Document of The World Bank FLE COPY FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 1749b-AR STAFF APPRAISAL REPORT ARGENTINA Public Disclosure Authorized GRAIN STORAGE PROJECT January 26, 1978 Public Disclosure Authorized Public Disclosure Authorized Regional Projects Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (at the time of appraisal and used in this report) US$1 = $a 360 US$1 Million = $a 360 Million $a 1 Million = US$2,778 WEIGHTS AND MEASURES Metric System GLOSSARY OF ABBREVIATIONS DIGID - Direccion General de Investigacion y Desarrollo DNCEG - Direccion Nacional de Construccion de Elevadores de Granos ERR - Economic Rate of Return FA - Ferrocarriles Argentinos JNG - The Grain Board SEIM - Secretariat of Maritime Affairs GOVERNMENT OF ARGENTINA FISCAL YEAR January 1 to December 31 FOR OFFICIAL USE ONLY ARGENTINA GRAIN STORAGE PROJECT TABLE OF CONTENTS Page No. I. THE AGRICULTURAL SECTOR A. Agriculture in the Economy ........................ 1 B. Agricultural Policy ....................... ... 2 II. THE GRAIN SUBSECTOR A. Supply and Utilization ............................ 3 B. Marketing ........ o......oo......... .. ...... 5 III. THE PROJECT COMPONENTS, COSTS AND FINANCING A. Brief Description ................................. 11 B. Detailed Features - ............ ....... .......... 12 C. Cost Estiates .................................... 15 D. Financing ......................................... 17 E. Procurement ............................. o.......... 18 F. Disbursement ...... ..... ......... ... ... 0 .......... 19 IV. DEMAND AND MARKET ASPECTS A. Effective Export Demand ........................... 20 B. Demand for Project Storage Facilities ............. 21 V. TECHNOLOGY AND PRODUCTION SPECIFICATIONS A. Grain Storage and Controls ........................ 22 B. Grain Transportation ............................. 23 VI. PROJECT IMPLEKENTATION A. Government ........................................ 24 B. Grain Board Organization and Operation ............ 24 C. Project Management . .............................. 26 D. Construction Schedule ............ 0 ... ....... ..... 28 E. Accounts, Auditing and Reporting .................. 28 This report was appraised in April/May 1977 by a mission consisting of Messrs. W.R. Ringlien, C.W. Wolffelt, P.N. Taborga (Bank), and J. Bigosinski, P. Christensen, C. Fowler, A. Lewis, and D. Treleaven (Consultants). This document has a restricied distribution and may be used by recipients only in the performance of their oficWl duties. Its contents may not otherwise be disclosed without World Bank authorization. TABLE OF CONTENTS (Continued) Page No. VII. FINANCIAL ANALYSIS ..................................... 29 VIII. ECONOMIC ANALYSIS A. Benefits ......................................... 31 B. Costs ............................................. 32 C. Project Risks ..................................... 33 D. Impact of Silos on Environment .................... 34 IX. SUMMARY OF AGREEMENTS REACHED ON LOAN CONDITIONS ....... 34 ANNEXES 1. Terms of Reference for Engineering and General Consultants 36 2. Terms of Reference for an Inspection and Supervision System at Level of Primary Elevators 42 3. Terms of Reference for Improved Grain Inventory Control System 50 4. Terms of Reference for Training of Silo Managers and Supporting Staff for Project Silos 60 5. Bahia Blanca Pilot Dredging 63 6. Construction and Implementation Schedule 66 7. Network Flow Model Determining Storage Requirements 67 8. Grain Board 83 9. Terms and Conditions for Leasing Project Silos 86 10. Financial Rate of Return 89 11. Economic Rate of Return Calculations 95 12. Selected Documents and Data Available in the Project File 110 MAP Location of Project Silos and Major Grain Ports, IBRD No. 13012R ARGENTINA GRAIN STORAGE PROJECT I. THE AGRICULTURAL SECTOR A. Agriculture in the Economy General 1.01 The agricultural sector during 1965-76 has accounted consistently for about 14% of GDP. Excluding the comparatively small contribution of forestry and fisheries, the total sectoral output is fairly equally divided between crops and livestock. There are, however, significant regional differences as the pampas region accounts for about 62% of all livestock output but only 38% of all crops. Agricultural exports made up 79% of total exports in the 1970-76 period, declining in relative importance from 83% in 1970 to 74% in 1976. Between 1970 and 1976, grains grew from 29% to 31% of total exports, meats declined from 21% to 14% and oilseeds products remained constant at 10% of total exports. Employment 1.02 Argentina has a population of about 25 million. The agricultural sector directly employed about 20% of the labor force in 1950-54, and 17% in 1970-74. Absolute numbers have remained stable, implying migration from the farms to the cities. Land Tenure and Farm Size 1.03 According to the 1969 census, 73% of all grain and livestock farms in Argentina were owner operated and accounted for almost 90% of all land in farms. To a large degree, they are family farms, meeting their own labor requirements. In the pampas region, which produces most of the grain, 56.3% of the farms were less than 100 ha in size, averaging about 38 ha; 33.2% were between 100 and 500 ha, averaging 225 ha; 5.5% were between 500 and 1,000 ha, averaging 700 ha; and the remaining 5% were large farms of over 1,000 ha. Production 1.04 Agricultural production in Argentina grew at a rate of 1.8% per annum during 1953-77. The comparable figure for crops was 2.6% and for livestock 1.4%. Growth during the second half of the period was almost double that of the first half mainly as a result of an improvement in the terms of trade for agriculture, and a more widespread use of commercial inputs, especially improved seeds and intensified mechanization. Growth of crop output accounted for the bulk of the improved performance while livestock production expanded at a somewhat slower pace in the 1963-77 period than in the earlier period and in comparison with the rate of growth for crops. - 2 - B. ARricultural Policy 1.05 The growth strategy of the Government aims at strengthening the country's external payments position through an accelerated development of sectors in which Argentina enjoys a comparative advantage. In line with this, the economic environment of agriculture is being improved through adjustments in taxation, credit, tariff, marketing, and exchange rate policies. The objectives are to bring farm product and input prices in line with interna- tional levels, and to establish a tax and credit system which will stimulate improved resource use and output expansion. Over the intermediate term, it is expected that land use will be intensified in the humid pampas (which now accounts for most of agricultural exports) and that livestock and crop produc- tion in the other areas will be expanded through land and water development. The potential is impressive, not only in crops and livestock, but also in forestry and fisheries. 1.06 The Government's agricultural policy, announced in April 1976, is being vigorously implemented. Differential exchange rates for many agricul- tural exports have been reduced or eliminated. The export retention tax for wheat was reduced from 40% to 10% in August 1976 and was eliminated in November. In December 1976, the tax rates on coarse grains were cut from 40% to 10% and will be eliminated in May 1978. By the end of the year, most domestic price controls had been removed, the state monopoly on grain trading had been lifted, the system of cattle slaughter quotas had been abolished, and the National Meat Board was no longer engaged in direct selling abroad. 1.07 From April 1976 to September 1977 in constant prices of April 1976, prices of agricultural products increased by 21%, crop prices by 22% and live- stock prices by 20%. In the case of soybeans, prices have risen as a result of liberalization of the restrictions on the export of unprocessed soybeans. In 1976, the Government permitted export of 150,000 m tons of soybeans and for 1977 it has established an export quota of 600,000 m tons. All restrictions on direct exports of soybeans will be eliminated as of March 1, 1978. 1.08 To help offset the revenue effects of the reduction in export taxes, a temporary (until December 31, 1979) sales tax of 4% on agricultural products at point of first sale was introduced on September 1, 1976. Fifty percent of the sales tax payment is deductible from income subject to income tax. The provinces are in the process of revaluing land to 70% of market value, and establishing an annual tax rate equal to 1% of that valuation. The effect of the land tax should provide landowners with greater incentives to use land more intensively and increase revenues to provincial Governments. 1.09 Substantial progress has been made in shifting from negative interest rates and administrative rationing of funds to positive rates for agricultural credit. For the crop year beginning in July 1976, the Banco de la Nacion Argentina, the main source of agricultural credit, made production loans available at an annual rate of about 94% (including 17% emergency tax). Although still negative, this rate was in real terms about double that of the previous two years. The BNA credit for silos (supported by - 3 - the Inter-American Development