roods Secondary Roads n iv Tertiary Roadcs ld,,

toso-dRa ers o alcmye --- Com,,une Boundaries REGIO - - Region Boundaries - Repuolic and Aetonomous Prt nne Boundaries International Bou,ndaries

I-ienrpw rthe----t- Rot m ys ELEVAT IONS sld yl rvska ~ . - - w/roht In r / 500-1000 meters

0 -200FeN

010 20 30 Kilometers SUMADIJSKO- POMORAVSKI REGION.

IBRD 16608R DECEMBER1982 YUGOSLAVIA SERBIA REGIONAL DEVELOPMENTPROJECT KOLUBARA REGION

/1K )/eg3, ELEVATIONS Primary Ronds A Juice Production BO S NIAI - >*' i e 1000-2000 meters - Secondary Roads * Finishing andPacking ol Prunes *Itg \ _> -Rp(j [;31lr n's. 1 500-1000 _ Tertiary Roads Do Grain Elevaor vi,th Dryer A//FR Z , G O V / N A A t Bogati t, n 200- 500 Radways Coldstore E#w gtyEA (¢ (1 | O-0 200 57~ R,vers JO Service Workshop ii AS t X i ° - - - - Subregional Boundaries 0 Fuel Oil Storage Region Boundaries (9 Milk Collection Center V 0] V JOD/NA Republic and Autonomous 0 Plum Dryer SAB \ 3 i_>s99t='R-Pro-nce l! O f3 ll33+/ Boundaries S Mechanized Sugar Beet Production International Boundaries [h Potatoe Processing o Animal Feed Mill :5.: #~~~~~~~~~Center for Seed Processing (1 Broiler Hatchery A- 13~~~~~~~~~~~~~~~~~~~~~~~~~~~~PoultrySlaughterhouse TaY0 Be/grade> Jadetrs+W:l 2 \ t / A g r >} < [iii Fruit Nursery + Center for Medicinal Herbs 41 ITORIJA W "~~~~~~~~~~~~~~~~~~~~~~~~Redrying"Tobacco Dryer BEOGRADA ® prune Cake 7k ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~NCommunal Slaughterhouse A Dairy / Beef Farming rnSheep Breeding znic > : Catt>; ev Fattening< , ;; QV Q .,,< ,, A [3 \ Piglet Production f-P Pig Fattening FB Broiler Pattening N ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~EggsProduction ®Beekeeping ;W ml ^ IN EFruit 0 Groaing f~~~~~~1A~ ?~~ ~ ~ ~~~~ /> '> ' -Sfpt A E.tension Services vi~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Ltoa Drainage Areas 14! ~ ~~~~~~~VegetableProcessing

i:vP, ~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1020 30

Kilometers

AUST.RIA 15- -4. 20 '

1 pro~ ~ ~~~~< ?VOJVODlNvAAI RDMANIA

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