World Bank Documentdocuments.worldbank.org/curated/en/321741468254053578/pdf/multi0page.pdffemale stock for breeding, and steers for fattening, the IDA agreed vith Government on a

RETURN TO RESTRICTEDREPORTS DESK -21a

W¡THtN ~~~~~~~~~~~~~~~Report No. PA-aWI¡THINNL Ln

OrNE WEEEK

This report was prepared for use within the Bank and its affilioted organizations.They do not accept responsibllity for ¡ts accurocy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

LIVESTOCK DEVELOPMENT PROJECT

HONDURAS

December 16, 1969

Agriculture Projects Department

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CURRENCY EQUIVALENTS

US$ 1 = Lempiras 2Lempira 1 = Us$ o.50Lempiras 1,000 = US$ 500Lempiras 1,000,000 = Us$ 500,000

WEIDHTS AND MEASURES

Metric System

1 kilogram (kg) = 2.20 pounds1,000 kg = 2,200 pounds1 kilometer (km) = 0.62 mile1 hectare (ha) = 2.47 acres1 square kilometer(km2) = 100 ha = 0.39 square mile

= 247.11 acres1 liter = 0.26 gallon1,000 millimeters = 39.37 inches

GLOSSARY OF ABBREVIATIONS

GNP = Gross National ProductIDB = Inter-American Development

BankNÇDB = National Development BankPB = Participating Bank

HOND~0AS


TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ... ................................. ii

I. INTRODUCTION . .................................... 1

II. BACKGROUND ........... ............................ 1

A. General ........ ........................... 1B. The Livestock Sub-sector ................. ... 3C. Animal Uealth . ............................. 5D. Agricultural Services ..... .................. 5E. Agricultural Credit ...... ................... 6 F. Government Policies on Livestock Development 7Gr Land Tenure ................... ............ 7

III. THE PROJECT . .................................... 8

A. Description ..................... 8B. Project Area ................................ 9C. Cost Estimates ....... ....................... 9D. Proposed Financing ................ . .......... 10E. Procurement ....... .......................... 11F. Disbursements ............ ...................... 12G. Auditing .. . ................................. 12H. Organization and Management.. 12

Project Administration .................... 12Technical Services ..... ................... 13

I. Lending Operations ...... .................... 13

Policies .................................. 13Terms and Conditions ................. 13

IV. MARKETS, PRICES AND PRODUCERS' BENEFITS .......... 14

Markets ........ ........................... 14Prices .............................. *.............. 15Producer Benefits ...... ................... 16

V. BENEFITS AND JUSTIFICATION ..... .................. 16

VI. RECOMMENDATIONS ..... 17

This report vas prepared by Messrs. F. Knobel, D. Argyle,A. Otten (IDA), and F. Thomas (Consultant), with Mr. Knobel having primaryresponsibility.

ANNEXES

1. Composition of Exports2. Organization Chart - Ministry of Natural Resources3. The Banking System, pp 1-4

Table 1 - Loan Portfolio by Sector of the Banking SystemTable 2 - Amount and Per Cent of Agricultural Credit by Kind of

Lending InstitutionTable 3 - Summary of Financial Account, Central BankTable 4 - Consolidated Balance Sheet of Principal Banking

Institutions

4. Model 1 - Development of Beef Breeding/Fattening Ranch, 400 ha

Table 1 - On-Ranch Investment Cost ProjectionsTable 2 - Herd Development ProjectionsTable 3 - Projection of Sales and Operating ExpensesTable 4 - Financial Projection

5. Model 2 - Development of Dairy-Steer Fattening Ranch, 150 ha

Table 1 - On-Ranch Investment Cost ProjectionaTable 2 - Herd Development ProjectionsTable 3 - Projection of Sales and Operating ExpensesTable 4 - Financial Projection

b. Model 3 - Development of Beef Breeding Ranch, 1,500 ha

Table 1 - On-Ranch Investment Cost ProjectionsTable 2 - Herd Development ProjectionsTable 3 - Projection of Sales and Operating ExpensesTable 4 - Financial Projection

7. Project Costs and Foreign Exchange Component8. Technical Services Budget9. Phasing of Project Investments10. Project Organization Chart11. Duties, Responsibilities and Authorities of Project Director12. Projected Sources and Application of Funds - Central Bank Livestock

Account13. Projected Sources and Application of Funds - Participating Banks14. Cattle Population - Supply and Demand Projections15. Financial Rate of Return of Ranch Models16. Economie Rate of Return

MAP - Project Areas

HONDURAS


SUMMARY AND CONCLUSIONS

i. This report appraises a livestock development project in Honduras.This would be the first Loan/Credit made by the Bank Group to Honduras in theagricultural sector. It would also be the country's first project in theagricultural-livestock sector that vould provide long-term private commercialbank loans to ranchers on terms and conditions appropriate for the develop-ment of their ranches. The banks vould make a sizeable contribution to theProject in the form of capital for ranch investments and operating capital,plus technical and administrative services.

ii. The principal objectives of the Project are to assist Honduras inits national agriculture policy to raise its extremely low level (3.7 kg percapita, 1967) of beef consumption and to assist in its diversification ofagriculture with particular emphasis on production for exports. Today, itsprincipal export earnings are from bananas, followed in much lesser amountsby coffee, timber and cotton.

iii. The objective of the Project vould be achieved by financing thedevelopment of approximately 135 beef ranches and dairy farma. Investmentinputs, expert technical services and good management would increase na-tional livestock production by about 15% as compared with pre-project con-ditions.

iv. The Project would be country-wide, but vould be carried out prin-cipally in the North Atlantic zone vhich has the greatest concentrationof suitable ranches and most favorable resources for development.

V. The coordination of Project policies would be by a Project Comnis-sion representing the various institutions concerned with livestock develop-ment in Honduras. The management and execution of the Project vould beunder a Project Director, assisted by livestock technicians employed byparticipating banks but seconded to his office for purposes related to theProject.

vi. Total Project cost, estimated at US$5.2 míllion, would be financedapproximately as follows:

Amount Percent(US$m)

IDA Credit 2.6 50

Comercial Banks 1.8 35

Ranchers 0.8 15

5.2 100

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The estimated foreign exchange component is US$1.1 millíon. This repre-sents about 20% of total Project cost and 40% of the Credit.

vii. Goods required for the Project vould be obtained through exist-ing comercial channels in Honduras. Several retail sources are availableand active competition exists to assure an adequate supply as vell as satis-factory servicing. Input items such as agricultural machinery and equip-ment, vire fencing, and veterinary supplies are imported from United States,Japan, Western European countries and are distributed through local fran-chised dealers. Disbursements from the Credit for ranch development wouldbe a percentage (75%) of ranch development loans disbursed by participatingbanks. Such loans, based on ranch development plana approved by the ProjectDirector, vould be granted by the banks at 9% interest for terms of 8-12years including grace periods of 3-5 years.

viii. The rate of return to the economy vould be about 18%. Partic-ipating ranchers would earn about 16% to 21% on their incremental invest-ments under the Project. Substantial increased net earnings vould beginaround Year-10 when full ranch development would be achieved.

ix. The Project i8 suitable for an IDA credit of US$2.6 million. TheGovernment vould on-lend about US$2.4 million of these funds to the CentralBank for channeling to private commercial banks and a private finance companyfor long-tern ranch development loans. The other US$0.2 million would bea grant by Government for technical services. Surplus funda not requiredto amortize the IDA Credit during the first 16 years of the Credit vould berelent by the Central Bank to participating banks, or other qualified finan-cial institutions, for livestock purposes.

HONDURAS


I. INTRODUCTION

1.01 The Government of Honduras has requested financial assistance toprovide long-term funis for financing livestock development, mainly beefcattle. An IBRD mission helped prepare the Project in March 1967. At thattime a broadly-based Government committee vas established which preparedthe Project under direction of the Central Bank.

1.02 The original investment program developed by the committee totaledabout US$14 million and an external fíinacing of about US$8 million vas re-quested. The other US$6 million vas to be provided by livestock producers,commercial banks, Central Bank and Government. The program involved acountry-wide development of about 300 ranches; each ranch would be e.bout300 ha in size, carrying on average 300 head of cattle prior to development,and about tvice this number at full development. The IDA found thae. thistype of ranch was not suffíciently characteristic of the industry and pro-posed to Government three types of ranching enterprises. Furthernore, inviev of the limited number of suitable ranches and the limited suppiy offemale stock for breeding, and steers for fattening, the IDA agreed vithGovernment on a reduction of the investment program to about US$5.2 millionand about 125-150 ranches. Although the Project vould cover the whole ofHonduras, about 85% of the ranches vould be in the North Atlantic zone.

1.03 This appraisal report is based on the findings of a mission led byF. Knobel and composed of D. Argyle and A. Otten (IDA) and F. Thomas (Consul-tant), vhich visited Honduras in January/February 1969.

II. BACKGROUND

A. General

2.01 Honduras is the poorest of the Central American countries U/.The countrfi is small and quite mountainous vith a total land area of115,000 km (45,000 sq mi). Of this only 15% is tillable. Bounded by theCaribbean Sea, Nicaragua, El Salvador, Guatemala, and the Pacifie Ocean, theprincipal economic activities are centered around banana exports from the

2/ GNP per capita expressed In US dollars: Costa Rica $410, El Salvador$270, Guatemala $310, Honduras $240, Nicaragua $360, Panama $550.

Source: World Bank Atlas, 1969.

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coastal plain along the Caribbean coast. Recent road and port develop-menta vith considerable Bank Group assistance 1/ have contributed to uni-fication of the country, developed additional accese to the Pacific andinto El Salvador, and opened up new agricultural possibilities.

2.02 The country can be divided into three zones - Atlantic, Centraland Pacific - (see Map):

(i) The Atlantic zone comprises 46% of the total land area andcontains the most productive and extensive valleys in Honduras.The zone runs in a broad belt along the Caribbean coast. Ithas a reliable rainfall of 1,500 - 2,000 m= per annuim with asemi-dry period of tvo to four months. Soile in the valleys,coastal plaina and low hills are fertile and vell suited tointensive cropping, livestock production and the banana indus-try. The area ls vell serviced with infrastructure and com-mercial facilities; hoaever, a considerable portion of theeastern end í8 virtually uninhabited, providing Bcope ín thelong-run for new development.

(ii) The Central zone is generally hilly to mountainous and com-primes 41% of the total land area. The valleys are generallyamall and discontinuous, making cormunications difficult.Soils are generally of loy fertility, but much of the area í8cropped on a shifting rotation. Rainfall varles from 900 -1,100 mm per annum, but there la a severe dry season of aboutfive months from January to June.

(iii) The amall Pacific zone, making up the rest of the total landarea, is largely arable land vith average fertility. Rainfallvaries from 1,000 - 1,800 =m but there is a pronounced dryseason of approximately five months during January-June.

2.03 The Honduran economy i8 predominantly agricultural vith agriculture- lncluding forestry and fishing - contributing 40% of Gross Domestie Productand occupying about 70% of the 2.4 million population. Bananas are the mostimportant single crop, accounting for about 35% of agricultural produetion.The banana industry is concentrated ln the Atlantie zone on plantationslargely owned by two companies. Livestock production la about one fifth oftotal agricultural production. Principal farm cash crope include coffee,cotton, corn and tobacco. Three-fourths of the farm units are under six hasnd many contain hilly slopes. Larger farns usually have more than oneenterprise, but only a limited number of faraers depend on livestock opera-tiona for the major source of income.

2 Loan 135 -Righway Maintenance, 1955 Loan 463 - EXpans ion and Improve-Loan 195 - Highway Construction, 1958 ment, Puerto Cortes, 1966Loan 400 - Road Construction, 1965 Credit 1 - Western Highvay Proj-Loan 495 - Highway Paving, 1964 ect, 1961

Credit 71 - North Road Project,1965

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2.04 Agricultural products account for 75% of total exports, of whichabout half ís bananas. The country experienced a satisfactory ínerease inGross National Product averaging 5% per annum over the 1964-1968 period,partly absorbed by a population increase of around 3.4% per year. Growthwas mainly export induced; banana exports more than doubled due to a quickrecovery of banana Droduction in this period following replacement of di-sease infected plantations (Annex 1). Ample foreign exchange reserves en-abled Government to promote industrial growth successfully by liberalizingimports of raw materíals and equipment.

2.05 The outlook for the future is somewhat less promising. Bananaproduction would still inerease during the next three years, 1969-72, butat a slover rate than in the past. It is likely that production would leveloff after 1972 as it is exoected that export prices vould decline. Further-more, the country is faced with uncertain world markets for two other lead-ing exnort conmodities: coffee and cotton. Increased export demand la ex-pected to continue for livestock, in particular live cattle and beef, butcattle production has not been incneasing. There ís wide scope for an ex-panded production of good quality cattle through improvement of animalhusbandry, whlch can be realized by an adequate supply of ranch developmentcredit combined with technical services.

B. The LiveBtock Sub-sector

2.06 The cattle population ls estimated at 1.3 million head of beef,milk, and draft animals. However, most of these animals (75%) are on small-scale mixed farms which average about 10 head each. These farma generallyhave limited scope for livestock expansion but many are receiving assistancefrom the National Development Bank (NDB) through programs supported by theUnited States Agency for International Development and the Inter-AmericanDevelopment Bank. The larger and more efficient ranchers have receivedlittle credit except for short-term production purposes. It ie estimatedthat less than 5% of all farms vith cattle have the potential for econo-mically expanding beef production. Consequently, the number of eligiblefarms limits the scope of the Project.

2.07 In terms of land area, cattle are distributed fairly evenly:Atlantie zone accounts for 41%, Central zone 43%, and the Pacifie zone 16%of total population. Traditionally, most cattle are dual purpose (milk andmeat), even on larger ranches, but there is a trend tovard grealer beefspecialization, especially on ranches with more than 500 head. In recentyears there has been a nominal increase in swine production and a markedinerease in poultry production, especially broilera for domestic consumption.

2.08 The beef cattle industry is best developed in the Atlantie zone.Most of the larger ranches are found in this area and the quality of cattleis better than ín other zones. The area is the main source of export beefand whole milk production. Stocking rate i about one animal pér ha but,with good management, this could be increased, over much of the zone, totwo animals per ha.

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2.09 Most cattle in the Central zone are on small non-commercial typefarms, providing draft pover, meat and milk for home consumption, or cheese.The quality of stock is generally poor. Overall stocking rates are aboutone animal per ha. The variable rainfall pattern and infertile 90ils gi .a safe carrying capacity of not more than one animal per ha.

2.10 The Pacific zone carries a surprisingly high number of cattle inratio to land area, particularly in view of the dry season, and stockingrates of one or more animals per ha on many properties are above safe carry-ing capacities. Hovever, by-products from cotton and sugarcane are avail-able for supplemental feeding, and green feed is produced by irrigationon some ranches. Production is more commercially oriented and cattle qual-ity 15 somewhat better than in the Central zone.

2.11 Most of the cattle are of the native or criollo type. In recentyears there has been considerable introduction of improved breeds from theUnited States in the Atlantic zone and some introduction in the other zones.The most favored improved beef breed ia the Brahman, followed, to a muchlesser extent, by Santa Gertrudis and Charolais. Por dairying, Brown Swissis the most popular followed by Holstein and Red Polled. Purebred bulls areavailable fron the Government's Comayagua Stud Farm, United Fruit Companyand several private studs, at prices below imported animals. Artificial in-saemination services are available for most major dairy herds.

2.12 Commercial offtake has averaged only about 13% since 1950, but withthe national herd showing very little increase. This is mainly the result ofinadequacies in animal husbandry, nutrition and parasite control resulting ,in iiigh calf losses, slow growth rates and an effective calving rate of only35-40%. The average age of slaughter steers is 4-5 years with an averageliveweight of about 275 kg (600 lb), being higher in the Atiantie zone.

2.13 Livestock exports have increased in recent years. With productionnot rising (para 2.12) there has been a fa). in domestic consumption of beeffrom the low level of 6 kg per person in 1961 to 3.7 kg per person in 1967.This has been due mainly to the rising price of beef, resulting from thehigher prices being paid for the cattle by the meat exporters and cattle buy-ers from Guatemala. Strong export demand for beef wil). probably continue tolimit the availability of beef for domestic consumption.

2.14 There are ample slaughter plants in the country for slaughteringand processing of boneless frozen beef for export. Processing facilitieswould be adequate for the Project since about 70% of the beef producedvould be exported (para 5.01). Slaughterhouse facilities for local con-sumption are poor and many aninals are illegally slaughtered for localconsumption.

2.15 The only modern milk plant is at San Pedro Sula in the Atlanticzone. Demand for its products has been steadily increasing and should con-tinue. Raw milk is collected from a considerable part of tbe zone, and theproducts are distributed to a wide area of Honduras including Tegucigalpa,300 km dístant.

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C. Animal Health

2.16 Poor nutrition and failure to follow basic principles of good live-stock husbandry are the most iLtportant factors contributing to poor animalhealth and performance. The most serious deficiency is the inadequate nutrí-tion of calves which normally receive only a portion of the motherlB mulk.This practice results not only in heavy calf mortality but slow growth, poorreproductive performance and susceptibility to disease. Poor pastur-e man-agement practices and lack of forage conservation for dry periods also con-tribute to poor nutrition.

2.17 The most important diseases are brought about by a variety ofinternal parasites: calf scours, and such infectious díseases as blackleg,hemorrhagic septicaemia and anthrax. Tickborne diseases are hazarda to lm-ported cattle but can be controlled by pre-immunization. Infestation byvarble fly can cause high physical and economic losses. This and other in-festations can be controlled by dipping or spraying. Facilities for thispurpose on Project ranches are provided in the Project.

2.18 There is no foot-and-mouth disease as a result of effective quaran-tine restrictions. This is of particular signifícance in the development offtuture exports to Europe or United States.

D. Agricultural Services

2.19 The national institutions responsible for the development of thelivestock sector are primarily the Ministry of Natural Resources, operatingthrough its specialized departments and its semi-autonomous Extension Serv-ices (DESARRURAL), the National Development Bank, and the National AgrarianInstitute. There are, hovever, numerous other national and internationalinstitutions which both directly and indirectly provide services and creditto the livestock industry (Annex 2).

2.20 The general organization of the Ministry and the Extension Serviceis good. There is also good liaison at senior and fíeld levels between theNational Development Bank and the Ministry. The specialized departments ofthe Ministry dealing wlth animal health, varble fly control and artificialinsemination have specific programs to follow. Hovever, these institutionsshould give more emphasis to defining long-term livestock development poli-cies.

2.21 Graduate professional staff for work in the livestock sub-sectoris limited. A recent detailed study 1/ shows that in Honduras there are 35

2] "Orgenizacion Administrativa del Sector Agropecuario de Honduras" IICAOctober 1968 Vol. 1.

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professionally qualified veterinarians. General agriculturists vrithformal training are in greater supply. These largely form the fleldstaffs of the National Development Bank and Extension Service, whichnow have about 100 such personnel. The Extension Service intends to in-crease its staff from the present 60 to about 100 in 1971. In addition,the Ministry of Natural Resources has about 75 trained vorkers in re-search. Technical services that would be required for the Project vouldbe supplied by the participating banks (para 3.22) and there are adequateresources, both private and government, to provide any specialized serv-ices, e.g., veterinarian.

E. A&ricultural Credit

2.22 Institutional agricultural credit, vhich includes l.ivestock credit,18 provided principally by a government development bank, aix private com-mercial banks and one private finance compeny. The aount of credit grantedmore than doubled during 1964-1968, rising fron L30 millíon (US$15 million)to L72 million (US$36 million). Hovever the ratio of agricultural credit tototal creX4t for all sectors has remaíned relatively the same, being around30% (Annex 3, Table 1). About two-thirds of the agricultural credit comesfrom the National Development Bank (Government), 30% from private conmercialbanks, ana the other 5% from the private finance company. Agricultural sup-pliera' credit ¡e nominal, but borrowing from traditional private lenders iscommon smong low-income rural farnilies.

i:2.23 .Credit for agriculture and livestock is mostly short-term. Veryfew medium-term loans, perhaps leas than 100, have been granted for livestockdevelopnent, almost entirely by the National Developme-nt Bank. A sizeableamount of.credit i8 furnished by the banking system for financing the pur-chase of iature steers for fattening. This in 1968 amounted to about L10million (US$5 million). The Central Bank provides short-term credit by re-discounting agricultural ̀paper` not exceeding 360 days at 4% interest. Theinterest rate for all types of rural credit averages about 9%. This com-pares with credit for cormercial purposes at around 8%.

2.24 The private commercial banking system i8 vell developed. It isagressive, competitive, and covers the entire country. All the principalbanks have headquarter offices in Tegucigalpa. Credit. for agriculture andlivestock i8 principally short-term for purposes of production, marketingand financing feeder cattle. The amount of agricultural credit held by thebanks has steadily increased from about L19 million (US$9.5 million) in 1964to L27 million (US$13.5 million) in 1968 (Annex 3, Table 2). The banks arebecoming inereasingly avare of the importance of broadening their agriculturalcredit service by making long-term development loans. It is expected thatthree to five of the banks and a private finance company, nov extendingagricultural credit, vould participate in the Project. They vould be in aposition to contribute a portion of the financial requirements as vell asproviding the necessary administrative and technical services.

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2.25 Although the National Development Bank (NDB) is the principal sup-plier of rural credit (para 2.22), it would not participate in the Project.It obtains capital from Government and external sources, principally theInter-American Development Bank and the US Agency for International Develop-ment. Its credit operations, which principally are vith lo income farmera,have not been satisfactory. Financially, NDB has experienced arnual oper-ating losses and there is need for better technical services. Annex 3 con-tains further information on the banking system in Honduras.

F. Government Policies on Livestock Development

2.26 A three-year development plan, 1969-71, prepared by the NationalPlanning Council, is being considered by the Cabinet. It states that thegoals of Government policy toward agriculture, among others, are: "t-oraise the supply of livestock products for domestic consumption" and "todiversify agricultural production vith particular emphasis on productionfor export". This program calls for an increase in agricultural inveat-mente from the present 4% of total public investments to a level of' 12%,most of the inerease going into irrigation and land settlement schemeR.

2.27 With respect to livestock, the Plan envisages a continuation of on-going programs in the fields of animal health, livestock improvement andanimal breeding. In 1969 Government budgeted L2.6 million (US$l.3 Million)Lor these programs or slightly more than 1% of the total budget (currentand capital expenditure combined) of which about L880,000 (us$44o,ooo) re-presented capital investments in the livestock sector, or 1% of total publicinvestments. Thi8 share for the livestock sector is not commensurate withthe stated objectives. The pressing need to increase livestock productionla demonstrated by the loy and declining beef intake per capita, and thegroving contribution of both the beef and saine industry to exports.

2.28 The Project would support livestock development through an inte-grated approach to ranch development, based on a combination of, capitslinvestments and technical services, and would make an important contribu-tion tovards the objectives of the National Development Plan.

G. Land Tenure

2.29 An Agrarian Reform Lay vas passed in 1962. It declared that pri-vately owned ranches vould not be expropriated provided that they vere prop-erly managed. The law defines "proper management" as a minimum stocking rateof 0.5 animal unit per ha. Since all ranches participating in the Projectvould reach a stocking rate vell beyond this minimum rate, they vould not beadversely affected by the Agrarian Reform Lay.

2.30 Many state and conmunal lands have been oecupied in the past forprivate use. In many cases, clear titles of private ownership have not beenestablished by the users, but if land pressure develops, such lands could be

claimed by the National Agrarian Institute for redistribution among peasants.A cadastral survey is being carried out by the Institute to determine theextent of this situation.

2.31 Loans to ranchers participating in the Project would be baseá onlande with clear titles. The participating banks do not aaticipate enyserious difficulty in this respect.

III. THE PROJECT

A. De!scç n

3.01 The Project vould be a five-year program for the development ofabout 135 existing ranches vhich by type and size vould range approximatelyas follows:

- 75 beef breeding/fattening ranches, 400 ha(Model 1, Annex 4? Tables 1-i4)

- 50 dairy-steer/fattening ranches, 150 ha(Model 2, Annex 5, Tables 1-4)

- 10 beef breeding ranches, 1,500 ha(Model 3, Annex 6, Tables 1-4)

The development program would be carried out through the provision of long-term development credit vith funds from IDA and private commercial bankstogether with short-term operating credit from the banks, supported bytechnical services.

3.02 The ranch development program would include financing of limitedland clearance for new pasture establishment, but major emphasis would beplaced on the improvement through cleoring of regenerative bush and reseedingof large areas of existing pasture lands. Other ranch development vould in-elude fencing, water supply, facilities for handling stock and controllingdisease, farm machinery, purebred bulls, improved commercial breeding COWs,and feeder steers.

3.03 The coordinating and supervisory authoríty for the Project wouldbe a Project Commi±ssion. The technical services would be headed by a ProjectDirector, assisted by a staff of qualified livestock technicians who vouldbe employed by participating banks.

3.o4 Working capital for purchase of feeder steers, for fattening onsurplus pastures available during development, vould be supplied by partie-ipating banks. This finance is important to the success of the Project sinceit would ensure better use of pasture resources, thereby giving higher eashincomes to ranchers during the time required to build-up their breeding herdinventories.

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B. Pr2oect Area

3.05 About 85% of the ranches participating in the Project would be inthe Atlantic zone and vould be concentrated in Sula Valley in the Departments(provinces) of Atlantida and Cortes (see Map). Most of the beef breeding/fattening (Model 1) and dairy-steer/fattening (Model 2) types of ranchesvould be in this zone. It i9 the most favored area in the country for live-stock production due to climate, topograxhy and soil. It has a vide varietyof natural and introduced grasses including guinea, molas8es, para, pangolaand elephant. It also has better types of cattle than other areas, and hasready access to markets.

3.06 Participation in the Central zone would be limited, and would beprincipally in the eastern part vhere ranching operations on an extensivescale are found (see Map, Departments of Olancho and El Paraiso). The require-ments in this zone are mainly to improve the quality of breeding stock, toincrease pasture production, and to improve its utilization by conservationof fodder for dry season feeding. Most of the beef breeding ranches (Model 3)would be in this zone.

3.07 The Pacific zone is largely utilized for cropping and mixed farm-ing. Physical problems of livestock production in this zone are similar tothose in the Central zone (para 3.06), but in some areas there are amplesupplies of groundwater vhich could be further developed for supplementaryirrigation of fodder crops. Development in this zone would include a fewbeef breeding/fattening (Model 1) and beef breeding (Model 3) types of ranches.

3.08 The Project management office would be in the Central Bank,Tegucigalpa, capital of Honduras, so that a strong liaison vould be maintainedwith governmental services and banking institutions. Although about 85% ofProject loans would be made in the northern Atlantic zone, accessibility andcommunícations between Tegucigalpa and San Pedro Sula (trade and commercialcenter of Atlantic zone) are good by telephone, cable and several daily com-mercial airline flights.

C. Cost Estimates

3.09 Cost estimates are based on prices prevailing in Honduras. Anadditional aiount of about 10% 18 included to cover unforeseen costs. Theestinat.e of total Project cost ls US$5.2 million, which is summarized in thefolloving table:

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Total Project Cost

Lempiras '000 _US' 000 EqiuivalentCategories Local Foreígn Total Local y Tota .

Development Cai_tal

Ranch Development 2,658 908 3,566 1,329 454 1,783Breeding Cattle 2,660 410 3,070 1,330 205 1,535Machinery and Equipment 196 462 658 98 231 329Contingencies 680 76 76 28 378

Subtotal 6,194 1,856 8,050 3,o44 981 4g025

Working Capital /a

Feeder Steers 2,060 - 2,060 1,030 - 1,030

Technical Services 140 212 352 70 106 176

Grand Total 8,394 2o68 462 4,144 0 5231

la Reflects the amount of ineremental credit needed to finance the purchaseof feeder steers for fattening.

3e10 The estimated foreign exchange expenditure is US$1.1 million.This would represent 21% of total estimated Project cost and 42% of theCredi.t. See Annex 7 for detailed components of Project devel9pment costsand Annex 8 for technical services budget..

D. Proposed Financin;

3.11 The estimated Project cost of US$5.2 million would be financed asfollow.,:it

ComnLercialIDA Credit Banks Ranchers Central Bank Total

Cae…us$ -… - 00

Development Capital 2,>415 805 805 - 4,025(D:Lstríbution) (60%) (20%) (20%) (100%)

Working Capital - 1,030 - - 1,030(Distribution) (100%) (100%)

Technical Services 140 - - 36 176(lDistributiíro) _ (80%) - (20%) (100%)

Total 2,555 1,835 805 36 5,231(Distribution) (49%) (35%) (15%) (1%) (100%)

- 11 -

3.12 On the above basis, IDA funds would finance 60% of on-ranch in-vestments and 80% of technical services or about 49% of total Project cost.This would mean that in addition to the foreign exchange component of US$1.1million (para 3.10) IDA would finance about US$1.5 million of local curreneyexpenditures.

3.13 Participating commercial banks would finance 20% of on-ranch in-vestments and 100% of working capital requírements, or, on average, about35% of total Project cost. The short-term credits provided by the bankswould also be used to purchase feeder steers. To ensure availability offunds for short-term credit, assurances vere obtained during negotiationsthat the Central Bank would redíscount short-term credit paper if nototherwise available from the banks' own resources.

3.14 The ranchers would contribute, on average, 20% of estimated on-ranch development costs in the form of cash, labor and materiíal.. In someinstances they would make a further contribution because their annual net in-come during the early stage of ranch development is reduced due to retentionof breeding stock which otherwise would have been sold (Annex 6, Table 2).

3.15 Funds from the IDA credit would finance the cost of the ProjectDirector including salary, international travel, family end housing allow-ances, and the foreign exchange component of goods associated with his serv-ices, e.g., a vehicle. Other costs including in-country travel, salaries ofoffice staff and miscellaneous office expenses would be paid by the CentralBank. The Central Bank would also provide office facilities.

E. Procurement

3.16 Goods required for ranch development, including fencing, agricul-tural machinery and equipment, materials for ranch structures, pasture seed,and livestock would be obtained through existing commercial channels. Thesechannels are adequate for the Project. Since there are several retail sourcesfor most goods, both imported and local, sufficient competition in the supplyof goods is assured. Inputs having a high foreign exehange component such asagricultural machinery, equipment, fencing, fertilizers and veterinary sup-plies are imported from countries in Western Europe, the United States andJapan. Charges on imported goods and dealers' markups are within an accepta-ble range (15-25%), and there are no discriminatory import quotas or controls.Adequate facilities exist for the servicing and maintenance of agriculturalmachinery and equipment.

3.17 All purchases of breeding stock required for the Project would besubject to the approval of the Project Director with respect to the qualityand suitability of such stock. Since the type and quality of anímals requiredcan only be obtained from specific regions of the world, international com-petitive bidding would not be appropriate for livestock procurement. Becauseof its proximity to Honduras, United States has been the principal source ofimported cattle.

- 12 -

F. Disbursements

3.18 Disbursementa from the Credit would be made to the Central Bankagainst 75% of the ranch development loans (60% of ranch development cost)disbursed by participating banks upon documentation submitted to the CentralBanko. Such documentation would include disbursements by development categor-¡es, country of origin of goods, certification by the lending bank that dis-bursements irere made for approved ranch development purposes, and approvalof the Project Director. The documents would be submitted by the CentralBank to IDA to support withdravals from the Credit account., Disbursementsfrom the Credit for services of the Project Director (para 3.15) vould bemade upon appropriate documentation submitted by the Central Bank on behalfof Governnent. Full disbursement of the Credit vould be achieved w'ithin fiveyears although around 80% of the Credit would be disbursed by the end of thethird year. See Annex 9 for phasing of Project investmenta. Any unusedfunde should be channeled to the Central Bank for livestock purposes.

G. Auditing

3.19 There are several independent auditing services which would beacceptable to IDA, both the official Government auditing bodies such asthe Superintendent of Banks and External Auditor, and at least two inter-national auditing firms, Price Waterhouse and Company, and Peat, Marwick,Mitehell and Co. (USA). Assurances were obtained during negotiations thatthe Central Bank and each participating bank would maíntain separate ac-counts for the Project activities, that these accounts would be auditedannual2ly by an accounting service acceptable to IDA, and that the auditreport would be submitted to IDA not later thian four months after the closecf the respective insti.tutionla fiscal year.

H. Organization and Managlet

Project Adminístratíon

3 20 The Government would be the Borrover and the Central Bank wouldact as Administering Agency for the Project. Coordinating and supervisoryauthority would be vested in a Project Commission created by Governmentdecree. Thís Commission vould formulate policies and procedures and approvethe Project Director. The Commiesion vould be composed of representativesfrom various Government entities, participating banks, and the NationalCattlemenls Association. Government would be represented by the CentralBank, Ministry of Natural Kesources, Ministry of Economic Affairs and Finance,Zational Agrarían Institute, National Planning Council and, as an observer,the National Development Bank because of its important role in agriculturalcredit. The Project Director would act as Executive Secret ary. The organi-zational structure of the Project Comnmssion (Annex 10) together with itsfunetions would be subject to the approval of the IDA. Assurances to thiseffect were obtained during negotiationa.

I

- 13 -

Technical Services

3.21 The Project Director would be responsible for the execution ofthe Project, dealing particularly with the technical, financial and eco-nomic aspects. He would approve or reject ranch development plans and wouldsubmit approved plans to participating banks for lending. He and his tech-nical staff vould supervise the execution of ranch development plans. Thistechnical staff of livestock technicians would be employed by the partici-pating banks and seconded to his office for purposes of the Project; hewould train and supervise their work. The duties, responsibilities andauthoritíes of the Project Director are set forth in Annex 11. During ne-gotiations, it vas agreed that a Project Director would be employed through-out the disbursement period (5 years); that his qualifications, duties,responsibilities and terms of contract would be subject to IDA approval;and that his appointment would be made before thé effective date of theCredit Agreement.

3.22 Government agreed that recruitment of a Project Director outsideof Honduras would probably be necessary. No difficulty ¡a expected on theavailability in Honduras of four to five livestock technicians that wouldbe required from the participating banks. During negotiations assuranceswere obtained that participating banks would employ and second to the Proj-ect livestock technicians acceptable to the Project Director.

I. Lending Operations

Policies

3.23 Applications and loans would be processed and serviced by privatecommercial banks and the private finance company. Loan applications wouldmeet the creditworthiness criteria of these institutions which would bear thefull loan risk. Security for loans vould include real estate mortgagesbased on acceptable titles, and if needed, chattel mortgages on livestock andequipment. Increased real estate value resulting from ranch development im-provements would be reflected in the values established for collateral pur-poses.

Terms and Conditions

3.24 Government would make available to the Central Bank the proceedsof the IDA credit to be used for on-ranch development purposes in local cur-rency at 4.5% interest per annum for a term of 16 years. 1/ The CentralBank would repay the principal to Government at 1% per year during Years 11-15 (same as IDA terms) and the balance at end of Year-16. Since surplus

1/ A 16 -year period is used to cover 12-year ranch loans made in thethird year of the Project plus one year for slippage.

- 14 _

funda vould acerue from the payments received from the participating banks(para 3.25) these funds would be made available to participating banks bythe Central Bank for livestock credits. The rollover would add about Lllmillion (US$5.5 million) to the Lending Program (Annex 12). At the end ofthe 16-year period, all IDA funds used for ranch development would be re-paid to Government. During negotiations, assurances as to these terms andconditions were obtained.

3.25 The Central Bank would establish and maintain a Livestock ProjectAccount to relend the Credit funds to each participating bank approved by it,equal to 75% (60% of ranch development costa) of the loans disbursed by theparticipating banks for ranch development purposes. These funds would bear5% interest per annum and would be repayable on terms similar to those grant-ed by the banks to ranchera. The spread of 0.5% between the cost of Creditfunds from Government and the on-lending rate of 5% vould be used by +heCentral Bank to pay the local and office costs of the Project Director andfor reimbursement of its administrative services related to the Project.Duríng negotiationa assurances vere obtained vith respect to these termsand conditions.

3.26 Development loans, based on ranch development plano approved by theProject Director, vould be made to ranchers by participating banks at 9% in-terest for terms of 8-12 years including grace periods of 3-5 years. An in-terest rate of 9% is in line wíth the prevaílíng rate for rural credit (para2.23) and vould be an acceptable rate to the ranchers. The difference betweenthis on-lending rate and the rate of 5% at which IDA funda vould be obtainedfrom the Central Bank (para 3.25) would give the banks a spread of 4%. Thiswould be adequate to cover the cost of technicians seconded to the Project(para 3.22), the loan risk, the admininstrative cost and profit. Loansgreater than US$100,000 would require prior approval by IDA. The applicationof funda generated by the Project is shown in Annex 13. During negotiations,aseurances as te these lending terma and conditions were obtained.

IV. MARKETS, PRICES AND PRODUCERS' BENEFITS

Marketa

4eOl Until recently the beef cattle sub-sector produced mainly for do-mestie consumption, which ís still low. In 1961, beef consumption was only6 kg per capita compared with an average of 11 kg for all Central Americancountries, and 70% of production was for the domestic markets; the remaining30% consisted of live cattle exporta to neighboring countries for fattening.Beef production has since found additional outlets, principally in the formof bonelase frozen meat exports to the United States. Honduran exports tothís market have risen much faster than the increase in United States imports.While vorld-wide meat imports almost doubled in the 1960-68 period, importsfrom Honduras increased fourfold. At present, 53% of Honduran cattle pro-duction is for the export market, of which 36% is processed into bonelessfrozen meat, and 17% is exported on the hoof - mainly to Guatemala.

1402 Meat importe into the United States are subject to import controllegislation. At the end of 1968, the United States applied the Meat Import

- 15 -

Act 1/ for the first time, limiting boned frozen meat imports to a 4% inereasein 1969. The allowed increase is applied equally to all exporting countries.Extraction from the national herd, however, has reached its upper limít underpresent production practices. Projections on the basis of historic trendsindicate that without implementation of the Project, production vould not in-crease over the 1966 level during the next five years. Under such conditions,even a small increase in exports of 2.5% annually would further reduce avail-ability of beef for local consumption (Annex 14). With the Project, an in-crease over present production levels from 4% in the fourth year up to about15% in the tenth year is estimated. Of this approximately 70% would be ex-ported. The Project would contribute in the tenth year about 30-35% of theincrease in exports.

4.03 There is a free market movement of cattle vithin londuras, and nosales or export taxes are levied at any point. Export packing plants payslaughter taxes averaging L4.20 (US$2.10) per head as compared with taxesand fees of up to L8 (uS$4) being paid at municipal slaughterhouses whichsupply the domestic market. Largely as a result of these charges there isan extensive illegal slaughter of cattle for local consumption.

4.o4 The present market system has several deterrents to more prof it-able livestock production. They include:

(i) on-ranch purchases of live animals by middlemen on anestimated carcass weight basis;

(ii) lack of a grading system that vould enable price differ-entials for better quality cattle;

(iii) inadequate municipal slaughtering facilities; and

(iv) poor communications to outlying areas, resulting ínprice variations up to 20%.

This situation has been improved to some extent by the privately owned exportmeat packing plants. They publish price listinga for purchase of slaughtercattle, have adequate slaughter facilities, provide some credit for steerfattening, and offer higher prices per pound for heavier animals.

Prices

4.05 An increase of approximately 58% in export prices from 1960 to1968 stimulated an expansion of boneless meat exporta. (FOB prices in Cen-tral American countries increased from US$0.68/kg to US$1.08/kg during thisperiod). In Honduras, the price increase vas largely pasead on to the pro-ducer, because more export packing plants vere built and competition forcattle increased betveen the plants and Guatemalan cattle buyers. Average

Uj Public Lay 88-482 of 1964 regulates US meat imports in accordance vithincreases in domestic production.

- 16 -

national producer prices went up from about L100 (US$50) to L150 (US$75) peranimal or US$0.14 to present prices of US$0.22 per kg liveveight. The re-action from producers has been to increase the rate of extract ion from thenational herd but with little, if any, improvement in herd productivity. Itis unlikely that a downward trend in prices would occur in the future as theapplication of import quotas by US would not lead to surplus beef productionunder present and projected supply conditions (para 4.02). Under the Project,producer prices are estimated to be the same as present prices paid for betterquality cattle and vould range from L170 (Us$85) to L200 (US$100) per animal.

Producer Benefita

4. o6 Substantial increases in net annual income would be derived frominvestments under the Project (Annexes 4-6, Table 4). After 10 years, annualnet incomes prior to debt service on a 400 ha breeding/fattening ranch (Mode)1) vould increase from about L3,000 (US$1,500) to L30,000 (US$15,000); on a150 ha dairy-steer/fattening ranch (Model 2) from L4,000 (US$2,000) toL15,000 (US$7,500); and on a 1,500 ha breeding ranch (Model 3) from L14,000(US$T7000) to L52,000 (US$26,000). After the same time, incrementol increasesin the capital value of the herd would be 118%, 66% and 61% respectively.The financial rates of return on the ineremental investments under the Proj-ect, giving livestock producers a strong incentive to participate in theprogram, would range from about 16% to 21% for these types of ranches (Annex15).

V. BENEFITS AND JUSTIFICATION

5.01 The Project vould asesist Honduras in increasing its supply of beefand milk for domestic consumption and beef for export. After full develop-ment, incremental production w<ould amount to 10,000 tons of beef (live-weight)and 1.4 idiLíon litera of milk annually with a total value of about L4.8 mil-lion (US$2.4 million) at current domestic prices to the producer. The incre-mental beef produced vould represent 15% of the present total annual beefproduction. About 70% of the beef would be exported, most of it being betterquality; e.dditional milk production would serve as a substitute for milkpowder importa. The combined gross increase in foreign exchange earning(beef) and savíngs (milk powder) would average approximately US$1.7 millionennually.

5.02 The Project's benefits to the economr have been set out in Annex16. To this effect, the cost of technical services from project staff andparticipating banks have been added to costs, and the import substitutioneffect of increased milk production has been valued at world market prices.Increased goverument revenues from the Project such as slaughter taxes andduties levied on imported capital goods have been included in the benefitsto the economy. On this basis the rate of return to the econonr would beabout 18%. In addition, several non-quantifiable benefits would be realized:the Project would introduce improved animal husbandry production techniques,would provide technical services of a type that has been virtually unknownin Honduras and the commercial banks would be involved for the first time

- 17 -

in extending long-term credit to agriculture; also the Project vould help toreduce the country's dependence on banana exports which is a primary goal ofGovernment policy towarda agrículture.

VI. RECOMMENDATIONS

6.01 During Credit negotiations, agreement was reached on thefollowing principal points:

(a) The Government would be the Borrower and the Central Bank ofHonduras vould be the Administering Agency. Coordination andsupervision of the Project would be vested in a Project Com-mission (para 3.20); technical services would be provided bya Project Director and qualified livestock technicians (para3.21);

(b) Government vould on-lend to the Central Bank the Credit fundaused for on-ranch development at 4.5% interest per annum(para 3.24); Central Bank would re-lend these funds to partí-cipating banks at 5% interest on terms similar to those grant-ed by the banks to ranchers (para 3.25).

6.02 The Project is suitable for an IDA credit of US$2.6 million. TheRepublic of Honduras vould assume the foreign exchange cost.

December 16, 1969

ANiJTX 1

HONDURAS

LIV'STOCK DEVELOPM-7W PROJXT

Composition of Exports

1960 1965 1966 1967 1968 1/% of % of Of Oof » O

L million Total L million Total L million Total L million Total L million

Total Exports 1214.8 100 252.0 100 288.3 100 311.9 100 368.3

Agriculture and Live-stock Products 99.4 80 198.1 79 227.9 79 226.3 75

Forest Products 16.4 13 20.2 8 21.1 7 24.3 6

All other commodities 9.0 7 33.7 13 39.3 14 61.3 17

Agriculture and Live-stock Products 99.4 60 198.1 79 227.9 79 226.3 75

Bananas 56.2 45 105.9 42 lh4.6 50 156.9 50 170.8

Coffee 23.6 19 44.3 18 39.7 14 27.9 11 42.1

Live Cattle and Beef b.9 4 9.6 4 11.0 4 15.2 5

Cotton 5.2 h 12.3 5 11.6 4 10.4 3 7.2

Corn 1.9 2 11.3 4 5.9 2 3,8 1

Hogs and Porkmeat 1.7 1 1.6 1 2.1 1 1.8 1

Other Agriculture andLivestock Products 5.9 5 13.1 5 13.0 h 10.3 4

1/ Only few data for 1968 available.

Source: Ministry of Finance and Econormic Affairs, Honduras: "Anuario Estadistico de Comercioibterior."

December 16, 1969

CD HONDURAS: LIVESTOCK DEVELOPMENT PROJECT(D ORGANIZATION CHART

MINISTRY OF NATURAL RESOURCES

\o

SUB-SECRETARY

DIRECTOR GENERAL DIRECTOR GENERAL DIRECTOR GENERAL DIRECTOR GENERAL

AND LIVESTOCK OF MECHANIZATION OF MINES O FORESTRYANDC AND HYDROCARBONS AND FISHERIES

PLANT ANIMAL MAINTENANCE OTHER ASSOCIATED INSTITUTIONS

HEALTH ~~~HEALTH OF EQUIPMENT CNRLBN

NATIONAL DEVELOPME-- BANK

NATIONAL AGRARIAN INSTITUTE

PLANT _ _ SOILS ZONES OF DEPARTMENT OF COOFERATIVES DEVELOPMENT

DEVELOPMENT MECHANIZATION NATIONAL UNIVERSITY OF HONDURAS

PAN AMERICAN AGRICULTURAL SCHOOL

US-AID PROGRAMWAROLE ~~~ARTIFICIAL INTER-AMERICAN DEVELOPMENT BANK

CONtROL _ _ INSEMINATION FO.O ANO AGRICULTURE ORGANIZATION (UN)

UNDP

ASSOCIATION OF FARMERS AND STOCKRAISERS

PRODUCTION PRIVATE BANKS

AND DISTRIBUTION

OF FOOD-GRAINS

EXTENSION SERVICES(DESARRURAL )

zz

IBRD-4337 x

ANNEX 3HONDURAS

LIVESTOCK DEVELOPMEIT PROJECT

The Banking System

A. Introduction

1. Hondwran banks, both private and governnent, play an important rolein providing credit to the agricultural industry. Of total credit,approximately 30% go96 to agriculture, compared with 20% for induistry,17% each for housing and commerce, 6% each for consurmption and transport,and 3% for services (Table l). Traditionally, 65-701 of the agriculturalcredit has been provided by the Governnent's National Development Bankand the other 30-35% by the private commercial banks. This proportionshifted somiewhat in 1968 when a higher percentage was provided by theprivate banks (37%) and a private finance corporation (h451) (Table 2).

B. Central Bank

2. The Central Bank of Honduras heads the banking system. It is anautonomous governmental institution established by National Congress inFebruary 1950. Its headquarters are in Tegucigalpa; it has a branchoffice in San Pedro Sula and eight agencies country-wide.

Organization of the Board of Directors

3. Monetary, credit and exchange policies as well as administrativeand operational policies are entrusted to the Board of Directors. TheBoard is composed of five members, as follows:

The President of the Bank, principal member of the Board,appointed by the President of the Republic;

The Minister of the Economic Affairs and Finance, an ex-officiomember;

Representative frorn the National Development Bank;Representative from the private commercial banks;Representative from the private sector of the econony.

Each member has an alternative representatíve.

Administration and Management

b. Among other duties, the President of the Bank, who holds tenure ofoffice for a 7-year term which may be extended (current President hasbeen in office 18 years), proposes to the Board of Directors the measuresand resolutions which, according to his judgment, are needed for theexecution of the monetary, credit and exchange policy of the institution;informs the Board of issues most relevant for the operation of the Bank;performs the legal representation, together with or apart from theManagement; and directs the relations of the Bank and Board wjith publicauthorities, with the banking system and wjith international organizationsfor which the Central Bank has been assigned to represent Government.

ANNa 3Page2

5. The Manager of the Bank is in charge of its direct administrationand day-to-day operations. He is appoínted by the Boarcd, beingresponsible to it as well as the President. He is assisted by anassistant manager and several department managers v¡ho, upon hisrecommendation, are appointed by the Board (see organization chart).

6. An Internal Áundtr, appointed by the Board, is responsible for theinspection &,d conÚinituom audit of the accounts of the Bank. An bcternalAuditor, appointed by the President of the Republic and administrativelyresponsible to Minister of Economic Affairs and Finance, annually auditsthe departmenta of the Bank for legal and financial compliance with theBanking laws and regulations. The Superintendent of Banks, appointed tothe Board and administratively responsible to the i4anager of the Bank,is responsbile for examining private banks, finance companies andgovernment banks.

Functions

7. Characteristically, the Central Banks acts as bankeri fiscalagent and economic and financial adviser to Government, to its ministriesand departments, and to official and semi-official entities. Primarily,its purpose is to promote monetary, credit and exchange conditionsfavorable to the developnent of the national economy.

0. The Central Bank may grant advances and rediscount at 100% creditinstruuments not exceeding 360 days for financing the initial stages ofagricultural, stock raising and industrial production at 4% interestper annum and other types of paper at 5%. It establishes the interestrate structure for bank deposits and loans as well as the reserverequirements against deposits. The current interest rates for saviigsand time deposits are 7.OcI. reserve requirements are 25% in cash plus10% in bonda-or cash for.demañd deposits (chécking) and 5% in cash plus10% in bonds or cash for time deposita.. The Bank can also establishlimits on advances and rediscounts to private banks.

9. The Central Bank can borrow from international lending institutions,It would act as fiscal agent for Government and as Administering Agencyfor the proposed Project.

Financial Operations

10. The Central Bank allocates its net earning to its capital and toa Securities Fund. None of its earnings, therefore, flow into theNational Income and Expenditure Budget. Its summbry financial

aecount f<P 1968 is sho-m in Tible 3.

AZNIEX 3

Page 3

C. Private Commercial Banks

U. The Honduran econony is cormpetitively serviced by nine privatecommercial banks. Ranked in size according to total resources, they aro:

(i) Banco Atlantida, an affiliate of Chase Manhattan Bank;(ii) Banco de Honduras, an affiliáte of First National City Bank;(iii) Banco de El Ahorro Hondureno;(iv) Banco de Londres y Montreal;(v) Bank of America;(vi) Banco c'!Capitalizador Hondurena (BAfNCAHBA)(vii) Banco de Los Trabajadores;(viii) Banco de Comercio; and(ix) Banco de Occidente.

Banco Atlantida holds about 45% of total resources and .deposits in theconmercial banking system. See Table 4 for consolidated balance sheetaof the six principal private commercial banks. The banks generally arebecoming increasingly aware of the need to broaden their agriculturalcredit services, particularly in the field of medium to long-term creditfor agricultural development. The investnent of capital and management,in some of the banks, from external sources (mainly the United States) isstimulating changes in loan policies from traditional short-term lending,largely for trade and commercial purposes, to more emphasis on developmentlending. Such policies fit into an appropriate credit mechanism suitablefor carrying out the Lending Program of the Project. The banking systemcovers the entire country with an extensive network of main offices,branches and agencies which adequately would service the Project area.The first five banks listed aboye expressed an interest in the Project, andit is anticipated that three or four of them would participate. The others(except Banco de Occidente which is connected with Banco de AhorroHondurena) are small banks providing services outside of agriculture.

D. Specialized Institutions

12. Four institutions fall within this category, namely:

(i) Banco Nacional de Fomento (National Development Bank);(ii) Financiera Hondurena;(iii) Banco Municipal Autonomo; and(iv) Insituto Nacional de la Vivienda (ILVA).

Only Financiera Hondurena would participate in the Project. However,National Development Bank would be a member of the Project Commissionsince it is substantially involved in providing agricultural credit, someof which is for development. The consolidated balance sheets for thesetwo institutions are also shown in Table 4.

National Development Bank (NDB)

13. NDB was established in 1950 as an autonoraous governmental agency. Itsfundamental purpose is to promoto -development and production in the agricul-tural and industrial sectors. It has an extensive country-wide system of 20branch and agency offices. NDB provides 60-65% of total institutionalcredit f>r agriculture and considering this importance, the mission reviewedits organization, policies, lending experience and financial operations.

ANNEZ 3

14. The operations of NDB cover several funetions outside of its creditand banking activities. It is concerned with the operation of smailagricultural supply stores; operates the Government's floor priceprogran for purchase of corn, rice, beans and sorghum together with 17storage and marketing facilities; operates the country's principalmilk pasteurization plant at San Pedro Sula and a cotton gin; isinvolved in tobacco operations and administers the National Coffee Fund.By-and-large, these operations have not been profitable. The mostprofitable operations have been the San Pedro milk pasteurization plantand the Coffee Fund. It ia likely that the income from these activitieswill be sharply reduced in the future since there is a plan for NDBto relinquish its interest in the milk plant to private shareholders.As for the Coffee Fund, about 70-80% of the proceeds are to be usedin the future for a program of agricultural diversification.

15. NDB's credit operations have been weak. It has a serious recordof past-due accounta. Of its total agricultural loan portfolio(December 31, 1968) 46% of L42.7 million (US$21.3 million) was eitherpast-due, temporarily extended, or had been re-written. Reservesagaínst doubtful accounts and probable losses were not set-up until1968, following a special audit review by the Superintendent of Banksof all loans with respect to age of delinquency, probability of re-paynment, and collateral value of security. These reserves are nowabout 5% of gross loan portfolio but this still n'- bo inicdequateespecially in view of the substantial amount of delinquencies and weakcollection policies.

16. NDB is well capitalized, having about L22 million (US$11 million)in paid-in capital. This has come principally as interest free grantsfrom Governnent. In 1968, LL million (US$2 million) was received andan equal amount is expected in 1969. Also it has received funds fromUS-AID (US$2.0 million) for housing, about US$8.0 million is expectedout of a ne* loan anicuntiíig to US$9.5 mil lion and threeloans have been grantad by the Inter-American9Davel.opment Bank aggrega-ting US$15.5 million. It is expected that the balance of the third IDBloan will be disbursed by the end of 1969.

17. The financial operations of NDB reflect continuous annual losses.Losses during 1965-1968 ranged from about L370,000 (US$185,000) toLl million (US$0.5 million) annually. The highest loss was experiencedin 1968 after provision was made for more adequate reserves againstdoubtful accounts. (Under proper accounting practices such reservesshould be distributed over previous years rather than charging the fullamount against one year's operationsa) Annual losses have caused NDBto live on about one-half of the capital contributed by the Government,which from 1965-1968 totaled L13.2 million (US$6.1 million).

18. NDB would not participate in the Project as one of the partici-pating banks. It has several on-going and prospective credit projects,financed in part by IDB and US-AID. Although some improvement in itsoperations is underway, its credit and financial operations are notconsidered to be satisfactory.

December 16, 1969

HONDURAS A!1ÁŽZX '

'farle 1LIVESTOCK DEVELOPMETIT PROJECT

Loan Portfolio by Sector of the Banking _ystem, November 30, 1968

(Lemlpiras million)

Commercial Banks Development Banks 1/ Finance Companies Entire Banking System

Sector Anount % of Total ount % of Total Amount % of Total Amount % of Total

Agriculture 14.3 9 25.2 45 0.3 1 39.8 17

Livestock 7.5 5 17.3 31 2.4 10 27.2 12

Hogs and poultry 1.4 1 0.5 1 - 2/ - 1.9 1

ish o0.4 - - 2/ - 2/ / _ °.4

Forestry 2.9 2 - - _ 2.9 1

Subtotal 26.5 17 43.0 77 2.7 11 72.2 31

Mining 0.5 - 0.2 - - - 0.7 -

Industry 26.4 18 6.4 12 12.2 53 45.0 20

Services 6.5 4 0.4 1 0.9 4 7.8 3

Transport U.h 8 _ 2/ - 1.0 4 12.4 5

Housing 31.1 21 3.5 6 3.8 17 38.4 17

Conmercial 36.h 24 1.1 2 1.5 7 39.0 17

Consumption 12.0 8 1,2 2 1,0 4 14.2 7

Total 150.8 L00 55.8 100 23.1 100 229.7 100

1/ Banco Nacional de Fomento (95%) and Banco Municipal Autonomo (5%).

2/ Less than 100,000 Lempiras.

Source: Banco Central Statistical Bulletin, November 1968.

December 16, 1969

ANNa( 3Table 2

HONDURAS


Amount and Per Cent of Agricultural Credit by Kind of Lending Institution

(Lenpiras million)

1964 1965 1966 1967 1968% of % of . % of % of %of

Lending Institution Amount Total Amount Total Amount Total Amount Total Amount Total

Private Commercial Banks 9.2 30 12.3 30 16.9 33 18.8 31 26.6 37

Development Banks 20.7 69 27.2 67 32.4 64 40.0 67 43.0 59

Finance Companies 0.3 1 1.1 3 1.5 3 1.2 2 2.7 4

Total 30.2 100 4o.6 100 50.8 100 60.0 100 72.3 100

Source: Banco Central

December 16, 1969

ANIMX 3Table 3

HONDURAS

LIVESTOCK DIVELOPMENT PROJECT

Summary Financial Account, Central Bank 1968(Lempiras million)

ASSETS LIABILITIES

International Reserves 120.2 Foreign 45.9Notes in Circulation 60.4

Domestic Assets Coins in Circulation 7.1Central Government Deposits 15.8

Public Sector Credit: Local Government Deposits 0.1Central Government 5.1 Autonomous Institutions Deposits 6.0Local Government 0.3 Conimercial Banks 17.6Autonomous Institutions 3.9 National Development Bank 0.4

Autonomous Mun. Bank 0.3Banking Sector Credit: Other Institutions o.6Commercial Banks 9.8 Monetary Deposits 0.3National Development Bank 11.5 Other Deposits 0.5Other Financial Institutions 1.5 Miscellaneous 1.2

Total .5i6.Private Sector Securities 0.1

CAPITAL AI\D RESMRVES 15.2Miscellaneous 19.0

Total 171.h Total 171.h

Source: Central Bank.

December 16, 1969

HONDURAS


Consolidated Balance Sneet of Principal danking InstItations.Decemer 3D, lqac!

a n(Lempiras million Private

FinancePrivate Commercial 3anks Company National

de El Ahorro Londres y Bank of Financiera Development9' ASS«'rS Atlantida Honduras _ondureno Montreal America Bancahsa Hondurena Bank(Gov't)

CurrentCash 5.0 1.3 1.5 1.1 0.7 0.4 - 1.BDeposits - Central Bank 5.3 i.5 2.( 1.I 1.3 0.9 0.1 2.4Government Secirities 7.9 1.6 2.6 2.14 0.5 1.2 0.2 1.0Other Deposits & Cheo:es 2.1 0.7 0.6 1.2 0.3 0.2 0.4 0.4

Sabtotal 21¡ 57 3.2 2.7 0.7

InvestmentsLoans and Discounts 65.2 20.2 21.7 10.3 12.2 12.9 18.4 54.2Other Investments and Bonds 2.3 0.4 - - 0.2 0.1 0.3 7.4

Subtotal 67.5 20. .21 10.3 12 13.0 7 6i.6

Real Estate and Equipment 8.3 2.4 0.8 1.0 o.6 1.3 1.3 6.5

Other 3.6 1.6 0.5 2.2 1.5 0.5 o.B 17.4Total 103.7, 30.1 3 19.9 17.7 17.5 91.1

LIABILITIES

DepositsDemand 41.6 15.4 9.3 8.1 10.0 2.4 1.2 10.7Time 41.7 6.2 16.9 7.6 4.2 4.2 - 5.4Special Savings 6.2

Subtotal 3 2ó.2 15.7 114.2 1.2 161

Other LiabilitiesCentral Bank 3.7 - - - - 1.5 11.2Accounts Payable o.6 0.2 0.3 - 0.1 0.1 0.1Long-Term Foreign Loans - - - - - 13.0 26.0Miscellaneous 2.3 2.3 2.2 0.1 0.3 3.4 1.1 6.4

Suototal óó 0 5 0.1 - 15.7

Total Liabilities 924.1 37É.7 I gU 16.3 16 .9 59.7

CAPITAL AND RESERVESCapital - paid-up 14.0 3.0 0.4 3.5 3.0 0.8 4.0 22.8Legal Reserves 6.8 2.4 0.9 0.1 - 0.1 0.4Contingency Reserves 3.0 o.6 0.4 0.1 0.3 0.2 8.6

Sa0total ___7_ __ T17 1 3.1 1.2 ___ -317

Total Liabilities, Capitaland Reserves 103.7 30.1 30.4 19.9 17.7 17.5 21.5 91.9

Soirce: Central dank

HONIJUaA

LIVESTOCX DEVEL0O---T PROJECT

Model 1. - Development of Beef Breeding/FattEning Ranch, 400 Ha

On-Ranch Investnent Cost Projections

Average Units Unít Cost Average Ccet Inmbtments by Yeare Total Cost for 75 Ranchos,grRach per Ranch 123 _ Lenptra Dol-lar EqMliv.

Investment Category (L) (L) Units(No.) Cost (L) Inits(No.) Cocut (L) Unita Cost ( (L Wo T (US* 000)

Pasture Establishbwt

New Formation (Ha) 10 150 1,500 10 1,500 - - - 112.5 56.25Renovation (Ha) 200 60 12,000 100 6,ooo 50 3,000 50 3,000 900.0 450.o

Fences

New (Fm) 5 500 2,500 5 2,500 - - - - 167.5 93.75Renl ( 14 150 2,100 lo 1,500 2 300 2 300 157.5 78.75

Watering Facilities

Wells (No.) 1 3,000 3,000 1 3,0oo - - - - 225.0 112.5Troughs (No.) 5 100 500 3 300 1 100 1 100 37.5 18.75Engines and Pumps (No.) 1 2,000 2,000 1 2,000 - - - - 150.0 75.o

Ranch Structures

Corrals and chutes (No.) .5 1,800 900 .5 900 - _ _ _ 67.5 33.75Dips/Spray Races (No.) .5 1,500 750 .5 750 - _ _ - 56.25 28.13Silos (trench or bunker) (No.) 2 500 1,Ooo _ - _ _ 2 1,000 75.o 37.5

Machinery and Equipment

Traetors (No.) .5 7,000 3,500 - - - - .5 3,500 262.5 131.25Forage Equipment (No.) .5 6,000 3,000 - - - .5 3,000 225.0 112.5

lreeding Stock

Heirers (No.) 70 300 21,000 50 15,000 20 6,ooo _ - 1,575.0 787.5Bulls (No.) 9 1,500 13,500 6 g,ooo 2 3,000 1 1,500 1,012.5 506.25

Ssbtotal - - 1 2,400 _0 12,400 W 2521.9

Contingencies - - 6,750 4,250 1,250 1,250 506.2 253.1

T O T A L - _ 7Li,000 46,700 13,650 13,650 5,5500. 2,775.0 IE!

H06DtlAS

LIVESIOCK DEVlWllT PROJECT

Yodel 1. - Deovlltent of BErding/Fattenir4 Ranch, 400 Ha

Herd Devuloment ProJeotione

---------- End of Ranoh Year---------------------------------

BeforeCategory Deelopaent 1 2 3 4 5 6 7 8 9 10-20

Herd Cempotition (No.)

Breeding Cows 140 199 219 220 224 240 260 260 260 260 260Bulla 6 8 9 9 9 10 10 10 10 10 10Calves 78 B4 124 142 154 168 1BO 194 194 194 194Heifers - 8-24 montha 36 37 40 60 69 75 82 88 95 95 95Heifera - 24-36 34 35 36 39 58 67 73 80 86 93 93Steera - 8-24 36 37 40 60 69 75 82 88 95 95 95Steers - 24-36 34 35 36 39 58 67 73 80 86 93 93Steers - Over 36 months 33 33 34 35 38 - - - - - -

Total Animala 397 468 538 604 679 702 760 800 826 840 840o

Total Animal Units (AUla) 319 384 414 462 525 534 580 606 632 646 646

Purehased Steers - 96 186 218 195 266 220 194 168 154 154

Total AU'a 319 1480 600 680 720 800 800 800 800 800 800

Mortality (No.)

Breeding Cows 7 6 9 7 7 4 5 5 5 5 5Calves After Weaning 4 4 4 4 4 4 4 4 4 4 4Heifers - 8-24 months 2 1 1 1 2 2 2 2 2 2 2leífers -. 24-36 2 2 2 1 1 1 1 1 2 2 2 2Steers - 8-24l 2 1 1 1 2 2 2 2 2 2 2 2Steers - 24-36 2 1 1 1 1 - - 1 2 2 2St.eers - Over 36 months 1 1 1 1 1 - - - - - -

Purchased Steers (2) - 2 4 4 4 6 5 4 14 4 4

Total 20 18 23 20 22 19 19 19 21 21 21

Sales (No.)

Cull Cows 17 17 24 27 27 27 30 30 30 30 30Cull Bul4s - - 1 - 1 - 1Heifers - 24-36 months - - - - - 10 11 37 143 49 56Steers - 24-36 - - - - - 58 67 72 79 84 91Steers - Over 36 32 32 32 33 34 38 - - - - -

Subtotal 49 53 57 61 61 133 109 139 152 163 178

Psrchased Steers - 94 182 214 191 260 215 190 1614 150 150

Total 49 147 239 275 252 393 324 329 316 313 328

Purchases (No.)

Breeding Females - 50 20BuJís 1 6 2 1 - 2 1 - 1 - 1

Feeder Steers - 96 186 218 195 266 220 194 168 154 154

Total - 152 208 219 195 267 221 194 169 154 155 114

Production Data

Mortality (Adult) -% 5 4 3 3 2 2 2 2 2Effective Calvíng Rate - 55 60 61 65 70 75 75 75 75 75 75 1

c Carrying Capacity - AU/ha 1 1.2 1.5 1.7 1.8 2.0 2.0 2.0 2.0 2.0 2.CArea of Pastures - Ha 390 400 400 400 400 400 400 400 400 400 400Total Carrying CaDacity - AU'S 390 480 600 680 720 800 800 800 800 800 800Actual Herd Nos. - AU's 319 384 414 462 525 534 580 606 632 646 646access Capacity for F. Steers - No. 71 96 186 218 195 266 220 194 168 154 1514 fiOutput Rate - % 12.3 11.3 10.6 10.1 9.0 18.9 14.3 17.1 18.4 19.4 21.2

HONDURAS

LIVESTOCK DEVELWRfiNT PRJECT

Nodel 1. - Development of Breeding/Fattening Ranch, 400 Ha

Pr jection of Sales and Operating Expenses

Unit Value of Cattle Before -------------------------------------------- Ranch Year---- -- --Category Tears 0-5 Tears -10 Develcpment 1 2 3 4 5 6 7 8 9 10-20

(L) Y L) NoN. L No. (L) No. (L) No. (L) No. (L) No. ML) No. (L) No. (L) No. (L) No. (L) No. (L)

Sales

Cull Cows 150 170 17 2,550 17 2,550 24 3,600 27 4,050 27 4,050 27 4,050 30 5,100 30 5,100 30 5,100 30 5,100 30 5,100

Cull Bulls 280 350 4 1,120 1 280 1 280 - 1 350 1 350 1 350

Surplus Heifera 280 280 10 2,800 11 3,080 37 10,360 43 12,040 49 13,720 56 15,680

Steera - 24-36 montha 190 230 58 11,020 67 15,410 72 16,560 78 17,940 84 19,320 91 20,930

Steers - 36-48 months 210 32 6,720 32 6,720 32 6,720 33 6,930 34 7,140 38 7,980

Feeder Steers 200 200 94 18,800 182 36,400 214 42,800 191 38,200 260 52,000 215 43,000 190 38,000 164 32,800 150 30,000 150 30,000

Subtotal - - 9,270 29,190 47,000 54,o60 49,390 77,850 66,940 70,020 68,230 68,140 72,06O

Milk Sales ,/ 96 45 4,300 45 4,300 45 4,300 45 4,300 45 4,300 45 4,300

Total Sales 13,570 33,490 51,300 58,360 53,690 82,150 66,940 70,020 68,230 68,140 72,060

Operating Expenses (L)

Salt and Minerals 3/ 900 1,400 1,800 2,100 2,150 2,300 2,400 2,400 2,400 2,400 2,400

Animal Health h1 1,350 2,200 2,950 3,250 3,300 3,350 3,800 3,800 3,800 3,800 3,800

Pasture Maintenance 5/ 1,900 3,000 3,500 3,500 4,000 4,000 4,000 4,000 4,000 4,000 4,000

Fence & Water Maintenance 6/ 300 400 400 400 400 400 500 700 800 1,000 1,000

Building Maintenance 7/ 200 400 400 400 400 400 500 500 500 500 500

Wages Foreman 8/ 1,500 2,250 2,500 2,700 2,700 2,700 2,700 2,750 2,750 2,750 2,750

Wages Stockmen 92 2,400 4,000 4,000 4,900 5,000 5,000 3,600 3,600 3,300 j,300 3,300

Fuel, Oil & Lubricants 400 800 800 800 800 800 800 800 800 800 800

Machinery Maintenance 10/ 250 600 600 700 800 800 800 800 800 800 800

BU11 Replacement 11/ 800 - 1,000 1,000 - 1,000 1,000

Miscellaneou= 500 800 900 950 900 950 800 800 700 850 850

Subtotal 10,500 15,850 17,850 19,700 20,450 21,700 20,900 20,150 20,850 20,200 21,200

Purchase of Feeder Steers - 12,500 24,200 28,300 25,400 314,600 28,600 25,200 21,800 20,000 20,000

Total Expenses 10,500 28,350 42,050 48,o0o 45,850 56,300 49,500 45,350 42,650 40,200 41,200

Net Operating Inccme 3,070 5,140 9,250 10,360 7,840 25,850 17,440 24,670 25,580 27,940 30,860

1, Due to imorovement in weight and quality as a result of upgrading. 7/ Rising to 5% of L10,000. -2/ lilk returna based on milkdng 45 cows, each cou producing 600 litres per year 8/ Above average foreman required.

atL 0.16 per litre (i.e. L 96 per cow per year). 9/ Five stocimen while milking- three thereafter.1/ L3 per AU including feeder steera. 10/ 10% of estisated value, or L 8,000.-/ L4.5 per AU including feeder steera plus reterinary.

ia LI0 per ha. Nonduran bred bulls at L 1,000 per head.

6/ Rising to 4% of L25,000.

eHONDURA 5

LIV'bS*SC DEV7LC0P2EN PROJEC(T

Model 1. - Developraent of Beef Breeding/Fattening Ranch, 4G& Ha

Fina;.cial Projection

ço ~~~~~~~~~~~~~~~~~~~~~~~~~(L'000)

Before ----------------------------------------- Ranch Year- - -------

Development 1 2 3 4 5 6 7 m 9 10 U-20

1. Cash Infloir

Total Sales 13.6 33-5 51.3 58.4 53.7 62.2 66.9 70.0 68.2 68.1 72.1 72.1Cormercial Bank Loan 37.4 10.9 10.9

Total 13.6 70.9 62.2 69.3 53.7 82.2 66.9 70.0 68.2 68.1 72.1 72.1

2. Cash Outflow

Ranchers' Investment Contribution - 9.3 2.7 2-7Investment of Loan Funds - 3 7. L 10.9 10. 9Operating ?apenses 10.5 23.1 42.1 48.o 45.9 56.3 49.5 45.4 42.7 40.2 41.2 41.2

Total 10.5 7 5.1 55.7 61.6 h5.9 56.3 49.5 145.4 42.7 40.2 41.2 41.2

3. Cash Balance (1-2) 3.1 (4.2) 6.5 7.7 7.8 25.9 17.4 24.6 25.5 27.9 30.9 30.9

4. Debt Service

Interest on Bank Loan 3.4 14.3 5.3 5.3 5.3 4.8 4.2 3.2 2.1 1.0 -

lnterest on Working Capital 1.3 2.4 2.8 2.5 3.5 2.9 2.5 2.2 2.0 2.0 2.0Loan Amortization - - - - 6.o 6.o 12.0 12.0 12.0 11.? -

5. Cash Balance after Debt Service(3-4) 3.1 (8.9) ( .2) .4) - 11.1 3.7 5.9 8.1 11.8 16.7 28.9

6. Annual Incr utal Caoh Balonce 1/ (12.0) (3.3) (3.5) (3.1) 8.0 .6 2.8 5.- 8.7 13.6 25.8

7. Annual ILcrmeantal Herd Value 2/ 17.1 9.4 6.9 10.9 9.6 17.4 5.4 4.1 2.4 -

8. Total Annual Incremental Balance 5.1 6.1 3.4 7.8 17.6 18.0 8.2 9.1 11.1 13.6 25.8(6 + 7)

1/ As coimared with ranchers' net cash pcsition before development.

2/ As compared with before development herd value of L 70,3'X). Also reflects rising value of 'ottle of abou; 0% from years 1-5 to years 6-20.

e HONDIJRASo

LIVEST'C: DEVELOPMEN1T .POJECT

Nodel 2. - Development of Dairy-Steer/Fattening Ranch, 150 Ha

On-Ranch Investment Cost Projections

'o

Average Unita tnit Average Cost Invemtente by Year Total Cost for 50 ¡nchesInvestment Category per Ranch Cost per Ranch 1 2 3 1 ir Doll v

(No.) (I) Units (No.) Cost (L) tJnits (No.) Cost (L) Ulits (No.) Cost (L) r 1 .

Pasture &c Forage FeedEstablishment

Pasture R%ovation (Ha) 50 70 3,500 25 1,750 25 1,750 - - 175.0 87.5Forage Feed (Ha) 25 100 2,500 10 1,000 10 1,00X 5 500 125.0 62.5

Fences

New (Km) 4 500 2,000 2 1,000 1 500 1 500 100.0 50.0Renewal (Km) 10 150 1,500 4 600 4 600 2 300 75.0 37.5

Watering Facilities

Wells,Equipped 1 3,600 3,600 1 3,6(X) 180.0 90.0Troughs and Piping 250 1,000 2 500 2 500 50.0 25.ODairy (incl. tak1 1 500 500 500 25.0 12.5

Ranch Structures

Dairy Shed Improvement 1 500 500 500 25.0 12.5Workers' Hauses 1 500 500 500 25.0 12.5Yards, Cattle Facilities .66 1,500 1,000 500 500 50.0 25.0

Equipment

Tick Control Spray Pump .5 800 &00 400 20.0 10.0(Mobile)

Cattle

Breeding Bulls 3 1,000 3,000 2 2,000 1 1,000 150.0 75.0Heifera 10 250 2.500 8 2,000 2 500 1-25.C 62.5

Subtotal - * 22,500 - 13,890 - 7,350 - 1,300 1,125.0 562.5

Contingencies - - 2,500 - 1,650 - 650 2 200 125.0 62.5

TOTAL _ _ 25,000 15,500 6,000 1,500 1,250.0 625.0

HONDURAS

LIVESSOCK DEVEWPNMNT PROJECT

Model 2. - Develo pment of Dairy-Steer Fattening Ranch, 150 a

Herd Development Projections

Before --------------------------------------- Ehd of Ranch Year- - - --- - --Development 1 2 3 4 5 6 7 8 9 10-20

Herd Carposition (No.)

Breeding Cows 70 80 85 87 89 90 90 90 90 9C 90Bulls 4 4 4 1 4 1 4 4 4 4 4Calves 32 32 40 44 48 53 59 59 59 59 59Heifers - 8-24 months 15 15 15 19 21 23 25 28 28 28 28Heifers - 24-36 14 14 14 14 18 20 22 24 27 27 27Steers _ 8-24 15 15 15 19 21 23 25 28 28 28 28Steers_ 24-3

6n 114 4 114 14 18 20 22 24 27 27 27

Steers over 36 13 13 14 14 14 7 10 11 11 11 11Total Numbers - Dairy Nerd 177 I77 215 233 2140 257 274221

Total Animnal Units - Dairy Herd 144 155 161 171 185 187 198 209 215 215 215

Piorchased Steers - 25 64 814 85 113 102 91 85 85 85

Total Aninal Unita (AUI's) 180 225 255 270 300 300 300 300 300 300

Mortality %Xe.)

Breeding Cows 4 4 4 4 4 4 3 3 3 3 3Calves 4 2 2 2 2 2 3 3 3 3 3Heifers - 8-24 mionths 1 1 1 1 1 1 1 1 1 1 1Heifers - 24-3

61 1 - - - - 1 1 1 1 1

Steers -8-24 1 1 1 1 1 1 1 1 1 1 1Steers -24-36 1 1 - - - 1 1 1 1 1 1Steers - Over 36 monthsPorchased Steers - 1 1 3 3 3 3 3 2 2 2

Total 12 11 9 11 11 12 13 13 12 17 12

Sales (No.)

Steers -Over 36 sonths 13 13 13 14 14 14 7 10 U1 U1 11Steers - 24-36 - - - - - 10 9 10 12 15 15Cull Cows 7 7 7 8 8 10 11 U1 11 U1 11Surplus Heifera - - - - - 3 5 7 9 12 12Cull Bulls 2 1 - 1 1 1 1 1 1 1

Subtotal 20 22 21 22 23 38 33 39 44 50 50

Purchased Steers - 24 63 81 82 110 99 88 83 83 83

Total 20 46 84 103 105 148 132 127 127 133 133

Purchases (No.)

Heifers - 8 2 - - - - - - - -Bulls 1 2 1 - 1 1 1 1 1 1 1Steers - 25 64 84 85 113 102 91 85 85 85

Total 1 35 67 84 86 114 103 92 86 86 86

.Production Data

Effectire Calving Rate- 45 45 50 52 55 60 60 65 65 65 65Mortality (Adult) - % 5 5 4 4 3 3 3 3 3 3 3Extraction Rate - % 12 11 10 10 10 15 13 14 15 18 18Total Output Rate - % 12 11 10 10 10 14 11 11 11 14 14Stocking Rate - AU's/Ha 1.0 1.2 1.5 1.7 1.8 2.0 2.0 2.0 2.0 2.0 2.0Carrying Capacity - AUs9/50 ha 150 180 225 255 270 300 300 300 300 300 300

HONDURAS

LIVESTOCK DEVELWMNT POJECT

Model 2. - Dairy-Steer/Fattening Ranch, 150 HaProjection of Sales and Operating Expenses

Unit Valueof Cattle efo ore ------------------------------------------------- Ranch Year ---------------------------------------------------------------

Category Yearears Developsient 1 2 3 4 5 6 7 8 9 10_200-5 6-lo

Sales T(L) (L (No.) (L) (No.) (L) (No.) (L) (No.) (L) (No.) (L) (No.) (L) (No.) (L) (No.) (L) (No.) (L) (No.) (L) (No.) (L)

Cull Cows 160 170 7 1,120 7 1,120 7 1,120 8 1,280 8 1,280 10 1,600 11 1,870 11 1,870 11 1,870 11 1,B70 11 1,870

Cull Bulls 250 250 2 500 1 250 - 1 250 1 250 1 250 1 250 1 250 1 250 1 250

Surplus Heifers 220 250 - - - - _ 3 660 5 1,250 7 1,750 9 2,250 12 3,000 12 3,000

Steers - 24-36 months 200 200 10 2,000 9 1,800 10 2,000 12 2,400 15 3,000 15 3,000

Steers - 36-48 months 200 200 13 2,600 13 2,600 13 2,600 l4 2,800 14 2,800 14 2,800 7 1,400 10 2,000 11 2,200 11 2,200 11 2,200

Feeder Steers 200 200 24 4,800 63 12,600 81 16,200 82 16,400 110 22,000 99 19,800 88 17,600 83 16,600 83 16,600 83 16,600

Subtotal - - 20 3,720 9,020 16,570 20,280 20,730 29,310 26,370 25,470 25,570 26,970 26,920

Milk Sales 1/ 130 151 70 9,100 70 9,100 80 10,400 85 11,050 87 11,310 89 11,570 90 13,590 90 13,590 90 13,590 90 13,590 90 13,590

Total Sales 12,820 18,120 26,970 31,330 32,040 40,880 39,960 39,060 39,160 40,510 40,510


Salt and Minerals 2/ 530 640 750 900 950 1,060 1,080 1,080 1,080 1,080 1,080Animal Health 3/ 850 1,160 1,350 1,550 1,625 1,790 1,820 1,820 1,820 1,820 1,820Pasture Maintenance 4/ 750 750 750 1,450 1,500 1,500 1,500 1,500 1,500 1,500 1,500Maintenance, Fencing 5/

and Water 200 200 200 400 400 400 400 400 400 400 400

Building Maintenance 6/ 300 400 400 400 400 400 400 400 400 400 400Wages Foreman 7/ 2,000 2,400 2,400 2,400 2,500 2,500 2,500 2,600 2,800 2,800 2,800Wages Stookmen 8/ 3,400 3,600 3,800 4,400 4,500 4,500 4,500 4,500 5,000 5,000 5,000Fuel Oil and Lubricants - 200 200 200 200 200 200 200 200 200 200Machinery Maintenance 50 200 200 200 300 300 300 300 300 300 300Bull Replacement 9/ 200 800 800 800 800 800 800 800Cmntingencies (acprox. 5%) 320 475 530 500 630 550 500 500 50° 500 5°°

Subtotal 8,600 10,025 10,580 12,400 13,800 14,000 14,000 14,100 14,800 14,800 14,800Purchase of Feeder Steers - 3,250 8,320 10,920 11,050 14,690 13,260 11,830 11,050 11,050 11,050

Total Expenses 8,600 13,275 18,900 23,320 24,850 28,690 27,260 25,930 25,850 25,850 25,850

Net Operating Incoma 4,220 4,845 8,070 8,010 7,190 12,190 12,700 13,130 13,310 14,660 14,660

1/ Milk sales based on production for each cow in the herd of 810 litres per annum, years 0-5, and 945 litres yeara 6-10. Price L 0.16 per litre.

2/ L 3 per head.

3/ L 4.50 per head plus veterinary services.

4/ L 10 per ha.

5/ 4% of value.

6/ 4% of value.

7/ Competent foreman necessary.

8/ Wages range 4 men at L 900 to 5 men at L 1,000 per man per year. i9/ Figure before developanet represente diffarence between purchase and sales.

HONDURAS

3 LIVESTO{X DEV3LOPH3T PROJECTD

Model 2. - Development of Dairy-Steer Fattening Ranch, 150 Ha

Financial Projection

(L'OO0)

Before ----------------------------------------- Ranch Year … -Development 1 2 3 4 5 6 7 o 9 10 11-20

1. Cash Inflow

Total Sales 12.8 18.1 27.0 31.3 32.0 140.9 40.0 39.1 39.1 40.5 40.5 40.5Commercial Bank Loan 12.4 6.4 1.2

Total 12.8 30.5 33.4 32.5 32.0 40.9 40.0 39.1 39.1 40.5 40.5 40.5

2. Cash Outflow

Rancher' s Investment Contribution 3.1 1.6 .3Investment of Loan Funds 12.4 6.4 1.2Operating Expenses 8.6 13.3 18.9 23.3 24.8 28.7 27.3 25.9 25.9 25.9 25.9 25.9

Total 8.6 28.8 26.9 24.8 24.8 28.7 27.3 25.9 25.9 25.9 25.9

3. Cash Balance (1-2) 4.2 1.7 6.5 7.7 7.2 12.2 12.7 13.2 13.2 14.6 14.6 14.6

4. Debt Service

Interest on Bank Loan 1.1 1.7 1.8 1.8 1.8 1.5 1.2 .9 .6 .3 -Interest on Working Capital .3 .5 1.1 1.1 1.5 1.3 1.2 1.1 1.1. 1.1 1.1Loan Amortization - - - - 3.3 3.3 3.3 3.3 3.3 3.5 -

5. Cash Balance after Debt Service(3-4) _ _ 4.2 .3 14.0 4.8 4.3 5.6 6.6 7.5 7.9 9.4 9.Z 13.5 _

6. Annual Incremental Cash Balance (3.9) ( .2) .6 .1 1.4 2.4 3.3 3.7 5.r 5.6 9.3

7. Annual Incremental Herd Value 2/ 3.8 1.8 1.5 2.4 .3 6.3 1.7 1.2 - - -

8. Total Annual Incremental Balance (6+7) ( 1) 1.6 2.1 2.5 1.7 8.7 5.0 4.9 5.4 5 . 9.3

1/ As compared to rancher's net cash position before development.

2/ As compared Y'-ith before development herd value of L 28,620. Also reflects rising value of cattle of about 20% from years 1-5 to years 6.20. 1

HONDURAS

LIVESTOC! DEVELG.IT 'ROJECT

Model 3. - Development af Breeding Ranch, 1.500 Ha

On-Ranch Investment Cost Projections

Average Units Unit Coet Average Cxt luveetmenta by Yearsper Rnch poer Ranch 2 Total Coet for10 Ranchee

Investment Category (No. (L) Units(No.) Cost (L) Units(No.) Cost (L) Units(No.) Cost (L) (UsI$ f000

Pasture Establishment

Renavation (Ha) 600 50 30,000 200 10,000 200 10,000 200 10,000 300.0 150.0

Fences

New (!1l) 20 500 10,000 10 5,000 5 2,500 5 2,500 100.0 50.0Repair (KM) 25 150 3,750 10 1,500 10 1,500 5 750 37.5 18.7

Watering Facilities

Wells (No.) 6 3,000 18,000 3 9,000 2 6,o00 1 3,000 180.0 90.0Storage Tanks (No.) 6 800 4,800 3 2,400 2 1,600 1 800 4s8.o 24.oDrinking Troughe (No.) 18 150 2,700 9 1,350 6 900 3 450 27.0 13.5Pamping Equipment (No.) 3 1,000 3,000 3 3,000 - - - - 30.0 15.0

Farm Structures

Corrals and Chutes (No.) .5 3,000 1,500 .5 1,500 - - - - 15.0 7.5Dipe/Spraye (No.) .33 1,500 500 .3 500 - - - - 5.0 2.5Silos (trench or bunker) (No.) 5 500 2,500 2 1,000 2 1,000 1 500 25.0 12.5

Farm Machinery

Tractors (No.) .5 7,000 3,500 .5 3,500 - - - - 35.0 17.5Rotary Siasher (No.) .75 2,00C 1,500 .75 1,500 _ _ _ _ 15.0 7.5Hay Baler (No.) 1 3,500 3,500 - - _ _ 1 3,500 35.0 17.5Porage Harvester (Ho.) 1 2,000 2,000 1 2,000 _ - - _ 20.0 10.0Weighbridge (No.) 1 1,500 1,500 - - - - 1 1,500 15.0 7.5Molasses Feeders (No.) 20 100 2,000 10 1,000 5 500 5 500 20.0 10.0Tick Control Spray &qitip. (No.) 1 1,000 1,000 1 1,000 10.0 5.0

Breeding Stock

Bulls (No.) 23 900 20,700 19 17,100 1 900 3 2,700 207.0 }94

Subtotal - 1 l12,150 _ 61,350 - 24,900 - 26,200 1,124.5 W.2

Contingencies - - 12 ,550 _ 8,650 - 2,100 - 1,800 125.50 62.8

T O T A L _ - 125,000 _ 70,000 - 27,000 - 28,000 1,250.00 625.0

HONDURAS

LIVESTOCK DE7VHPMENT PROJECT

Model 3. - Development of Breeding Ranch, 1,500 Ha

Herd Development ProJections

Before ''------- -- --- Ehd of Ranch Year --------------------------------------------

Category Development 1 2 3 4 5 6 7 8 9 10-20

Herd Comiposition (No.)

Breeding Cows 550 600 65o 650 650 650 650 650 650 650 650

Bulls 18 30 30 32 32 32 32 32 32 32 32

Calves Weaned 302 302 360 423 455 488 488 488 488 488 488

Heifera - 8 24 montha 146 146 146 174 205 221 238 238 238 238 238

Heifers - 24-36 n 142 142 142 142 170 200 216 233 233 233 233

Steera - 8-24 n 146 146 146 174 205 221 238 238 238 238 238

Steera - 24-36 ' 142 142 142 142 170 200 216 233 233 233 233

Total Animala 1,446 1,508 1,616 1,737 1,887 2,012 2,078 2,112 2,112 2,112 2,112

Total Animal Ulnits (AU's) 1,144 1,206 1,256 1,314 1,432 1,524 1,590 1,624 1>624 1,621 1,624

Mortality (No.)

cOws 16 18 20 20 16 16 16 16 16 16 16

Calves Weaned 10 10 10 12 13 13 12 12 12 12 12

Heifera - 8-24 months 4 4 4 4 4 5 5 5 5 5 5

Heifers - 24-36 11 4 4 4 4 4 4 5 5 5 5 5

Steers - 8-24 4 4 4 4 4 5 5 5 5 5 5

Steers - 24-36 » 2 2 2 2 2 2 3 3 3 3 3

Bulla 1 1 1 1 1 1 1 1 1 1 1

Total 41 43 45 47 44 46 47 47 47 47 47_

Sales (No.)

Cull Cows 60 60 60 60 60 70 70 70 70 70 70

Cull Bulls 2 6 - 2 2 4 4 4 4 4

surplus Haifera - 24-36 months 62 10 8 58 62 80 109 125 142 11,2 142

Steers - 24-36 months 140 140 140 140 140 168 197 213 231 231 231

Total 264 216 208 258 264 320 380 412 447 447 447

Purclases (Ho.)

Bulls 3 19 1 3 3 3 5 5 5 5 5

Production Data

Mortality (Adult) - 3 3 3 3 2.5 2.5 2.5 2.5 2.5 2.5 2.5

Effective Calving Rate - % 55 55 60 65 70 75 75 75 75 75 75

Carrying Capacity - AU/Ha .8 .8 .9 .9 1.0 1.1 1.1 1.l 1.1 1.1 1.1

Area of Pasture - Ha 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500

Total Carrying Capacity - AU's 1,200 1,200 1,350 1,350 1,500 1,650 1,650 1,650 1,650 1,650 1,650

Output Rate - % 18 11U 16 15 14 16 18 20 21 21 21

HONDURAS

CD LIVESTOCK DEVELOPMENT PROJECT

Model 3. - Development of Breeding Ranch, 1,500 Ha

CD' ProJection of Sales and Operating Expenses

Unit Valueof Cattle 1/ Rsnch Year

Years lears BeforeCategorv °-5 6-20 Development 1 2 3 6 7 8 9 1-20

(No.) (L) (No.) (L) (No.) (L) (No.i (L) (No.) (L) (No.) (L) (No.) (L) (No.) (L) (No.) (L) (No.) (L) (No. (L)

Sales

Cull Caos 140 150 60 8,hO0 60 8,400 60 8,400 60 8,400 60 8,400 70 9,800 70 10,500 70C 10,500 70 10,500 70 10,500 70 10,500

Cull Bulls 200-300 300 2 hOO 6 1,200 2 500 2 600 4 1,200 4 1,200 U 1,200 4 1,200 4 1,200Surplus Heifera 220-250 260 62 13,61o 10 2,200 8 1,760 58 13,340 62 14,880 80 20,000 109 28,340 125 32,500 142 36,920 142 36,920 142 36,920Steers 24-36 Dsonths 110-160 180 140 15,400 140 16,800 140 18,200 140 19,600 140 21,200 168 26,880 197 35,460 213 38,340 231 41,580 231 41,580 231 41,580

Total Livestock Sales 37,840 28,600 28,360 41,340 L4,980 57,280 75,500 82,540 90,200 90,200 90,200


Salt and Minerals 2/ 2,300 2,h40 2,500 2,600 2,850 3,050 3,200 3,250 3,250 3,250 3,250Animal Health 3/ 4,900 5,100 5,300 5,500 6,000 6,400 6,700 6,800 6,800 6,800 6,800Pasture Maintenance 4/ 6,300 5,400 6,600 7,800 9,000 9,000 9,000 9,000 9,000 9,000 9,000Fence and Water Maintenance 5/ 800 500 500 500 600 700 1,000 1,500 2,000 2,500 2,500Building Maintenance a/ 300 300 300 300 300 400 400 400 500 500 500Fuel Oil and Grease 500 800 800 1,000 1,oo0 1,000 1,000 1,000 1,000 1,0o0 1,0ooMachinery Maintenance 7/ 600 800 800 1,000 1,100 1,200 1,500 1,500 1,500 1,500 1,500Wages - Foreman 8/ - 2,400 2,500 2,500 2,600 2,700 2,700 2,800 3,000 3,000 3,200 3,200Wages - Stochnan 9/ 2,800 2,800 2 800 3,100 3,200 3,600 4,000 4,500 4,5500 4,500 14,500

Bull ReplacementlO/ 1,800 - - - 2,700 2,700 4,500 44,500 1,5D b4,500 4,500Contingencies (approx. 5Ç) 1,140 1,000 1,100 1,100 1,450 1,450 1,600 1,650 1,650 1,750 1,750

Total Excpenses 23,840 21,600 23,200 25,500 30,900 32,200 35,700 37,100 37,700 38,500 38,500

Net Operating Income 14,000 7,000 5,160 15,840 14,080 25,080 39,800 45,440 52,5oo 51,700 51,700

3/ Price por head lncreased as a result of upgrading of cattle and better management. 6/ Rising to 5% of value of atructures L 10,000.

2/ AJCoat 12_per AI. 7/ Rising to 10% of machinery value.

3/ L4 por AU plus voterinary services. 8/ Well qualified foreman.

4/ L6 por ha - mainly mechanical after initial renovation. 2/ Ranging fran 4 e L 700 to 5 0 L 900 por annum.

2/ Low after renovation frm loan funds increasing to 4% of L 62,500. 10/ Honduran bred bulla O L 900 per head.

C ~~~~~~~~~~~~~~~~~~~~~~~~HOND[IRASLIVESTOCK DEVEWOH4ENT PROJECT

Model 3. - Develooment of Breeding Ranch, 1,500 Ha

Financial Projectio

- (L'OO0)

Before ------------------ ---------Banch ea- ------ ---Tear---- --

Development 1 2 3 4 5 6 7 8 9 10 11-20

1. Cash Inflou

Total Sales 37.8 28.6 28.4 41.3 45.0 57.3 75.5 82.5 90.2 90.2 90.2 90.2Commercial B~nk Loan 56.o 21.6 22.4

Total 37.8 84.6 50.0 63.7 45.0 57.3 75.5 82.5 90.2 90.2 90.2 90.2

2. Cash Outflow

Rancher's Investment Contribution 14.0 5.4 5.6Investeent of Loan Funde - 56.0 21.6 22.4Operating Expenses 23.8 21.6 23.2 25.5 30.9 32.2 35.7 37.1 37.7 38.5 38.5 38.5

Total 23.8 91.6 50.2 53.5 30.9 32.2 35.7 37.1 37.7 38.5 38.5 38.5

3. Cash Balanee (1-2) 14.0 (7.0) ( .2) 10.2 14.1 25.1 39.8 45.4 52.5 51.7 51.7 51.7

4. Debt ServiceInterest on Bank Loan - 5.0 7.0 9.0 9.0 9.0 9.0 7.2 5.4 3.6 1.8 -Loan Amortization - - - - - 20.0 20.0 20.0 20.0 20.0

5. Cash Balanoe after Debt Service (3-4) l.o (12.0) (7.2) 1.2 5.1 16.1 10.8 1B.2 27.1 28.1 29.9 651.7

6. Annual Incrsmerotal Cash Balance - (26.0) (21.2) (12.8) (8.9) 2.1 (3.2) 4.2 13.1 14.1 15.9 37.7

7. Annual Incrermental Herd Value -- 20.8 13.5 10.0 17.4 15.1 60.1 6.8 - . - -

8. Total Annual Increeental Balaee (6.7) - ( 6.8) ( 7.7) ( 2.8) 8.5 17.2 56.9 11.0 13.1 141< 15.9 37.7

1/ As compared with rancherse net cash position before development.

2/ As compared with before development herd value of L 211,380. Also reflects rising value of cattle of about 20% from years 1-5 to years 6-20.

ANNEZ 7

H O N D U R A S

LIVESTOCK DEVELOPM3NT PROJECT

Project Costa and Foreign Exchange Compo~nt

Model 1 Model 2 Model 3Dairy/rattening Be f Br.gdAn Total US Dollar Foreign Exchange

Fattening Ranches (75) Ranches (50) MInche i (10 Cost F4uivalent Component-____________------------- 0 --ó-) --- ------- 0_ US$ 000

Pasture Improvement

New 112.5 175.0 - 287.5 143.8 15 21.6Renovation 9oo.0 125.0 300.0 1,325.0 662.5 15 99.4

Fences

New 187.5 100.0 100.0 387.5 193.8 40 77.5Reneval 157.5 75.0 37.5 270.0 135.0 40 54.0

Wateríng Facílítias

Wells 225.0 180.0 180.0 585.0 292.5 35 102.4Troughs and Tanks 37.5 50.0 75.0 162.5 81.2 35 2B.4Engines and Pumps 150.0 - 30.0 180.0 90.0 35 31.5Dairy - 25.0 - 25.0 12.5 35 4.4

Ranch Structures

Corrals and Chates 67.5 50.0 15.0 132.5 66.2 20 13.2Dips/Spray Races 56.3 20.0 15.0 91.3 45.6 40 18.3Silo Tranch 75.0 - 25.0 100.0 50.0 20 10.0Dairy Shed - 25.0 - 25.0 12.5 20 2.5Houses - 25.0 - 25.0 12.5 20 2.5

Hachinery and Equipment

fractors 262.5 - 35.0 297.5 148.8 70 104.1Forage Equipment 225.0 - 70.0 295.0 147.5 70 103.2Mi3cellaneous - - 35.0 35.0 17.5 70 12.3

Breeding Stock

Heifera 1,575.0 125.0 - 1,700.0 850.0 - -Bulls 1,012.5 150.0 207.0 1,369.5 684.7 30 205.4Contingencies 506.2 125.0 125.5 756.7 378.4 24 90.8

Total Capital Development 5,550.0 1,250.0 1,250.0 8,050.0 4,025.0 981.5

Working Capital 1/ 1,501.5 5594 2,060.9 1,030.4 - -

Total Ranch Development 7,051.5 1,809.4 1,250.0 10,110.9 5,055.4 19 981.5

Technical Services - - 352.5 176.2 60 106.2

Total Project Cost _ 10,463.4 5,231.6 21 1,087.7

1/ Purchase of Feeder Stears.

December 16, 1,69

u iHONDURAS

LIVESTOCIK DEVELOPMENT PROJECT

Technical Services Budget

Foreign ExtchangeProject Years Total Cost Coraponent

EKpenditure Items 1 2 3 4 5 Lempiras li 1 quiv. % s$

-------------------------------- (Lempiras>) ------------------------ ___

Operating Expenses

Project Director 1/ 54,000 54,000 54,000 54,000 54,000 270,000 135,000 6/ 75 101,250Secretary 3,500 3,500 3,500 3,500 3,500 17,500 8,750 -Driver/Meseenger 2,500 2,500 2,500 2,500 2,500 12,500 6,250 -

Per Diem Allovances / 4,000 4,000 4,000 4,000 4,000 20,000 10,000 -

Office 2/ 500 500 500 500 500 2,500 1,250 -Tranaportatiom 1/ 2,500 2,500 2,500 2,500 2,500 12,500 6,250 30 1,875Miscellaneous 1,500 1.500 1t°00 1.500 7.500 3 T50 -

Subtotal 68,500 68,500 68,500 68,500 68,500 3142,500 171,250 60 103,125

Capital Erpenditures

Vehicle 7,000 - - - - 7,000 3,5oo 70 2,450Office Equipment and

Purniture 2,500 - - _ _ 2,500 1,250 50 625Contingencies 500 - - 500 250 -

Subtotal 10,000 - - - - 10,000 5,000 6/ 62 3,075

TOTAL 78,500 68,500 68,500 68,500 68,500 352,500 176,250 60 106,200

ji Internationally recruited; finance provided includes salary, gratuity, international travel, family and housing allowances.

2/ Director approximately 100 days at L 30/day, and driver 100 days at 1 10/day.

2/ Allowances cover office supplies, telephone, etc. Office space vill be provided by Central Bank.

.V Estimates of L 1,500 yearly for fuel, repairs and maintenance of vehicle, and L 1,000 for in-country air travel.

5/ Includes adninistrative services of Central Bank.

6/ Financed by IDA Credit.

Note: In addition to the above technical and administrative services, it is estimated that two livestock tehicians would beneeded beginning Year-1 and two more beginning Year-2. These technicians would be provided by the participating banks.Their costs are not included in total Project cost.

ANN1a 9

HONDURAS

LIVTQOXW Dl¡VF !LO PROJEXT

PhaBiZI of Project Irvestments and IDA Disbursements

-- _--------P- roject Year- ---Category 1 2 3 4 5 Total

RFan>h Investment

Ran,-hl Plans Initiated 40 65 30 - - 135

Total Ranch Investments 758 1,45o 1,169 504 14i 4,025(Us$0ooo)

IDA Disbursement (us$'000)

Ranch Subloans 1/ 455 870 701 303 86 2,L115

Technical Services 32 27 27 27 27 140

487 897 728 330 113 2,555

1/ ;,er.stitutes 60% of total ranch investments.

Deceriber 16, 1969

HONDURAS: LIVESTOCK DEVELOPMENT PROJECTORGANIZATION CHART

PROJECT COMMISSIONCENTRAL BANK

MINISTRY OF NATURAL RESOURCES

MINISTRY OF ECONOMIC AFFAIRS AND FINANCE

…___________ NATIONAL PLANNING COUNCIL -_

PARTICIPATING BANKS 1 /NATIONAL AGRARIAN INSTITUTE

NATIONAL CATTLEMEN'S ASSOCIATION

NATIONAL DEVELOPMENT BANK (OBSERVER)

PROJECT DIRECTOR (EXECUTIVE SECRETARY)

PARTICIPATING P ROJECT DIRECTOR PARTICIPATINGBANKS ~~~~~~~~~~~~~~BANKS

TECHNICAL STAFFOF PARTICIPATING BANKS

PARTICIPATING RANCHERS

1/ One representative each from: zz

Regional Branch Banks, North Coast X

"National" Banks, Tegucigalpa i"Foreign" Banks, Tegucigalpa IBRD - 4338(2R)

AN¡E: 11

HONDURAS


Duties, Responsibilities and Authorities of the Project Director

The Project Director, although seconded to the Central Bank,shall report to the Project Comnission. He shall have the technicalresponsibility for implementation and execution of the Project, and shallhave the following specific duties and responsibilities:

(a) advising the Project Commission on major policy decisions inrespect of the Project; also would act as Executive Secretary;

(b) executing the Project in accordance with poiíoies and prooeduresagreed to by the Project Comnission;

(c) cooperating with the management of the Central Bank and of theParticipating Banks toward accomplishing Project objectives;

(d) approving secondment of such technical staff to his office ashe considers necessary to carry out Project activities;

(e) training of Project staff as may be necessary for £ulfillmentof Project objectives.

(f) approving or disapproving all ranch development plans preparedand appraised under the Lending Program;

(g) providing such supervision and technical assistance as necessaryto ensure successful completion of each ranch development planand loan;

(h) advising Participating Banks through the Project Commission ofany misuse of the proceeds of a ranch development loan or failureon the part of the borrower to carry out the relevant ranchdevelopment plan and recormending remedial action therefor;

(i) establishing and maintaining records for sample ranches as neededfor Project evaluation;

(j) preparing an annual budget for the needs of the Project staffand office to be submitted to the Central Bank; and

(k) preparing quarterly and annual Project progress reports for sub-mission to the Project Comnission and Central Bank and fortransmittal to IDA.

December 16, 1969

tl H O N D U R A S

LIVESTOCK DEVELWPMENT PROJZCT

Proiected aources and Application of Funds - Central Bank Livestock Account

(L' ne)OD

o'

ATEGR- -------- e-ar-----------------------------_-----_-------_-_-_________-___1 2 3 1k 5 5 7 d 9 15 11 12 13 114 15 16 Total

SOURCE OF FUNDS

IDA Credit for:

First Loans 910 1,740 1,402 605 173 - - - _ _ - -_ _ _ _ _ 4,830

Technical Services 1/ 64 514 51 514 514 - - - - - _ _ _ _ 280

Interest Receir,ts from P.B.'s.

First Loana (5%) !-5 1"' 203 23" 244 235 214 179 136 89 42 10 -

Second Loans (5%) - - - - - 7 29 65 109 157 205 237 245 243 242 241 -

Repanuent of Principal by

P..,

First Loans 2/ - - - - 127 422 701 859 949 939 639 194 - _ _ _ 4,830

Second Loans 3/ - - - - 19 517 946 1,222 1,618 2,410 2,376 -

Second Loans Account - - - - _ 136 4136 715 874 964 973 1,123 1,057 1,139 1,534 2,326 11,327(Rollover funds)

TOTAL 1.019 1,926 1,659 892 598 800 1.380 1.818 2,068 Z,168 2,376 2,510 2.524 3,000 4,186 4,943 -

APPLICATION OF FUNDS

First Loans to P.B.'s. 910 1,740 1,402 605 173 - - - - - - - - - - -

Second Laona to P.B.'s. - - - - - 136 436 715 874 964 973 1,173 1,107 1,189 1,584 - -

Technical Services 4/ 78 68 68 69 69 10 10 10 10 10 10 10 10 10 10 136 -

Interst PSYents toGover=2mnt (1;. 5S)

First Loans 40 119 183 210 220 212 193 161 122 eo 38 9 - - - - -

Second Loans - - - - - 6 26 58 98 141 184 213 220 219 218 217 -

Principal P enta tor,overriment -- - - - - - 148 48 48 48 48 48 288

14, 542Livestock Account 6/ (9) (1) 6 8 136 436 715 874 964 973 1,123 1,057 1,139 1,534 2,326 4,542 -

TOTAL 1,019 1,926 1,659 892 598 800 1,380 1,818 2,068 2.168 2,376 2,510 2,524 3,000 4,186 4,943 _

1/ Includes salary, international travel, family and housing allowances of Project Director plus CIF cost for transport (vehicles) and office enuipment.

2/ Based on average of 4 years grace plus 6 equal annual payments. (Loans made in Year-3 would haye last orincinal installment maturity in Year-12).

3/ Based or. narrowing repayment terms, as well as grace neriods, as the externsion cf Stage II loauis acproaches Year-i.

4/ Includes tfunds fron IDA Credit plus local costs of Project Director and administrative costs of Central Bank.

£/ No.payments during Years 1-10 and 1% per year during Years 1-1, (IDA terms) on L 4.8 million (US$2.4 million).

6/ Central Be.k would recover deficits of ye2rs 1 2nd 2 -n :rqrs 3 and 4 with a small surplus (L 4,9oo). Stage 11 rollover lending w3uld thus begin in years 5-6.

t ~~~~~~~~~~~~~~~~~~~~~~H O N D U R A S


Projected Sources and Application of Funda - Participating Banks

o'(L'000)

> ~~~~~~~~~~~~~~~- -- - - - - - - - - - - - - - - - - - - - - - - - - - - - Y e a r - - - - - - - - - - - - - - - - - - - - - - - - - - - - -CATEGORY 1 2 3 6 7 9 10 11 12 13 14 15 16

SCFRCE OF FUNDS

Central Bank - First Loans 910 1,740 1,402 605 173 - - - - - - - -Central Bank - Second Loans - - - - - 136 436 715 874 964 973 1,123 1,057 1,139 1,534 2,326

Interest Receipts

First Loana (9%) 109 318 486 559 580 564 514 430 327 210 100 23 - -Second Loans (9%) - - - - - 12 51 115 194 281 368 428 424 437 436 217Working Capital (10%) 1/ 30 113 207 251 275 297 285 248 223 210 206 206 206 206 206 206

Repayment Principal-31

First Loans - - 170 562 935 1,145 1,265 1,252 853 290 - _ _ _Second Loans - - - 19 517 946 1,222 1,618 2,410 4,795Working Capital 299 1.128 2.068 2.504 2.753 2.968 2,853 2.484 2.226 2.095 2.059 2.o59 2.o59 2.059 2.0591 2.059

TOTAL 1.348 3.299 4.163 3.919 3.951 4.539 5.074 5.137 5,109 5.031 5.076 5.075 4.968 5.459 6.645 9,603

APPLICATION OF FUND

First Loans 1,213 2,320 1,870 807 230 - - - - - - - - - - -Second Loans - - - - - 136 436 715 874 964 973 1,123 1,057 1,139 1,534 2,326Working Capital 299 1,128 2,068 2,504 2,753 2,928 2,853 2,484 2,226 2,095 2,059 2,059 2,059 2,059 2,059 2,059Technical Services and Administrative Costa 3/ 30 93 149 174 181 91 92 94 99 107 114 126 136 143 150 150

Interest Pamnts to CB (5%)

First Loans 45 132 203 233 244 235 214 179 136 89 42 10 - - - -

Second Loans - - - - - 7 29 65 109 157 205 237 245 243 242 241

Repayment of Principal to CB

First Loans - - - - 127 422 701 859 949 939 639 194 _ _ _ _Second Loans - - - - - 19 517 946 1,222 1,618 2,410 4,795

Sub-total 1,587 3,673 14,290 3,718 3,535 3,819 4,325 4,396 l4,393 4,370 4,549 4,695 4,719 5,202 6,395 9,571

Net Cash Flow (239) (376) (127) 201 416 720 749 741 716 661 527 380 249 257 250 32

TOTAL 1.348 3.299 4.163 3,919 3,951 4,539 5.074 5.137 5,109 5,031 5,076 5,075 4,968 5,459 6.645 9,603

Incremental Net Flow (239) (615) (742) (541) (125) 595 1.344 2,085 2,801 3,462 3,989 4.369 4.618 4,875 5.125 5.157

1/ Nom`nal interest rete C/ but effective cast abmut 12% w}er. interest is paid in advanre, as is the custonary practice.

2/ Linked to repayment ter-s for 'irst ranch lopns and- arr-anin, reiDan:nent terns, as wel' as graze perírds, for second Joans as the rollover pericd approaches year-16.

3/ 2alculated on fo1lcwing estim s: 1% of cutstandiíl- .an vc`ime lincludding working capital) years 1-5; 1.C,% cX :utstanding loan volume years 6-16.

HONDURAS ANIJl lbLIVESTOCK DEVEIDPMENT PRDJECT

Cattle Population - Supply and DemandHistoric Trend and Projections up to 1971

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)Extractionfrom Cattle Slaught.red Cattle AvailableNational Extraction Exporte of live By Export for

Year Population Herd Rate cattle Packing Plants Local Consumntion('000) t ('000) ((o) a of 3) ('000) (% of 3) ('000) of 3)

1960 1,197.6 100 140.4 11.7 34.3 24.4 6.1 V.3 100.0 71.2

1961 1,223.4 102.1 168.3 13.8 47.8 28.4 11.0 6.9 109.5 65.1

1962 1,225.6 102.3 175.5 14.3 43.2 24.6 25.6 14.6 106.7 60.8

1963 1,220.9 101.5 176.5 14.5 43.1 24.4 30.4 17.2 103.1 58.4

1964 1,221.4 102,0 150.8 13.0 33.4 20.9 36.7 23.0 89.7 56.1

1965 1,239.0 103.5 156.2 12.6 24.8 15.9 42.4 27.1 892. 57.0

1966 1,245.6 104.0 158.7 12.7 27.6 17.4 56.6 35.7 74.5 46.9

1967 159.7 32.2 20.2 52.7 33.0 74.8 46.

1968 162.0 32.8 20.2 53.7 33.1 75.5 46.6

1969 161.3 33.5 20.8 54.8 34.0 73.0 45.2

1970 160.4 34.0 21.2 56.4 35.2 70.0 43.6

1971 158.5 34.6 21.8 57.5 36.3 66.4 41.9

Notes 1. Supply projectionsfro1967on arebased on extraction rate of 12%; offective weaning rate 35% and mortality adulta 5%.

2. Live cattle export projections based on 2% annual increase declining to 1.5% in the last 2 years due to build-upof female stock in Guatemala.

3. Meat export projections based on average 2.5% increase annually.

Sourcet 1960-66: Central Bank of Honduras, Department of Economic Studies; 1967-71: mission estimates

HONDIURAS

LIISIDMC,OX DU V5PM7T PROJECT

Financial Rate of Return of Ranch Models

o.

H ----------------------------------------------- Ranch Year --------------------------------------------------------------Ranch Model 1 2 3 5 6 7 8 9 10 11-19 20

'L'IOO)

1. Beef Breeding/Fatteni-ng

Benefits:

Incremental Sales 19.9 37.7 h4.9 4o.1 65.6 53.41 56.5 5L.7 54.6 58.5 58.5 11h.7 1'

Costs:

Investment Costs h6.7 13.7 13.7Working Cauital 12.5 11.7 Is.1 (2.9) 9.2 (6.0) (3.4s) (3.h) (1.8)Incremental Operating Costa 17.8 31.6 37.5 35.1 .45.8 39.0 31.9 32.2 29.7 30.7 30.7 30.7Total 77.0 77 .0 55.3 Tr5 1 .5 33W T -B- 2 7.9 7

Net Cash Flow (57.1) (19.3) (10.5) 7.6 13.6 20.1 25.0 25.9 26.7 27.8 27.8 111.0

Rate of Return - 18%

2. Dairy-Steer/Fatteníng

Benefits:

Incremental Sales 5.3 11.2 18.5 19.2 28.1 27.1 26.2 26.3 27.7 27.7 27.7 16.7

Costs:

Investment Co5ts 15.5 3.0 1.5Working Capital 3.3 5.1 2.6 .1 3.6 (1.1) (1.4) ( .8) - -Ineremental Onerating Costs 8.7 10.3 11.7 16.3 20.1 18.7 17.3 17.3 17.3 17.3 17.3 17.3

Total 23.5 23.1 1. -,. 23.7 17.3 15.9 16. 17.3 17.3 17.3 17.3

Net Cash Flow (19.2) ('.7' ( .3) 2P. b.l 9.9 10.3 9.9 10.o 10. 4 10.4 29.1

Rate of Return - 21%

3. Beef Breedlng Ranch

Benefits:

Incremental Sales (Q.2) (3.8) 7.7 19.5 37.7 11.7 52.1 52.L 52.4 52.1 196.1 -

Costs:

Investnent Costs 70.0 -7.0 ^3.0Incremental Onerating Costs (2.2) ( .6) 1.7 7.1 8.! 11.9 13.3 13.? 11.7 1L.7 11.7 1L.7Total 67.E 26.4 27 7T. 11.9 U3I3 I73 1.7 I7 11U.7

Net Cash Flow (77.0) ('5.8) (26.2) .1 11.1 25.' 31.1 38.5 37.7 37.7 37.7 181.4

Ra'e of Ret-cm - 16l

1/ Includes incremental value of herd.

a ~~~~~~~~~~~~~~~~~~~~~~H O N D U R A S

a LIVESTOCK DEVELOPMENT PROJECT

Benefits and Justification

Incremental Costs ani Benefits(L '00)

-----Yer--_______1 2 3 14 5 6 7 8 9 10 11 12 13 14-20

Benefita

Incremental Sales 1/ 432 1,596 3,248 4,040 4,880 5,931 6,309 6,181 6,231 6,305 6,447 6,520 6,525 6,532

Incremental Costa

Total On-ranchInvestments 1,517 2,900 2,337 1,oo8 289 - - - - - - - - -

Working Capital 29n o29 940 437 248 215 (115) (369) (258) (131) (36) _ - -Operating Costs 2/ 432 1,555 2,7°4 3,462 3,913 4,213 4,084 3,710 3,474 3,357 3,333 3,346 3,318 3,328Technical Services 108 181 275 320 344 50 50 50 50 50 35 10 - -

Total Cosis 2,356 5,465 6,346 5,227 4,794 4,478 4,019 3,391 3,266 3,276 3,332 3,356 3,318 3,328

Net Flow (1,924) (3,769) (3,098) (1,187) 86 1,453 2,290 2,790 2,965 3,029 3,115 3,164 3,207 3,204

Incremental Revenuefor Government 3/ 23 54 77 86 87 92 96 89 85 84 84 85 85 85

Net Flow to Economy (1,901) (3,715) (3,021) (1,101) 173 1,545 2,386 2,879 3,050 3,113 3,199 3,249 3,292 3,289

The economic rate of return over a 20-year period is about 18%.

1/ Increanetal milk production that would be sold is valued at CIF price of L 0.11 per liter (=CIF price imported milk powder converted into. liquid milk).

2/ Subsidy on gasoline (L 0.40/gallon) has been added to operating costs.

3/ Based on slaughter taxes paid to Government (L 2 per animal) and to Municipalities (L 2.20 - 6.0 per animal) plus import duties levied on goads importedfor on-ranch development under the Project.

NOTE: Costs and benefits continue unchanged after year-14. At the end of year-20, the increase in herd value totaling 8,627 thousand lempiras is taken intoconsideration for calculating the rate of return.

C A / 8 B B E A N £ 4|

IS A S D E L A B A H I A

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Documents

World Bank Documentdocuments.worldbank.org/curated/en/321741468254053578/pdf/multi0page.pdffemale stock for breeding, and steers for fattening, the IDA agreed vith Government on a