RESTRICTED

Report No. PA-117a

This report is for official use only by the Bank Group and specifically authorized organizationsor persons. It may not be published, quoted or cited without Bank Group authorization. TheBank Group does not accept responsibility for the accuracy or completeness of the report.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF

LIVESTOCK DEVELOPMENT PROJECT

PHILIPPINES

April Z6, 1972

Agriculture Projects Department

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CURRENCY EQUIVALENTS

US$1 - P 6.4P 1 - US$0.16P 1 million - US$156,250

WEIGHTS AND MEASURES

Metric System

1 hectare (ha) - 10,000 m - 2.47 acres1 kilometer (km) 2 - 0.62 miles1 square kilometer (km )- 0.39 sq mi - 100 ha1 kilogram (kg) - 2.20 pounds1 liter (1) - 0.26 gallons1,000 kg - 1 metric ton X 0.98 long ton

ABBREVIATIONS

ACA - Agricultural Credit AdministrationAPC - Agricultural Productivity CommissionBAI - Bureau of Animal IndustryDANR - Department of Agriculture and Natural ResourcesDBP - Development Bank of the PhilippinesNEC - National Economic CouncilNFAC - National Food and Agricultural CouncilPDBs - Private Development BanksPNB - Philippine National Bank

DBP FISCAL YEAR

July 1 - June 30

PHILIPPINES

APPRAISAL OFLIVESTOCK DEVELOPMENT PROJECT

TABLE OF CONTENTS

MAIN TEXT

Page No.

SUMMARY AND CONCLUSIONS ............................. i-iii

1. INTRODUCTION ........................................ 1

II. BACKGROUND .......................................... 2

A. General ........................................ 2Climate .................................... 2 Population and Gross National Product ...... 2

B. The Agricultural Sector ....................... 3Contribution to the Economy ............. .. 3Livestock ................................. 3Animal Health ............................. 4Coconut ................................... 4

C. Government Policies ............................ 4D. Agricultural Services .......................... 5

Marketing ................................. 5Research, Extension and Education .... ..... 5Agricultural Credit ....................... 6

III. THE PROJECT ....................................... 6

A. General Description ............................ 6B. Detailed Features .............................. 7

Project Areas ............................. 7Integrated Coconut/Beef Cattle FatteningFarm .................................... 8Integrated Coconut/Beef Cattle Breeding/Fattening Farm .......................... 8

Hill Beef Cattle Breeding Ranch .... ....... 9Pig Breeding/Fattening Farm .... .......... 9Poultry-Broiler Farm ..................... 9Poultry-Layer Farm ....................... 9Slaughterhouse Development ................. 9Technical Services ........................ 10

C. Cost Estimates ................................. 11D. Financing ...................................... 12

All Mission members, F. Knobel, M. McGarry, M. Walshe, R. Hanan (Bank), andM. McEvoy (Livestock Consultant), contributed to this report.

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Page No.

E. Procurement .................................... 13F. Disbursements .................................. 14G. Organization and Management ..... ............... 14

Development Bank of the Philippines .... ...... 14Financial Condition ..... .................. 15Operating Results ......................... 15Loan Defaults ............................. 15Agricultural Department .... ............... 16

H. Lending Policies and Procedures .... ............ 16I. Accounts and Audit .............................. 17

IV. PRODUCTION, MARKETS AND MARKETING, AND PRODUCER BENEFITS 18

A. Production ....................................... 18B. Markets and Marketing ....... .................... 18C. Producer Benefits ......... ....................... 19

V. ECONOMIC BENEFITS AND JUSTIFICATION .................. 21

VI. AGREEMENTS REACIED AND RECOMMENDATION ................. 21

ANNEXES

1. Agriculture in the EconomyMap - Climate TypesChart - Monthly Precipitation According to Type of ClimateTable 1 - Agricultural Land Utilization

2. Marketing and PricesTable 1 - Livestock Population by Kind and by Region as of

January 1, 1969Table 2 - Total Cost of Transport of Live Cattle to Manila

From Mindanao and the VisayasTable 3 - Average Annual Retail Prices for Livestock Products

Per Kg in ManilaTable 4 - Shipping Costs for Hogs from Outlying Islands to

ManilaTable 5 - Summary of Costs in Shipping Live Hogs and Savings

Through Shipping CarcassesTable 6 - Summary of Costs in Shipping Live Cattle and

Savings Through Shipping Carcasses

3. Agricultural CreditTable 1 - Loans Granted and Outstanding to Agriculture by

Financial Institutions, 1965-70

4. Model - Integrated Coconut/Beef Cattle Fattening - 5 haTable 1 - Herd ProjectionTable 2 - Investment ProjectionTable 3 - Sales and Operating Expenses ProjectionTable 4 - Financial Projections

5. Model - Integrated Coconut/Beef Cattle Breeding/Fattening - 15 haTable 1 - Herd ProjectionTable 2 - Investment ProjectibnTable 3 - Sales and Operating Expenses ProjectionTable 4 - Financial Projections

6. Model - ilill Beef Cattle Breeding - 600 haTable 1 - lierd ProjectionTable 2 - Investment ProjectionTable 3 - Sales and Operating Expenses ProjectionTable 4 - Financial Projections

7. Model - Pig Breeding/Fattening - 25 sowsTable 1 - Herd ProjectionTable 2 - Investment ProjectionTable 3 - Sales and Operating Expenses ProjectionTable 4 - Financial Projections

S. Model - Broiler Production - 8,000 Broiler CapacityTable 1 - Flock ProjectionTable 2 - Investment ProjectionTable 3 - Sales and Operating Expenses ProjectionTable 4 - Financial Projections

9. Model - Egg Production - 6,000 Hen CapacityTable 1 - Flock ProjectionTable 2 - Investment ProjectionTable 3 - Sales and Operating Expenses ProjectionTable 4 - Financial Projections

10. Model - Slaughterhouse Daily Capacity 20 Head of Cattle and 200 Headof PigsTable 1 - Investment ProjectionTable 2 - Sales and Operating Expenses ProjectionTable 3 - Financial ProjectionsTable 4 - Profit and Loss Projections

11. Management and Technical Services - Investments Projections

12. Management and Technical Services - Terms of References

13. Plhasing of the Lending Program

14. Estimated Schedule of Quarterly Disbursements

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15. Development Bank of the Philippines (DBP)Table 1 - Organization ChartTable 2 - Members of the Board of DirectorsTable 3 - Agricultural Department Staffing PositionsTable 4 - Condensed Annual Balance SheetTable 5 - Schedule of Installments on Regular GuaranteeTable 6 - Schedule of Payments on CCC and CWB CreditTable 7 - Condensed Statement of Annual EarningsTable 8 - Costs and Returns on Average Annual Loan Portfolio

and InvestmentsTable 9 - Projected Cash Flow, FY1971-72Table tO- Past Due Loans and Loans in LitigationTable 11- Annual Outstanding Loan Volume by SectorTable 12- Financial Data on Private Development Banks

16. Projected Project Cash Flow

17. Financial Rates of Return

18. Economic Rate of ReturnTable 1 - Summary Economic Rate of Return Calculations

MAP

Project Areas

PHILIPPINES

APPRAISAL OFLIVESTOCK DEVELOPNENT PROJECT

SUMMARY AND CONCLUSIONS

i. This report appraises a project for the further development oflivestock in the Philippines, for which a Bank loan of US$7.5 million equi-valent is proposed. The total cost of the Project, with a commitment periodof three years, is estimated at US$15.5 million, of which US$4.8 million,or 31%, represents foreign exchange requirements. The inclusion of US$2.7million for local costs would increase the Bank's participation in theProject from the 31% foreign exchange component to nearly 50% of total Projectcost. This would be adequate to bring about the necessary improvements inorganization, lending criteria and procedures required under the Project.

ii. Agriculture is the most important sector of the Philippine economy,employing about 50% of the total labor force and producing about 35% of theNet Domestic Product. Livestock is an important sub-sector of agriculturecontributing about 15% of agricultural production. Although the Government'sFour-year Development Plan, 1972 to 1975, aims toward achieving self-sufficiencyin rice, the Plan also supports greater diversification of agricultural pro-duction through increased livestock and feed grain development. The Projectwould help Government achieve this objective.

iii. This would be the sixth Bank loan to the Philippines for agricul-tural development, but it would be the first loan devoted entirely tolivestock development. The Second Rural Credit Project (Loan 607-PH madein 1969) initially moved slowly but with general improvement of the economy,following de facto devaluation of the peso early in 1970, and a reductionin the amount of contribution by participating rural banks and farmers,disbursements have increased significantly.

iv. While large farms would not be excluded, the main aim of theProject would be to finance:

(a) development of about 1,450 semi-commercial small tomedium size pig, poultry, and integrated coconut/beefcattle farms;

(b) development of about 25 hill beef cattle breedingranches that are an important source of feeder cattlefor backyard farmers;

(c) constructing and equipping three small slaughterhouses;and

(d) provision of technical services.

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The Project would emphasize the provision of technical services to partici-pating farmers. This would be particularly important since the aim of theProject would be to finance a relatively large number of small to medium-size producers who would require intensive supervision and guidance tosuccessfully carry out their investment programs. Because a less expensive,better quality pig and poultry ration is an important objective, technicalservices would emphasize full use of the wide range of cereal by-productsavailable locally. Technical services would also include two consultants,one to advise on a pig breeding improvement scheme, and the other to adviseon utilization of low cost molasses and sugarcane tops in beef cattleproduction.

v. Government, as Borrower, would on-lend on the same terms the Bankloan to the Development Bank of the Philippines (DBP), which would executeall aspects of the Project. DBP, a large Government Bank with wide experiencein agricultural lending, would grant loans directly to beneficiaries and,in some cases, would on-lend Bank funds to Private Development Banks (PDBs)which also would grant loans made by them under the Project. On average,beneficiaries would contribute about 16% of investment requirements, DBP/PDBsabout 36% and the Bank 48%. The interest rate would be 12% per annum onmedium- and long-term loans of 5 to 11 years.

vi. Turnkey contracts, amounting to about US$600 thousand, 4% ofProject cost, for construction and equipping three slaughterhouses wouldbe subject to international competitive bidding. Goods for on-farm investmentsand incremental working capital inputs amounting to about US$13.9 million,90% of Project costs, would be acquired through existing commercial channelsbecause of the diversity, small size of individual purchases, which wouldleave the channel and source of supplies to the choice of the individualfarmers. The Philippines has a good network of dealers in agriculturalinputs and competition is keen. The balance of investment costs of US$1million, 6% of Project cost, constitutes the estimate for technical services.

vii. The estimated financial rates of return to the producers' incre-mental investments would range from 19% to 47%. The rate of return to thePhilippine economy is estimated at about 36%. The Project is expected toprovide significant increases in the production of eggs, broilers, pork, andbeef and a small increase in coconut production. New investments for poultryand pork production constitute about 70% of total Project Cost. About 1,700new jobs would be created in rural areas, providing work for people whopreviously were either unemployed or greatly underemployed, thus benefittingabout 10,000 people. Additionally, some 1,500 subborrowers, with about8,500 dependents, would benefit directly from the Project.

viii. The Project is not without constraint. The attainment of technicalproduction objectives at the farm level is dependent in particular on thereliability of high quality feed supplies and the quality and effectivenessof the technical services expected to guide small Filipino producers in theadoption of new, commercially-oriented production techniques.

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ix. The Project is suitable for a Bank loan of US$7.5 million, for aterm of 14 years including a grace period of six and a half years. Govern-ment would be the Borrower and would bear the foreign exchange risk.

PHILIPPINES

APPRAISAL OFLIVESTOCK DEVELOPMENT PROJECT

I. INTRODUCTION

1.01 The Government of the Philippines has requested a Bank loan to helpfinance a livestock development project to increase the meat supply for thedomestic market. The proposed loan would be the sixth for agriculturaldevelopment in the Philippines 1/, but the first exclusively for developingthe livestock sub-sector. Government would be the Borrower and the Develop-ment Bank of the Philippines (DBP) would be executing agency. DBP is amultipurpose development bank with a direct loan portfolio of about US$400million. Its agricultural portfolio is only about 25% of the total andProject lending would be roughly 3% of its total loan portfolio. It hasnot been possible to appraise the DBP in all its operations, but theAgricultural Department constitutes a satisfactory on-lending channel forpurposes of this project.

1.02 Generally, the Bank's experience with other agricultural projectsin the Philippines has been satisfactory. About US$400,000 remains to bedisbursed under Loan 393-PH (Agricultural Education); Loan 434-PH (FirstRural Credit Project) has been fully disbursed. After an initial slow start,Loan 607-PH (Second Rural Credit Project) is moving ahead. Recently, theBank concurred with the Central Bank (Borrower) that an expected 10% contri-bution from participating rural banks may be contributed by the CentralBank, or other Government sources, and that the contribution from participatingfarmers may be 10% on an average rather than specifically so for eachinvestment program. Implementation under Loan 637-PH (Upper Pampanga RiverProject) has been very satisfactory. Loan 720-PH (Rice Processing andStorage Facilities Project) is just getting underway. It, too, is adminis-tered by DBP.

1.03 The Project would include on-farm development of about 400integrated coconut/beef cattle farms on Mindanao Island, 25 hill beef rancheson Mindoro and Masbate Islands, 600 pig farms in the Central Luzon,Southern Tagalog and South Mindanao Regions, 450 poultry farms in theCentral Luzon and Southern Tagalog Regions, and three slaughterhouses on

1/ 393-PH, 1964, US$6 million for agricultural education, UPAC (Los Banos).432-PH, 1965, US$5 million for first rural credit project for smallfarmers.607-PH, 1969, US$12.5 million for second rural credit project for smallfarmers.637-PH, 1970, US$34 million for irrigation project (Pampanga river).720-PH, 1971, US$14.3 million for rice processing and storage facilities.

Mindanao Island. In addition, the Project would provide for technicalservices to all sub-borrowers and for employment of two short-term consultants.

1.04 The Project was prepared with the help of the FAO//IBRD CooperativeProgram, which sent two missions to the Philippines, one in April/May 1969and the second in October/November 1970. To achieve the greatest impacton the rural economy, and in agreement with Government, the thrust of theProject was changed from supporting the further development of large product-ion enterprises to the development of semi-commercial medium-size to smallerproduction enterprises. The bulk of livestock production in the Philippinesstill comes from the latter group and backyard producers who characteristicallyhave their main resources in agriculture whereas the larger producers mayhave their major resources in other sectors such as industry and commerce.Project areas were also modified, commercial poultry hatcheries dropped fromthe Project as the present output is sufficient for the demand, and threesmall regional slaughterhouses were added.

1.05 This report is based on findings of an appraisal mission, composedof Messrs. F. Knobel, M. McGarry, M. Walshe, R. Hanan (Bank) and M. McEvoy(Livestock Consultant), which visited the Philippines in June/July 1971.

II. BACKGROUND

A. General

2.01 The Republic of the Philippines, with an area of about 30 millionha, is situated in the Tropics of East Asia between latitude 40230 and21'25'N. The archipelago extends over 1,600 km from north to south andcomprises more than 7,000 islands, of which 11 account for about 95% of thetotal land area.

Climate

2.02 High temperature, humidity and rainfall characterize the climate.Mean temperatures range between 210C in January to 19°C in May. Rainfall,the most important climatic variable, ranges from 1,000 mm in the south to5,500 mm in the northern highlands of Luzon. Annual rainfall is fairlyuniform with an average variation between years of about 14%. However,pronounced dry seasons do occur. Climatically, the Philippines has highpotential for crop and forage production. The environment is well suited topig and poultry production, and beef cattle also adapt well to it.

Population and Gross National Product

2.03 The population of the Philippines, at just over 37 million, isincreasing at about 3.2% per year. Gross National Product (GNP) in real

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terms increased at an average rate of about 6% during the past decade.Per capita GNP is estimated at about US$165. 1/ The rate of inflation in1971 was about 17%.

B. The A&ricultural Sector

Contribution to the Economy

2.04 Agriculture employs about half of the total labor force and,including fishery and forestry, produces about 35% of the Gross DomesticProduct (GDP). It contributes 70% to 80% of the country's export earnings- almost entirely from forest, coconut products and sugar. On the otherhand, imports of agricultural origin in 1970 were only 10% of total imports.The main agricultural imports are cereals, dairy products, meat and fish.Imports of meat and meat products dropped sharply in value from US$9million in 1969 to about US$5 million in 1970 due to import credit restrictionsand higher prices paid by importers after the peso was floated in February1970. Combined meat and fish products account for half of all food importsin the Philippines. A series of devastating typhoons in 1970 slowed downagricultural growth from 6.8% in 1969 to 3.1% in 1970, but improved to about5% in 1971. While the agricultural sector in the past has grown more rapidlythan GDP, largely due to the result of the breakthrough in high yieldingrice varieties, future growth of agriculture (1972 to 1975) is estimatedat 5% annually. 2/ Of the total agricultural contribution of about 35% toGDP, food crops contributed 10%; livestock and poultry, 6%; commercialexport crops, 6%; forestry, 6%; fisheries, 4%; and miscellaneous, 4%;(Annex 1)

Livestock

2.05 Beef cattle number more than 2 million head, largely small nativetypes, with concentrations in Southern and Northern Mindanao Island andCentral Luzon. Most beef cattle are found in ranching areas but the grazingof beef cattle under coconuts is assuming increasing importance in recentyears, particularly in Mindanao. Carabaos (water buffalo), which numbernearly 5 million head, are found all over the country with the highestconcentrations in the rice producing areas where they are used extensivelyas draft animals.

1/ Lower than the estimate of $210 in the World Bank Atlas of 1971 duelargely to devaluation of the peso of about 40% in February 1970.

2/ The corresponding estimate for GDP according to the latest IBRDEconomic Mission (October 1971) is 6.3%.

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2.06 Government estimates of the pig population in 1971 are around12.5 million head, and the number slaughtered is thought to range from 6.3to 8.8 million annually. Pigs are found throughout the Philippines andbackyard units contribute about 90% of the pig meat production. Thepoultry population is estimated at almost 100 million with commercialproduction heavily concentrated around Manila. Philippine farmers arerelatively efficient at pig and poultry production. Their greatest problem,however, is the variable and generally inferior quality, and high pricesof the rations available commercially.

Animal Health

2.07 Animal health problems are not a serious impediment to production.Although virtually all the common diseases of livestock are present, controlmeasures, including vaccines and prophylactic measures, are available tothe Filipino producer and are readily used by him.

Coconut

2.08 The coconut industry occupies a leading position in the economy.It provides a source of livelihood for almost 440,000 families or about 2.6million people. As of 1970, about 21% or about 1.9 million ha of cultivatedland was planted to coconut trees, and coconut products registered 20% oftotal export earnings in 1970. Approximately 90% of the area planted tococonuts is accounted for by holdings of 25 ha or less. The potential isgreat for developing integrated coconut/beef cattle production, with con-sequent large increases in copra and beef output.

C. Government Policies

2.09 A major objective of Government's recently revised Four-YearDevelopment Plan, 1972 to 75, is to continue the spread of high-yieldingrice varieties in order to make the Philippines self-sufficient in thisimportant cereal. Priorities also will be given to (i) expansion oflivestock and poultry as import substitution; (ii) crop diversification tofeed grains, i.e., yellow corn, sorghum, soybeans, to support the productionof livestock and poultry; and (c) the development of fisheries both formeeting domestic demand and exports.

2.10 In FY 1968-69, rice received 49% of the total new lending toagriculture; corn, 4%; and livestock and poultry, about 15%. The intentionof the Plan is to increase the amount and the share of agricultural lendingdevoted to feed grains and livestock production. The Project would make asignificant impact toward achievement of this goal.

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D. Agricultural Services

Marketing

2.11 Marketing of agricultural commodities is almost entirely in thehands of private individuals. Though the system is characterized by manymiddlemen, it still functions relatively efficiently.

2.12 Per capita meat consumption is about 14 kg/annum from the follow-ing main sources: pig meat, 9 kg; poultry meat, 2 kg; carabeef (carabaomeat), 2 kg; and beef, 1 kg. Egg consumption is estimated at about 2.8 kg/capita/annum. The level of meat consumption is somewhat above several othercountries with similar per capita GNP. 1/

2.13 Most cattle and hogs are shipped live to the Greater Manila areasince the city of Manila requires that all meat sold there must be slaughteredthere. However, most of the supermarkets are located in the suburbs outsidethe city limits and are, therefore, not subject to this regulation. Meatsold outside of Manila accounts for about 75% of total meat consumed in theGreater Manila area. Great loss in weight occurs in shipping live animalsthe approximate 1,500 km from parts of Mindanao to Manila, and locatingslaughterhouses near the production centers would appear to be the nextlogical step. The Government has recently established the General ManilaTerminal Food Market (GMTFM) as a parastatal body to increase competition inmarketing and hopefully to lower marketing margins (Annex 2).

Research, Extension and Education

2.14 Agricultural research, veterinary and extension services are pro-vided by the Department of Agriculture and Natural Resources (DANR) throughthe Bureaus of: Animal Industry (BAI), Plant Industry, and Soils. Exten-sion is mainly the function of the Agricultural Productivity Commission(APC) and, to some extent, the National Food and Agricultural Council (NFAC).The College of Agriculture, University of the Philippines at Los Banos,conducts research on animal production and limited extension work to encour-age the adoption of new pasture and animal production techniques at farmlevel. The College of Veterinary Medicine, University of the Philippinesat Quezon City, conducts research on animal diseases, provides diagnosticlaboratory services and limited field extension services. BAI is responsiblefor the development of the livestock industry and shares with APC responsi-bility for livestock extension and training. Although the number of person-nel employed is large and office facilities are well developed, the qualityand effectiveness of the service is weak.

1/ Korea 5.5 kg; Liberia 8.8 kg; Tunisia 12 kg.

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2.15 The quality of research work carried out by the Animal HusbandryDepartment and the Veterinary College is fair, but there is need for moreclearly defined objectives in animal research to help solve the most impor-tant problems facing the industry. Greater emphasis for example should befocused on accumulating input/output data for the great variety of forageand concentrate feeds available locally when these are used in livestockproduction. Information on the most efficient means of developing rangelandsis similarly needed. A proposed UNDP technical assistance project would betimely to the Project since it would concentrate on developing such inform-ation.

Agricultural Credit

2.16 The most important sources of institutional credit for agricultureare financial institutions either fully or partially capitalized by Govern-ment. These are the DBP, the Philippine National Bank (PNB), and the RuralBanks. As a group, they account for about 65% of institutional creditgranted annually to the sector, the other 35% coming from the private commer-cial banks. PNB, with its extensive countrywide system, is the most import-ant bank, and concentrates on making short-term loans to commercial sizeproducers. Credit from the private commercial banks, almost entirely foragro-industry and trade, is generally short-term (Annex 3).

2.17 The small producers are served by the Rural Banks (500); PrivateDevelopment Banks (PDBs), which number 29; the Agricultural Credit Adminis-tration (ACA); and, to some extent, the DBP system. The Central Bank plays animportant role since it rediscounts agricultural paper, with maturities up to270 days at variable interest rates. For instance, regardless of productionuse, the rural banks receive a preferential reciscount rate of 2% and 3%;all credit used for production of high priority crops (rice and corn) can berediscounted at 4%, and commercial paper for loans and advances at 8%. Ex-cept for ACA, which by law is limited to 8% interest rates to the ultimatebeneficiary, the interest rates in the agricultural sector, at 12-14% perannum, are generally competitive with rates prevailing elsewhere in theeconomy. DBP increased its interest rates in August 1970 from about 9% to12%.

III. THE PROJECT

A. General Description

3.01 The objectives of the Project are:

(a) to assist the Philippines to meet, from local resources,a larger share of the domestic demand for livestock andpoultry products;

(b) to improve the effectiveness of DBP's agriculturalcredit services; and

(c) to demonstrate that relatively small producers can pro-duce livestock products efficiently in the Philippines.

The main components of the Project would be for pig and poultry development,constituting about 70% of the total. The components are summarized asfollows:

Number of Project Cost % TotalComponents Loans (US$ Millions) Project Cost

Integrated Coconut/Beef CattleFattening 200 0.3 2

Integrated Coconut/Beef CattleBreeding/Fattening 200 1.1 7

Hill Beef Cattle Breeding 25 0.8 5Pig Breeding/Fattening 600 5.6 36Poultry-Broilers 250 2.1 14Poultry-Layers 200 3.1 20Slaughterhouses 3 1.5 10Technical Services - 1.0 6

Total 1 478 15.5 100

B. Detailed Features

Project Areas

3.02 Project areas in which farm and ranch development would be carriedout and the slaughterhouses constructed would be mainly as follows:

(a) Integrated Coconut/Beef Cattle Farms - South Mindanao Regioncovering the coconut belt around the Davao Gulf in the provincesof Davao City, Davao del Sur, Davao del Norte and Davao Oriental;and in the North Mindanao Region, Misamls Oriental province.These regions are the most important coconut producing areas inthe Philippines, and beef breeding/fattening operations, usingcultivated pastures under the trees, have been successfullyoperated here by large producers for many years (90% of thenational coconut plantings are in holdings of less than 25 ha -para 2.08).

(b) Hill Beef Cattle Breeding Ranches - Mindoro Island of SouthernTagalog Region and Masbate Island of Bicol Region are importantsources of weaners for fattening in backyards by small farmers,principally in Luzon. Also these islands are free of conflictwith alternative land uses for cropping as was found in parts of

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Mindanao and Cagayan Valley Regions where a similar type ofdevelopment was proposed.

(c) Pig Breeding/Fattening Farms - Central Luzon and Southern TagalogRegions, of which Manila is the hub, covering the provinces ofCavite, Batangas, Laguna, Rizal, Bulacan, Pampanga, Tarlac,Pangasinan, and Nueva Ecija; and in South Mindanao Region,Southern Cotabato province. The area is densely populated,a traditional rice and corn cropping and pig producing area,and is close to the main market, Manila. Southern Cotabatois a major producer of feed grains and also has a goodtradition of pig production.

(d) Poultry-Broiler and Egg Farms - the Project area would be thesame as for pig farms but excluding Southern Cotabato. Here,too, Manila, or what is commonly referred to as the GreaterManila Area, being the traditional and most important product-ion area which also is close to market and sources of inputs,e.g., concentrate feed.

(e) Slaughterhouses - on Mindanao Island located one each in theareas of Davao, General Santos and Cagayan de Oro.

(f) Later as the Project progresses, and if it becomes administrativelyfeasible, consideration may be given to inclusion of otherregions such as Visayas which is becoming increasingly signifi-cant for pig and feed grains production. Any modification ofProject areas would be subject to review and recommendation ofa supervison mission which would evaluate the technical andeconomic feasibility of inclusion under the Project.

During negotiations, assurances were obtained that execution of the Projectwould be carried out as identified above.

Farm/Ranch Development

Integrated Coconut/Beef Cattle Fattening Farm

3.03 The Project would concentrate on integrated coconut/beef cattlefattening operations on about 200 farms of less than 10 ha. Breeding wouldnot be encouraged since the units are too small. Average investment perfarm of 5 ha would average about US$1,300 mainly for drainage, coconutcultivation and legume establishment, copra drier, and initial feeder steerpurchase. Development would be spread over three years (Annex 4).

Integrated Coconut/Beef Cattle Breeding/Fattening Farm

3.04 The Project would help to develop about 200 integrated coconut/beefcattle breeding/fattening operations on farms between 10 and 50 ha. Breedingwould be encouraged so as to enable the scarce feeder cattle to go to thefarms of less than 10 ha (para 3.03). Total investment per farm of 15 ha

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would average about US$5,700 mainly for fencing, corrals, water, pastureestablishment and breeding stock purchases. Development would take about

three years (Annex 5).

Hill Beef Cattle Breeding Ranch

3.05 Development of about 25 hill beef cattle breeding ranches wouldbe financed by the Project. Total investment per ranch, beginning with an

initial breeding herd of 200 cows would average approximately US$31,000

mainly for fencing, water, pasture improvement, corrals, and livestock

purchase. This development would increase the supply of weaners to Southern

Tagalog Region and other parts of Luzon for fattening in backyards by smallfarmers where they would supply a much needed source of additional income.

Development would be completed in four years (Annex 6).

Pig Breeding/Fattening Farm

3.06 About 600 pig farms would be developed. Average investment peyfarm would be about US$9,400 mainly for buildings, breeding stock purchase,

and incremental working capital. The typical borrower would have about 10

sows before development, and would increase these during development to

about 25. It is estimated that 98% of national pig production comes fromunits with less than 50 head, so the Project would concentrate on the typical

producer, who also is small-scale. New investments would be made over a

two year period.

Poultry-Broiler Farm

3.07 The Project would finance development of about 250 farms. Devel-opment of a farm would take one year. Average investment per farm (to

increase capacity per batch by 4,000 broilers) would be about US$8,300mainly to finance buildings, equipment, and incremental working capital.It is expected that sub-borrowers would have some experience with broilerproduction before development, and emphasis would be placed on furtherdeveloping producers who have from 1,000 to 5,000 bird capacity per batch

(Annex 8).

Poultry-Layer Farm

3.08 About 200 farms would be developed. As was also true for the pig

and broiler producers, the typical sub-borrower would be a small rice and/orcorn farmer. Average investment per farm (to increase capacity by 4,000layers) would be about US$15,400 mainly to finance buildings and equipment,and incremental working capital. Emphasis would be placed on expandingexisting small producers, and development would take one year (Annex 9).

Slaughterhouse Development

3.09 Studies carried out in the Philippines, at Government's request,demonstrate the financial and economic feasibility of building slaughterhouses

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in several cities on Mindanao Island, and transporting the meat by ship toManila. The Project includes a component for the construction of threesmall slaughterhouses on Mindanao Island with an average investment of aboutUS$500,000 each. This investment includes about US$275,000 for incrementalworking capital; the other US$225,000 would cover fixed investment items,mainly for site purchase, buildings, refrigeration equipment, slaughterhouseequipment, vehicles, water system, and a rendering and drying plant. Capa-city per plant would be about 20 head of cattle and 200 pigs per day, a sizedictated by the availability of animals. It is envisaged that each slaughter-house would be controlled by a producer association or society and thatDBP or Government would take a minority stock interest. Animals would bepurchased on a cash basis, slaughtered, chilled, and shipped by boat toManila, probably once or twice weekly, and marketed directly to supermarkets,who are prepared to sign a firm contract with a slaughterhouse for deliveryof all its output of beef and pork. Some by-products would be sold freshlocally and the rest processed into meat and bone meal (Annex 10). Con-sultants would prepare detailed engineering and financial studies on eachslaughterhouse and these would be subject to Bank approval. Assurances tothis effect were obtained during negotiations.

Technical Services

3.10 The Project would emphasize the provision of technical servicesto participating farmers. This is particularly important since the Projectaims at financing a relatively large number of medium-size smaller producerswho would require close supervision and guidance to achieve efficientproduction.

3.11 A technical services unit would be staffed in the Livestock andPoultry Group of the Agricultural Department, DBP. The Group would administerall of DBP's lending to the livestock sector. A Technical Specialist wouldassist the Head of the Group on overall management of the Project, but espe-cially would assist on processing loan applications and ensuring that appro-val or rejection is based on sound technical and financial considerations.A staff of 25 to 30 livestock technicians would be assigned to the Project,including at least one veterinarian well qualified and experienced in thecontrol and prevention of diseases in pigs and poultry. Such training aswould be needed would be done largely on-the-job under the supervision of theProject specialists. A pig and poultry production specialist, based in theManila area, would assist the Chiefs of the Pig and Poultry Divisions inexecuting the pig and poultry components of the Project. While encouragingon-farm mixing of feeds, he would pay particular attention to the qualityand cost of rations using domestically produced feeds to the maximum consis-tent with efficient production. A coconut/beef cattle production specialist,b:ased in the Davao area, would assist the Chief of the Beef Division inexecuting thie integrated coconut/beef cattle and hill beef cattle componentsof the Project. The two specialists would cause applied investigationalwork to he carried out in their respective fields. Finance is also providedfeto contracting two shlort-term consultants: one to investigate and adviseou the feasibility of using molasses and sugarcane tops for beef production,including breeding and fattening, and the second to investigate and adviseon a pig breeding improvement scheme. It may prove possible to fill some

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of these posts through bilateral assistance. During negotiations, assuranceswere obtained that DBP would: (a) as a condition of loan effectiveness,establish a Livestock and Poultry Group and employ a suitably qualifiedand experienced Technical Specialist whose qualifications, experience andterms and conditions of employment would be acceptable to the Bank; (b) employwithin seven months of loan signing, a pig and poultry production specialist,and a coconut/beef cattle production specialist whose qualifications, expe-rience and terms and conditions of employment would be acceptable to the Bank;(c) contract within 15 months of loan signing, two consultants, whose qualifi-cations and experience and conditions of contract would be acceptable to theBank; and (d) employ an adequate number of technicians to appraise andsupervise Project investments. The terms of references and qualificationsfor the specialists and consultants are given in Annex 12.

C. Cost Estimates

3.12 The total cost of the Project is estimated at US$15.5 million(1 99.3 million), of which US$4.8 million (t 31.0 million), or 31%,represents foreign exchange requirements. Components of total Project costare shown in the following table as to the major fixed investments for farmdevelopment and construction of the slaughterhouses; the cost of technicalservices; and as to the major inputs for incremental working capital.

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Total ForeignTotal Project Costs Project Exchange

Components Local Foreign Total Local Foreign Total Cost Cost--- (P Millions)---- -- (US$ Millions)---

Fixed Investments

Pasture Establish-ment 1.9 0.5 2.4 0.3 0.1 0.4 2 20

Fencing 0.8 0.3 1.1 0.1 0.0 0.1 1 30Water Facilities 0.4 0.1 0.5 0.1 0.0 0.1 1 20Farm Buildings 19.5 3.4 22.9 3.1 0.5 3.6 23 15Equipment for Farm

Buildings 5.9 2.9 8.8 0.9 0.4 1.3 9 33Breeding Stock 9.9 0.3 10.2 1.5 0.1 1.6 10 3Farm Machinery 0.2 0.4 0.6 0.0 0.1 0.1 1 60Slaughterhouse

Buildings andEquipment 2.3 1.5 3.8 0.4 0.2 0.6 4 40

Miscellaneous 3.3 0.4 3.7 0.5 0.1 0.6 4 10Technical Services 3.2 3.0 6.2 0.5 0.5 1.0 6 48

Sub-total 47.4 12.8 60.2 7.4 2.0 9.4 61 21

Incremental WorkingCapital

Concentrate Feed 10.0 15.1 25.1 1.6 2.3 3.9 25 60Medicines and

Vaccines 0.3 0.4 0.7 0.0 0.1 0.1 1 60Fertilizer 0.9 1.3 2.2 0.2 0.2 0.4 2 60Miscellaneous 9.7 1.4 11.1 1.5 0.2 1.7 11 13

Sub-total 20.9 18.2 39.1 3.3 2.8 6.1 39 47

Total Project Cost 68.3 31.0 99.3 10.7 4.8 15.5 100 31

The costs have been estimated at prices current during Project appraisal,and, for slaughterhouses, a price contingency of 17% (18% for domesticallyprocured items and 12% for imported items) of base-line costs has been in-cluded for probable price rises from appraisal time (July 1971) to theexpected average time of disbursements.

D. Financing

3.13 Financing would be shared in about the following amounts andproportions:

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US$ MillionsBeneficiaries DBP/PDBs Bank Total

Components Amount % Amount % Amount % Amount %

Farm/Ranch Development 2.0 15 4.6 35 6.4 50 13.0 100

Slaughterhouses 0.5 32 0.4 25 0.6 43 1.5 100

Technical Services - - 0.5 50 0.5 50 1.0 100

Share in Total ProjectCost 2.5 16 5.5 36 7.5 48 15.5 100

On average, farmers and ranchers would contribute about 15% of investmentrequirements, and, in addition, ranchers would contribute some retainedbreeding stock that in the absence of the Project would be sold. However,a wide range of farmer/rancher contributions would occur. For example, thesmall and medium sized producer would provide, on average, 10% of invest-ment cost, whereas the individual "large" producer would be required tocontribute not less than 50% (para 3.26). Of total farm investments it isestimated that about 85% would be made on small-and medium-sized farms, andabout 15% on "large" farms. Sub-borrowers for slaughterhouses would berequired to contribute at least 30% of the investment financing, with DBPor some other Government institution taking an additional 25% equity position.The Bank loan would total US$7.5 million, of which 64%, or US$4.8 million,would be for foreign exchange requirements. The balance of investmentfinancing would be supplied by DBP/PDBs. These financing arrangements wereassured during negotiations. The inclusion of US$2.7 million for local costswould increase the Bank's participation from the 31% foreign exchange compo-nent to nearly 50% of total Project cost. This would be adequate to bringabout the necessary improvements in organization, and lending criteria andprocedures required under the Project.

3.14 The Bank loan would be to Government for 14 years including6-1/2 years of grace. This proposed term is based on a commitment period overthree years of sub-loans and repayment terms of up to 11 years. Duringnegotiations, assurances were obtained that the Government would relend

the proceeds of the loan to DBP on the same terms (including interest rateand grace period), and that Government would assume the foreign exchange risk.This arrangement would be similar to that of the Rice Processing and StorageProject (Loan 720-PH).

E. Procurement

3.15 The three slaughterhouses, estimated to cost about US$225,000 each,would be constructed under turnkey contracts. Turnkey contracts would beused in this case because (i) several types of equipment are involved, allof which are not made by any single manufacturer and (ii) it is essentialthat someone take overall responsibility to achieve compatibility and syn-chronization of all items of equipment. The contracts would be awardedfollowing international competitive bidding in accordance with the Bank'sguidelines. No customs duties are applicable directly to the turnkey contractas such. Equipment accounts for approximately 55% of the contract cost and

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bids would be expected from both civil works contractors and firms manufac-turing slaughterhouse equipment. The equipment required for such facilitiesis rather diverse, and the bidders would be expected to supply the equipmentfrom a variety of sources. Import duties on slaughterhouse equipment rangefrom 10% to 20%, averaging about 11% for the facilities proposed. Under theLaurel-Langley Treaty with the United States, items imported into thePhilippines from that country are assessed at 90% of the normal duty. Thepreferential arrangements under the Treaty will be phased out by December1973; procurement of the facilities would be spread over several yearsbeginning late in 1973. Goods for on-farm investments and incrementalworking capital inputs would be acquired through existing commercialchannels because of the diversity, small size of individual purchases, andfree choice to be left to the individual farmer. The Philippines has a goodnetwork of dealers in agricultural inputs and competition is keen. Duringnegotiations, assurances were obtained that procurement would be as outlinedhere. Because DBP has in the past, at times, insisted that a borrower procuregoods such as fencing and machinery financed by a DBP loan only from anotherDBP loan beneficiary who is a supplier of these inputs, assurances were alsoobtained during negotiations that sub-borrowers (other than sluaghterhouses)under the Project would be free to purchase from normal commercial channelsof their choice. This provision would be covered in the sub-loan agreementbetween DBP and sub-borrowers (para 3.22).

F. Disbursements

3.16 Disbursements to sub-borrowers (which would be related to thephasing of their investments) would be over one year for broilers, over twoyears for pigs, layers, and slaughterhouses, over three years for integratedcoconut/beef cattle development, and over four years for hill beef cattleranch development. Since loan commitments are over three years, loandisbursement would be over six years (Annex 13). The Bank would reimburse,against appropriate documents, 60% of medium- and long-term loans grantedby DBP/PDBs to Project beneficiaries; 100% of the salary, internationaltravel, housing and other allowances of the Technical Specialist, the twolivestock production specialists, the two consultants (para 3.11), andinternational training; and 100% c.i.f. for investigational equipment andmaterials or 60% of total expenditures if procured in country. The estimatedschedule of quarterly disbursement is detailed in Annex 14.

G. Organization and Management

Development Bank of the Philippines

3.17 The DBP would administer the Project. DBP's banking system includesits headquarters at Makati, near Manila, and 26 branch and 29 agency officescountrywide. The personnel complement of approximately 1,800 is about equallydivided between the head office and country offices. About two-thirds ofDBP's agricultural lending is done by its branch and agency offices, whereas,most of the industrial lending is from the head office. To date, industryobtained 60% to 70% of DBP's annual lending, agriculture 20% to 25%, and the

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remainder went to miscellaneous programs. Now, however, the policy is toconcentrate more on agriculture at the expense of industry, particularlyheavy industry. Annex 15 gives a review of DBP operations.

3.18 Financial Condition. DBP's assets have more than doubled withinthe past four years from US$235 million at the end of FY 1967 to US$515million at the end of FY 1971. Liabilities, however, increased at a fasterrate over the same period, from about 70% of assets in 1967 to 85% in 1971.The more rapid increase in liabilities as compared with assets largelyreflects increased domestic borrowings, issuance of DRP bonds and an increasefrom time deposits. Since 1966, DBP has guaranteed foreign loans and suppliers'credits for many of its clients, particularly in the industrial sector.Although such guarantees have served to expand the country's foreign loanresources, the country's financial difficulties in 1969-70 placed a severefinancial strain on DBP to honor its guarantees. Advances peaked at aboutUS$100 million in FY 1970-71. Future advances, however, should be of a muchlower magnitude since the economy is improving and has adjusted to the defacto devaluation of the peso early in 1970. Clients bear the foreignexchange risk and probability of full recovery of advances is high. Afterpassing a critical period in FY 1970-71, when normal lending operationsvirtually ceased, DBP's financial condition is improving. Monthly collectionson direct loans about doubled during the past 12 months over the precedingyear's experience; it will receive substantial repayments of its guaranteedloan accounts; interest rates were increased in August 1970 from about 9%to 12%; and it has resumed more of its normal lending activities.

3.19 Operating Results. On average, over the fiscal years 1967-70, DBP'snet annual income was close to US$4.7 million. However, it declined in FY1971 to about US$3 million, due mainly to increases in interest rates on fundsborrowed by DBP, which were not compensated for by increases in the interestrates charged to DBP's loan beneficiaries (para 3.18). Net income, as apercentage of loans and investments, dropped from 2.3% in FY 1967 to under1% in FY 1971. Future net earnings should rise to pre-FY 1971 levels uponresumption of normal lendings at higher interest rates (para 3.18).

3.20 Loan Defaults. Excluding loans in foreclosure (about 3% of total),DBP's past due amortizations are around 17% of the total direct loan port-folios. By sectoral lending, the highest is in the industrial sector, 19%;followed by real estate, 18%; agriculture, 14% and Government, 6%. DBP'scollections improved in FY 1971 as compared to FY 1970 due to a more forcefulcollection program. DBP's write-offs of uncollectable accounts has beenminimal, reaching only a total of about US$80,000 during the last five years.Measured against the aggregate of loans in foreclosure, past due and lossexperience its reserves of about US$18 million are considered adequate.

3.21 Agricultural Department. The Agricultural Department is responsiblefor the agricultural credit programs of DBP. The Department is headed by amanager, a long-time employee with extensive administrative experience. Thehead office has a technical staff of about 50 agriculturists with degreetraining in general agriculture, animal husbandry, veterinary secience, agri-cultural economics, and agricultural engineering. In addition about 125agriculturists are attached to branch and agency offices. The Department is

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being reorganized to place agricultural credit into principal sub-sectorfields, for example, livestock and poultry, crops, fisheries and agro-business. To further improve its efficiency, appraisal and supervisionwork will be done by the same technicians. There has been a definiteimprovement in the quality of the professionals in recent years throughrecruitment of more suitably qualified technicians.

H. Lending Policies and Procedures

3.22 DBP would make sub-loans directly to Project participants, onthe basis of investment projects evaluated by Project technicians, andapproved by the Technical Specialist as to technical, financial andeconomic feasibility. Each sub-loan for slaughterhouses would be subjectto prior Bank approval. In these reviews, the Bank would place particularemphasis on management capability, marketing, and control of slaughterhouses.Supervision of sub-loans would be the responsibility of the technicalservices unit (para 3.11). During negotiations, assurances were obtainedthat DBP would use a standard sub-loan agreement for investment projectsand that the agreement form would be submitted to the Bank for approval.

3.23 It is expected that DBP would enter into an agreement withseveral of the Private Development Banks (PDBs) to participate in theProject as an on-lending arrangement to participating farmers. PDBsare partially capitalised (about 50%) by DBP and can rediscount medium-and long-term loans at 8% per annum. Given the location of many PDBs inProject areas and familiarity with potential sub-borrowers, it would bedesirable to have their participation, subject to DBP approval. It isestimated that four to six banks would participate. A subsidiary loanagreement would be necessary between DBP and participating PDBs. Duringnegotiations, assurances were obtained that the agreement between the DBPand PDBs would be satisfactory to the Bank. DBP would reimburse participat-ing PDBs 60% of the value of sub-loans at 8% interest. If, however, noPDBs participate the lending program could still be satisfactorily handledby the DBP system (See Annex 15 paras 36-38 for details concerning PDBs).

3.24 The head office of DBP, its branch and agency offices and partici-pating PDB's in Project areas, would receive loan applications. Applicantswould be screened by the Project technical staff (aided by other staff wherenecessary) with regard to creditworthiness. Development loans would notexceed 80% of the market value of the real estate to be mortgaged, includingthe values ascribed to the new fixed on-farm investments. This is presentDBP policy. Chattel mortgages could be taken on cattle and machinery butwould not exceed 65% of their market value.

3.25 Repayment terms of sub-loans would be flexible and would be basedon the projected cash flows of the enterprises being financed. Interest andrepayment terms to sub-borrowers on medium- and long-term loans wouldgenerally be in accordance with the following schedule:

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Total GraceInterest Term Period

(%) (years)-----Integrated Coconut/Beef Cattle 12 7-10 3-4Hill Beef Cattle Ranches 12 8-11 4-5Pigs 12 7-10 2-3Poultry 12 5- 8 1-2Slaughterhouses 12 10 4

The interest rate of 12% on medium- to long-term loans is in line withpresent DBP interest rates and the level of interest rates generally (para2.17). The blended cost of capital to the DBP for the Project would be about7% per annum on the basis of a Bank loan at 7.25% and an average cost ofnearly 7% for DBP's own funds. This would give the DBP a spread of 5% perannum on medium- and long-term loans. Overhead, administrative services,and Project technical services would leave about 3% for reserves and profit,which would be appropriate. The financial implications of the Project forDBP are shown in Annex 16. During negotiations, assurances were obtainedwith respect to the foregoing lending terms and conditions (paras 3.22 to3.25).

3.26 Since it is intended to give preference to smaller producerson a preferential basis, "large" producers would be required to contributenot less than 50% of investments from their own resources and pay a onetime service fee of 2% on the amount of the sub-loan and 12% interest onoutstanding loan balances. For purposes of application of this criteria,the following limits would define "large" producers:

(a) over 50 ha of coconuts;(b) over 50 sows;(c) over 60,000 broiler output per year;(d) over 10,000 laying hen capacity; and(e) for hill beef ranches, loans in excess of US$50,000.

All sub-loans in excess of US$50,000 would be submitted to the Bank forprior approval. During negotiations, assurances were obtained thatDBP would comply with these restrictions. Under provisions of existinglegislation (R.A. 6142), beneficiaries of the Project would be cooperatives,private corporations or associations. An individual,however, would beeligible through forming a partnership (association). The legal procedurewould be simple and it is expected that this would not be a deterrent toProject participation.

I. Accounts and Audit

3.27 DBP's business and financial operations are under audit and inspec-tion by an internal comptroller division. By charter, DBP is subject to anindependent audit and examination by the Government Auditor General, whomaintains a staff of about 60 certified public accountants and auditors atDBP. Separate Project accounts would be maintained and audited annually bythe Government Auditor General and such audit would be acceptable to theBank. Audited Project accounts, as well as DBP's financial statements,would be submitted to the Bank within three months of the close of its fiscal

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year. Furthermore, DBP would monitor an adequate number of Project sub-loansto make periodic evaluations of the economic impact of the lending program.Assurances to this effect were obtained during negotiations.

IV. PRODUCTION, MARKETS AND MARKETING, AND PRODUCER BENEFITS

A. Production

4.01 A wide range of livestock products, and some copra, would be pro-duced by the Project. The greatest absolute quantity increases are projectedto occur in eggs, broilers and pigs, with small increases in beef and copraproduction. The following table shows, in m tons, 1970 national production,incremental Project production in year-5 and again at full development oryear-10, and expresses incremental Project production at full development asa percentage of national production.

Incremental Project Production1970 National Full Development Full Development

Products Production Year S Year 10 as % of 1970==-------------('000 tons)-------------

Beef 36 0.35 1.39 4Pork 374 7.74 7.74 2Poultry 88 4.55 4.55 5Eggs 104 9.34 9.34 9Copra 1,400 0.76 2.46 0.2

B. Markets and Marketing

4.02 The incremental Project production of meat should be readily ab-sorbed by the expanding Philippine domestic market at current price levels.The Philippine population is presently growing at about 3.2% per annum andper capita income by about 2.5% per annum. Assuming an income elasticity ofdemand for meat and eggs slightly greater than unity, and a continuation ofthe present trends in population and per capita income growth, this wouldresult, at constant prices, in about a 6% annual increase in the quantityof eggs and meat demanded. Supply, on the other hand, is expected to growat about 5% yearly. According to available statistics, domestic meat pro-duction over the past decade has increased at an annual rate of approximately5% per annum while egg production has declined, but over the past yearsegg production is again increasing. Imports of meat and meat products in1969 were estimated at about US$9 million up from US$6.8 million in 1965which reflects the faster growth of demand as against supply (para 2.04).Due to devaluation of the peso in early 1970, imports of meat and meatproducts for that year declined to about US$5 million. Nevertheless,present trends indicate an increasing meat deficit in the Philippines overthe coming years, and the Project will have a modest effect on meeting theincreased demand and, therefore, decreasing future imports of meat.

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4.03 The southern Luzon region, which includes the Greater Manila area,accounts for about 40% of total meat consumption in the Philippines. Thepig and poultry Project areas are centered here, and, given the fairly goodroads in this part of the Philippines, transportation to market would presentfew problems. The pig and poultry products would be handled by normal mar-keting channels which are satisfactory for marketing Project output. Theincreased beef supply resulting from the Project in the Mindanao Regions wouldsimilarly be marketed through normal commercial channels with the majority ofit expected to reach the Manila market (para 2.13). Most cattle are shippedlive from Mindanao to Manila with substantial loss in weight. The Project,by supporting three small slaughterhouses in Mindanao with control in thehands of the producers, aims at changing the marketing system through time sothat carcass beef is shipped to Manila rather than live cattle. This is along-term goal of Government's marketing policy and the Project would merelyinitiate the change. Producer profit margins are adequate under the presentmarketing system to successfully carry out the Project, but by changing thesystem from shipping live cattle to shipping carcasses it is hoped to raiseproducer prices (by decreasing marketing costs) and thereby beef supply,,Feeder steers from Mindoro and Masbate Islands would continue to be handledby the present system which is quite satisfactory. Incremental Projectproduction of copra would be relatively very small and would be satisfactorilyhandled by existing marketing channels.

4.04 Since imports by the Philippines traditionally have constitutedless than 1% of the international trade in beef, veal and pork, theproduction of meat generated by the Project would not have a significanteffect on prices and trade in these commodities. The incremental productionof copra from the Project would be absorbed into the world fats and oilsmarket without affecting world price levels.

C. Producer Benefits

4.05 benefits to producers participating in the Project would be con-siderable and the two complementary inputs supplied by the Project, namelycredit and improved technology, would be essential to achieve these results.A summary of producer benefits, derived from representative production models,is given in the following table:

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Coconut/Coconut/ Beef HillBeef Cattle Beef Pig

Investment Cattle Breeding/ Cattle Breeding/ Poultry/ Poultry/ Slaughter-Model Fattening Fattening Ranching Fattening Broilers Layers houses

InvestmentCost (US$) 1,300 5,700 31,000 9,400 8,300 15,400 518,000

Net Income/At Present

(US$) 161 1,496 2,895 1,600 1,695 3,775 -At Full De-velopment/2 956 3,517 14,706 4,183 3,390 11,328 116,094

Increment 795 2,021 11,811 2,583 1,695 7,553 -

Rate of Returnon IncrementalInvestment 36% 19% 21% 29% 42% 47% 23%

Debt Service/ 548 1,414 7,578 2,359 1,814 5,766 57,344

Increment afterDebt Service 247 607 4,233 224 119 1,767 5,875

/1 Sales minus operating expenses including imputed value of family labor.1_ Full development varies from year 2 to year 10._T Excluding short-term financing; interest and principal on medium- and

long-term loans per annum.

4.06 The financial rates of return would be sufficiently high to makethe proposed investments attractive (Annex 17). It is worth noting thatpoultry, with the highest rates of return and risk are also the productswhere the greatest relative increases in production are expected to occurunder the Project. In calculating these returns, current prices for bothinputs and outputs were assumed to continue at their present levels. Thetime required to reach full development ranges from two to three years forpoultry, slaughterhouses, and pigs; to nine years for beef cattle ranchesand the integrated coconut/beef cattle farms.

4.07 Total incremental Project production would be approximately US$17million per annum at full development. Incremental tax returns to all levelsof Government would be increased by approximately US$0.5 million annually.This estimate is based on current levels of all taxes, including incometaxes, levied on agricultural and agro-industrial producers. Nevertheless,because marginal tax rates are low, most of the incremental net income gen-erated by the Project is expected to be retained by sub-borrowers. It isexpected that some of the incremental income would be used to increaseconsumption of basic items like improved clothing, housing and food. Theremainder is expected to be invested in expanding these relatively smalloperations by self-financed growth.

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V. ECONOMIC BENEFITS AND JUSTIFICATION

5.01 The economic rate of return is estimated at approximately 36%after adjusting producer benefits to reflect the real cost of labor to theeconomy and the transfer aspects of taxes (Annex 18). Should actual incre-mental production be valued at 10% less, due either to a drop in all outputprices or a short-fall in physical production, and concurrently, shouldfeed grain prices drop by 10% from current levels, the economic rate ofreturn would be about 30%. Should investment costs be 10% higher than proj-ected, the economic rate of return would be about 33%.

5.02 The Project involves both additional foreign exchange earnings fromexpanded exports (copra) and foreign exchange savings from the substitutionof domestic production for imports. At a 10% discount rate, which is areasonable rate for the Philippines, the net foreign exchange benefits overthe life of the Project would be about US$56 million.

5.03 Rural employment, underemployment and a lack of faith in thefairness of the economic system, are very prevalent in the rural areas inthe Philippines. The Project would create about 1,700 new jobs in ruralareas, providing work for people who previously were either unemployed orgreatly underemployed, thus benefitting about 10,000 people. Additionally,some 1,500 sub-borrowers, with about 8,500 dependents, would benefit directlyfrom the Project. Average investment per new job created would be approxi-mately US$7,000. By channeling credit to promising small- and medium-sizeproducers, coupled with intensive technical services, and thereby demonstrat-ing the ability of this class of farmers to efficiently produce agriculturalcommodities the Project could lead to a fundamental change in the thinkingof some Government officials who today seem to think that "bigness" and eco-nomic efficiency are synonymous, and that small producers are generally in-capable of efficient production. But it is this class of small- to medium-size producers who hold the key to rapid change in Philippine agriculturebecause they own most of the coconut trees, cattle, poultry and especiallythe pigs. Therefore, apart altogether from the social advantages, redirectingcredit toward the small- to medium-size producers, is sound economically.

VI. AGREEMENTS REACHED AND RECOMMENDATION

6.01 During loan negotiations, agreement was reached on the followingprincipal points:

(1) That Government would relend the proceeds of the loan to DBPon terms and conditions acceptable to the Bank and wouldassume the foreign exchange risk (para 3.14),

(2) Thiat DBP would:

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(a) Appoint as Head of the Livestock and Poultry Group Inthe Agricultural Department a qualified and experiencedofficer after consultation with the Bank; appoint withinseven months of the signing of the Loan Agreement aqualified and experienged pig and poultry productionspecialist and a qualified and experienced coconut/beefproduction specialist, which appointments would beapproved by the Bank; appoint within 15 months of thesigning of the Loan Agreement a qualified and experiencedconsultant on pig breeding, and a qualified and experiencedconsultant on the use of sugarcane by-products for livestockproduction, which appointments would be approved by theBank; employ an adequate number of livestock techniciansto appraise and supervise Investment Projects (para 3.11);

(b) Provide from its own resources, as well as from participatingPDB's, funds for on-farm and slaughterhouse developmentincluding working capital; finance local costs of technicaland consultant services (para 3.13);

(c) Apply international competitive bidding procedures for theprocurement and installation of equipment and the civil worksrequired therefor as one contract for each slaughterhouse(para 3.15).

(i) submit to the Bank for its prior approval sub-loansfor each slaughterhouse development and sub-loansexceeding US$50,000 equivalent (paras 3.22 and 3.26); and

(ii) extend medium- and long-term sub-loans for executionof Investment Projects recommended by the TechnicalSpecialist, from 5 to 11 years including grace periodsof 1 to 5 years at 12% interest on outstanding loanbalances excepting large producers who would pay anadditional one time service fee of 2% on the totalamount of sub-loan granted (paras 3.25 and 3.26).

6.02 As a condition of effectiveness, DBP would establish theLivestock and Poultry Group and would appoint the Technical Specialist(para 3.11).

6.03 The Project is suitable for a Bank Loan of US$7.5 million for 14years including a grace period of six and half years.

March 3, 1972

ANNEX 1Page 1

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Agriculture in the Economy

A. General

1. The Republic of the Philippines is situated in the tropics betweenlatitudes 4023' and 21025' N. The archipelago extends over a distance of1,600 km from north to south and comprises more than 7,100 islands. Elevenislands account for 96% of the total land area.

Climate

2. The Philippines enjoys a tropical maritime climate, characterizedby high temperatures, humidity and rainfall. Mean annual temperatures,range between 21°C (70°F) in the coolest month (January) to 29C (85°F) inthe hottest month (May). Rainfall, the most important climatic variable,ranges from 966 mm (38 in) in the south to 5,530 mm (218 in) in the highlandsof Luzon. Rainfall is uniform from year to year, with an average variationbetween years of 14%. Typhoons occur most frequently in the northern part ofthe country. The climate can be classified into four main categories, basedon rainfall distribution throughout the year. The distribution of thesecategories is shown on the map, and the corresponding average monthlyprecipitation is given on the Chart. Humidity is high throughout the year.Regional differences in the occurrence of seasonal rainfall and typhoons havea considerable bearing on the seasonality of production and types of cropsthat can be grown in different parts. Climatically, the Philippines has ahigh potential for crop and forage production.

3. The environment is well suited to pig and poultry raising.Ruminants, particularly Bos Indicus type, adapt well and there are nomajor climatic restrictions on the development of beef cattle farmingsystems.

Soils and Vegetation

4. The Philippines is rich in soil resources. Soils are mostlyfree draining, with medium to low fertility levels. In general, there isa marked response to both phosphorous and nitrogen applications but littleresponse to potash. Ph is low on the shale and sandstone derived soils(range, 4.8 to 5.6) and high on the limestone and volcanic tuff (range, 6.2to 6.7).

5. The main variations in vegetation are due to the combined effectsof altitude, rainfall and the biotic factor. The original forest situated

ANNEX 1Page 2

from sea level to 700 m altitude is formed by numerous species of largetrees with high timber value. At about 700 m, the forest becomes openwithout much undercover vegetation. After the primary forest is cut,shifting cultivation is practiced on the uplands, and burning andcropping lead to a final reasonably stable grassland. In isolatedareas, the legumes Centrosema and Pueraria occur naturally.

Land Use

6. The Philippines has approximately 30 million ha of land, the useof which is summarized in the following tabulation:

Million ha

Productive forest 14.1Unproductive forest 1.8Cultivated and plantations 9.8Open land 2.6Managed pasture 0.8Marsh and small water 0.2Urban and others 0.7

Total: 30.0

7. This classification does not represent optimum use of landfor agriculture but is rather, administrative, reflecting the Governmentbureau under which land is administered and controlled. This is particularlytrue of forest, open land and managed pasture categories (almost entirelystate owned), where sufficient reconnaissance information is not availablefor accurate classification. In many areas, the land use pattern ischanging due to population pressure, with land classified as forest, openland and managed pasture being forceably occupied by rapidly expandingland-hungry people seeking living space. The development of ranching forlarge areas is not only illogical but improbable when considered in thiscontext. Mindoro Island, with low population pressure, is an exception,however, and offers considerable scope for extensive beef ranching on under-utilized grassland.

Food and Commercial Crops

8. Almost 10 million ha classified as cultivated and plantations isgrowing a wide range of food and commercial crops (Table 1). The foodcrops are rice (3.1 million ha); corn (2.4 m ha); roots, fruits and othercrops (0.9 m ha); and commercial crops are coconuts (1.9 m ha); sugarcane(0.37 m ha); abaca, tobacco, and rubber and others (0.29 m ha).

Economic Importance

9. Agriculture is the most important sector of the economy in termsof employment and export earnings. In 1969, aagriculture, forestry andfishing provided work for about 52% of the total labor force. Over the

ANNEX 1Page 3

period 1968-70, agriculture contributed about 36% of GNP. Food cropscontributed 10%; livestock and poultry, 6%; commercial export crops, 6%;fisheries, 4%; and miscellaneous, 4%.

10. Out of total exports, amounting to US$1,043 million in 1970,agricultural products contributed about 80%. Main export items includeforest, coconut and sugar products, contributing 24%, 22% and 18%, respectively,of export value. The projected growth for the whole economy between 1972 and1975 is, according to the latest Economic Mission estimates (October, 1971),6.3% per annum. The corresponding estimate for the agricultural sector is5%.

11. In 1970, total imports amounted to US$1,000 million. Importedfood products for human consumption accounted for US$96 million (9%)approximately, made up of cereals and cereal products, US$33 million; dairyproducts and eggs, US$32 million approximately; fish and fish products,US$17 million; meat and meat products, US$5 million; and fruit and vegetables,US$4 million. Animal feeds (US$8 million) accounted for about 1% of thetotal imports.

B. Livestock

Pig Production

12. The national pig herd in 1971 has been estimated at 12,500,000head, and estimates of the slaughtering figure for 1969 range from 6.35 to8.8 million. Government estimates that 335,000 m tons of pork were producedin 1968 and forecasts a production of 423,000 and 498,000 m tons for 1971and 1973, respectively.

13. It is estimated by the Bureau of Agricultural Economics thatapproximately 98% of the pigs are produced from herds of less than 50 head.The remainder are on large farms, recently developed and varying enormouslyin production efficiency. In general, breeding and fattening operationsare combined, but there is some feeding of purchased weaners.

14. The raising of pigs is a well developed traditional occupationamong Filipino small farmers ane villagers. Although individual enterprisesare small, there is considerable experience in pig handling and management.Many of the small- to medium-sized producers are efficient, with goodhousing, management and hygiene. In the judgment of the mission, a largeproportion of the small producers have the potential to become viablesmall-scale commercial producers if credit and technical assistance isprovided. The emergence of this type of producer is desirable and canprovide guidelines for future structural development of the pig industry.The attitude of some Government officials and also within DBP that emphasizesthe development of large units (a minimum of 100 sows) cannot be justifiedas supporting the best pattern for development.

ANNEX 1Page 4

15. The year round hot humid climate reduces housing requirementsto a minimum, permitting simple open-type shelters to be used as protectionfrom sun and rain and dividing pigs into manageable groups for feeding andhusbandry. Excessive heat can reduce feed intake and growth but this canbe avoided by using an inexpensive water sprinkling device in the yard,thus allowing the pig a "shower" when required. On the better managedfarms, a 'sow wallow' is provided.

16. Although all the common diseases that affect pigs are present,they can be prevented and controlled by vaccination, hygiene and appropriateveterinary medication. The required vaccines and veterinary medicines arereadily available in the Philippines, although their supply, together withan effective veterinary service, can be improved for the small farmer.

17. All the major breeds are represented and a small number of boarsare imported annually from New Zealand, Australia and the USA.

18. Feed accounts for about 80% to 90% of pig production costs inthe Philippines and, to improve efficiency, attention must be focussedon this. The feed cost of producing a kg of pig meat is determined bythe purchase price of feed and the conversion efficiency, and considerableimprovement in both these areas could be achieved by purchasing rawmaterials and mixing on the farm.

19. A feature of Philippine agriculture is the large quantities ofby-products available at low cost for animal feeding, which is a strongincentive to their overuse in commercial purchased feeds. Such by-productsinclude rice and corn offals, copra meal and molasses. The formulation,however, of balanced high energy rations necessary for intensive pig andpoultry production using these ingredients is difficult.

20. The quality of pig rations, both in terms of protein and energy,can be improved considerably. The wide range of by-products available,including molasses, affords an opportunity to produce low cost balancedrations if attention is given to incorporating the correct proportionsof high energy and protein feeds (e.g., corn and soya bean meal). Althoughadequate feed evaluation information is not available to enable full useto be made of the varied domestic raw materials in pig rations, USAID hasaccumulated evidence, from on-farm feeding experience, that savings ofabout 20% in the cost of pig rations are possible with home mixing whenexpert nutrition advice is provided.

21. Feed conversion efficiency is influenced, not only by feed quality,

but also by the genetic capability of the pig to convert feed to meat.Great genetic variation exists between pigs in this important trait andthere is worldwide evidence that considerable improvement can be achievedby using performance-tested boars. Rate of progress in feed conversionefficiency by performance testing depends on selection intensity. Witha selection intensity of 1 in 10, an improvement of 0.05 can be expectedper round of testing. A small improvement in feed conversion efficiencyfrom 4 to 3.9 kg feed/kg liveweight gain increases profit per pig by 20%in the Philippines.

ANNEX 1Page 5

22. At present there is a tendency, particularly on larger farms,to allow too much floor space per pig. On-farm appraisal showed allowancesranging from 1 to 3 m2 per pig. Considerable savings in housingcosts are possible by adopting the lower figure without any reduction inanimal performance.

Poultry

23. There were an estimated 95 million birds in the Philippines in1970, and the projected Government target for 1974 is 120 million. Poultryslaughtered for meat in 1968 totaled 74 million, with a projected target for1974 of 101 million. Surveys show that 90% of the poultry are on farms withless than 500 birds. The poultry industry is therefore characterized by alarge number of small producers and a small number of large commercial units.It is estimated that nearly 3 million householders keep poultry, of which1.2 million are non-farm units.

24. In rural areas, the traditional raising of native birds iswidely practiced. A few birds are kept to supply the household with meatand eggs and any surplus production is sold. Output of meat and eggs islow from these small birds but, since they are scavengers, production costsare negligible.

25. Commercial poultry farms, with flocks ranging from a few hundredto many thousand birds, are found throughout the Philippines, generallyusing intensive confinement methods of management. White leghorns incage units are used for egg production. Hybrids and, in some cases,leghorns are used for meat production. Recently, a small number of largeintegrated poultry firms have developed, with units ranging from 30,000to 100,000 layers or broilers. On the commercial farms, modern methods ofproduction are used and management standards are satisfactory.

26. Breeds used on commercial farms are derived from imported grand-parent and parent stock. Franchise agreements are held with most of themajor poultry breeding establishments in the USA. About half a millionday-old chicks are imported annually and consist of white leghorns foregg production and meat-type hybrids for broiler production.

27. Although modern breeds are used on all commercial farms, thetraditional small producer still uses native low-producing birds. It isestimated that about 75% of the layers are pure-bred imported breeds,whereas only 25% of the poultry meat supply is produced by commercialbroilers.

28. All the common diseases affecting poultry are present. Mortalityfrom Newcastle disease is high despite preventive vaccination of anestimated 30 million birds annually. Since prevention and control measures,including vaccination and medication, are available for all diseases andparasites, they present no major obstacle to expansion of poultry.

ANNEX 1Page 6

29. As in the case of pigs, the cost and quality of feed is of primeimportance for egg and broiler production. The discussion of feed quality,cost and home mixing in relation to pigs (paras 19 and 20) is equallyrelevant to poultry. The genetic component of feed conversion efficiencyis taken care of by importation of specialized foundation stock and, onappraisal, the existing hatchery and multiplication facilities within thePhilippines were considered adequate to meet existing and foreseeabledemands. The ratio of feed cost per kg to price received per kg of broilermeat and eggs is favorable to the producer and allows a high level ofprofitability.

30. Intensive pig and poultry operations can be successful only if theprinciples and techniques on which intensification is based are wellunderstood and implemented. Without an efficient extension service, back-yard producers cannot make the transition to small commercial enterprises.

Carabao and Beef Cattle

31. Carabaos, estimated at 4.7 million in 1970, are located throughoutthe country, with the highest concentration in Luzon. They are primarilyused for draught in rice paddies, the majority of small farmers owning one,which is fed surplus green feed from headlands and rice straw. Carabao meatcommands a lower price than beef.

32. Cattle population was estimated at 2.1 million in 1970. Prior toWorld War II, 1.4 million head were estimated but this had fallen to 0.7million by 1950. Government statistics, showing an annual increase of 5%to 6% from 1954 to 1960 and 4% to 5% from 1961 to 1967, appear extremelyhigh in view of the low weaning rate (50% approximately).

33. For many years, native cattle have been crossed with Indian breeds,particularly Nellore. In recent years, Brahman, Santa gertrudis andCharol'is have been imported. Improved cattle perform well (growth rate,600 to 700 grams/day) with good feeding and management. Brahman bulls ofreasonable quality are plentiful.

34. All the common diseases of cattle are present but the diseasesituation is not critical since adequate prevention and control measures arein operation. An outbreak of foot and mouth that occurred in 1955 wascontrolled by isolation and slaughter.

35. Three systems of beef production are practiced -- cattle ranchingon natural grassland; breeding and/or fattening on improved pasture undercoconuts; and small backyard breeding and/or fattening enterprises.

36. Cattle Ranching on Natural Grassland. This involves breedingherds, selling finished and/or store cattle from natural pasture. Thegrasslands result from logging, often followed by shifting cultivation. Acover of indigenous grasses is established after one or two years, charac-terized by a low carrying capacity (one cow equivalent/3 ha). Ranches,varying in size from 3 to several thousand ha, are located on hill and

ANNEX 1Page 7

rolling land (3.4 million ha), classified as open land or managed pasture.This grazing land is held on long-term Government lease and the rancher,who may be a farmer or an investor from the commercial or professionalsectors, pays small rent, approximately P1/ha/year. The rancher usuallylives in a nearby town and the level of ranch supervision and managementvaries greatly. Hill ranches produce most of the cattle but accuratestatistics are not available. This type of fanming is widespread but occursmainly in the highlands of Mindanao, Mindoro, kiasbate and Northern Luzon.

37. Animals are sold at 3-1/2 to 4 years at 350 kg liveweight, and afew ranches have small feedlots to finish animals quickly, using napiergrass, corn, rice bran and molasses. Many ranches also sell feeder cattle(150 kg approximately) for backyard fattening on small farms. On theaverage ranch, production could be increased two- to three-fold byapplying simple methods, including improving pastures and paying moreattention to stock management.

38. There is evidence from research and farm practice that highproducing pastures (20 to 30 m tons dry matter/ha; stocking rate, two cowequivalent/hectare), can be developed using para or guinea grass and alegume (Centro or Stylo) after cultivation. There is also limitedevidence that natural grassland can be improved by oversowing with Centroand Stylo after burning and fertilizer application in spring, where contourdoes not permit cultivation.

39. A serious constraint limiting the development of natural grasslandsis the widespread land dispute between the rancher and the small farmer forpossession. The magnitude of this problem is illustrated by the reductionin cattle population from some 300,000 in the 1930's to 70,000 at presentin Bukidnon province. Although ranchers hold long-term leases on pasturelands, which, in theory, are protected by law, the provincial and nationalGovernments are reluctant to use force to inforce it. In the past, landsuited to crop production was used for natural pasture, but the populationpressure may ensure that all land suitable for cultivation will producecrops. Even land with low cropping potential is being cultivated atpresent in many areas. A further constraint is the limited collateralvalue of long-term leases.

40. Beef Cattle and Coconuts. The Philippines is the world's largestcopra producer. Approximately 1.9 million ha in coconut produce 1.5million tons of copra annually. Some 540,000 tons of copra and 330,000tons of coconut oil are exported, accounting for about 48% of the worldmarket. Exports of copra have been declining, however, as a result of ashift towards increased local Drocessing and exports of coconut oil.

41. Coconut production is carried out mainly on small farms. About 41%,47% and 11% of total area are in categories 0-5, 5-25, and 25 to 200 ha,respectively. Mindanao Island contributes 69% to total exports althoughaccounting for only 21% of the trees planted. Mindanao is well suited tococonut production, with loam coastal soils, high water table and evenlydistributed rainfall. The average yield is 1 m ton of copra/ha, which could

ANNEX 1Page 8

easily be doubled if appropriate fertilizers were applied annually. Yieldsof 4.5 tons of copra/ha are not uncommon on well managed farms.

42. In the Davao region (Mindanao), high producing pastures undercoconuts (para grass and Centrocema) have been successfully establishedon large plantations. Intensive beef production has been practiced forseveral years and experience to date clearly demonstrates the vast potential.Improved pasture under coconuts can maintain high carrying capacity (twocow equivalents/ha) and high liveweight gains (600 to 700 grams/day). Yieldof copra can be doubled in approximately eight to nine years on farmsdeveloping improved pasture. This increase can be obtained without pastureimprovement, however, if annual fertilizer dressing are applied. Youngplantations do not produce a crop for about seven years, but pasture canbe grown during this period and utilized by feeding cut grass to avoiddamaging coconut palms.

43. Backyard Cattle Production. Backyard breeding and/or fatteninga few cattle and/or carabaos is practised mainly in Central Luzon regionalthough it is common on small farms throughout the Philippines. Animalsare fed green forage, comprising weeds and grasses from headlands and fromunder coconuts. Forage is supplemented with rice and corn bran (1-2kg/head/day). Backyard fattening is becoming increasingly popular.Typically, one to five feeder cattle are purchased and sold at premiumprices to supply the Manila market after a period of good feeding (1-1-1/2years). The system is efficient, utilizing local feeds and surplus familylabor, and income is distributed to small farmers. Supply of feeder cattlelimits the expansion of this enterprise, the main source being MindoroIsland. Young animals can be slaughtered due to good feeding and giveexcellent meat.

C. Feed Grains

44. Except for a small number of commercial farms, grain farming inthe Philippines is a small-scale operation, based on 2 million familyholdings that produce rice and corn for human and animal consumption.Usually a large part of each holding is either rice or corn or both,depending on the area, the season and the soil moisture status. Rice mono-culture is practiced in many areas and corn monoculture is found inMindanao and in Cebu on high ground and in Cajegen valley. Simple tradi-tional practices are generally used, and the quantity of fertilizers usedon rice and corn crops is low. Although these crops occupied 60% of thetotal cultivated area in 1967, they used only about 21% of the totalfertilizer supply.

45. Outstanding progress in rice production has been made in recentyears, and the International Rice Research Institute (IRRI) made asignificant contribution. IRRI's comprehensive program on the rice plantand its management, together with its training program for extensionworkers, has resulted in a new technology package that is being disseminated

ANNEX 1Page 9

rapidly to the rice farming community. The acceptance and widespreadadoption of the package by small farmers is of major significance, notonly in increasing rice, its staple food crop, but also in charting thedevelopmertt program required for other crops, particularly feed grains.

46. Government's Four-Year Development Plan (1972-75) nrojects yellowcorn to increase by 8%/annum, and self-sufficiency in soybeans by 19/4. Al-though these targets appear optimistic, experience with rice suggests thatthey are achievable. The principal elements in the official Government feedgrains expansion strategy are the production and certification of improvedseed, research, training and improved credit facilities. IRRI is also under-taking work on feed grains.

47. Increasing emphasis to production of feed grains and soybeansshould enable the pig and poultry industries to expand and help narrow thecalorie/protein nutrition gap, as well as provide opportunities for Importsubstitution.

48. Approximately 2.2 million ha of corn was planted in 1969,compared with 1.9 million in 1965. The main producing areas are Mindanao(provinces of Davao, Cotabato and Bukidnon), Cagagan Valley Region andSouthern Tagalog Region. About 80% of the corn produced is white and theyield per ha is extremely low (670 kg). The introduction of Opaque 2 cornand Cassava is being investigated.

49. Corn is imported to make up the deficit for animal feeding and tohelp stabilize prices in periods of scarce supply. For example, 30,000tons of yellow corn were imported in June 1969 from Thailand after a longdrought. Corn supplies are erratic over the year and there are largefluctuations in price. The price paid by one feed mill in 1969 doubledfrom P 0.20/kg at harvest time to P 0.40 a few months later. The pricereceived by the corn producer could be improved considerably by adoptinga more efficient system of corn marketing. At present, corn is purchasedby small wholesalers who provide credit to small farmers for their house-hold needs and are, therefore, in a strong position to dictate price.

50. Sorghum is at present of minor importance, with 2,000 ha plantedin 1969. Soybeans are a new crop and there is need for more informationon varieties adapted to the environment and on control of fungal diseases.Although production at present is insignificant, it is expected thatdiffIculties will be overcome and requirements will be home-produced by1974.

51. Molasses production amounted to 505,000 tons in 1969 and isavailable in the main sugarcane producing area, Negros Occidental, for animalfee(l at USM10 per m ton or less. There is considerable interest in exploringthe possibility of utilizing surplus molasses for beef production.

ANNEX 1Page 10

D. Land Tenure and Agrarian Reform

52. Until the turn of this century, land tenure in the Philippineswas essentially feudal in character. The landlord provided many servicesfor tenants and, given the subsistence economy, the system worked reasonablywell. With the evolution of a market economy, however, problems of tenureand social injustice gave rise to unrest among tenants. In 1948, the Hukfarmer organization (PKM) presented to the Government a program to replacetenancy by leasehold and for expropriation of large landed estates forsale to the tenants. In addition, it requested that rural cooperatives andcredit facilities be provided. Not until 1955, though, was action taken, whenthe Land Reform Act was passed. Under it, large private agricultural lands(haciendas) were to be acquired and divided for distribution to the landless,and agricultural cooperatives were to be established. The Act proved largelyineffective, however, because of inadequate funding and poor and, sometimes,corrupt administration.

53. The most recent and comprehensive attempt to reform the agrarianstructure occurred in 1963 when the Agricultural Land Reform Code waspassed. The principal objective of the legislation was to redistributeland ownership in a second stage. A further objective was the diversionof landlord capital in agriculture to industrial development. The Codecreated several new agencies, including the Land Authority, in charge of landacquisitions; the Agricultural Credit Administration (ACA), to providecredit and to finance cooperatives; and the Agricultural ProductivityCommission (APC), to improve farm productivity through extension activities.The Code has its greatest relevance in the intensive rice and share croppingareas of Central Luzon, and the main thrust of the tenure reform programhas been in this area.

54. Land reform areas had been proclaimed in 20 provinces byMay 1971. According to the Act, share-tenancy ceases automatically oncean area is officially proclaimed as a land reform area. However, afteralmost eight years, only six of the 20 proclaimed provinces have beenfully converted to leasehold. Some 16%, or almost 50,000 share-tenants, havemade leasehold agreements, but the majority are oral and probably would notsatisfy the criteria specified in the Code. Actually, those share-tenants(approximately 4x) who have made registered agreements have achieved littleindependence since they are forced to rely heavily on their former landlordsfor short-term credit and other needs because of the lack of adequatealternative institutions and facilities. The conversion of leasehold landto full ownership has been negligible.

55. It is generally agreed that, unless significant changes are madein the program, it will not succeed. Corrective action is required inseveral facets affecting implementation of the program. For example, coope-ration between the several land reform agencies should be improved. Currently,each retains independence and control over its respective resources andadministers other programs in addition to land refonm. Furthermore, theprocess of securing title is inefficient and unnecessarily time consuming,and there is a shortage of legal and technical personnel to effect conversionsand transfers. As has been the case previously, insufficient funds have beenmade available to support the program and there is inadequate supervisedfarm credit and marketing arrangements.

February 29, 1972

tS 20- 1Z50

-20- _'

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT0 0 CLIMATE TYPES

R r r i p 3~~~~~~~~~~~~~~~~~r

f77TI st. Type: Two pronounced seasons; dry fromL..zZI ;November to April; wet rest of the year

2od. Type: No dry season with pronouncedmaximun rainfall from November to January

'O5° . I 5 3rd. Type: Seasons not very pronounced; relatively>osCoc dry from January to May; wet rest of the year

WT~.4th. Type: Rainfall sore or less evenly/, , '°' -dist ributed throughout the year.

0 50 100 1 5O M00

MILES

-~~~ ~0 100 000 300

-5 7 7 V 'c" 7 ) KILOMETERS 15°

Peo PrncsC6

| !' ~~~~~S u / u S e a oL

> ~~~~~~~~~~~~~~Ztmboo ( ,......D 3 < W

Celebes Sea

OCTOBER 1971 IBRD-3636

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

MONTHLY PRECIPITATION ACCORDING TO TYPE OF CLIMATE

FIRST TYPE SECOND TYPEInches Inches

25 m.m. 25 m.m.600 600

20 500 20 500

15 400 25 400

77 ~300 30010 10

200 200

15 4oo 5 loo

0 0 6160

Inches ~ THIRD TYPE InhsFOURTH TYPEm.M. M.M.

25 600 25 600

20 500 20 500

400 5 400

0-0 c 200 300 300

00 ooc co0 200 X\\\\\\ <200

00 00000000 o- 0 000 0000 00 000c0 000

0 ~ ~ 0000000 000000)oo 0 o~" 0

< LL <~ZD Ln QwL

IBRD - 6160

ANNEX 1Table 1

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Agricultural Land Utilization

Area in Hectares('000 hectares)

Rice /1 3,113Corn 2,420Citrus 21Other fruits and nuts 380Root crops 257Vegetables 51Beans and peas 50Coffee and Cacao 62Peanuts 37Others 24

Coconuts 1 ,884Sugarcane 366Abaca 173Tobacco 22Others 8

Total Area Cultivated 8,955

Not Cultivated 848

Total Agricultural Land 9,803

/1 Trrigated - 1,345,700 hectares.

November 5, 1971

ANNEX 2Page 1

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECr

Marketing and Prices

Introduction

1. The marketing of agricultural products in the Philippines is mainlyin the hands of the private sector. In the case of crops, particularly cornand palay, Government has given limited support to the formation of FarmerCooperative Marketing Associations (FaCoMas) - primarily for landlessfarmers - and to their financing and supervision agency, the AgriculturalCredit Administration (ACA). Some 150 FaCoMas now have a combined activemembership of more than 75,000 farmers and a volume of business exceedingP 34 million annually, principally rice. Sugar, tobacco, and coconutcooperatives have been rather more successful, ensuring orderly marketingand securing reasonable prices. Also, there are about 20 viable livestockproducers and marketing cooperatives serving approximately 1,600 members;many are engaged in pig and poultry production and marketing. Additionally,a national grain marketing cooperative (GRAMACOP), a federation of 60 riceFaCoMas, is emerging as a viable institution.

2. Marketing of livestock and livestock products through formalizedstructures, such as livestock cooperatives (para 1), is limited. Mostproducers sell to stock traders or middlemen who purchase at the farmgateon a per head basis and sell either to wholesalers or direct to butchers.It is not surprising, therefore, that the quality of stock and pricesreceived by farmers are irregular and often unrelated. Prices do depend,however, on such factors as distances from ports or other shipping points,the number of middlemen involved, and the availability of contracted outletsand storage facilities in the consuming areas.

3. Conmercial poultry production tends towards vertical integration,where the hatchery, growing units, and processing plant all exist on thesame farm or under one management. The number of such units in thePlhilippines is limited, however. Smaller independent broiler and eggproducers may sell direct to the consumer but sell principally to wholesalers.

4. Mlore than 60% of all meat production in the Philippines isrepresented by pig meat, while poultry meat makes up 16%; carabao (carabeef),16%; and beef, 7%. The demand for pork and poultry meats has gone uprapidly in the past few years, but beef and carabeef consumption has shownlittle increase. These trends, however, probably reflect the traditional

ANNEX 2Page 2

preferences of the large, rapidly growing low/medium income strata of Lhepopulation. Manila is by far the largest market for beef and pork, most ofthe supplies coming from the outlying areas and islands. Total] dlemnand forbeef in the Greater Manila area in 1969 was estimated to be in excess of-6,000 m tons. Thiis area is also the principal market for eg,, and broilerproduction.

Cattle

5. Transport. Under the city of Manila Animal lHealtlh Law, slauglhteredanimals coming from outside cannot be sold in the city unless they lhave beenkept for at least 20 days in cold storage and a reinspection tax has beenpaid. 1/ Since the main cattle producing areas are on the islands offLuzon, particularly Mindanao (Table 1), and the shipment of carcasses to thecity is restricted, animals must be transported live by ship, truck orrail over large distances for eventual slaughter in the municipal slaughter-house. Stock are shipped from ports located as far as 1,500 km away in SouthMindanao. The use made of air transport has been minimal and is confined tospecial cuts for selected outlets.

6. Shipments to Manila are made over regular inter-island lines,and the poor facilities, the indifferent care and attention given to feedingand watering the stock, the lack of holding pens at points of embarkation,the delays, and the long distances involved often cause the animals toarrive at the port of destination in unsatisfactory condition, with lossesrunning high from shrinkage. Some animals do not survive the trip at all.In addition, there is a variety of legal and other fees that must be paidto local authorities at points in transit.

7. Backyard cattle fattening operations are the exception in thegenerally unsatisfactory situation. Such cattle command generally higherprices and are traded in two main livestock markets in Luzon - Lemery(Batangas) and Urdaneta (Pangasinan). The volume of weekly transactions

may approach 400 to 500 head. Animals for these markets come fromNorthern Luzon and the islands of Masbate and Mindoro, which are situatedin proximity to Southern Luzon. Following trading, cattle are transportedto Manila by truck or rail.

8. According to a survey conducted in 1970 by the U.P. College ofAgriculture, total costs of transporting live cattle to Manila fromMindanao and Visayas Regions are P 110 and P 82 (US$17 and $13) per hiead,respectively (Table 2). For an animal weighing about 300 kg, the equivalentcosts per kg are P 0.36 and P 0.27. A considerable proportion of theshipping cost may be attributed to shrinkage, or weight loss, duringtransit. This loss is largely from the contents of the alimentary canal31nd mavy amount to 7% of total liveweight; of course, the loss is not fullyrollcted In the dressed weight, but it may be expected that the carcassitsell would lose around 4 kg in transit.

1/ This requirement does not extend to the Greater ianila Area.

ANNEX 2Page 3

9. Prices. Information on prices is difficult to obtain and thatwhich is available is often inaccurate, incomplete and conflicting,being released by a variety of independent agencies. As mentioned (para 2),the quality of cattle often has little bearing on the price a farmerreceives. This is especially true for range cattle from the islands.Examples of farmgate prices per kg for two- to three-year fat steers indifferent provinces are: Batangas, P 1.9 to P 2.2 (US$0.30 to $0.34);Masbate, P 1.8 to P 2.0 (US$0.28 to $0.31); Cagayan de Oro, P 1,3 to P 1.5(US$0.20 to $0.23); and Davao, P 1.9 to P 2.0 (US$0.30 to $0.31).

10. Farmgate prices for beef cattle do not appear to have increasedsubstantially after the floating rate was established early 1970. Thismight be due to the lifting of a former carabao slaughter ban and theresulting increase in the supply of carabeef, with a downwards pressure onoverall "beef" prices (carabao are sold ex-farm at about P 1.00 per kgliveweight). Even so, cattle prices are expected to increase in the nearfuture following the general increase in farmgate prices, which has alreadyaffected other livestock products such as poultry and pigs. It is importantthat meat grading and quality control be enforced at producer, wholesalerand retailer levels and that price information be widely disseminated toproducers.

11. At present, beef retails at P 6 to P 7 (US$0.94 to $1.09) per kgand is sold largely in supermarkets catering to higher income groups andto foreigners. (See Table 3 for retail prices of various meats in Manila.)Retail prices for imported frozen beef have increased after the floatingrate, from P 12 to P 16 per kg to between P 17 and P 26 (US$2.66 and$4.06) per kg according to cuts, while local frozen beef sells at P 7 toP 8 (US$1.09 to $1.25) per kg. No frozen beef is sold in the rural areas.At retail, beef is usually sold mixed with carabeef and the consumer isoften unaware of the difference. Furthermore, a cost differential isseldom applied to various cuts, and quality standards are generally notenforced.

Pigs

12. The distribution of pig production is reasonably even throughoutthe main islands, with the exception of Ilocos and Southern and WesternMindanao (Table 1). The Bureau of Agricultural Economics estimates thatabout 98% of pigs produced in the country are from herds of less than 50head. The bulk of pig meat output comes from backyard producers whofatten purchased weaners or who breed weaners, some of which they sell andsome of which they fatten. The demand for pork has been increasing rapidlyin recent years and Government expects pork production to increase from335,000 m tons in 1968 to 530,000 m tons by 1974 - almost 60% (para 4).Southern and Western Mindanao will be well placed to expand pig productionsignificantly when Government's maize and sorghum programs are implemented.

ANNEX 2Page 4

13. Transport. In 1969/70, about 1 million pigs were slaughtered inManila and some 450,000 of these were transported to the city by railor ship. The disadvantages of shipping live cattle over long distances(para 6) are equally applicable to the shipping of live pigs, and againshrinkage may cause considerable losses.

14. Shipping costs for live pigs from the islands to Manila are givenin Table 4. They range from P 24 per head from Cebu/Bacolod to P 48.6(US$7.59) per head from Davao. In dressed weight equivalent, they amountto between P 0.5 and P 1.1 (US$0.07 and $0.17) per kg.

15. Prices. Since 1968, average liveweight prices at the farmgatehave risen considerably and, in December 1970, producers in the vicinityof Manila were receiving between P 3.5 to P 4.0 per kg. Large-scale pigproducing units generally have accurate up-to-date price information andseldom sell through middlemen, which gives them a distinct advantage overthe small producer. Furthermore, butchers prefer to deal where largenumbers of pigs are available, weight is more uniform and quality ismore predictable. Because pork consumption fluctuates according to thetime of the year, reaching its peak during national or religious holidays,shortages may develop, resulting in sudden increases in retail prices.Average annual retail prices for pork per kg in Manila over the lastseveral years are given in Table 3. For 1969/70, the average price wasaround P 4.55 (US$0.70) per kg. Imports of pork into the Philippinesare negligible.

Poultry

16. It has been estimated that there are presently almost 100 millionpoultry birds in the Philippines, and the projected target under theGovernment's Four-Year Development Plan is for over 120 million birds by1974. While commercial poultry is heavily concentrated around Manila,other important producing regions are Central Luzon, Southern Tagalog,Western Visayas, and Southern and Western Mindanao. Feed is shipped tothe producing farms, which are generally located adjacent to the consumingareas. Actual production of poultry meat (dressed weight) and eggs in1968 was 88,000 and 95,000 m tons, respectively. For 1974, the correspond-ing figures are expected to be 121,000 and 137,000 m tons, or increasesof 37% and 44%.

17. Egg Marketing. Eggs from smaller commercial farms are usuallysold to a dealer or wholesaler, who then channels to the retailer, butsome eggs are sold directly to the retailer or consumer. Feed dealerscapture a significant proportion of the market by advancing credit onfeed and then adjusting with egg sales, which usually brings the eggproducer a lower price. Large farms either sell all their eggs to a dealeror have a direct arrangement with the retail outlets, depending mainly onthe distance of the farm to the consuming center.

18. The transportation of eggs (and poultry) is no real problem. Thecost of transporting eggs from Batangas to Manila, a distance of just over100 km, is 2 centavos per egg, or about 8% of the retail price.

ANNEX 2Page 5

19. Poultry Marketing. In the more rural areas, poultry salesconsist mainly of live native birds at the public market, but the trendin urban areas is towards dressed poultry. Smaller independent farmersmay sell their broilers direct to the consumer or through the wholesaler,or have an arrangement with retail outlets. Each year, there has beena significant increase in the number of broilers grown under contract tointegrated or semi-integrated firms. These firms have processing plantsthat use either manual labor (which is cheap and plentiful) or moderntechnical equipment, which includes facilities for cryovac plastic packagingand freezing.

20. Prices. Egg consumption is highest during the cooler monthsof November to February. Retail prices are highest at this time and demandoften remains unfulfilled. At the end of 1970, when feed prices wereabnormally high, due largely to a feed grain shortage, farmgate prices wereP 0.22 (US$0.03) per egg. Broiler producers normally market their birdsat about eight weeks of age and at a liveweight of 1.3 kg. In December1970, they received around P 3.50 (US$0.50) per kg liveweight, while eggproducers received P 2.50 (US$0.39) per kg for 18-month old layers. Theseheavier birds are often preferred by larger families.

21. At the same time, the retail price of eggs was P 3.00 (US$0.46)per dozen, or P0.25 each, and broilers were retailing at P 5.50 (US$0.85)per kg. It may be expected that the recent increase in demand for poultrymeat will continue, particularly with the rapidly growing popularity ofconvenient ready-cooked, take-home chicken and of restaurants specializingin low cost chicken meals.

Slaughtering Facilities

22. All provincial capitals and municipalities in the Philippines haveslaughterhouses, although the great majority is still at a primitive level.The largest slaughterhouse in Manila (Manila Abattoir) is at present killingan average of 130 head of carabaos and 80 cattle, as well as about 2,000pigs per day. It is reported to be working at almost full capacity. Thisis not true for all slaughterhouses, however, which, in general, are workingat only a fraction of their capacity.

23. Additional slaughter facilities are necessary in some of the outerislands to permit shipment of carcasses to Manila instead of live cattle.Costs of shrinkage, shipping, feed and attention enroute, and transport toand from the docks could thus be largely reduced or eliminated. A recentstudy has estimated savings of up to P 0.64 per kg of pork (dressed weight)through the marketing of dressed carcasses rather than live animals (Table 5).This means savings of up to 59% in shipping costs per kg dressed weight.The study shows that, in the case of beef, savings may be up to P 0.26, or36% of shipping costs per kg dressed weight (Table 6). Also, carcasseswould weigh more upon arrival in Manila (para 8), resulting in additionalrevenue. It is reasonable to assume that a proportion of these savingsand revenue gains would be passed on to producers in the form of higherprices for their stock.

ANNEX 2Page 6

Conclusions

24. The livestock production program has been given top priority inGovernment's Four-Year Agricultural Development Plan and is broadly designedto help improve protein nutrition and, at the same time, to replace thegreater part of imports of meat and meat products by 1975. While thisdual objective is optimistic, Government and the private sector are takingaction to streamline the marketing of poultry and livestock products. Thisaction may be classified into three principal areas: improved marketingintelligence; removal of legal and illegal restraints in trading; andimproving the inefficient and inadequate marketing organizations andfacilities.

25. There is some evidence that regulations forcing the slaughter ofcattle in the city of Manila will be changed. It should be noted, however,that the regulation does not affect meat for sale in the Greater Manilaarea where at least 35 supermarkets are already operating and, as of June1971, were selling 43 tons and 20 tons per week of beef and pork, respec-tively. Supermarkets and other large retail stores have the advantage ofcold storage facilities and evidence suggests they could sell considerablymore good quality fresh beef and pork if it were available on an assuredregular basis. Restaurants, cafeterias and hospitals constitute furtheroutlets for increased supplies of fresh (chilled) beef and pork.

26. In summary, the marketing of poultry meat and eggs by largeintegrated production units tends to be modern, efficient and satisfactory.The same may be said for large pig producing units in those areas nearManila. Smaller farmers in both cases are being forced to adopt improvedstandards and techniques of production whenever they come into directcompetition with the larger operators because public demand for betterquality products at reasonable prices is increasing. Also, they are joiningmarketing cooperatives (para 1). Where pork and beef are supplied fromthe outlying islands, marketing is more problematic, particularly whereanimals must be shipped live to Manila for slaughter rather than beingslaughtered and processed near the sources of supply. The presentmarketing system leads to irregular and uncertain prices to producers andit is important the Government seriously attempt to resolve the variousanomalies if it hopes to satisfy the objectives of its agricultural develop-ment program.

March 3, 1972

ANNEX 2Tab le 1

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Livestock Population by Kind and by Region

As of January 1, 1969

REGION Carabao Cattle Horse Hog Goat

Philippines 4,368,700 1,628,900 295,300 6,349,700 698,300Ilocos 130,400 73,200 9,500 108,500 33,600Cagayan Valley 422,700 104,500 19,400 623,100 14,300Central Luzon 523,700 210,100 41,400 724,500 161,900Southern Tagalog 364,400 208,600 62,000 775,600 57,600Bicol 501,700 149,800 33,400 700,100 38,300Eastern Visayas 579,400 120,400 29,800 1,074,300 37,900Western Visayas 623,200 149,200 31,900 734,300 118,900Northern andEastern Mindanao 307,000 176,400 20,900 1,064,700 42,800

Southern andWestern Mindanao 916,200 436,700 47,000 544,600 193,000

Source: Department of Agriculture and Natural Resources, Bureau of AgriculturalEconomics.

December 6, 1971

ANNEX 2Table 2

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Total Costs of Transport of Live Cattle toManila from Mindanao and Visayas Region

(Pesos per head)

Mindanao V Visayas Regio /

Transport to dock 10.09 10.00OLoading 3.39 0.52Ship Transport 39.71 21.48Feed en route 3.23 1.74Conveyance 3.94 2.22Unloading 0.83 1.26Delivery 4.14 2.52Fees, permits 7.15 4.26Shrinkage 37.19 38.26

Total Cost 109.67 (US$17.13) 82.26 (US$12.85)

Shipping Cost per kg - Manila

Liveweight 0.36 0.34Dressed weight 0.72 0.67

/1 Live animals of 327 kg ex-farm and 304 kg in Manila

/2 Live animals of 263 kg ex-farm and 244 kg in Manila

October 6, 1971

ANNEX 2Tabl 3

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Average Annual Retail Prices for Livestock ProductsPer Kg in Manila 1/

Leghorn &Year Beef /1 Pork /2 Chicken /3 Corned Beef /4 Natives Ducks

1960 3.24 2.26 2,75 1.04 1.46 1.931961 3.30 2.35 2.79 1.20 1.49 1.821962 3.40 1.76 3.06 1.44 1.50 2.121963 4.41 3.17 3.50 1.49 1.67 2.201964 4.41 3.73 3.69 1.61 1.75 2.421965 4.58 3.76 3.79 1.87 1.84 2.611966 4.85 4.20 4.18 1.92 1.94 2.911967 4.96 4.27 4.37 1.96 1.94 2.911968 5.18 4.40 4.76 2.23 1.91 2.971969 5.18 4.41 4.79 2.30 1.86 2.93Jan/Sept.1970 5.59 4.74 5.12 2.86 2.26 3.32

/1 Average first and second class./2 Pure meat and meat with bones./3 Per head./4 Imported - per 12 oz. can (average Libby's and Hereford)./5 Per kg.

1/ Source: Central Bank.

October 6, 1971

ANNEX 2Table 4

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

ShippinR Costs for HoR8 from Outlying Islands to Manila

------------------Mindanao-----------------Cagayan General Cebu - Iloilo -

Cotabato /1 de Oro /2 Davao /3 Santos /4 Bacalod /5 Masbate /2…--------------------------…P per hog-----------------------------

Transportto Highway 3.54 2.00to Corralor Plant 6.13 0.85 0.57to Dock 1.38 0.42 0.76 1.10 1.34 0.91

Tong 0.08 0.16 0.17 0.02Loading 1.14 1.88 0.42 0.98 0.50 0.64Ship Trans-port 10.58 6.14 10.74 10.58 5.14 4.44

FeedEnroute 1.81 1.11 2.22 6.25 1.27 0.17

Convoy 0.53 0.94 1.19 1.34 0.72 0.54Unloading 0.50 0.66 0.29 0.40 0.50 0.50Delivery 0.50 0.70 1.07 1.48 0.67 0.85Fees,Permits 0.70 1.16 0.69 0.29 0.29 1.40

Shrinkage- 11.82 10.98 28.24 14.56 13.61 10.53

Total 29.04 33.66 48.63 37.15 24.04 20.57

---------------------------P/kg - Manila---------------------------

Liveweight 0.44 0.49 0.76 0.43 0.32 0.39Dressedweight 0.63 0.70 1.09 0.62 0.46 0.55

/1 Live hog: 73 kg at farm, 66 kg in Manila. Dressed weight: 46.2 kg./2 Live hog: 75 kg at farm, 69 kg in Manila. Dressed weight: 44.3 kg./3 Live hog: 80 kg at farm, 64 kg in Manila. Dressed weight: 44.8 kg./4 Live hog: 91 kg at farm, 86 kg in Manila. Dressed weight: 60.2 kg./5 Live hog: 79 kg at farm, 74 kg in Manila. Dressed weight: 51.8 kg.76 Live hog: 58 kg at farm, 53 kg in Manila. Dressed weight: 37.1 kg.T7 Probably overestimated.

Source: Alunan, J.A. and Darrah, L.B., "Some Legal and Economic Aspectsof Livestock Marketing"; Staff Paper Series (Survey of 18 HogShippers), Department of Agricultural Economics, U.P.C.A. October1970.

October 6, 1971

ANNEX 2Table 5

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Summary of Costs in Shipping Live Hogs andSavings Through Shipping Carcasses

Peso Cost per Kg IncreasedDressed Weight Savings Weight of

Live Pesos/ CarcassesLocation hogs Carcasses I Kg

Davao 1.09 0.45 0.64 59 7.7General Santos 0.62 0.36 0.26 42 1.8Cotabato 0.63 0.36 0.27 43 2.8Cagayan de Oro 0.70 0.45 0.25 36 2.1Cebu - Bacolod 0.46 0.31 0.15 33 1.4Iloilo - Masbate 0.55 0.30 0.25 45 1.6

Source: Alunan, J. A., Collado, G.M., and Darrah, L. B., "Feasibility of aModern Livestock Processing Plant in General Santos City," StaffPapers Series, No. 109, Department of Agricultural Economics, U.P.C.A.August, 1970.

October 6, 1971

ANNEX 2Table 6

PHILIPPINES

14AVESTOCRVJ,opK p trtquv

Summary of Costs in Shipping Live Cattle andSavings_Through Shipping Carcasses

Peso Cost per kg IncreasedDressed Weight Savings Weight

Live Pesos/ Per CarcassesLocation cattle carcasses KX (g)

Mindanao:

with Weight Data 0.72 0.46 0.26 36 4.3

Visayas:

with Weight Data 0.67 0.41 0.26 39 4.0

Source: Alunan, J. A., Collado, G. M., and Darrah, L. B., "Feasibility of aModern Livestock Processing Plant in General Santos City," StaffPapers Series, No. 1 9, Department of Agricultural Economics,U. P. C. A. August, 1970.

October 6, 1971

ANNEX 3Page 1

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Agricultural Credit

1. Credit for the agricultural sector is provided by a diversity ofinstitutional entities, most important among these being Government andsemi-Government capitalized institutions, namely; Philippines NationalBank (PNB), Rural Banks, and the Development Bank of the Philippines (DBP)and associated Private Development Banks (PDBs). In aggregate, these banksaccount for 65% of average annual rural credits granted. The other 35% isprovided by private commercial banks (Table 1).

2. Agriculture, which produces about 35% of the GNP, receives 20 co25% of the total credit made available to the private sector. Agriculturalcredit has been increasing at about the same rate as that for industry,which receives around 30% of the total.

3. PNB is the largest commercial bank in the Philippines with anextensive countrywide network. It is the most important source of productioncredit, tending to service the commercial size farms and plantationsfor sugarcane and coconuts. It is also important in financing palay(paddy rice) and corn through credit lines extended to NFAC and DBP forultimate distribution to the producer.

4. Most of the credit granted by the commercial private (40chartered) banks is to agro-industry and commercial trade and, is essentiallyshort-term. Through continuous extensions and renewals, borrowers areenabled to utilize the credits for capital investments as well as for workingcapital.

5. The broad field of small agricultural production and commoditycredits is covered by a system of rural banks, private development banks,and, in a small way, the Agricultural Credit Administration (ACA).

6. The Rural Banking system is well known to IBRD, being the inter-mediary lending channel of two loans: Loan 432-PH, US$5 million in 1965,and Loan 607-PlI, US$12.5 million in 1969. Except for the medium- to long-term financing under these two projects, the Rural Banks' loan portfolio isprincipally short-term production credit. The average size of loans today isabout P 13,000 (US$1,900). Eligible borrowers may not own or cultivatemore than 50 ha, or have more than P 50,000 capital investment in a ruralindustry. The usual size of farming operations financed is 5 to 10 ha.Funds are available under the Second Rural Credit Project (Loan 607-PH) tofinance development of poultry and pig farms. Until recently, the Projectas a whole moved slowly due to a combination of factors. Contributing

ANNEX 3Page 2

factors, have been the application, early in 1970, of a floating exchangerate that temporarily reduced the profit incentive to the producer; thleoccurrence of abnormal typhoons that caused serious property damage aswell as dislocation of feed grain supplies; and the financial inability ofthe banks and potential sub-borrowers to respectively contr bute 10% ofProject costs. The latter requirements were recently modlified to reduce thecontributions by the bonus and farmers.

7. Of increasing importance as a source of credit to the medium-sizeagricultural producer is the private development banking system. Theprimary objective of these banks is to extend medium- and lonLg-term creditfor the development of agriculture and small industry, and, by Charter, DBPhas a mandate to provide capital and technical assistance to them. SeeAnnex 17, paras 36 to 38 for further discussion of the private developmentbanking system.

8. Operating under the Land Reform Code (1963) as an independentGovernment institution, ACA has the primary responsibility o' financing thelandless farmer. It finances production and marketing cooperatives (FACO0MAS)but, where no usable cooperative exists, it makes direct loans to farmers indeclared Land Reform Districts in accordance with national policy to increasethe production of food grains (rice and corn). Credits were made availableto about 56,000 farmers in FY 1970-71, but this covered only about 10% ofthe country's tenant farmers; average size of loan was around P 800(US$125). Since the mid-1950's, USAID has given continuous support to ruralcredit and cooperatives for the small producers through extensive financial,commodity and technical assistance programs. Currently, it has granted acredit line on soft terms to ACA of P 40 million (the peso funds are generatedfrom US Public Law 480 commodity import sales). Funds are being utilized tosupport a Wholesale Loan Program in 15 FACOMAS for short-term productionpurposes and to assist a national grains marketing cooperative (GRAMACOP),an affiliation of 60 FACOMAS with about 65,000 active farmer members. Insummary, ACA is probably reaching only about 15% of the credit needs ofthe unpropertied farmers. Therefore, they seek credit from various privatesources such as neighborhood merchants, rice-millers, landlords and relatives,usually paying several times the conventional rates for credit.

9. Generally, interest rates for lending, rediscounting and deposits,as well as reserve requirements, are regulated by the Monetary Board. Commer-cial private banks charge 12 to 14%, and, when discounted in advance togetherwith other charges, the real cost is several points higher. DBP, PDB's andthe Rural Banks charge 12% per annum, plus an additional 2 to 5% penalty onpast due balances. Working capital loans are 12%, usually discounted inadvance making the effective rate about 14%. ACA charges 8% interest (fixedby law) on its loans. The Private Development Corporation of the Philippines,to which three Bank loans have been made, charges 11%, plus 1.75% commitmentfee per annum on undisbursed funds from foreign loan sources. Local currencyloan bears 12% interest rates. Its loans are mainly industrial.

ANNEX 3Page 3

10. The Central Bank provides an important amount of revolving creditto banks through rediscounts of loans for the production of importation ofinputs for, and distribution of basic agricultural products. It may, rediscount80% of the face value of the credit paper not exceeding 270 days maturityof the following variable interest rates:

Basic rate on commercial papers,loans and advances -8%

Corn and rice production,importation and distribution -4%

Export transactions -5.75%

Rural Banks in operation:Less than two years -2%Over two years -3%

11. Interest rates paid for deposits range from 6 to 8% per annum,depending on the time period.

March 3, 1972

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Agricultural Credit

Loans Granted and Outstanding to Agriculture0 by Financial Institutions, 1965-70o (P million)*1

la Develop- Philippine OtherH A. Granted by 1/ 2' Rural ment National Commercial

Year Total ACLF- ACA- Banks Banks Bank BanksH

1965 1,1430 _ 10 216 62 619 5231966 1,616 - 16 247 91 666 5961967 2,o65 17 32 313 168 816 7351968 2,217 15 30 363 159 858 7921969 2,261 8 24 408 115 903 8031970 1,798 6 45 497 100 553 597

B. Outstanding atEind of Period

1965 1,595 - 37 167 293 570 4581966 a,681 - 88 199 317 630 4481967 1,933 n.a. 97 259 375 752 4501968 2,318 15 107 303 430 858 6051969 2,502 17 107 326 475 923 6551970 2,588 18 119 385 490 900 690

1/ Agriculture Guaranty Loan Fund p 2/ '-gricultural Credit Administration

Source: IBRD Lconomic Report £AP-21, Statistical Appendix, Table 7.3 Hand mission

ANNEX 4Table 1

PHILIPPINES

LIVESTOCK DEVEIMPMEN!T PROJ=T

Model - Integrated joconut/Beef Cattle Fattening - 5 ha

Herd Projection

Before -------&id of Year-----Development 1 2 3 4 5-20

Herd Composition

Feeder Cattle 1 - 2 yre .. O - - 3 7 8 8

Purchases

Feeder Cattle 1 - 2 yrs - - 3 7 8 8

Nobrtality

Feeder 3attle 1 - 2 yrs .,.0... - - - - - -

Sales

Feeder Cattle 1 - 2 yrs - - - 3 7 8

Teclinical Coefficients

Purchase Wdeight - kg/head .oo.o - - 150 150 150 150Selling Weight - kg/head 0. 0... - - 300 300 300 300Daily Weight Gain -grams/head.. - 400 400 400 400Animal units/hao.......... o *... - - .6 .14 1.6 1.6

October 5, 1971

PHILIPPINES

CDo ITVBSTOOK DEVEIPNENT PROJECT

CD

H j'bMdel - Integrated Coconut/Beef Cattle Fattening - 5 ha

H Investment Projection~-OH (p)

INVESTMNT --- m3ar 1---- --- Year 2---- --- Year 3---- --- Year 4Unit Niber Total Nmaber Total Number Total Number Total Total Total

Fixed Units Cost Units Cost Units Coat Units Cost Units Cost Units- Cost

Coconut Cultivation andPasture Bstablishment ha 256 5 1,280 - - - 5 1,280

Drainage 1/ n 1 1,000 1,000 500 500 500 500 - - 2,000 2,000

Copra Drier no 775 - - 1 775 - - - 1 775

Fencing m 1r.06 - - - - 1,100 1,166 - - 1,100 1,166

Lfscellaneous 10% 228 127 167 _ 522

Sub-total 15 L02 1.833 _5743

Working Capital

Feeder Steers 2/ no 240 - _ 3 720 4 960 1 240 8 1,920

Animl Health per head 2.60 - - 3 8 4 10 1 3 8 21

Fertiliser kg 0.50 1,000 500 - - - - - - 11900 500

Niscelaneson 10% 50 73 97 24 244

Sub-total 550 801 1.067 267 2,685

Total Invetu'nt 3Q058 2,203 2,0 267 81 428 |

1/ It is assumed that, on average, each farm would drain 2 ha.2/ Feeder steers of 150 kg liveweight at P1.60/kg.

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Model - Integrated Coconut/Cattle Fattening - 5 ha

Sales and Operating Expense Pro lection

C!)

Before ------------------------------------------------------------…Year…------ ---------------------------- …--------SALES Development 1 2 3 4 5 6 7 8 9 10 11-20

Copra ../ 3,375 3,375 4,050 4,500 4,950 5,400 5,850 6,300 6,750 7,200 7,200 7,200Catt le-7: ..................................... - - - 1,485 3,465 3,960 3,960 3,960 3,960 3,960 3,960 3,960

Total Sales 3,375 3,375 4,050 5,985 8,415 9,360 9,810 10,260 10,710 11,160 11,160 11,160

OPERATING EXPENSES

Labor-Owner - Copra .................... ,. 1,425 1,425 1,425 1,425 1,425 1,425 1,425 1,425 1,425 1,425 1,425 1,425Employees - Copra ................ 712 712 712 712 712 712 712 712 712 712 712 712

sub-total 2,137 2,137 2,137 2,137 2,137 2,137 2,137 2,137 2,137 2,137 2,137 2,137

Animal Health-/ ....................... S - - 8 18 21 21 21 21 21 21 21Cultivation

5.......... ................ . - - - - - - - - - 500 -

Fertilizer6/ .......................... - - 5" 500 500 500 500 500 500 500 500 500Purchases - Feeder Cattle ............. - - - 720 i,680 1,920 1,920 1,920 1,920 1,920 1,920 1,920

Sub-total 2,137 2,137 2,637 3,3<5 4,335 4,578 4,578 4,578 4,578 4,578 5,078 4,578

Miscellaneous 10% 213 213 336 4~33 457 457 457 457 457 507 457

Total operating Expenses 2,350 2,350 7,30< 3,701 4,758 5,Q35 5,035 5,035 5,035 5,035 5,585 5,035

1/ Copra selling price PO.90/kg.2/ cattle butying price is P240.00/head (150 kg liveweight at P1.60/kg) and selling price is P495.00/head (300 kg at P1.65/kg).3/ Owner works 300 days/year at P4.75/day (minimum wage) and employees 150 days at P4.75/day (minimum wage).4/ Animal health at P2.60/animal/year.5/ Subsoiling and discing at P100.00/ha.6/ P0.50/kg.

5, PHILIPPPIES

'1 ITVE9TOCK DEVELOP1ENT PROJECT

H Model - Integrated Coconut/Cattle Fattening - 5 hs

F.. F~~~~~~~~~~~~~~~~~~~~~~~~~~~inancial Projections

(,e'00)

Before- ------- -- Year.------------------Year-D-eve1open-t 2 3 4 9 6 08 _ i 11-20

CASH IFIOW:

1. nual Sale . ...................................... . 3.38 3.38 4.05 5.99 8.42 9.36 9.81 10.26 10.71 11.16 ii.16 11.162. Producers Contribution . . .- - - - - -

3. Long-ters Lon _ . . .3.06 2.20 2.90 0.27 - - - - -4. Short-tern Financial Rsource-: 9/

a. Last Year'e Cash Balance . .- - - - 1.12 2.50 1.47 2.34 2.09 2.09 2,60 2.09b. Shert-term Loans. .0.12 0.12 0.37 0.89 0.73 - o.62 - - _ -1

Total E-ipeoted Cash Inflow. 3.0 6.56 6.62 9.78 io.54 al.86 11.90 12.60 i2.80 13.25 13.76 13.25

CASH OUTFLOW:

1. Inveatmeats:a. Prodocer's Contribution ........-...-.-.-.-.-...b. Long-tern Loan . .- 3.06 2.20 2.90 0.27

2. Operating Costa . '.. '.. '. -'.'.''--. ''.. .. ''''' 2.35 2.35 2.90 3.70 4.77 5.o4 5.04 5.04 5.04 5.04 5.59 5.043. Debt Service:

a. Of Short-tern Loans 2 0 .0.14 . 1 l 0 .i4 0 .42 1.01 o.83 - 0.71 - -b. Of Long-tern Loon 3 . .- - U.32 0.63 0.98 3.51 3.51 3.51 - - - -

4. Availeble for Cash Withdroalo / ................... 0 1 , . 1.01 1.01 1.01 1.01 1.01 1.01 1.05 1.50 2.30 2,00 2.00

fotal ESpeoted Caeh Outflo .3.50 6.&6 6.62 8.66 8.o4 10.39 9.56 10.51 6.54 7.04 7.59 7.04

SURPLUS CASH AT YEAR END: - - - 1.12 2.50 L.47 2.34 .09 6.26 6.21 6.17 6.21

CUMULATII INCREMENTAL HERID VALUE: _ _ 0.72 1.68 1.9e 1.92 1.92 1.92 1.52 1.92 1.92 1.92

Short-tern financial res -urce for coconuta are assu- ed to ecual at least 5% of coco-ut 24,operating cts, and foe cattle 100% of cattle opccatin 0 costs.

9 At 14% p.a.9' At 12% p.a. on the o-tatding balance. Total tern of seven years includiag four yearn

of grace./ Represente the beet estimate Of likely cash vithdrawals in living ond other -openoco. Would be at about sane level as before Development,

rising after long-ter loan ia repaid.

ANNE 5Table 1

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Model - Integrated Coconut/Cattle Breeding/Fattening - 15 ha

Herd Projection

Before -------------End of Year-----------------Development 1 2 3 h 5 6 7-20

Herd Composition

Bulls ..... *e.q.*...*-... - 1 1 1 1 1 1 1Breeding Cows plus Replacements.. - 10 14 15 15 15 15 15Calves Weaneda n....o.ooe......o- - - 7 11 12 12 12 12Heifers 1-2 yrs (Surplus) .... .. - - 3 2 3 3Steers 1-2 yrs - - - h 5 6 6 6

Total Animals _ 11 22 31 36 36 37 371/ -= = =Total Animal Units- - 11 15 20 2L 2k 25 25

Purchases

Bulls.. * .........- 1 - - 1 - - -

Mated Heifers ......- 10 5 - - - - -

Total Purchases - 11 5 - 1 - - -= 5 = = = 2

Mortalitv

Bulls-@@-Xo**-.e ............... -_ Breeding Cows plus Replacements - - 1 1 - 1 1 1Heifers 1-2 yrs.o- - - - -1. - -Steers 1-2 vrs. .. - - - - 1 - - -

Total Mortality - - 1 1 1 2 1 1

Sales

Cull Bulls ........... o . .. - - - - 1 - - -Cull Cowsoo..... oo ..... ..-...- - - 1 2 2 2 2Heifers 2-3 yrs (Surplus). - -- -- - 3 2 3Steers 2-3 yrs ...........o... - - - - 4 5 6 6

Total Sales - - - 1 7 10 10 11-- ~ = = = = = 2=

Technical Coefficients

Calves Weaned - %-- . ......- - 70 80 80 80 80 80Mortality Adult - % - - 3 3 3 6 3 3Cow Culling Rate -%. - - - 7 13 13 13 13Carrying Capacity AUa ha - .7 1.0 1.3 1.6 1.6 I.7 1.7Total Carrying Capacity - AU - 11 15 20 24 24 25 25

1/ An animal unit is any animal over 1 year old.

October 6, 1971

PHILIPPINES(D

LIVESTOCK DEVELOPMENT PROJECT

Model - Integrated Coconut/Cattle Breeding/Fattening - 15 ha

0 Investment ProjectionH (P)

INVESTMENT ITEMS-------Year 1 ----- ------- Year 2 -- ______Year 3 .-- _Number Total Number Total Number Total Total Total

Fixed: Unit Unit Cost Units Cost Units Cost Units Cost Units Cost

New Fences m 1.06 1,950 2,067 600 636 - _ 2,550 2,703Calf Barn and Corral no 1,000 - - 1 1,000 - - 1,000 1,000Water Facilities no 1,400 1 1,400 - - - - 1,400 1,400Pasture Establishment ha 388 15 5,820 - - 15 5,820Rebuild Copra Drier 1,000 . _ - - 1 1,000 1 1,000Mated Heifers no 600 10 6,ooo 5 3,000 - - 15 9,QQOBulls no 1,200 1 1,200 - - - - 1 1,200Miscellaneous - 10% 1.649 464 100 2,213

18,136 5,100 1,100 24,336

Working Capital:

Fertilizer kg 0.50 6,ooo 3,000 6,ooo 3,000 6,ooo 3,000 18,000 9,000Labor man/yr 1 360 1 420 1 480 3 1,260Animal Health AU 9.40 11 103 15 141 19 178 45 422Concentrate Feed AU 3.00 11 33 15 45 19 57 45 135Miscellaneous - 10% 35 361 371 1,082

Sub-total 3,846 3,967 11,899

Total Investment 21,982 ,07 18636,235

IPHILIPPINfS

LEVESTOCK DEVELOP' ENT PROJECT(D

H Model * Iotagratog Cowanut/Cattle Breading/Fattening - 15 ha

Sales and Operat- ,xpenses Projection

Before ------------------…-------------------Y------------------- Year --------------------------------------------

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

Copr -. .13,500 13,500 14,175 14,850 16,200 17,550 18,900 20,250 21,600 22,950 24,300 24,308

Cattle_'Cull Bulls ............ ,.,.,. - - - - 1,000 - - - - - -_

Cull COws ........ ,.-.- - 600 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200

Surplus Heifers ................ I ......- - 2,100 1,400 2,100 2,100 2.100 2,100 2,100

Steers (2-3 years) ...................- -- 2,800 3,500 4,200 4,200 4,200 4,200 4,200 4,200

Sub-total - 600 5,000 6,800 6,800 7,500 7,500 7,500 7,500 7,500

Total Sales 13,500 13,500 14,175 15,450 21,200 24,350 25,700 27,750 29,100 30,450 31,800 31,800

OPERATING EXPENSES

CopraLabor-

Owner ................. 1,425 1,425 1,425 1,425 1,425 1,425 1,425 1,425 1,425 1,425 1,425 1,425

Employees ................... 2,137 2,137 2,137 2,137 2,137 2,137 2,362 2,362 2,362 2,362 2,362 2,362

Fertilizer- . ... . ....... , - - -_ u)0 3, 75 3,375 3,750 3,750 3,750 3,750 3,750

Cultivatio: . ........ ............... _ ... -

24k-crotl *,'5 ,,S' 3< 5 ,556 2,5o3 6,C'37 7,162 7,537 7,537 77,537 9,037 7,537

Cat tleLabor .5

14i 600 600 600 600 60o 600 600

Anime Tr althn/ .............., ........ 225 225 235 235 235 235 235 235

Conacentrate Feeds ......................... 72 72 75 75 75 75 75 75

,ub-i,ot.a I - - -37 89( 910 910 910 910 910 91O

Miscellaneous 107, 356 356 356 356 739 783 807 844 844 844 994 844

Total Operating Expenses 3918 3,918 3,918 3,915 8,138 8,617 8,879 9,291 9,291 9,291 10,941 9,291

1/ Copra sold at P0.90/kg2/ Cull bulls sold at Pl,000.00/head; Cull cows at F600.00/head and surplus heifers and steers (2-3 years) at P700.00/head.

3/ Owner works 300 days at P4.75/day (minimum wage); 3 employees for 150 days each at P4.75/day (minimum wage); and cattle require an additional part-time employee at F50.00/month.

4/ Fertilizer costs P0.50/kg.5/ SubsoiIsin, ard discing at P100,'ha.

6/ Includes dipping, medicirnes, drenchirn' aril rlinerai 2'.4:' .4C'- /sr

( X

;.W b

PHILlPiPSIK2

LIVESTOCK DEVELOP3ENT PROJFCr1

el .v~~~~~~~~~~~~~~~~~~~~odel - Inltegrated Cooonut/Cattle Breeding/Fnttentng - 15 ha

SS F;r~~~~~~~~~~~~~~~~~~~~~~~~~lanocial Projootior.

(pIs 000 )o~~~~~~~~~~~~~~~~~~~~~~~~~w

H4 BeforeY --------------------------------------------------------------- year ---------------------------------- ____________________________Developme-t 1 2 3 4 5 6 7 8 9 10 11-20

CASH TNFLOW:

1. A-oal Sales.. . 13.50 13.50 14.i8 15.45 21.20 24.35 25,70 27.75 29.10 30.45 31.80 31.80

2. Prdocere' Contribution . . - 2.20 0.90 0.52 - - - - - -3. Lorg-term an ....... ............. - 19.78 8.16 4.67 - - - - - - -4. Short-t-r Fin.enielRso1 es

a. Last Year' Cash Ballare 0,20 0.20 0.20 0.20 1.20 1.28 1.31 1.33 1.33 1.33 1.50 1.33b. Sh-rt-tera L..- - - - - - - - - - -La

5. Other Besooreessa. Lsat Yeara Caah Baela. . - 1.38 4.o6 5.43 6.61 4.54 5.19 6.94 10.35b. Short-te-m La .- - -.........-......

Total Rxspected Canh Inoflo. 13.70 37.06 27.50 26.27 29.01 30.17 32.20 36.02 40.78 31.78 33.30 33.13

CASH OUTFLOW:

1. In-eata-te:a. Pro ucer' Co nrtiboti.. - 0.20 0.90 0.52 - - - - - - -b. Lang-term La.. - 19.78 8.16 4.67 - - - - - - -

2. Operating Casts Excluive of Loan Interest 3.92 3.92 3.92 3.92 8.14 8.62 8.88 9.29 9.29 9.29 13.94 9.29

3. Debt Servie e_. - 2.37 3.35 9.0 9.25 9.05 9.05 9.05 - - 9

4. Available for Cash W6thirawals 6. 6.oD 5.00 6.SSo 6.oo 6.20 6.oo 6.oo 6.oo 7.00 7.00 8.00

Total Expected Cesh 0otf1Ow ............. 4..92 31.90 21.35 18.46 23.19 23.67 23.93 24.34 24.34 16.29 17.94 17.29

SURPLUS CASH AT YEAR END: 3.78 5.16 6.it 7.81 5.82 6.50 8.17 ti.68 16.44 15.49 i.36 15.84

CUMULAVIVE INCRE3Ek 5AL HERD VALUE: - 7.20 11.00 15.2 18.2 18.2 18.9 18.9 18.9 18.9 18.9 18.s

i/ A nual ahort-tre. oredit requirements for -ocomots are aesomed to equa1 atf oper-ting -oets (exclosive of loam interest), and ior onttle 100% of operating -osts (exolusive of lean interest).2/ Eight year loan incloding three fears of gra-e at t2t iatereot p.a.j/ epreaento. the beat eatiate of likhely .s.h w t Idraoal for living and other e-pen-os. Would be about same level as before developnent, rising after long-team loan i repaid.

PHILIPPINES

LIVESTOCK DEVELOB{ENT PROJECT(4-

Ni Model - Hill Beef Cattle Ranch - 600 ha

Herd Projection

'0

------------------------ _------------End of Ranch Year…-------------------------------Before

Development 1 2 3 4 5 6 7 8-20Herd Composition

Bulls ............................. 6 6 11 14 17 20 24 24 24Breeding Cows and Replacements .... 200 200 230 280 350 375 400 400 400Calves Weaned ........ ............ 100 100 100 126 168 228 281 300 300

Total Animals 306 306 341 420 535 623 705 724 7241/ G ___ ==4

Total AU- 206 206 241 294 367 395 42h 424 424

Purchases

Bulls .............................- 5 3 3 6 8 4 5Heifers 1-2 yrs ...................- 16 41 57 18 -

Total Purchases - 21 44 60 24 8 4 5Mortality

Bulls ............................. - - - 1 - 1Breeding Cows and Replacements 8 8 8 10 12 11 12 12 12Calves Weaned ........... - - - - - -

Total Mortality 8 8 8 10 12 11 13 12 13= = = - . a 5 . -_

Sales

Cull Bulls ........................ - - - - - 3 3 4 4Cull Cows .......--.-.-.......... 30 30 20 23 28 53 57 60 60Veaners ..... ,.62 ............ 62 58 58 73 97 134 209 228

Total Sales 92 92 78 81 101 153 194 273 292= a . a , - , - .

Technical Coefficients

P Plre~ lknrd - .................... 5c 50 55 60 65 75 75 7Fortalit Adult % ................ 4 4 4 4 4 3 3 3 3Cull Rate Breeders % ............. 15 15 10 10 10 15 15 15 15Cull Rate Heifer % ............... 15 15 15 15 15 15 15 15 15AU/ha .. .34 .34 .40 .49 .61 .66 .71 .71 .71

Total Carrving Capacity - AU's 206 206 241 294 367 395 424 424 424

1/ Animal unit is any animal over one year old.

DI

0

PHILIPPINES

C-' LIVESTOCK DEVELOPMlNlT PROJECT

Model - Hill Beef Cattle Ranch - 600 ha

Investment Projection

(p)

INVESU4ENT ITEMS ------ Year 1----- - ----- Year P ----- ------ Year 3 ----- ------ Year ---- _-Number Total Number Total Number Total Number Total Total Total

Fixed: Unit Unit Cost Units Cost Units Cost Units Cost Units Cost Units Cost

New Fences m 1.25 3,500 4,375 1,750 2,186 1,750 2,188 - - 7,000 8,751Repair Old Fences m 0.30 2,500 750 5,000 1,500 2,500 750 - - 10,000 3,0DOCoral and Calf Barn no 4,500 1 4,500 - - - - - - 1 4,500Sprayer/Motor 3] no 2,000 1 2,000 - - - - - 1 2,000Water Facilities no 5,000 1/4 1,250 1/4 1,250 1/2 2,500 - - 1 5,000Saddles Iln 300 1 300 2 600 - - - 3 9DOTruck - 1 Ton no 10,000 1 10,000 - - - - - - 1 10,000Rsployees Housing 2 no 1,500 1 1,500 - - 1 1,500 - - 2 3,000Employees Housing ] no 2,000 - - 1 2,000 - - - - 1 2,000Fertilizer Spreaders no 200 2 4oo 1 200 - - 3 600Pasture Over-Seeded with

Legume Seed ha 77.00 100 7,700 - - - 100 7,700Improved Pasture Grass/Legume ha 223.00 _ - 75 16,725 75 16,725 - - 150 33,450Heifers no 600 - - 16 9,600 41 24,600 57 34,200 114 68,400Bulls no 1,500 - - 5 7,500 3 4,500 3 4,500 U1 16,500Horses no 300 2 600 4 1,200 -- - - 6 1,800Miscellaneous 3,337 4.276 5.276 3,870 16,759

Sub-total 36,712 47,039 58.039 42,5y0 184,360

Working Capital:

Fertilizer kg .50 5,Doo 2,500 7,500 3,750 7,500 3,750 - - 20,000 10,000Labor man/yr 1,800 -- - - 1 1,800 - - 1 1,800Animal Health AU 4.10 - - _ 143 - 360 - - 503Concentrate Feeds ., AU 3.00 - - - 105 - 264 - - - 369Miscellaneous 250 400 618 - 1.268

Sub-total 2.750 4,398 6,792 _13940

Total Investment 39.462 51,437 64.831 42.570 198,300

For tick control. .oI3] Cowboy's house.3] Head cowboy's house.

D fips, vaccine, drenches and minerals.| Feed given to cows when in nursery.

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT0

Model - Hill Beef Cattle Ranch - 600h.

Sales and Operating Expenses Projections

(p)

< CATEGORY Before _________________----Year------------------------

1/ ~Development 1 2 3 4 5 6 7 8-20Cattle Sales-

Cull Bullsu. - - - - 3,000 3,000 4,000 4,000

Cull Cows .16,800 16,800 11,200 12,88^ 15,680 29,680 31,920 33,600 33,600

Weaners. . 17,856 17,856 16,704 17,226 22,338 30,555 43,416 69,597 77,976

Total Sales 34,656 34,656 27,904 30,106 38,018 63,235 78,336 107,197 115,576

OPERATING EXPENSES

Labor2/ 13,200 13,200 13,200 13,200 15,000 15,000 15,000 15,000 15,000

3!Animal Health:-'

Dipping, Vaccines, DrenchingMineral Licks4 and Medicines--- 845 845 845 845 1,504 1,619 1,738 1,738 1,738

Concentrate Feeds .618 618 618 618 1,101 1,185 1,272 1,272 1,272

Fertiizert/ - - - - 1,000 1,000 1,200 1,500 1,500

Sub-total 14,663 14,663 14,663 14,663 18,605 18,804 19,210 19,510 19,510

Miscellaneous 107. 1,466 1,466 1,466 1,466 1,861 1,880 1,921 1,951 1,951

Total Operating Expenses 16,129 16,129 16,129 16,129 20,466 20,684 21,131 21,461 21,461

1/ Cull bulls sell at P1,000/head; Cull cows at P560/head; Weaners at P1.80/kg.2/ one head cowboy at P3,600/year; Two cowboys at P1,800/year; Owner P6,000/year. Year 4, additional cowboy at F1,800/year.

3/ Animal health at P4.10/A U /year,4! Concentrate feeds at P3.00/A U /year.5/ Fertilizer costs P0.50/kg. Io

w~ O)

P-ILIPPIhES

LIVESTOCK DEVELOPMENT PROJECT

5 Model - Hiill Reef Cattle Ranch - 600 ha

Finanicial Projection

Before -Year-----------Year_-- - -- -- -- -- -- -Developmsent 1 2 3 4 6 78 910-20

CASH INFLOW:

1. Annual Sales ............................ 34.66 34.66 27.90 3C.10 38.02 63.24 78.34 107.20 115.38 US.>8 115.732. Pr,oducerls Costribuison..........- i. 914 5-i4 6.46 4.25 - -- - - -3. Long-term Loan .............. 51 ........ i 5.5 46.30 52.35 38- - -

4. S]hrt_teem Pinancial Resources:Ja. Last Year's Cash Balance ...... .68 9.62 9.66 9.68 9.79 5.91 i.61.8128 .8i.8b. Short-term Loans ............... - - 2.49 6.60

5. Other Resources:a. Last year's Cast Balan%ce ...... 7.39 13.58 7.4i-- - - 12.58 39.36-o. Other Short_t.err Loans . ............

Total Expected Cash Inflow ...... 44.34 91.19 102.60 112.02 92.87 75.63 91.02 120.08 141.04 167.82 128.46

CASH OUTFLOW:

1. Investments:a. Producer's Contribution .... ....... - 3.94 5.14 6.48 4.25 - - - _ _b. Lonlg-Cera Loan .-...................................... 4 35.52 146 8.3 3 53 - - -

2. Operating Costs:a. Operating Costs Exclusive of

Loan interest .................. 16.13 16.13 16. 13 20.47 2 0.G8 21.13 21.46 2i.46 21.46 21 .46s. Loan Interest:

i. On Short-tern Loans 2/ ....... 0 .35 0.92 -ii. On Long-term Loan 2/ - 4.Ž6 3.82 16.E2 Ž1.42 20.12 17.46 1L.64 5.82 -

3 Debt Service:a. Of Short-tern Loas ..... .......... 2.49 6.60 -a. Of Long-t;ens l,oan 4/ -............ ,- - - - 10.83 22.17 48.50 48.5o 48.49

L. Available Cash Withdrawals 2/ .7.20 7.20 7.20 3.20 7.20 7.20 7.20 7.20 7.20 8.0o 10.00

Total Expected Cash Outflow ....... 23.33 62.79 79.03 97.98 87.o6 62.97 75.14 94.62 88.80 83.77 31.46

SURPLUS CASH AT TEAS EID: 21,01 28.)tC 23.57 l4.o4 5.81 12.68 12.88 25.46 52.24 64.05 97.00

CUMUIATI7E INCRMLEIS2Al HERD 2VALUE: - 23.00 65.10 124.80 163.80 201.35 205.oo 208.00 200.OO 208.00

I/ Annual s ort -e,ns fiba-cial requirerents ars, as-2ed eti t a 60,, of opcrat ng cost- (exclusive of Loan .rtunc, - a

3/ At bY p.a. 14 i the -t9tai.g bal-9e.TotaL tterm of nire yetrs incluoing four years of sracc. b, abotlc t, f !rArinal i -- 5 i,l y-a_, arc! 17t In yea- 7 3 I me instances it mat besppropr iate o arrant I a-term laant up to L !ea. s d'%d capi talip e intores. the first tbso years. It is expected, thouD, that on average the terms would be 1i years with grate s of 4 to 5 years.

rj Sepreonntnshe bes-t it-nate if liktl, sa-,. wi-bdracas fir lfvi arS lt,er expenrses. Wouli retyets at ahio-tesu devciopreet level, rlsing after lung-term loan is repaid.

ANNEX 7Table 1

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Model - Pig Breeding/Fattening - 25 Sows

Herd Projection

Before -- End of Year-Development 1 2 3-20

HERD COMPOSITION

Sows and Replacements .12 30 30 30Boars . .1 2 2 2Pigs - 0-6 weeks .21 51 52 52Pigs - 6-12 weeks. 18 44 45 45Pigs - 12-34 weeks .52 86 129 129

Total Pigs 1_0 213 258 258

TOTAL BIRTHS 200 320 500 500

PURCHASES

Gilts................................... - 18 - -Boars.. .1 1 1

Total Purchases - 19 1 1

MORTALITY

Breeding Females-......................- 1 1 1Boars .... .Pigs - 0-6 weeks ...... .................. 40 64 100 100Pigs - 6-12 weeks-.--------------------- 8 13 20 20Pigs - 12-34 weeks.5 7 11 11

Total Mortality 53 84 132 132

SALES

Culled Sows ........... .................. 4 4 10 10Culled Boars .- - 1 1Finished Pigs. 143 142 313 358

Total Sales 1)47 146 32 4 369

TECHNICAL COEFFICIENTS

Conception Rate - (%) .80 80 80 80Number Born/Farrowing ................... 10 10 10 10Number of Farrowings/Fertile Sow/Year 2 2 2 2Average Number of Farrowings/Female inBreeding Herd .1.67 1.67 1.67 1.67

Sow Culling Rate/Year - (%).. 40.t 40o 4o hoBoar Culling Rate/Year - (%)..40 .40 440 hoMortality - (%)Breeding Females ...................... 2 2 2 2Boars ................................. 1 1 1 1Pigs - 0-6 weeks ..--- ------ -- 20 20 20 20Pigs - 6-12 weeks. 5 5 5 5Pigs - 12-34 weeks .3 3 3 3

October 6, 1971

PHILIPPIDES

LIVESTOCK DEVELOPMENT PROJECT

Model - Pig Breeding/Fattening - 25 Sows

Investment Projection

H

H -------- Year 1 -------- ------- fear 2 --

Unit Unit Cost No. of Total Cost No. of Total Cost Total Total Cost

INVESTENTS (P) Units (p) Units (p) Units (P)

FixedFarrowing Pen ................................... 92 800 4 3,200 - - 4 3,200

Drysow Pen ................ ......................... 52 g0 2 1,800 - _ 2 1,800Boar Pen .. ... . ....... 9 700 1 700 - _ 1 700Weaning Pen ........... ........... 8m

2600 4 2,400 - 4 2,400

Fattening Pen .. ...... 19m2 900 4 3,600 - 4 3,600Feed Store ...................................... 37m 1,600 1 1,600 - . 1 1,600Workman's House ........... ...................... no. 2,000 1 2,000 - - 1 2,000Gilts ... .................................... no. 500 18 9,000 - _ 18 9,000Boar ... .................................. no. 1,000 1 1,000 - - 1 1,000Small Equipment, Tools and Miscellaneous j ...... - - 3,000 - 3,000

Sub-Total 28,300 _ 28,300

Working CapitalFeed ............................................. kg o.60 27,360 16,416 21,670 13,002 49,030 29,418Medicines and Vaccines .......................... per sow 50.00 15 750 - - 15 750Labor ...................... man yr. 2,000 0.5 1,000 0.5 1,O OO 1 2,000

Sub-Total 18,166 14,002 32,168

Total Investment 46,466 14,002 60,468

Technical CoefficientsFeed consumption/sow or boar/annum - 1,000 kgFeed consumption/weaner (0-6 weeks) - 6 kgFeed consumption/grower (6-12 weeks) - 50 kgFeed consumption/finisher (12-34 weeks) - 140 kgFeed consumption/finished pig - 273 kgFeed conversion efficiency - 3.79 kg feed/kg liveweight (8-80 kg)Labor Productivity - 2 men/25 sows.

j Water pump, water hose, weighing scales and tools.

ro -.4

PHILIPPINES0

LIVESTOCK DEVELOPMENT PROJECTC

0 Model - Pig Breeding/Fattening - 25 Sows

Sales and Operating Expenses Projection

Before ------------------ Year ----Development 1 2 3-20

SALES

Finished Pigs .. 44,616 44,304 97,656 111,696Cull Boars . - - 250 250Cull Sows . . 1,1000 2,500 2,550

Total Sales 45,616 45,304 loo,4o6 114,496

OPERATING EXPENSES

Feed ............. 31,878 31,878 64,199 79,478Labor...2000 2,000 3,000 4,000Veterinary and Medicines ) 500 500 1,250 1,250Miscellaneous ................ 500 500 1,000 1,000Maintenance ............. 0...... 7 500 1,000 1,000Boar g ..................... - - 1,000 1,000

Total Operating Expenses 35,378 35,378 71, 449 87,728

/ Pigs sold at 80 kg liveweight, selling price P3.90/kg.2 Cull sows and boars sold at P250/head./ P50/sow.

I Price of boar - P1,000

(D >

Oj PHILIPPINESCD

ITVESTOCK DEVELCPMENT PROJECT

Model - Pig Breeding/Fattening - 25 Sows

Financial Projections

H (p '000)

Before ---------------------------------------- Year --------------------------- ___- ______-_

Development 1 2 3 4 5 6 7 8-20

CASH INFLOW:

1. Annual Sales , ................... 45.62 45.30 100.41 114.50 114.50 114.50 1i4.5o 114.50 114.5o

2. Producer's Contribution ...................... - 4.65 1.40 - _ _ _ _

3. Long-tern L oan ............................... - 41,8p 12.60 - - - - -

4. Short-term Financing Resources: /a. Last Year's Cash Balance ..... ............ 1.76 1.76 1.44 17.27 16.27 17.70 19.13 20.56 4.38

b. Short-term Loan .... - - 2.13 - - - - -

Total Expected Cash Inflow 47.38 93.53 117.98 131.77 130.77 132.20 132.63 135.06 118.88

CASH OUTFLOW:

1. Investments:a. Producer's Contribution . - 4.65 1.4o - - - - _ _

b Long-term Loan ....... ...................- 41.82 12.60 - -_- -

2. Operating Costs: ........ ...................... 35.38 35.38 71.45 87.73 87.73 87.73 87.73 87.73 87.73

3. Debt Service:a. Of Short- term Loarn 2 ..........2I-........ - 2.43 - - - - -

b. of Long-term Loan 3 - 5.02 15.10 15. 1515.10 15.10 15.10 -

4. Available Cash Withdrawals 4 ............. 10.24 10.24 10.24 10.24 10.24 10.24 10.24 11.00 12.00

Total Expected Cash Outflow 45.62 92.09 100.71 115.50 113.07 113.07 113.07 113.83 99.73

SURPLUS CASH AT YEAR END: 1.76 1.44 17.27 16.27 17.70 19.13 20.56 21.23 19.15

CUMULATIVE INCREMENTATL 1TER1) VALUE: - 24.54 33.17 33.17 33.17 33.17 33.17 33.17 33.17

/ Annual short-term capital requirements are assumed to equal 5% of operating costs (exclusive of loan interest).

/ At 14% p.a.

3/ Total term of seven years including two years of' grace, 12% interest p.a.

j Represents the best estimate of likely ca.h withdrawals for living and other expenses. WouLd remain at aboout

before developmeret, level rising after long-term loan is repaid.

ANNEX 8

Table 1

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Model - Broiler Production - 8,000 Broiler Capacity

Flock Projection

Before Year-------Development 1 2-10

FLOCK COMPOSITIONBroilers (0-8 Weeks) .4,100 8,200 8,200

PURCHASESDay-old Chicks .21,000 38,000 42,000

MORTALITYBroilers (0-8 Weeks) .1,000 1,900 2,000

SALESBroilers .20,000 36,100 40,000

TECHNICAL COEFFICIENTSAge at Purchase - Days 1 1 1Age at Sale - Weeks 8 8 8Batches per Year - Number 5 5 5Mortality - . 5 5 5Average Liveweight/Broiler at

8 Weeks - kg .1.3 1.3 1.3Average Feed Consumption/Broiler -kg .3.6 3.6 3.6

November 5, 1971

ANNEX 8Table 2

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Model - Broiler Production - 8,000 Broiler Capacity

Investment Projection

---- Year 1 --------

Unit Unit Cost No. of Total Cost(R) Units (R)

INVESTMENTS

FixedBroiler House ............ 374m2 25,000 1 25,000

Equipment ....... ,....000 - 8,000Workman's House ............- 2,000 1 2,000Small Equipment, Tools

and Miscellaneous ......... 2,000 - 2,000

Sub-total 37,000

Working CapitalChicks .............. chick 1.25 5,250 5,250Feed ........................ kg o.65 14,400 9,360Medicines and Vaccines ..... per bird 0.10 4,000 400Brooding Cost .............. per bird 0.10 4,000 400

Electricity and Water ....... per bird 0.30 4,000 120L.abor ............ m.......... man yr. 2,000 0.2 400

Miscellaneous .............. 100 100

Sub-total 16,030

Total Investment 53,030

November 5, 1971

ANNEX 8Table 3

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Model - Broiler Production - 8,000 Broiler Capacity

Sales and Operating Expenses Projection

(R)

Before -------- Year -Development 1 2-10

SALES

Broilers /................... 91,000 164,255 182,000

OPERATING EXPENSES

Chicks 2 .26,250 42,250 52,500Feed 3 46,800 75,114 93,600Medicines and Vaccines /. 2,000 3,210 4,000Brooding Cost 2/ ................ 2,000 3,210 4,000Electricity and Water ~/ .,,,,. 600 963 1,200Labor 7/ ....................... 2,000 3,600 4,000Miscellaneous .................. 500 900 1,000

Total Operating Expenses 80,150 129,247 160,300

/ Selling price/kg liveweight - P3.50./ Cost/chick - PI.25.

)/ Price of feed/kg - P0.65Cost of medicine and vaccines/broiler - R0.10.

2/ Brooding cost/broiler - P0.10.Electricity and water/broiler - P0.03.

7/ Labor - 1 man/4,000 broiler capacity costing P2,000 p.a.

November 5, 1971

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Model - Broiler Production - 8,000 Broiler Capacity

Ho Financial Projections(P '000)

Before -------------- _--------------------------- Year ------------------Development 1 2 3 4 5 6 7 8 9-10

CASH INFLOW:

1. Annual Sales .. 91.00 164.26 182.00 182.00 182.00 182.00 182.00 182.00 182.00 182.002. Producer's Contribution . ........... - 5.30 - - - - - - -3. Long-term Loan . . 47.73 - - - - _- -4. Short-term Financing Resources: ]J

a. Last Year's Cash Balance .4.01 4001 30.62 27.07 26.31 25.55 24.79 24.03 23.27 8.02b. Short-term Loan .- 2.45 - - - - _ _ -

Total Expected Cash Inflow 95.01 223.7(5 212.62 209.07 208.31 207.55 206.79 206.03 205.27 190.02

CASH OUTFLOW:

1. Investments:a. Producer's Contribution ..... ............ - 5.30 - - - - - - - -b. Long-tenm Loan ........ ................... - 47.73 - - - - - - -

2. Operating Costs; ......... ..................... 80.15 129.25 160.30 160.30 160.30 160.30 160.30 160.30 160.30 160.30

3. Debt Service:a. Of' Short-term Loan -7 ................... ?.79 - - -

b. Of Long-term Loan . ........... - - 11.61 ii.6i 11.61 11.61 11.61 11.61 - -

4. Available for Cash Withdrawals j/ . . 10.85 10.85 10.85 10.85 10.85 10.85 10.85 12.00 13.00 13.00

Total Expected Cash Outflow 91.00 191.13 185-55 182.76 182.76 182.76 182.76 183.91 173.30 173.30

SURPLUS CASH AT YEAR END: 4.oi 30.62 27.07 26.31 25.55 24.79 24.03 22.12 31.97 16.72

CUMULATIVE INCREMENTAL FLOCK VAILE: - 92.66 92.66 92.66 92.66 92.66 92.66 92.66 92.66 92.66

Annual working capital resources are assumed t,o equal at least '% of operating costs (exclusive of loan interest).At 14% p.a. plus repayment of loan granted precee ing year.

3I Loan tenm of seven years including one year of grace, 12% interest p.a.ji Represents the best estimate of likely cash withdrawals for living and other expenses. Would approximate before

development level, rising after long-term loan is repaid.

t D

PHILIPPINES

2,- LIVESTOCK DEVELOPMENT PROJECT

Model - Egg Production - 6,000 Hen Capacity

Flock Projection

Before -------------------- Year --------------- __Development 1 2 3 - 10

AVERAGE YEARLY FLOCK COMPOSITION

Chicks and Growers .1,063 2,125 3,187.5 3,188Layers ............................... 1,80a 1,800 4,450.0 5,400

Total Birds 2,863 3,925 7,637.5 8,588

PURCHASES 2,250 4,500 6,750 6,750

MORTALITYChicks and Growers .250 500 750 750Layers ................................. 400 400 1,000 1,200

Total Mortality 650 900 1,750 1,950

SALESCulled Birds .......................... 1,600 1,600 1,600 4,800Eggs.394,200 394,200 974,550 1,182,600

TECHNICAL COEFFICIENTS

Age at Purchase - days 1 1 1 1Age at Sale - years , , , , 1.5 1.5 1.5 1.5Average Percentage of Hens Laying/day 60 60 60 60Feed Consumption:

Chick 0-6 weeks - kg/head 1.1 1.1 1.1 1.1Grower 6-26 weeks - kg/head 7 7 7Layer - kg/year ....... 40 40 40

Mortality: xChicks and Growers - 7 ..... ,,,, 11 11 11 11Layers - . .. 20 20 20 20

PHILI?PINES

B LIVESTOCKI DEVELOPMENT PROJECT

Model - Egg Production - 6,000 hen Capacity

Investment Projection

------- Year 1 ------- ------- Year 2 -------unit. Init CORt No. of Ton.al CoRt No. of Total Cost Total Total Cogt

INVESTMTS (P) Units (u) units (i) Units (P)

FixedLaying House, Cages and Equipment .... ............ 180m- - 35,000 --

Grower House and Equipment .. . . . 130m2 - - 15,000 -

Brooder House and Equipment ...................... 60m2

- - 10,000 -

Workoano'E House .................. , . .. - - - 2,000 -

SEall Equipment, Tools ario Miscellaneous ......... - - - 2,000 -

Sub-total _4,,O00 64,ooo

Workin CapitalChick Purche ............... chick 1,25 2,250 2,812 2,250 2,812 4,5oo 5,624Chick Feed .......... ............................. kg 0.75 2,412 1,809 2,412 1,809 - 3,618Grower Feed ............. kg 0.75 14,595 10,946 14,595 10,946 - 21,892Medicines and Vaccines ...................... ,. per bird 0.10 2,250 225 2,250 225 - 450Brooding Cost ........... per bird 0.01 2,250 225 2,250 225 _ 450Electricity and Water ..................... ,.,. per bird 0.01 2,250 225 2,250 225 - 450Labor / ........... m............................ man yr. 2,000 0.5 1,000 2,000 1,000 - 2,000

Suab-total 17,242 17,242 34,484

Total Investment 81,242 17,242 98,484

/ Small water pump, hoses, weighing scales and tools.@/ One man per 4,000 hens costing P 2,000 p.a.

I> '

PHILIPPINES0

LIVESTOCK DEVELOPENT PROJECT5

et Model - Egg Production - 6,000 Hen Capacity

Sales and Operating Expenses Projection

(p)

Before -- ------- Year --------------------Development 1 2 3 - 10

SALES

Eggs ... 90.............. go,666 90,666 224,146 271,998Hens .............................. 6,ooo 6,000 6,ooo 1000

Total Sales 96,666 96,666 230,146 289,998

OPERATING EXPENSES

Chick purchase .2,13 2,813 5,626 8,438Feed .... .................. 66,747 66,747 161,296 200,242Medicines and Vaccines 585 585 1,340 1,755Brooding Cost .225 225 450 675Electricity and lWater 630 630 1,333 1,890Labor .... ,. 1,000 1,000 2,000 3,000Miscellaneous .500 500 1,500 1,500

Total Operating Expenses 72,500 72,500 173,545 217,500

PRODUCTION COEFFICIENTS

Price per egg - P 0.23Hen weight - 1.5 kgHen price - P 2.5/kgFeed consumed: H

Chick (O - 6 weeks) - 1.1 kg/birdGrower (6 - 24 weeks) - 7 kg/birdLayer (6 - 18 months) - 40 kg/bird/year L \D

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Model - Egg Production - 6,000 Hen Capacity

Financial Projections(R '000)

Before ------------------------------- Year ------------------------------------------Development 1 2 3 4 5 6-lo

CASH INFLOW:

1. Annual Sales ................................... 96.66 96.66 230.15 290.00 290.00 290.00 290.00P. Producer's Contribution ........................ - 8.12 1.72 - - - -

3. Long-term Loan ................................. - 73.12 15.52 - - - -

4. Short-term Financing Resources: 1/a. Last Year's Cash Balance ..... ............. 3.62 3.62 3.62 32.34 38.03 49.49 10.87b. Short-term Loan ........ ................... - - 5.05 - -

Total Expected Cash Inflow 100.28 181.52 256.06 322.34 328.03 339.49 300.87

CASH OUTFLOW:

1. Investments:a. Producer's Corntribution . 8.12 1.72b. Long-term Loan .- 73.12 15.52 - - - -

2. Operating Costs: ............................... 1 D.50 72.52 173.55 217.50 217.50 217.50 217.50

3. Debt Service:a. Of Short-tern Loan . ................. - - 5.75 - - -

b. Of Long-term Joarl . ................... - 8.77 36.90 36.90 36.90 -

4. Available for Cash Withdrawals; i ........ 24.ti6 24.16 24.16 24.16 24.16 26.oo 27.00

Total Expected Cash Outflow 96.66 1774. 9() 223.72 284.31 278.56 28o.4o 244.5o

SURPLUS CASH AT YEAR El D: 3.62 3.62 32.3)4 38.03 49.49 59.09 56.37

CUMILATIVE INCREMENTAL FLO(ACK VALUE: 8.50 43.90 63.oo 63.00 63.oo 63.00

I Arnnual short-term capital requirements are assumed to cqual at least f% of operating costs (exclusive of loan irnterest).g/At. 14% p.a. pines repa,yrreot of loanl granlted preceeding year. >

Total tent of five years including two years of grace, 12% interest y.a. CDR Jepresents the best estirnate of likely cash withdrawals for living and other expenses would remain al. about before development

level, risin.g after long-term loan is repaid.

ANNEX 10Table 1

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Model - Slaughterhouse Daily Capacity 20 Head of Cattle and 200 Head of Pigs

Investment Projection

Year-2---- -- 2------

Costqper? No. of No. of Total TotalINVESTMENT ITEMS Unit Unit Units Cost Units Cost Units Cost

Fixed:

land ...................... ha 10.00 2 20 - - 2 20Building: Killing Floor, Chilling

Rooms, Cutting Room, RenderingRoom, Utility Room and 2Administrative Room ...... ......... m 0.77 660 508 - - 660 508

Refrigeration Equipment ...... ....... no 192.00 1 192 - - 1 192Slaughterhouse Equipment:Hog Scalder .......... ............. no 5.00 1 5 - - 1 5Hog Dehairer ......... ............. no 8.00 1 8 - - 1 8Band Saw ....... . no 18.00 1 18 - - 1 18Other ............................. 18 18

Rendering, Drying and GrindingPlant ... . . ............. no 266.00 1 266 - - 1 266

Truck -5 Ton .......... no 75.00 1 75 - - 1 75Jeep ................................ no 16.90 2 32 - - 2 32Water Systems Pressure Pumps,Storage Tanks and Piping 1 ....... no 4 0.00 1 40 - - 1 40

Electrical Fittings . 15 15Holding Pens 10 10Cryovac Machine .......................... no 16.00 1 16 - - 1 16

Sub-total .................... 1,223 1,223

Contingencies:Physical - 5% ..................... 61 - - 61Price - 13.0% 2/ .................. 159 - - 159

Total Fixed Investments 1,413 1,43

Working Capital:

Labor - - 151 151Utilities ....... ................... - 34 34Cryovac Bags - - 319 319Containers ........ .......... . - 160 160Freight ........ , ........ .... - 798 798Vehicles . ............... ,.- - 15 15Maintenance ........- - 10 10Bags, strings, etc. for by-products_ - _ 12 12

Sub-total 1.499 1,499

Contingencies:Physical - 5% .................... - 75 75Price - 20% 2/ . - - 300 300

Total Working Capital - 1,8741

Total Investments ................... 11443 1,874 3,317

1/ Includes sinking of a bore-hole approximately 50 m deep.2/ Average fixed investment is expected to occur about 2.5 years and average working capital investment about 3.5 years

after appraisal. local costs, that account for 59% of fixed investment and 86% of working capital costs, areprojected to increase by 6% per annum; and foreign exchange costs, that account for 41% of fixed investment costsand 1b% of working capital, are projected to increase by 4% per annum, which results in an average price contingencyof 13% for fixed investment and 20% for working capital.

November 5, 1971

PHILIPPINES

uIVESTOCK DEVELOPMENT PROJECT

Model - Slaughterhouse Daily Capacity 20 Heads of Cattle and 200 Heads of Pigs

Sales and Operating Expa nses ProjectionU) (P mi lions)

-----------------------Year ----------------Catory 1 2 3 4-20

SALES

Beef Sales/ - 4.202 5.645 5.645Pork Sales- - 15.771 21,185 21.185By-Product Sales-/ - o.600 0.600 o.600

Total Sales - 20.573 27.430 27.430

OPERATING EXPENSES

Cattle Purchases- - 4.320 4.320 4.320Pig PurchasesY/ - 18.720 18.720 18.720Labor - - 0.151 0.151Utilities6/ - - 0.034 0.034Cryovac Bags - - 0.319 0.319Containers-/ - - 0.160 0.160Freight./ - - 0.798 0.798Vehicles - - 0.015 0.015Maintenance9/ 10/ - - 0.010 0.010Bags, String, etc. for By-Products-- - - 0.012 0.012

Total Expenses - 23.040 24.539 24.539Miscellaneous 5% - 1.152 1.227 1.227

Total i1penses - 24.192 25.766 25.766

1/ Average selling price R7.7r0/kg, dressing weight 50%, downgrading 1%, chillshrinkage 2%, boning 30%.2/ Average selling price P6.50/kg, dressing weight 70%, downgrading 1%, chillshrinkage 2%.3/ Meat and bone meal sold at P2.00/kg wholesale. Hides also included here. lt:/ Average liveweight 360 kg at P2.00/kg purchase price. FE7/ Average liveweight 80 kg at P3.90/kg purchase price. CD6/ Electricity and boiler fuel. 9 H7/ Cardboard containers approximately 60 cm x 50 cm x 15 cm holding 25 kg beef in cryovac bags.e/ Sea freight PO.20/kg Mindanao to Manila.

/ G3neral maintenance of buildings, equipment and surroundings.10/ Second hand bags for meat and bone meal. One second hand bag costs P1.00.

PHILIPPTNES

LIVESTOCK DEVE10PMENT PROJECT

a Model - Slnughterhouse Daily Cap.aity 20 Head of Cattle and 200 Head of Pigs

Financiasl Projections

- (P Million)

t- ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~- --------- -------- --------- --------- -------- --------- --------- _______---------- --------- ----- _-_-_------- --------- -------- --------- --------- --------

1 2 3 4 5 6 7 8 2 10 11 12 13 14-20

CASH TNFLOW:

1. Annual Sales - 20.573 27.430 27.430 27.430 27.430 27.430 27.430 27.430 27.430 27.430 27.430 27.430 27.430

2. invesseOts: ja. Producers' Contribution 0.407 0.777 - - - - - - - - -

b. Goveranent Equity Contribution 0.340 0.370

c. Long-tens Loan o,680 0.743

3. Short-term Financial Re-sorces: 2/a. Last Year's Cash 3nJ.nce - - 2.347 0.728 2.959 0.943 3.403 1.295 4.107 1.606 3.000 3.000 3.000 3.000

b. Short-tens Loans _ 6.o48 4.095 5.714 3.483 5.499 2.952 5.147 2.337 4.836 4_464 4.ih0 3.442 3.442

Total Enpested Cash Inflow i.4hi 28.711 33.872 33.872 33.872 33.872 33.872 33.872 33.872 33.872 34.894 34.470 33.872 33.872

CASH OUTFLSW:

1. S-vestments:a. Producers' Contribution 0.407 D.777 - - - - - - - - - - -

b. Government Equity Contribution 0.340 0.370

c. Long-tens Loan o.680 o.743o Operating Costs Fxclusive of Lo.n Irt-rest - 24.1'2 25.766 25.766 25.766 25.766 25.(66 23.766 25.766 25.766 25.766 25.766 25.766 25.766

3. Debt Sereisea. Shurt-tenm ion 3 - - 6.895 4.668 6.513 3.970 b.Z69 3.365 5.868 2.664 5.513 5.089 4.606 3.924

i. Long-tens Loan _ - D.doo 0.171 0.171 0.346 0.346 2.346 0.346 o.346 0.346 - - - -

4. Dividends: !,/a. Preferred S-are __ 0.1 o 6 0.093 o.80o 0.067 0.054 0.o4o 0.027 0.014 - - -

b. Coensn Shares - - O,ii3 0.127 0.136 0.i45 0.154 0.162 0.171 1.988 0.284 0,284 0.169 0.851

5. Retirement of Preferred SThares / - - o.jH o.o88 o.o88 0.088 0.088 o.o88 o.o88 0.094 - -94 -

6. Corporation Incoe TIx 7 - .331 0.331 0.331 0.331

Total Eiectsd Casih C5tfl1 1.427 26.164 33.144 30.913 32.329 30.382 32.57' 29.767 32.266 29.782 31.854 31.470 30,872 30.872

SUPPLUS CASH AT Y1AR Elf _ 2.347 0.728 2.959 0.943 3.490 i.295 4.1i5 1.606 3.000 3.000 3.000 3.000 3,00

j It is e-pected that prod-:er-, ohs ould 1r-ably he b n-bers of -n association or -coop-rt1ce, would contriblte 30 to 35% of the total inventment tor

coosn shares; (1o-rnment equity co:rtribution of '0 tc %5% for preferred ohs-es would bi -ontrsibted by the 5E3 or the Greater Manila Tenihnal Food

MPoket ( HoMFM); and 40 to 45% Of in,e-ter-t would toss Iran a long-te-n loon.

2, Annual short-tent requirenentc ore n-su-ed to eqal 23% of .nnuol pnrntinn toos1 enclosive of boss interest)

3 At I4 pe aun.A 8! 12% per onrion on the outstandirl,,h borul . Toots Inns of 1 yToots, including four ye-rs of groas.

P/ preferred shares would be preferred as so an-osl dividevds of i152 -on-susulatic, noe-psrti-npstiag. It, is espe-ted that the first di-idend

-would be drolared sn the thind yea,r std that net profits -oj lollo dsclnrslh ot of 10-12,% dividend on cummon hares (at par raIse) in yearn

threc thro-glI 12, end1 flctuat.irid therenfri- dpenpil,g on pr-fitsbility and onort-te-s credit req-ureentn.

53 It is e-pected tOot flee surplu (after psynent of dividends) would bo suffcient to retire prefnrred sintro s t per value frot. year tOee thrcsgi

10, and 1b.ht scomort sihres would be issued equ-ssi-t to rhe preferred snores entired.

J The corporstiori woold probably be ta-e-e-pl under tie Burenu of Industry (BOI) rles for tire first 17 jsrn of its operations; thereafter th?e

tax uo-ld be 25% on tie f1r3t F 103,702 net -rofits sod 350 os et p-rofihr in -oce- of th,t.

PHIILIPPINES

LIVESTOCK DEELVFLOERT PROJECT

Model - Slaughterhouse taily Capacity 20 Head of Cattle and 200 head of Pigs

-DProfit and Loss Projections

(P Millions)

1 2 3 4 5 6 7 8 j 10 11 12 13 14-19 20

Income

Sales _ so.573 27.430 27.430 27.430 27.430 27.430 27.430 27.430 27.430 27.430 27.430 27.430 27.430 27.430

Expenses

Operating 24.192 25.766 25.766 25.766 25.766 25.766 25.766 25.766 25.766 25.766 25.766 25.766 25.766 19.325Interest:

Short-term - o.841 o.0.4 0.802 0.491 0.749 0.423 0.717 0.346 o.560 o.560 o.560 o.56o 0.560

Long-term - o.086 0.181 0.181 0.175 0.152 0.127 0.098 o.o65 0.030 - - - - -

Depreciation - 0.130 0.130 0.130 0.130 0.130 0.130 0.130 0.130 0.130 0.130 0.130 0.130 0.130 0.130

Total Expenses - 24.408 26.924 26.651 26.873 26.539 26.772 26.417 26.678 26.272 26.456 26.456 26.456 26.456 20.015

Operating Income - (3.835) o.5o6 0.779 0.557 0.891 o.658 1.013 0.752 1.158 0.974 0.974 0.974 0.974 7.415

Provision for Incoc Tax - - _ - - 0.331 0.331 0.331 0.331 2.585

Adjustment to Profit - (3.835) 0.506 0.779 0.557 0.891 0.658 1.013 0.752 1.158 0.643 o.643 o.643 o.643 4.830and (Loss) 2/

3/ Expenses reduced by P.6.441 (miUlion) which constitutes the cost of the f'irst batch of livestock purchasedin the first quarter of year-2 (start-up year). Sinace turnover would be every 90 days, there would beonly three units sold in year-S''.

/ Prof'itability of operations over 20 year period would be about 19%.

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Management and Technical Services

Investments Projections

Project YearNumber 1 2 3 4 5 6 Total Cost

(--------------------- (P '000) ------------------------…) (US$ '000)

CATEGORY

Project Vehicles:Jeeps ............ 10 80 80 - - - - 160 25.2

Motor Cycles ........... 1/... 20 20 20 - -- - 40 6.3

Investigational Equipmentand Grants ................. - 32 63 32 - - - 127 20.0

Salaries: 2/Project Specialists ......... 11 man/years 750 750 750 500 - - 2,750 433.1

Consultants 3/ ...... ........ 9 months 254 - 127 - - - 381 60.0

Local Staff4/ ...........4... 111 man/years 207 400 400 400 177 59 1,643 258.7

Subsistance and Miscellaneous . - 34 60 60 60 26 10 250 39.4

Gas, Oil and Repairs ......... 30 60 60 60 20 7 237 37.3

Contingency - about 10% .......- 141 143 143 102 47 33 609 95.9

Total 1,548 1,576 1,572 1,122 270 109 6,197 975.9__:--_ =: ==::: Z:r== 3=mx: :=:_: m::: -:2-= =---

1/ Laboratory and other investigational equipment, e.g. scales, fertilizer and seed for field trials, feed mixer,

equipment, feeds and livestock for feeding investigations. Small grants to encourage relevant applied work.

2/ Technical Director 4 years; Pasture - Animal Production Specialist 4 years; Applied Pig and/or Poultry

Nutritionist 3 years.3/ Consultant to define a program for utilizing molasses and sugar care tops. Visit Philippines for two periods

of three months in Project years 1 and 3. Consultant on pig breeding to define a program for pig

improvement; - one three month visit. §

4/ Year 1 - 14 men; Year (2-4) - 27 men; Year 5 - 12 men; Year 6 - 4 men P14,800 per man.

H

ANNEX 12Page 1

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Management and Technical Services -- Terms of Referencesand Qualifications

1. Technical Specialist - would act as a Technical Specialist withinthe Livestock and Poultry Group of the Agricultural Department, DevelopmentBank of the Philippines (DBP) and assist the Head of the Group in carryingout the Project. Including, but not limiting the generality thereof, hewould have the following minimum specific duties, responsibilities and powers,which he might delegate in part to assigned technical staff:

(a) advising administrative officials (Manager, AgriculturalDepartment and Head, Livestock and Poultry Group) on majorpolicies and procedural matters in respect to the LivestockDevelopment Project;

(b) assisting in the execution of the Project in accordance withpolicies and procedures agreed to with the administrativeofficials (Section (a));

(c) recommending to the Head of the Livestock and Poultry Groupthe employment of livestock technicians needed to carryout the Lending Program of the Project;

(d) coordinating the work of the production specialists (para 2and 3);

(e) in consultation with the Head of the Livestock and PoultryGroup prescribing the duties and responsibilities of thelivestock technicians and supervising their training in thetechnical and economic aspects of livestock production andthe preparation of farm/ranch investment projects;

(f) recommending farm/ranch investment projects to the Head ofthe Livestock and Poultry Group;

(g) assist in establishing a farm accounting system for sub-loanbeneficiaries with particular attention to maintaining anadequate sample of farm/ranch records as needed for Projectevaluation;

(h) giving assistance and cooperation to any short-term technicalconsultants that may be employed in connection with Projectactivities; and

ANNEX 12Page 2

(i) giving assistance to the Manager of the Agriculture Departmenttoward modernizing and streamlining its agricultural creditactivities.

Qualifications

The Technical Specialist shall have the following qualifications:

(a) a university degree in agriculture or allied sciences suchas Animal Husbandry or Agricultural Economics;

(b) a broad professional experience of about 10 years in the useof credit for farm development with ability and experienceto prepare and appraise technically sound and financiallyviable investment plans for farm development which wouldsatisfy the normal lending criteria of financial institutions;

(c) several years administrative experience in the application ofagricultural credit systems; being well grounded on theprinciples of credit, its use, and with the capability toanalyze financial accounts and projections;

(d) the ability to prepare and carry out training programs forlivestock and poultry technicians; and

(e) the ability to work both with high level administrationofficials and with the small to medium size agriculturalproducers.

Preference would be given to candidates who have had experience in an environ-ment similar to that of the Philippines.

2. Pig and Poultry Production Specialist - would assist the Chiefsof the Pig and Poultry Divisions in executing the Project. Including, but notlimiting the generality thereof, he would have the following duties andresponsibilities:

(a) to recommend major policy and procedural matters withrespect to the pig and poultry components of the Project;

(b) to assist in the execution of the pig and poultry components;

(c) to recommend the employment, and assist in the selection oflivestock technicians needed to carry out the pig and poultrycomponents;

(d) to prescribe the duties and responsibilities of the livestocktechnicians in consultation with the Head of the Livestockand Poultry Group, the Technical Specialist and the Chiefsof the Pig and Poultry Divisions;

ANNEX 12Page 3

(e) to assist in the training of livestock technicians in technicaland economic aspects of pig and/or poultry production, and inthe techniques of preparing farm investment projects;

(f) to recommend farm investment projects to the Chiefs of thePig and Poultry Divisions;

(g) to provide, inter alia, guidance on design and specificationsof pig and poultry buildings and equipment used therein;advising farmers on pig and poultry production and managementtechniques, including feed formulation and home mixing, useof antibiotics, vaccines and veterinary medicines, mating,castration, hygiene, feeding methods and scale of feedingfor different categories of stock, housing plans and specifi-cations for expansion;

(h) to provide such supervision and technical assistance asneeded to ensure successful completion of pig and poultryinvestment projects;

(i) to assist in establishing a farm accounting system, forsubloan beneficiaries with particular attention to themaintenance of adequate farm records for Project evaluation;and

(j) to initiate trials to establish the most economic feedingregimen for pigs and poultry while using domestically producedfeeds to a maximum. These trials would include:

(i) evaluation of feeding values of low energy cerealby-products when used in conjunction with corn, opaque2 corn, and cassava meal;

(ii) evaluation of feeding values of different sources ofprotein, including copra, soybean and fish meal; and

(iii) liaison and coordination of extension work with appro-priate colleges, universities and Government agencies.

3. Coconut/Beef Production Specialist - would assist the Chief ofthe Beef Cattle Division in executing the Project. Including, but not limitingthe generality thereof, he would have the following duties and responsibilities:

(a) to recommend major policy and procedural matters with respectto coconut/beef, cattle and hill/beef cattle components of theProject;

(b) to assist in the execution of the hill/beef and beef/coconutcomponents;

(c) to recommend the employment, and assist in the selection oflivestock technicians needed to carry out the hill/beef andbeef/coconut components;

ANNEX 12Page 4

(d) to prescribe the duties and responsibilities of the livestocktechnicians in consultation with the Head of the Livestockand Poultry Group, the Technical Specialist and the Chief ofthe Beef Cattle Division;

(e) to assist in the training of livestock technicians in technicaland economic aspects of beef/coconut production, and in thetechniques of preparing farm investment projects;

(f) to recommend farm investment projects to the Chief of theBeef Cattle Division.

(g) to provide guidance on pasture improvement and stock manage-ment techniques to beef cattle ranchers;

(h) to provide such supervision and technical assistance asneeded to ensure successful completion of each investmentProject and Loan;

(i) to assist in establishing an accounting system, for subloanbeneficiaries with particular attention to the maintenance ofadequate records for Project evaluation;

(j) to determine those grasses and legumes most suitable toPhilippine conditions, including sawing and cultivationtechniques, seeding rates and response to fertilizers;

(k) to investigate methods of developing natural grasslands in-cluding oversowing of legumes and response to fertilizersand lime;

(1) to formulate and supervise a scheme for plant and seedmultiplication; and

(m) to cooperate on grassland research with the proposed UNDPResearch Unit, University of the Philippines, Los Banos,and other Government agencies.

4. Consultant on Use of Molasses - in cooperation with the GeneralManager and Chief, Livestock and Poultry Group, Agricultural Department(DBP), and the Technical Specialist, Livestock Development Project, theConsultant would be responsible for:

(a) advising and recommending the feasibility of utilizingmolasses and sugar cane tops for cattle production basedon present information; advising and recommending on aninvestigational and applied research program that wouldbe needed to investigate the economic feasibility of abreeding/fattening feedlot system of production based onmolasses, sugar cane tops or an alternative source offorage;

ANNEX 12Page 5

(b) reviewing the work done by Victorias Milling Company (NegrosOccidental) on the use of molasses and sugar cane tops underfeedlot conditions; making his report and recommendationsavailable for the Company, as well as interested parties andGovernment authorities; and

(c) the Consultant would prepare a report(s) covering thefollowing items in depth:

(i) expected quantities of molasses available in thePhilippines over the next 5, 10 and 20 year periodsand the anticipated price per m ton for animal feedingin the Philippines and worldwide prices;

(ii) the forage value of sugar cane tops and comparisonwith other sources of forage, e.g. para grass;

(iii) mechanics and feasibility of cutting, collecting andtransporting sugar cane tops to a feedlot taking intoaccount distance, present and future cost of labor;

(iv) evaluation of protein feeds needed for feedlot usingmolasses to ensure optimum production in economicterms;

(v) detailed information on animal performance expectedincluding quantities of different feeds needed per kgof carcass beef produced;

(vi) detailed cost estimates including housing and fixedequipment, feed, labor, machinery and other chargesand an estimated rate of return on investment; and

(vii) suggestion for extending a pilot scheme in the Philippinesif feasible.

5. ConSultant on Pig Breeding - in cooperation with the GeneralManager and Chief, Livestock and Poultry Group, Agricultural Department, DBP,and the Technical Specialist, Livestock Development Project, the Consultantwould be responsible for:

(a) advising the Philippine Pig Producers Association and othersimilar associations, and appropriate Government institutionson a suitable genetic improvement scheme for pigs;

(b) suggesting how a pilot scheme might be expanded into anational scheme for pig improvement;

ANNEX 12Page 6

(c) examining alternative approaches feasible under Philippineconditions and analyzing the costs/beneifts which may beexpected from each;

(d) the consultant should prepare a report(s) that would includedetailed information on the following:

(i) evaluation of contribution from importation of testedstock and guidelines on importation policy;

(ii) evaluation of "on the farm" testing and its suitabilityfor Philippine conditions;

(iii) role of progeny and performance testing;

(iv) physical facilities and personnel required for differentschemes;

(v) examine how benefits from improvement scheme can beincorporated into the national pig herd;

(vi) rate of progress in such economically important traitsas feed conversion efficiency and carcass quality; and

(vii) budget and method of funding of schemes suggested.

March 3, 1972

PHIL PPlNES

TLTVESTOCK DEVELOPMINT PROJECT

Phasing of the Lending Prograr

'0 Phasing of l inoectoon and Pro)osed Financing N-nber and Phasing of Lon Co-itmento

--- ------------------ -__ __ _-----____Years -------- _-----_-_------ ------- --- ---- ---- - - -- ------------ _- ----- -- -- Years_ - ------------------------ __----

2 3 4 5 6 Total 1 2 3 4 5 6 Total

Investmsent

Integrated Coconut Beef/Patt-enig (5 ha) ....... . ..... oJ.55 ,.427 o.376 0.034 i.686 25 5° 125 - - - 200

ontegrated Cononut/Beef Brseding/Fattening (15 ha) .. .549 1.30+ 3.331 1.393 u.648 - 7.247 25 5° 125 - - _ 200

lill BReef Cattle RE.hhes .0.197 D.652 l .233 1.316 1.074 o.426 4.955 5 10 10 _ - - 25

Pig Far .'....................... , '.647 135. 17 15.117 3.500 - _ 36.281 100 250 250 - - - 600

Poultry Fams - ilers ........................ ,,.?,652 5.3;3 5.3°3 - - 13,58 50 0) 100 - - - 250

Poultry Farns - Eggs .................. o,,,0,, 4.062 6.955 7.33-v 1.293 - - 19.696 50 75 75 - - _ 200

Slaughtlerhouses ................ i,.,,,.,.,.,,,. , 1.443 3.31- 3.317 1.574 - - 9,951 1 1 1 - 3

SRb-total. . . . ........ . ..67 30.776 35>.253 9.863 2.058 o.46(0 9 3.01'1 256 536 686 - - 1478

Technni-l en Adioistrstie S-erioes ... 1.548 1.576 1.572 1.122 1.270 0.105 6.197

To,tn1 Investment ................... ,.15.17'. 3?.354 31.£24 1O.985 2 .3h8 0.5639 '9.274

Proposed Financing of Oolvesomncn

IBED . 7.486 15.945 18.o30 5.361 i.164 0.284 43. 740

BP/PIDBs .5.410 II.1,2 13.2., 3.69.1 0.926 0.221 34.934

Pr-donrs .. 78 5.14 5.14957 1.734 0.258 o.o64 15.4o0

Total loveot-ent Fin.ancin. l5.174 3> .354 37.924 1G&.9 5 2.368 o.56 9 99,274

ANNEX 14

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Estimated Shedule of Quarterly Disbursement

IBRD Fiscal Year Cumulative Disbursementand Quarter of End of Quarter

(US$'000)

1972/73

December 31, 1972 200March 31, 1973 500June 30, 1973 900

1973/7h

September 30, 1973 1,300December 31, 1973 1,800March 31, 1974 2,900June 30, 1974 3,000

1974/75

September 30, 1974 3,600December 31, 1974 41,300March 31, 1975 5,000June 30, 1975 5,600

1975/76

September 30, 1975 6,100December 31, 1975 6,500March 31, 1976 6,700June 30, 1976 6,900

1976/77

September 30, 1976 7,000December 31, 1976 7,100March 31, 1977 7,200June 30, 1977 7,300

1977/78

September 30, 1977 7,4OODecember 31, 1977 7,500

March 3, 1972

ANNEX 15Page 1

PHILIPPINES

LIVES TOCK DEVELOPMENT PROJECr

The Development Bank of the Philippines

Introduction

1. The Development Bank of the Philippines (DBP), a wholly ownedGovernment institution, provides credit facilities for the development andexpansion of agriculture and industry and for broadening and diversifyingthe national economy. In recent years, it has become one of the most im-portant finance institutions channeling public funds into key sectors of theeconomy.

Historical

2. Established under Republic Act No. 2081 1/, June 14, 1958, DBP wasthe successor of the Rehabilitation Finance Corporation (RFC), establishedin 1946 to provide credit facilities for the reconstruction of World War II

damaged properties. RFC succeeded the Agricultural and Industrial Bank,which was created in 1935 out of the National Loan Investment Board. At eachof the changes, the newly formed institution took over the assets and liabil-ities of its predecessor.

Powers

3. DBP may finance:

(a) agricultural, industrial utility enterprises through loansand equity investments;

(b) self-liquidating or income-producing projects of provin-cial or municipal authorities;

(c) purchasing, production and marketing activities of cooper-atives; and

(d) acquisition of shares in corporations by employees of suchcorporations.

4. DBP may grant short-, medium- and long-term loans; purchase re-deemable preferred shares or obligations of agricultural and industrialcorporations; underwrite or do business in securities of firms eligible forfinancing; extend guarantees; rediscount medium- and long-term loans of the

1/ Amended by R.A. 3147, June 17, 1961 and P.A. 3517, June 19, 1963.

ANNEX 15Page 2

Philippine National Bank (Government-owned commercial bank) and the privatedevelopment banks; and subscribe to the capital of private development banks(see paras 35 to 37).

5. Subject to the approval of the President of the Republic, DBP mayissue bonds, debentures, securities, collateral and other obligations thatare fully guaranteed by Government. It may guarantee acceptance credit,loans and other obligations, local and foreign, but the aggregate of DBP'sdirect obligations may not exceed 10 times its capital and surplus.

Organization and Administration

6. At the apex of DBP's management structure is the Board of Gover-nors, which consists of eight members appointed by the President of theRepublic, with the consent of a Parliamentary Commission of Appointments,for terms of seven years. However, a change in administration will normallycause the entire Board to resign so that the incoming President can make anynew appointments as desired. The Chairman serves as the top ExecutiveOfficer of the Bank and is also a member of the Monetary Board and sits incabinet meetings. The Secretary of Justice is the ex-officio legal advisorto the Bank and the Auditor General is ex-officio auditor, each appointinghis representative in the bank. The line of command extends from the Chairmanto the individual departments, with four full-time Governors carrying super-visory responsibility over groups of departments assigned to them. Thebank's organization chart is shown in Table 1 and the composition of theBoard at time of appraisal, July 1971, in Table 2.

7. DBP maintains a large head office at Makati, Rizal province,10 miles south of Manila proper. It has a countrywide network of 26 branchoffices and 29 agency offices. Personnel, numbering approximately 1,800,is about equally divided between the head office and branches and agencies.Nearly 40% are classified as professional and supervisory, the others beingclerical and service. About 175 are agriculturists.

8. Operational duties are allocated by function among several loandepartments dealing with industry, agriculture, Government, real estate andbanking and other investments. Other departments, including legal, credit,accounting, treasury and administration, provide supporting services. Anindependent auditor, appointed by the Government, with his staff servesthe head office and branches.

9. Most loan departments rely on assistance from the Credit Departmentin conducting credit investigations of loan applicants. The work is fairlywell done but, in most cases, more attention needs to be given to the financialand economic aspects of projects as well as to technical factors. An excep-tion is the Investment Banking Department, which bases its recommendationson proposed loans on a complete and comprehensive study of the project 1/. A

1/ An economic research unit was established recently to assist alldepartments with economic studies on loan and investment projectswhen called upon.

ANNEX 15Page 3

special section within the Department administers the Rice Processing andStorage Project (Loan 720-PH).

10. Each loan department monitors the disbursement of the loans itrecommends, while collections are handled by the Collection Department. Ac-counts are maintained in the Accounting Department 1/.

11. Executive responsibilities are now concentrated heavily in theChairman. For example, all loan applications in excess of P 5,000 aresubject to Board approval. Even though this approval may be only proforma,the workload per meeting to process hundreds of loans is unnecessarilyburdensome. DBP is studying means of streamlining this procedure.

Agricultural Department

12. The Agricultural Department would have a key role in the Projectas it would be responsible for its management and execution. The presentmanager, a long-time employee of the DBP system, is favorably regardedin Philippine financial circles and is considered an able administrator.His head office staff of 95 persons (Table 3) includes about 50 agricultur-ists with degree training in general agriculture, animal husbandry, veteri-narian science, agricultural economics and agricultural engineering. In ad-dition, there are about 125 agriculturists attached to branch and agencyoffices. The quality of professional staff has improved within recent yearsby elimination of politically inspired appointees. DBP's salary scale andbenefits are attractive since it is competitive with the private sector andgenerally exceeds levels of remuneration paid by other Government institu-tions. Recruitment of staff has, therefore, been no problem.

13. To improve the quality and efficiency of its performance, theAgricultural Department is being reorganized, the main involving therealignment of its appraisal and supervisory work into sub-sectors, i.e.,livestock and poultry, crops, fisheries, agricultural engineering andagro-business. Each would be staffed with technicians, particularly qualifiedto work in the applicable field of lending, which should produce a cadre ofskilled professionals. On a functional realignment, the technicians woulddo both appraisal and supervisory work (an integration of functions wasrecommended by the Mission and accepted by DBP). The Mission emphasized,however, that the Department should avoid becoming over-organized and over-staffed, e.g., loan analysts and researchers. Operations and policies wouldbe manualized which would reduce what has been at times a burdensome andconfusing flow of instructions and memoranda.

14. To up-grade its performance capabilities, DBP conducts numeroustraining programs. In 1971 it conducted a three-week seminar on projectevaluation and feasibility studies for key personnel involved in evaluatingand servicing project financing proposals. Persons attending held advanceddegrees in such fields as economics, engineering, business administration,

1/ The branch offices carry the accounts and handle the disbursements andcollections of accounts originated in the branches.

ANNEX 15Page 4

finance and marketing. This type of program, as well as many others, willbe intensified and a training center is under construction.

15. To execute the on-lending program of the Project, a Livestock andPoultry Group with sub-sector divisions for beef cattle, pigs and poulty wouldbe established in the Agricultural Department. Project technical serviceswould be established within the framework of the Group, and would be prima-rily responsible for developing the Investment Projects and supervisingsub-loans granted for execution of the Project. Technical expertise wouldinclude a technical specialist, a pig and poultry production specialist, abeef cattle production specialist, and a professional staff of about 23livestock technicians. If possible, personnel would be selected from DBP'sexisting complement and seconded to the Project on a full time basis. Some,however, would probably be recruited.

16. It would be desirable for several reasons to have the on-lendingprogram of the Project carried out by a unit within the Agricultural Depart-ment. The Project would have a demonstrative and concurrent beneficialeffect on non-Project lending operations, as well as illustrate how importantsound project plans, backed up by good technical services, are to a successfulcredit program. To assist DBP in this direction, the Technical Specialistshould have broad experience in the extension and management of a modernrural credit system.

Financial Position (Table 4)

17. Assets. Assets owned by DBP reached P 3.3 billion (US$515 million)on June 30, 1971, an increase of about 2-1/4 times over the amount heldon June 30, 1967. Net loans outstanding increased to about 2-1/3 timesduring the same period and represent about 75% of total assets. Bonds andsecurities account for about 10% and cash, trust funds and miscellaneousfor about 15% of total.

18. Liabilities. Liabilities were P 2.8 billion (US$440 million) onJune 30, 1971, having increased about 2-1/2 times during the last fiveyears. The increase was due principally to greater domestic borrowings,rising from P 510 million (US$80 million) to P 1.3 billion (US$200 million);time deposits in FY 1970-71 increased substantially in the amount of P 230million (US$35 million), largely from the Bureau of Treasury. Foreign loansalso went up during the past fiscal year, from P 175 million (US$27 million)to P 330 million (US$52 million), principally from an increase in creditlines with the U.S. Commodity Credit Corporation (CCC) and the CanadianWheat Board (CWB). Compared with five years earlier, DBP's external debt

increased only about 15%.

19. Net Worth. Net worth has increased only by about P 75 million(US$12 million) since June 30, 1967, mainly because of higher reserves forcontingencies (bad debts) and surpluses. It now stands at P 500 million(US$80 million), nearly 20% of total debt (F 2.8 billion). The ratioof net worth to liability has been steadily increasing -- five years ago

ANNEX 15Page 5

it stood at 1:2.5 -- and now is 1:5.5. Although this is within the Bank'sCharter limit 1/, if, though, its contingent liability of P 2.4 billion(US$375 million) on guarantees (para 20) is included as part of its fulldebt obligatior., it has slightly exceeded the ceiling by about 5% (liabilitiesof P 2.8 billion, plus P 2.4 billion guarantee, equals P 5.2 billion, against10 times net worth of P 500, equals P 5 billion).

20. Guarantees. The policy of guaranteeing loans and suppliers'credits incurred by DBP clients, introduced in 1966, has been a majorinstrument in DBP's credit operations. It has been made use of increasinglyin supporting imports of machinery and raw materials financed by foreignloans. Through these operations, the Bank acts as a channel for foreignfinancing of imports of capital goods and essential raw materials that weretraditionally paid for in cash and, therefore, unduly strained the country'sinternational reserves. No doubt, these guarantees have fulfilled animportant function in expanding the country's foreign loan resources andstrengthening its international credit standing. However, the country'sfinancial difficulties in 1969-70 placed a heavy strain on DBP's budgetaryresources to meet its guaranty obligations and caused a virtual suspensionof normal credit activities, both for agriculture and industry. Some 150firms are covered by guarantees, the bulk going to industry-textile, flourmilling, cement and mining. Approved guarantees between 1964 and 1971 amountto US$822 million in foreign currencies and P 113 million in local currency.Under one-half, P 2,400 million (US$375 million) was outstanding June 30, 1971,while net advances to date (gross advances less repayments and conversionsto long-term loans) have amounted to about 13% of aggregate approvals.Advances made during FY 1970-71 reached a peak of P 668 million (US$104million), accounting for about two-thirds of the amount since 1964-65.Recoveries of advances made up to FY 1970-71 have been about 90%, and nearlyfull recovery is expected. Clients bear the foreign exchange risk, repaying atthe rate of exchange prevailing at time of repayment to DBP. Significantdata are summarized below:

Pesos(million)

Gross AdvancesPrior to June 30, 1968 41.2FY 1968-69 37.0FY 1969-70 275.0FY 1970-71 667.6

Total 1,020.8Less cash repayments 273.2Converted to long-term loans 57.5Net advances due and demandable June 30, 1971 690.1

1/ Section 1 (g): "To insure bonds, debentures, securities, collaterals,and other obligations and/or the renewal or refunding of the same uponrecommendation of the Secretary of Finance and with the approval of thePresident, but in no case to exceed at any one time an aggregate amountequivalent to ten times of its paid-in capital and surplus" (net worth).

ANNEX 15Page 6

Guarantees Outstanding, US$ PesoJune 30, 1971 Equivalent Equivalent

------(million)-------

Regular guarantees 333.3 2,166.5Guarantees in Philippine pesos - 40.9CCC and CWB credit lines 36.8 239.0

Total 370.1 2,446.4

The schedule of installments on regular guarantees runs through to FY 1988and through FY 1991-92 for the CCC and CWB lines of credit (see Tables 5 and6, respectively). The bulk of guarantees will fall due during the nextfive-year period, FY 1971-76, when about 75% of the total will mature.Total advances made by DBP since FY 1966-67 approximate 45% of total approvedguarantees. However, since about one-third of this was required during thecrucial past, FY 1970-71, it is doubtful that future requirements would beof this magnitude. DBP estimates that it will be required to make advances ofabout US$20 million in FY 1971-72; US$12 million in FY 1972-73 and 1973/74;and US$8 to 10 million in FY 1974-75 and 1975-76.

Financial Operations (Table 7)

21. Net Income. Net annual income was fairly constant at close toP 30 million (US$4.7 million) until FY 1970-71, when it dropped to P 19million (US$3 million). Principal causes were substantial increases ininterest paid (32% over preceding year) and salaries and employees' benefits(23% over preceding year).

22. Net income measured as a percentage of average outstanding loanportfolio and investments held fairly constant at 2.3% during the first threeyears of the last five-year period. In 1970, it declined to about 2% and in1971 to less than 1% (Table 8). Though interest costs increased about 10%during the past three years, gross income to total investments dropped offsharply -- nearly 20%. This reflects mainly the heavy diversion in FY 1969-70and 1970-71 of available funds to cover guarantees and not enough time haselapsed to bring a significant return flow. Given a fair rate of repaymenton advances for guarantees and a greater volume of new lending, DBP's netincome picture should improve. Financial projections for FY 1971-72 toFY 1973-74 are shown in Table 9. The projection for FY 1971-72 shows ashort-fall of about P 11 million (US$1.7 million). Obviously, though, thiscan be influenced by variables, e.g., rate of collections on loans, whichconstitute more than 50% of expected income from domestic sources, and theamount of loan releases as they would be limited by availability of funds.After the current FY, DBP expects its operations will result in surplusesof about P 6 million (nearly $1 million) in FY 1972-73 and P 27 million(US$4.2 million) in FY 1973-74.

23. Dividend payments to Government and 20% of the net profit haveto be applied annually to the payment of the subscribed capital of Govern-mentl/ until the P 2,000 million par value of capital stock is paid

ANNEX 15Page 7

up. During the 1967-71 five-year period, this came to only P 31 million,bringing the total up to P 390 million, or abouit 20% of the capital subscribed.When considering the importance of DBP's liabilities, including contingentornes (para 20). this is too low.

24. Defaults (Table 10). The slow rate of loan recoveries has been aconstant problem with DBP and a matter of continuous concern to management.Excluding loans in foreclosure, past-due amortizations for direct loansrange around 15 to 17% of total loan portfolios. Distributed by sectorallending, the highest percentage is in the industrial sector -- 19% -- followedby real estate, 18%; agriculture, 14%; and Government, 6%. An average delin-quency rate of around 15% on institutional agricultural credit in the Philip-pines is not uncommon, e.g., the Rural Bank's experience ranges around 15%.To some extent, the data analyzed do not reflect the true credit experienceof DBP because of its practice of rolling over or restructuring maturedloans. The extent of this has not been collated. DBP is endeavoring tosort out its loarn repayment experience by computer analysis. However, thesystem was not functioning at the time of appraisal, and detailed informationon age of delinquencies was not available.

25. The most significant development during 1970-71 year was the es-tablishment of a Committee on Defaults and the application of a tougher col-lection policy. The first half of 1970 produced the poorest record of repay-ments when collections were down to about P 15 million per month. This,though, more than doubled during 1971, with collections averaging about P 33million per month. It is expected that this level will be maintained.

26. About 3%, P 50 million, of DBP's direct loans are in foreclosure.Percentagewise, this is about equally divided between agriculture and indus-try, the major fields of sectoral lending. Usually one year is required toconsummate a foreclosure action and then the debtor has a one-year rightof redemption. DBP's reserves (reserves for contingencies and surplus)have increased from P 66 million to P 113 million during the last fivefiscal years. During this period only about P 500,000 as uncollectablebad debts were written off. Measured against the aggregate of loans inforeclosure (P 50 million) and amount past due (P 287 million) reserves ofP 113 million would be adequate for possible losses on direct loans.

Financing (Table 11)

27. Agriculture. in keeping with national policy for agriculturaldevelopment and its role as a Government bank, DBP has directed its lendingto the support of national programs to increase the production of food cropsand animal proteins. Lending policies are influenced by economic guidelinesset up by the Central Bank, the National Economic Council (NEC), the NationalFood and Agricultural Commission (NFAC), and the Fiscal Policy Committee ofGovernment. Traditionally, DBP's annual financing has been 20 to 25% foragriculture, 65 to 70% for industry, and the balance for real estate(principally low cost homes and hotels). Loans for agriculture cover the

ANNEX 15Page 8

broad spectrum 1/: food crops (principally rice and corn); commercial crops(principally sugar and coconuts); livestock (principally poultry and hogs); andsalt beds and fishponds (principally fishponds). In general, the percentagedistribution by amount has been 30% food crops, 40% commercial crops, 20%livestock, 10% fishponds, and miscellaneous. DBP's agricultural creditexperience covers some 150,000 loans since 1947. Annual lending in recentyears has ranged around 10,000 to 15,000 farm loans, but dropped to under10,000 in 1969-70 and under 5,000 in 1970-71. The average size loan was aboutP 6,000 in 1967 and P 7,500 in 1970. On an average, loans for food cropshave been under P 5,000; commercial crops, about P 7,500; and livestock,about P 15,000. These averages imply that DBP's lending is principally tomedium and small size producers.

28. Of importance to the Project is a feed grain program that would in-tensify local production of corn, soybeans and sorghum. Credits, to be givenby DBP, of about P 7 million (US$1.1 million) are projected over the nextfive years for production costs, machinery and equipment in certain priorityregions. This program was approved in July 1971 by DBP. Also to be notedis DBP's policy adopted in 1971 of giving priority of lending to agriculture.During the current fiscal year (1971-72), an agricultural lending program ofabout P 100 million in new loans is projected. This would be about five timesthe preceding fiscal year (about P 20 million in 1970-71) and about equal to1968, the peak year.

29. Terms of DBP loans range from one year for special productioncredits, e.g., paddy and fertilizer to five to 10 years for capital invest-ments. Although these terms are partially fixed by law for financing specialprograms, they are primarily determined in the light of project requirementsand related security considerations. DSP's loan portfolio is not classifiedwith respect to loan terms. Long-term loans usually include a line of creditfor annual production expenses and the aggregate amount is amortized as along-term loan. This practice is being amended, which will certainly improvethe liquidity of the loan accounts. Interest rates until August 27, 1970were 9% on loans up to P 100,000 and 10% on loans above this amount. Interestrates are now 12%, irrespective of size of loans, except for those on whichlower interest rates are stipulated by law, e.g., 4% on loans to agriculturalschool graduates who want to begin farming and 10% to rice and corn millerson working capital loans. Additional penalty interest of 2% per month ischarged on past-due loan amortizations.

30. DBP may accept, as loan collaterals, real estate, machinery,livestock and leasehold rights on Government lands. Real estate may be ac-cepted as security, provided it has either Torrens (full) title or was de-clared for tax purposes continuously for 10 or more years, and the loan ap-plicant and his predecessors in interest have been in continuous and uninter-rupted possession for at least 10 years. DBP may take hard collateral for50% of the loan and soft collateral, e.g., machinery and cattle, for the other

1/ Agro-industrial loans are classified under industrial loans.

ANNEX 15Page 9

50%. The collateral problem may be particularly difficult for the hill beefranch type properties expected to be included in the Project since many areheld only under leasehold rights. Heretofore, the banks have considered thatpasture leases have no collateral value since the Government has certaindiscretionary powers to terminate the lease prior to expiration date fornon-compliance with one of many lease conditions. However, late in 1970 theDepartment of Agriculture and Natural Resources (DANR) undertook to revisethe current pasture regulations without the necessity of legislative action,as follows:

(a) leases on pasture held by qualified and bona fide cattleraisers, particularly recipients of livestock developmentloans, shall run for a period of 25 years, automaticallyrenewable for another 25 years upon compliance with theterms and conditions of the lease agreement and existingpasture regulations;

(b) in the event of default on the part of the borrower, caus-ing the financial institution to foreclose, such institu-tion shall have the right to hold the leased pasture landsfor a period of five years, during which time there willbe a grace period on payment of annual rents; and

(c) the financing institution concerned may pass on any fore-closed pasture lands to a new qualified cattle raiser, whoshall likewise be granted a lease on the property for a per-iod of 25 years, automatically renewable for a period of25 years upon compliance with the terms and conditions ofthe lease agreement and existing pasture regulations.

Long-term leases may be granted by DANR to ranchers holding up to 2,000 ha.The procedures, though, are burdensome and time-consuming, and, unlessprospective Project participants have acceptable leases, it is doubtful thatmany would come into the Project starting from "scratch." Even though creditmay be given to certain fixed investments, the probability is low thatmany straight lease holders would have sufficient collateral in theirleasehold rights to secure loans. Combined, however, with fee-owned landor other real estate, it should be possible to finance the developmentof a viable and creditworthy enterprise.

31. Industry. Financing of industry, loans, equity capital and guaran-tees of supplier's credits has always been the major part of DBP's operations.Straight loans to industry have accounted, on an average, for 60% of DBP'stotal loans approved (P 2.5 billion) since 1947. Today, the percentage dis-tribution of total outstanding loans is somewhat higher, being 75% in indus-try, 15% in agriculture, and 10% in real estate and Government loans (Table10). Since FY 1968, industry has also benefited from DBP's equity partici-pation in preferred shares of 28 industrial enterprises. The portfolio ofequity investment in industry is about P 175 million. Food processing andtrade have been the biggest beneficiaries of credit, with the rice and corn

ANNEX 15Page 10

sub-sectors receiving the largest share, followed by sugar and other foodprocessing industries. In the manufacturing sector, textiles rank at thetop, followed by metal, cement and electrical industries. Loans categorizedtmedr publi,z utilities and services have also been important, particularlyfor land transportation and shipping. Lending to large industry was sus-pended in 1970-71, and, in 1971-72, it will be largely limited to branch bankcredits to comaunity industries that would have an impact on the local econ-omy.

32. Rall Estate and Construction. This category comprises loans forconstruction of low cost homes and public and commercial buildings. Loansfor low eus: housing have an upper limit of P 5,000, and DBP now has about3,000. Other bigger items financed include about 45 hotels (P 15 million),30 schoole (P 15 million), and one Government building (P 6 million).

33. Government Loans. During 1967-71, about 130 loans, totallingP 65 million, were approved by provincial, city and municipal governments.Loans were made for about 85 markets and slaughterhouses (P 30 million),heavy equipment and machinery (P 6 million), 15 waterworks (P 20 million),and two telephone systems (P 3 million), and the balance went for miscellan-eous purposes.

34. The Greater Manila Terminal Food Market (GMTFM). In September1967, DBP was given the responsibility by Government to promote, develop andoperate a combined producer transit-wholesale market complex. This is alarge-sciL_ vexiture intended to serve the farmers/producers and the wholesaletrades in providing storage facilities and related grading and marketing ser-vies. Located on 120 ha, about 20 miles south of Manila, (MTFM is intendedto become mn entrepot, a vast storage and distribution center for producesuch as rice, cereals, fruits, vegetables, poultry, fish and meat, servinginitially some 1 million farmers from 27 principal supplier provinces inLuzon, Visayas and Mindanao Regions.

35. The enterprise has been formally set up as a corporation, withauthorized capital of P 100 million (US$16 million), of which P 20 millionhas been subscribed, almost entirely by DBP. While the initial cost was esti-mated at P liC million, total capital cost may reach P 300 million(US$47 iylco, which, plus administrative and interest costs, could bringthe total aionut to about P 500 million (US$78 million) in five years. Abouton;-thIra, uf tte construction work has been completed and initial projectionscf completion fLn 1971 will need to be rescheduled. This is, as yet, thegreatest s-4gle industrial venture promoted by DBP, which places great res-ponsibil:tnes on the institution. Its final success will depend largely onDBP's capabillties to marshall the organizational and managerial talent andprofesLiGaa&. know-how, as well as on the amount of cooperation and financialsupport it Aill receive from the Government.

36. Private Development Banks (PDB). DBP is empowered (Section 1,Charter) to promote the establishment of private development banks in prov-inces and cities. Assistance by DBP is given through the subscription of

ANNEX 15Page 11

preferred sharea of stock 1/ and rediscount privilegap. s4nce inception ofthe program in 1960, 30 banks have been established aad 29 are operatirg.Twenty-two are in the Central Luzor. Region, five in th- Visayas Region andtwo in the Mindanao Region. The banks are quite heavily clustered in thegreater Manila area. As of May 31, 1971, total resources aggregated aboutP 173 million (average P 6 million); loans, P 140 million (average L 4.8million); and deposits, P 140 million (P 2.7 million) (Table 12). Agricul-tural lending principally to rice, corn, poultry, swine, coconut and sugar,accounts for about 60% of portfolio. Small industrLes account for around30% of the balance for miscellaneous loans. Interest rate is 12% and loanterms are three to 10 years, depending on the nature of enterprise and kindsof investments being financed. Production credit may be provided under termsof up to two years. Agricultural loans are P 5,000 to P 6,000 on average.

37. DBP has invested about P 25 million in the PDE system as preferredshares and another P 25 million rediscounted notes. Medium- and long-termcredit paper is rediscounted at 8% interest and represents nearly 20% of thetotal loan portfolio for PDBs. Eligibility criteria for rediscounts ayethose laid down by NEC, namely: (a) products that would increase food suffi-ciency; (b) products that are export oriented, as well as dollar saving onimports; (c) products that would serve as raw material for local industry;and (d) projects that would provide job opportunities.

38. Given the closeness of many PDBs to Project areas and the familiar-ity that management has with local farmers, as well as with production andsocial conditions, it would be desirable to have several of the banks par-ticipating in the Project. It appears that PDBs would be legally eligibleto participate as on-lending institutions under the Project, and DBP wouldbe agreeable to such an arrangement. It is estimated that about four tosix banks would participate. Their selection would be the responsibilityof DBP. Technical services would be provided by the banks that either have,or would be willing to employ, a qualified agricultural technician. Mostbanks have appraisers, but it would be the responsibility of the Projectunit in DBP to qualify them, train them and supervise their work. In theevent that such an arrangement would not be feasible for a particular bank,DBP would provide the technical services on a contract-cost basis.

Role of DBP in the Project

39. By Republic Act 4860 and amended Republic Act 6142, November 9,1970, Government may contract with governments with whom the Philippineshas diplomatic or trade relations or which are members of the United Nations,their agencies, instrumentalities or financial institutions or with reputableinternational organizations . Section 1(b) of the R.A. 6142 stipulates thatthe proceeds of such loans, credits or indebtedness shall be lent togovernment-owned or controlled corporations to finance development projects.Section 1(c) further provides that the proceeds shall be lend to DBP at leastfor the principal, interest and other charges agreed to by Government and,furthermore, DBP shall administer the proceeds in accordance with the agree-ment with the foreign creditor "for relending to cooperatives, private

ANNEX 15Page 12

corporations, or associations, whose capital stock, if not fully subscribed,is open to subscription by the general public to meet the direct and indirectforeign exchange requirements as well as up to twenty per centum of the pesocosts for such industrial, and agricultural and other economic developmentprojects, subject to the provisions of the charter, rules and regulationsof said bank and to the terms and conditions agreed upon by the governmentand institution providing financing for the projects."

40. Of importance to probable participation in the Project is therequirement that sub-borrowers would be only cooperatives, private corporationsor associations. Government's legal opinion is that individuals would beineligible but could qualify if they formed an association, i.e., partnership.DBP and Government have assured the Bank that the legal requirements forforming partnerships would be simple and minimal, and little constraint inProject participation is envisaged.

41. DBP would gain under the Project, as well as under Loan 720-PH(Rice Processing and Storage Facilities), new operational experience thatwould improve the effectiveness and efficiency of its agricultural creditservices, and, in turn, would support an aspect of institutional buildingthat undoubtedly would have a complementary effect on its other creditoperations.

March 3, 1972

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

ORGANIZATION DEVELOPMENT BANK OF THE PHILIPPINES IDBP)

BOAED OF GOVERNOES

GENEAL ACCOUNTING OFFICE DE N OF I.................T............I...................... DEPAITMENT F JUSTICE .

OFFICE OF. SPCIAL OFFICE OF SPECIAL o ON

ECONOMIC ASSISTANCE ON A~~~~SSEITALNRJCE SITNC O SITC OF, ELN

RETTARCIL X UNI ESEARCI SPECIAL FE-AET TVE PNT N

SING ~ ~ ~ ~ ~ ~ ~~~~EVIIGFRE-TMOR GOVERNOR GOVERNOR~~~~~~~~~~~~~~~~~~~~~~~0G OVRNR

~~~~~~~ DEPARTMENT COLCTO 1' NM.UDITING _LARFETING ERANC.ES .. REAL ESTATERANKS DEPARTMENT DEEPRPARTMENT '.EN E'B'AEN

CL_LER.ICAL

IENDE A PROGRAM POOL

W-AdO EA-EL 607212R)

ANNEX 15Table 2Page 1

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

DBP -- Members of the Board of Directors (June 30, 1971)

Term of Departmental Resume ofDirector ,e Office Responsibilities Biographical Data

Leonides S. Virata 53 3/6/70- Chairman of Graduate University of Philip-12/16/74 Board, Chief pines, MBA Harvard University

Executive Representative, Philippine Gov-Officer ernment, in exile in Washington,

D.C. Economic Advisor an_ Ex-ecutive Secretary of PhilippineUN Delegation 1945-48. Directorof Economic Research of the new-ly established (1949) CentralBank; acting deputy governorand member of Monetary Boarduntil 1952. Financial vice-president and vice chairman ofthe Philippine American Life In-surance Company; board member ofseveral industrial firms. Pres-ident, 1965-66, of the Philip-pine Chamber of Industries.

Jose V. De Ocampo 49 2/9/68- Full-time LL.B Studies in economics, bank-12/16/73 Supervising ing and financing. EDI Fellow

Governor: of IBRD 1961-62. Practicing at-GMTFM, Indus- torney 1952-55. With DBP sincetrial Depart- 1964. Head of Investment Bank-part, Invest- ing and Economic Research. Di-ment Banking rector of numerous industrialDepartment corporations.

Recio M. Garcia 54 3/16/71 Full-time LL.B. High level positions inSupervising banking and finance -- formerGovernor: chairman and president QuezonDepartment City Development Bank; Vice-of Develop- chairman: Homeowners Financement and Corp., and Citizens Develop-Rural Banks, ment Inc.; Chairman of threeReal Estate utility companies. Directorand Govern- of six corporations in whichment Loan DBP has financial holdings.Departments.

ANNEX 15Table 2Page 2

Term of Departmental Resume ofDirector A Office Responsibilities Biographical Data

Jose R. Tengco 41 5/19/67- Full-time LL.B. Several directorships12/16/71 Supervising in transport, machinery and

Governor: food companies. FormerlyAssigned to assistant vice-president

Chairman's and manager of Legal andOffice Collections Department,

Philippine Bank of Commerce.Member, Philippine Delegationto IMF and IBRD AnnualMeetings, 1969, 1970 and 1971.

Jose S. Estevez 51 11/20/67 Part-time MD, LL.B. Presently (1971)12/16/72 Governor Governor, Albay Province.

Low-cost Extensive experience inHousing, government and civic affairs.NHC, Programfs Frequent delegate to inter-agri. loans, national conferences andBrunches and seminars.agencies, smallscale and mediumsize Industries.

Leon 0. Ty 61 3/9/66- Part-time Member of Philippine Bar.12/6/72 Governor Extensive experience in

Labor-Manage- journalism, publications,ment and Union radio and T.V. Member,Affairs, Philippine Delegation toPublications IBRD Annual Meeting, 1967.and Advertising

Alejandro Melchor 41 12/18/70 Part-time Attended U.S. schools,Governor graduate of U.S. Naval

Academy, Annapolis, 1952.Since February 1970, Execu-tive Secretary to thePresident. Previously,Under-secretary of NationalDefense and, concurrently,Director General for Opera-tions, PES. Broad experiencein economic planning, develop-ment and programming. Hasserved on various specialmissions abroad and isAlternate Governor, IBRD.

March 3, 1972

ANNEX 15Table 3

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

DBP Agricultural Department Staffing Positions (April 30, 1971)

Office of the Manager Appraisal Division

1 Manager 1 Chief Appraiser2 Assistant Managers 2 Assistant Chief Appraisers1 Special Agent 4 Supervising Appraisers4 Agricultural Supervisors 7 Senior Appraisers1 Administrative Assistant 3 Junior Appraisers1 Messenger-Janitor 1 Senior Record Clerk10 1 Clerk-Typist

9-Field Supervisors Division

Branches & Agencies Division1 Chief Field Supervisor3 Assistant Chief Field Supervisors 1 Chief5 Supervising Specialists 1 Assistant Chief15 Field Supervisors (at large) 3 Senior Loan Examiners3 Agricultural Field Supervisors 3 Loan Examiners1 Agricultural Statistician 81 Research Aide1 Statistical Aide Accounts & Records Division1 Junior Stenographer31 1 Chief

1 Assistant ChiefLoan Division 1 Chief Records Clerk

1 Senior Accounts Examiner1 Chief 1 Junior Accounts Examiner2 Assistant Chiefs 2 Senior Records Clerks4 Senior Loan Examiners 1 Senior Action Clerk1 Loan Applications Examiner 1 Clerk-Typist4 Loan Examiners 1 Records Clerk1 Senior Action Clerk 2 File Clerks1 Clerk Stenographer 1 Messenger

T4 TY

Total -- 95

Note: The above listing does not include about 125 agriculturists attachedto branch and agency offices.

October 13, 1971

ANNEX 15

PHILIPPINES Table 4

LIVESTOCK DEVELOPMENT PROJECT

DB' -- Condensed Annual Balance Sheet, FY 1967-71(P million)

1967 1968 1969 1970 1971ASSETSCash and Due from Banks 174 238 226 156 113Investments in Securities 107 170 253 248 301Loans, Advances and Acquired Assets:Agricultural (net) 278 330 374 408 410Industrial (net) 767 963 1,111 1,438 1,994Real Estate & Miscellaneous 101 118 152 201 250

Stocks and Advances -- PDB's 46 47 49 48 50Miscellaneous Investments 30 41 59 96 105Bank Premises 27 38 47 51 54

Total Assets -- Bank Proper 1,530 1,945 2,271 2,646 3,277Trust Funds 163 164 170 176 180Grand Total 1,693 2,109 3,457LIABILITIES AND NET WORTHLiabilitiesMedium and Long-term: Foreign 287 284 211 175 330

: Domestic 475 635 809 897 1,041Short-term: Foreign - - - 30 -

: Domestic 35 51 100 269 213Progress Bonds Outstanding 147 247 327 496 475Time and Savings Deposits 74 209 227 112 348Special Funds:NFAC Guarantee Fund - - - 6 6Stabilization Tax Proceeds - - - 25 166

Interest and Accounts Payable 76 70/1 129/1 122 169Deferred Credits 11 - 24 26

Total Liabilities 1,105 1,496 1,803 2,156 2,774Net WorthCapital Stock Paid-in 359 367 375 384 390Surplus 61 76 86 97 103Reserves for Contingencies 6 7 9 10

Total Net Worth 425 449 468 490 503Total Liabilities and Net Worth --

Bank Proper 1,530 1,945 2,271 2,646 3,277Trust Funds 163 164 170 176 180Grand Total /2 2,822 3,457Ratio of Net Worth to Debt4- --

Bank Proper 1:2.6 1:3.3 1:3.8 1:4.4 1:5.5Net Worth Percentage -- Bank Proper 28 23 21 18 15

/1 Included in Interest and Accounts Payable.T7 Inclusion of guarantees of P 2,400 million (para 22) as a contingent li-

ability would mean total liabilities of P 5,200 million, making ratio ofNet Worth to Debt of 1:10.4. Expressed another way the Net Worth Per-centage would be about 10%.

Source: DBP.

October 13, 1971

ANNEX 15Table 5

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

DBP - Schedule of Installments on Regular Guarantee

US$ Dollars Pesos(million) (million)

Prior to June 30, 1971 27.9 24.9July to December 1971 40.4 5.1January to June 30, 1971 34.5 4.6FY 1972-73 49.2 1.6

1973-74 50.1 1.81974-75 39.2 1.81975-76 33.5 1.11976-77 30.2 -1977-78 25.1 -1978-79 19.3 -1979-80 14.5 -1980-81 7.3 -1981-82 5.9 -1982-83 1.9 -1983-84 1.3 -1984-88 .4 -

Guarantees with schedule ofpayments not yet drawn up 5.1 -

Unavailed of portions alreadyincluded in schedule (52.5)

Total 333.3 40.9

October 13, 1971

ANNEX 15Table 6

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

DBP - Schedule of Payments on CCC and CWB Credit

CCC Line - $70,000,000.00CWB Line - $18,000,000.00PL 480 Line $18,415,000.00

(Based on Availments up to June 30, 1971)

Principal and InterestUS Dollars Pesos /1

(million)

Prior to June 30, 1971 6.912 44.928

FY 1971-72 22.876 148.6941972-73 21.640 140.6601973-74 14.600 94.9001974-75 .368 2.3921975-76 1.703 11.0701976-77 1.669 10.8481977-78 1.634 10.6211978-79 1.600 10.4001979-80 1.565 10.1731980-81 1.531 9.9521981-82 1.496 9.7241982-83 1.462 9.5031983-84 2.820 18.3301984-85 1.358 8.8271985-86 1.323 8.6001986-871987-881988-89 1.289 8.3791989-90 1.254 8.1511990-91 1.220 7.9301991-92 1.185 7.703

/1 At P 6.50 to US$1.00.

October 13, 1971

ANNEX 15Table 7

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

DBP - Condensed Statement of Annual Earnings, FY 1967-71(P million)

1967 1968 1969 1970 1971EARNINGSInterest - Agricultural Loans 14.4 18.2 20.7 25.1 28.3Interest - Industrial Loans 61.9 67.9 83.1 82.6 115.2Interest - Real Estate andMiscellaneous Loans 7.5 8.3 10.9 11.3 17.6

Interest - Dividends onSecurities 4.5 8.7 14.9 18.9 19.6

Income from Trust Funds 1.0 1.0 1.1 1.0 1.1Miscellaneous Bank Fees - - 17.6 33.9 31.1Other Earnings 15.1 34.7 20.2 28.7 19.0

Total 104.4 138.8 168.5 201.5 231.9

EXPENSESSalaries and EmployeesBenefits 20.4 28.6 32.8 36.7 45.3

Other Administrative Expenses 11.8 12.5 15.1 15.4 16.9Interest Expenses 44.3 64.9 84.0 113.0 149.3Provision for Income Tax 8.2 10.2 13.7 13.2 7.6

Total 84.7 116.2 145.6 178.3 219.1

Net Income Before Reserve 19.7 22.6 22.9 23.2 12.8Reserve for Contingencies 1.2 1.2 1.2 1.2 1.2Net Income - Bank Proper 18.5 21.4 21.7 22.0 11.6Net Income - Trust Funds 6.1 6.4 7.1 6.4 7.2

24.6 27.8 28.8 28.4 18.8

Net Income as a Percent ofNet Worth 5.8 6.2 6.1 5.7 3.7

Source: DBP

October 13, 1971

ANNEX 15Table 8

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

DBP - Costs and Returns on Average Annual Loan Portfolio and Investments,FY 1967-71(P billion)

1967 1968 1969 1970 1971Average Loan Portfolio

and Investments 1.227 1.500 1.653 1.036 2.774

Gross Income 0.104 0.139 0.169 0.202 0.232Percentage of Loans and

Investments 8.5 9.2 10.2 9.9 8.3

ExpensesInterest 0.044 0.065 0.084 0.113 0.149Percentage of Loans and

Investments 3.6 4.3 5.1 5.5 5.4

Administration and OtherExpenses 0.032 0.041 .048 0.052 0.062

Percentage of Loans andInvestments 2.6 2.7 2.9 2.6 2.2

Total Expenses 0.076 0.106 0.132 0.165 0.211Percentage of Loans andInvestments 6.2 7.0 8.0 8.1 7.6

Net Income /1 0.028 0.33 0.37 0.37 0.020Percentage of Loans and

Investments 2.3 2.2 2.2 1.8 0.7

/1 Before provision for taxes and reserves.

October 13, 1971

ANNEX 15Table 9

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

DBP PROJECTED CASH FLOW - FY 1971-72 TO FY 1973-74

(P Millions)

FY 1971-72 FY 1972-73 FY 1973-74

A. DOMESTIC OPERATIONS

ReceiptsLoan Collections 360.0 444.4 450.9Export Tax Proceeds 105.5 85.7 55.1Investment in Bonds and Securities -Collateral Preferred Shares 13.2 17.6 26.4Other Receipts 156.3 V 24.0 24.0

635.0 571.7 556.4

DisbursementsAdministrative Expenses 58.1 69.0 72.5Repayment of Maturing Obligations 349.6 176.o 140.7Loan Releases 180.0 240.0 240.0Equity Investments 12.0 12.0 12.0Other Disbursements 30.6 36.8 35.8

630.3 533.8 501.0

Surplus (Deficit) - Domestic Operations 4.7 37.9 55.4

B. FOREIGN OPERkTIONS

ReceiptsCollections on Guarantees:Advances 100.7 165.4 151.6Current Maturities 296.6 300.3 306.3Collections on CCC, PL 480 and CWB Lines 261.4 282.7 321.4Other Receiots 110.9 9.6 3.9

769.6 758.0 783.2

Disbursement - Repayments onForeign Loans (Direct) 42.0 67.5 4h.2Domestic Loans - Advance fror. CB, Sec.

90 99.6 13.7 0.5Guaranteed Loans: - Regular 514.1i 396.5 404.1

- CCC, PL 480, CVB 129.7 313.5 366.o

785.L 791.2 811.8

Surplus (Deficit) - Foreign Operations (15.8) 33.2 (28.6)

C. OVERALL SURPLUS (DEFICIT) - DOMESTIC ANDFOREIGN UPERAT:ONS (11.1) 4.7 26.8

Source: DBP

1/ Includes increased deposits, CB advances, sale of Escolta and Tagayty buildings,

March 3, 1972

ANNEX 15Table 10

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

DBP - Past Due Loans and Loans in Litigation, June 30, 1971(P million)

A. Past DueAmount of % Past Due of

Amount Installme 75s Amount 12Sector Outstanding- Past Due- Outstanding /

Agricultural 370 29 /2 7.8./2Industrial 1,200 229 19.0Real Estate 44 8 18.2Government 54 3 5.5

Total 1,668 269 16.1

B. Loans in LitigationA^mount in Amount Amount in Liti-

Sector Litigation Outstanding Total gation is of Total

Agricultural /3 11 370 381 2.9Industrial 3.4 1,200 1,234 2.8Real Estate 5 44 49 8.2Government - 54 54 -

Total 50 1,668 1,718 3.0

/1 Includes amount of unmatured principal and matured installments.

/2 The P 29 million shown as past due is only for the head office loans.Data were not available on the amount past due in the branches.Assuming that this would amount, the percentage would be around P 10million, the percentage past due would be about 10%. This would bein keeping with information obtained by the mission from severalbranch offices that it visited.

/3 Approximately 1,500 loans out of 55,000 active loans.

March 3, 1972

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

H

A. DBP - Annual Outstanding Loan Volume by Sector, FY 1967-71(P million)

1967 1968 1969 1970 1971Sector Amount % of Total Amount % of Total Amount $ of Total Amount % of Total Amount % of Total

Agriculture 278 24 330 23 374 23 408 20 410 15

Industry 767 67 963 68 1,111 68 1,438 70 1,994 75

Real Estateand Miscellaneous 101 9 118 9 152 9 201 10 250 10

Total 1,146 100 1,111 100 1,637 100 2,o47 100 2,654 100

B. DBP - Annual Releases of Loans by Sector, F! 1967-71(P million)

1967 1968 1969 1970 1971Sector Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total

Agriculture 63 22 91 22 79 20 68 10 39 5

Industry 188 66 293 69 225 56 283 42 193 21

Real Estateand Miscellaneous 35 12 38 9 57 14 48 7 32 3

Subtotal-Loans 286 - 422 - 361 90 399 59 264 29

Advances on Guarantees - - - - 43 10 275 41 665 71

Total 286 100 422 100 404 100 674 100 929 100

Source: DBP

PHILIPPINES

0 LIVESTOCK DEVELOPMENT PROJECT

Financial Data on Private Development Banks, May 31, 1971

(P 000)

DBP ExposureDate Opened Total Capital Rediscount Total Total

H Development Bank Location for Business Resources Assistance Loans Loans Deposits Remarks

Agro-Industrial Guagua, Pampanga 7- 3-60 12,042 1,000 1,104 9,445 7,222Bacolod City Bacolod City 11-30-64 5,838 1,000 1,178 4,829 1,997

Batangas Balayan, Batangas 10- 9-61 2,803 500 - 2,161 903 Data as of 3-31-71Batangas Capitol Batangas City 9-21-69 1,399 500 150 984 220Bulacan San Miguel, Bulacan 5-15-61 6,920 500 1,060 4,677 4,220Second Bulacan Meycauayan, Bulacan 2-26-62 14,588 900 1,864 11,763 9,966Cabanatuan City Cabanatuan City 10- 2-61 2,379 500 8 1,841 425 Data as of 4-30-71Cavite City Cavite City 10-12-63 14,453 1,300 2,205 11,877 9,172

Cebu City Cebu City 1-15-62 4,032 720 475 3,161 1,897Development Bankof the South Cebu City 12-28-63 3,081 500 450 2,070 1,641

Danao City Danao City, Cebu 1- 2-68 2,828 400 461 2,237 1,175Davao City Davao City 2-20-65 4,789 550 800 4,050 1,892Ilocos Sur Vigan, Ilocos Sur 2- 1-68 1,389 500 - 485 331 Data as of 4-30-71Iloilo City Iloilo City 11- 5-62 4,551 835 762 3,217 1,239Laguna Calamba, Laguna 5- 6-61 7,764 1,000 1,437 5,677 2,831

Second Laguna Binan, Laguna 6-25-63 8,829 500 911 7,547 6,163La Union San Fernando, L U 2-13-65 2,817 500 604 2,241 857Lipa City Lipa City, Batangas 10-25-59 7,112 1,629 1,040 6,421 1,023San Pablo City San Pablo City 2- 1-62 1,988 500 176 1,681 700

Second Pampanga San Fernando, Pampanga 6-20-61 4,977 600 733 4,443 2,090Pangasinan Dagupan City 11-29-66 1,259 500 90 1,045 192Pasay City Pasay City 7-18-60 9,517 1,100 1,381 7,923 3,819Quezon Lucena City 3-11-61 8,582 1,190 1,764 7,099 3,737Quezon City Quezon City 10-22-60 8,775 1,950 1,718 6,785 2,528Capitol City Quezon City 1- 7-63 6,616 620 1,288 3,889 3,533Second Rizal Caloocan City 1-30-61 9,932 1,950 2,564 8,046 2,139Third Rizal Makati, Rizal 5-25-61 7,811 1,000 767 5,941 4,499Tarlac Tarlac, Tarlac 11-19-62 1,553 500 119 924 265Zambales Olongapo City 9-20-67 4,575 1,000 - 3,567 2,370

T o t a 1 173,1 37 24, 244 8136026 79,026

Source: DBP

N ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~LTVETO34CKI 109VE19N6FN2 PROJECT

SOURCE OP FINDS _ 2 2 10 11 L2 13 14

DBP ru-do for

Par Loans and Slo-goeht-h-- 4.668 10).472 j2.441 3.329 0.793 0.167

I20D Loan for:

Pans Loans 52 Slnsghterh--so 6.712 1bl1C 17.9P,94 4.boc i.o49 0.229Technical Serice 0. 774 0.768 0.586 0.561 0.135 0.050

S.b-total 7.486 10.945 i8.68o 51.361 1.134 0.284

Espay-et of Louse.:

Iutcgrated Cscssct/Bsef Fsttusiuc - 3.003 9.0734 4. 102 0.215 0.386 0.702 3.614 0.439 -Intograted Co-ot/Bsef Brreding/Fstt-ss 0,2ill 0.755 1.201 1.980 1.990 1.880 1.703 1.237 ----11611 Beet' Cattle Breding no-h-s -OP 0 100 s.246 0.468 o.768 1.076 1.513 i.678 4.252 0.594 Pig Brsding/Ftt-ei rig 3.)9 ~ 01 .155 3).8907 9.912 9.13.260 4.130 -----

Polty- ril-rc 0. 6,,5 3.1751 3.175 3.175 3.175 2.5410 1.272 Poultry - layer O. 180 73 5.064 8.o74 6.055 3.025 - - - ----Slscgirht-hse- - )8 n.L4 17 3.698 1.231 1.367 1.503 i.463 i.423 1.389 0,915 0.454-

Sob- total - duo~~~~~~~~~~~~~~~~~~-. 13 730 24.27 23.23 0.473 15. 37,0 10.673 3.878 1.50(9o.8--

Total IP17.1 262 39~ 01 20 68 ItOr271 24.094 21.473 18.370 10.673 3.878 1.509 2. 4'~4

Pans Loan cud SlsoghtcrBu--r 11.3~73 't 629 30. '3: 3.173f 7.8547, 0 .38

Technical Services:

Fi--nrd by D22 .7.74 o.y86 o.s86 3.,561 0.132 0.055

Fissurd by IB00 11.774 0.738 0.786 .51 0.135 0).0~4

Repsuo.nuts Is osv-rs:et:

TO3RT IonsP Baeets )/- .23 .35 1.995 3Gb1 3.0±4 8.107 9.]n 3.077 8.4107 3.442847 00 47(

D)20 O-ehe- Cos- 7/ - .75 0875 i.47s 1.420) 7.190 0.912) o. 6oo 3.50 0.300Q 0.200 0.100 0.100 0.120

Cash So-plus 3D0ei7c0< 30.7741) '.17 5•70I 13.213 t49-i7 i8.)536 I•0173 7.34 2.4,73 34.0223 4r.0913 (8.046) (8.5o00 34.302)

Tota.l 2615 5.6888.9 2.8 6.205l 24.034 21.473 16. s3O 50.673 3501.509) o.476-

Coslati-c OaoB Sorplo- (Tofi-t) J' Is.774) 3D.457, 8,.243 1376 35.fl5 o7.4±I 63~.074 77.31" 73.117 74.2095 o7.204 59.153 30.658 46.358

I/ Assoulug 18 ~. pea lua il,rldig O~sr f gr-ce, 7.251% is-tecs per scum.

3 roc rs-r Forplc 3cr0 4-o pecood, 724~ coot rer-os ~tI :o,rhto f sho>t 513± cit11o- -rd -11 coslaco o5-t. d3lIo c jltics to the- reL th--ug.orc, Lo, c,-over It .cc.e su profits.

0 PO~~~~~~~~~~~~~~~~~~~~~~~~~~~LILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Ocea icla Roes of Rdore7% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~(8' 001)

MDEDL D-vlop-tl 2 3 7. 8 10 11 12-19 20

1. INTEGRATED COCONUT/B1EEF CATTLE FATTENING -5 '[ASae.1..................3.38 3.38 4.05 5.99 8.42 9.36 9.81 10.26 18.71 11.16 11.16 11.16 11.16 13.08 1/Oporeting Costs. ........... 2.35 2.35 2.33 .3 1.-77 7.,4 5 04 3.04 5.04 5.04 5.59 5 04 5 04 5 04In-st-tl...................- 3.06 <.2 3.3 .25 - -------Isar,oetol Pino..rtol BoTheR -.......... (3.06) ,<.Ob) [1.f4: -.34 3.203 3.74 4.19 4.64 5.09 4.54 5.09 3.09 7.01Fteanilo Rate of RetoR: 36%~

2. INTEGRATED COCONIT/BEEP CATTLE 8REE5TOC/FATTENING - 15 HA

Sae.-..................... 13.50 13.10 14.18 11.45 21.20 24.35 25.70 27.75 29.10 30.43 31.80 31.80 31.90 59.7801Oper..tleg Costs .......... ..... 3.92 3,92 3.92 3.3 C2 8.14 8.62 8.88 9,29 9.29 9.29 10.94 9.29 9.29 9.29

1notost . ................- 21.98 9.07 31 Inore-eto P~isa.cril Bsl-r . ........- (21.98) (8.39) 2t 3.48 6.15 7.24 8.88 10.23 11.58 11.28 12.93 12.93 31.83Finanifl Role of Retort: 197.

3. HILL BEEF CATTLE BANCH - 600 HASoe.1 .................... 34.66 34.64 27.90 30.11 38.02 63.24 78.34 107.20 115.58 115.58 115.38 113.39 115.58 323.58 .1/Opera.ting Costs................. 16.13 06.13 16.13 16,L3 20.47 20.68 21.13 21.46 21.46 21.48 21.46 21.46 21.46 21.46

....seat ...................- 59.46 51.44 64.33 42.57 - - - - - - - --

.I.or...eta1 Elnoenll 8ol-.oe .. I...... - (35.46) (58.20) 6.3) (43.55) 21.03 38.68 67,21 75.59 75.59 75.59 75.59 72.59 283.59Finan-lo Role of Return: 217.

4. FlG BE1EEDING/FATTENINGE - 25 S085Solos.45.62 45.30 100.41 114.50 114.50' 114.20 114.50 114.50 514.30 114.50 114.50 114.50 114.50 147.67 1/OpertIn Cots-c7 87.o3 37.73 37.73 37.73 37.73 07.73 37.73 87.73 87.73 37.73 87. 73Ineseot- 67 IL.)) -----

Incre-Co.o tOoa-ROo Boloe- . ........- (46.35) L.70- 14.53 07 60 16.33 16.3 11.33 36.53 16.53i 16.33 16'.33 4.70Flso_nlo1 Rote of Ret:irr: 73*

5. RIG PRODUCTION - 6,080 HEN1 CAPACITYSoe.1...................... 96.66 96.66 231.15 260.00 290.00 280.00 290.00 290.00 290.00 290.00 353.00 2/Opartieg Costs .0........ ..... 2.50 72.50 17<.ot~ 317.50 217.50 217.20 217.50 217.50 217.50 217.50 217.50

Ieeteen. ...................- 81.24 1".~ - - - - .- - -lerrenetal PFea-stl OSlon- .......... 181.24) 15.20 48.34 48.34 48.34 48.34 48.34 48.34 48.34 I11. 34Fina-ial Rote of Relte-: 472.

Isles.~~~~~~ ~~~~~~~ ~~~~91.00 164.26 182.00 182.80 282.00 082.00 182.00 182.00 182.00 182.80 274.66 7/Operating Cooto.60.05 143.7 : I 160.30 160.30 060.30 160.30 160.30 160.30 160.30 160.30 160.38

Inreena ..oo.a -So .........o. (2.8.7) 10.85 10.85 10.85 10.85 10.85 10.65 10.85 11.85 103.31Plnaiel1 Rote of Robin: 673

7. SLAUIRTER)IOOSE DAILY CAPACITY 20 IIEAS OPCATTLE ADD 200 HEAD OP PIGS

Soe.--......................25,573.80 27,438.80 27,430.00 27,430.00 27,430.00 77,430.00 27,430.08 27.430.00 27,430.00 27,430.00 27,450.00 27.450.00 3/opero.tlog Costs.................-- 24,13<'.>3 25,766.80 25,766.00 25,766.00 25,766.00 25,766.00 25,766.00 25,766.00 25,766.00 25,766.00 25.766.00 19,324.58

nesen....................... 1 V7:,.03 - - - - - - ---Oere --alPlos 1o Beloe- .... 1,440.00) (3,4331.3<, 1.664.80 1,664.00 1,664.00 1,664.00 1,664.00 1,664.00 1,661.00 1,664.00 1,664.00 1,664.00 8,123.30

Eln-ecto Rate of Retort: 23%

I/ In-ledieg EnE--etal herd cain.2/I-osifng Ei- -esto1 flock -1-n.

c'lcnd he poise of lomi,

ANNEX 18

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT

Economic Rate of Return

1. The economic rate of return of the Project was calculated on thebasis of data shown in Table 1. Key assumptions and adjustments made were:

(a) that the prices of investment and operating cost items,in real terms, would remain at current price levels;

(b) that the prices of all outputs, in real terms, wouldremain at current price levels; this assumption isbased on price projections for meat;

(c) that the official rate of exchange is equal to the shadow rateof exchange because the peso is relatively free to floatin foreign exchange markets since the spring of 1970;

(d) that the opportunity cost of labor, with the exception oflabor engaged in slaughterhouses, is 25% of the minimumwage required by law because much of this labor ispresently unemployed;

(e) that the opportunity cost of labor operating slaughterhousesis equal to the financial wage because this is skilledlabor that at present is not underemployed;

(f) incremental herd values were credited to the Project .- t: ilvtA_ I ' life of the investments which varies from 10

years for poultry to 20 years for beef cattle, pigs andslaughterhouses;

(g) all DBP administrative and technical services provided tothe Project were charged to the Project; and

(h) taxes, which would be transfer payments, were not chargedto the Project because no service was performed.

2. Based on these assumptions, the econmic rate of return would beabout 36%. Should actual incremental production be valued at 10% less,due either to a drop in all output prices or a short-fall in physicalproduction, and concurrently should feed grain prices drop by 10% fromcurrent levels, the economic rate of return would be about 30%. Shouldinvestment costs be 10% higher than projected, the economic rate ofreturn would be about 33%.

November 5, 1971

o ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~PHILIPFINESI.TVESTOCX DEVELOPMENFT FPROJECT

SonrY Econoic Rate of Return Calculatfena

2 3 4 3 4 2 8 ~~~49 10 11 12 13-19 20

INCREMENTAL FINANCIAL BENEIFTS

1. Cape .-........................ 0.03 0.13 0.40 0.68 1.04 1.40 1.76 2.12 2.46 2.76 2.93 2.93 2.93

2. Beef tattle.-..................(0.03) (0.04) 0.22 1.08 2.40 3.25 3.77 4.23 4.32 4.32 4.32 4.32 13.68

3.P FEe(0.03) 5.40 20.51 37.61 41.33 41.33 41.33 41.33 41.33 41.33 41.33 41.33 41.33 61.233

4.Broilers.3.66....11.08..20.9... 32.75 22.75 22.35 22.75 22.75 22.735 7 2727471833--5. Eggs.-.................6.R7 19.60 34.16 30.67 38.67 38.67 38.67 38.67 4183.7192--

6. Slau.ghterhou.e......................20.57 40.00 73.43 82 39 82 79 82.29 82.29 83.29 82.39 82.29 82.39 82.29 83.29

Sob-total................... 3.63 44.52 109.26 170.70 106880 088o48 189.69 190.57 191.39 199.60 191.90 168.47 130.87 160.13

INCRESENTAL OFERATING COSTS

1. Labor.,...................... 0.10 0.75 1.76 2.60 2.68 2.32 2.73 2.76 2.76 2.76 2.56 2.21 1.86 1.86

2. Feed. ran.i.,.............. ........ 14 13.1- z9. 0 60'. 2 66. .9 66., 9 66.95 67.06 ±7. DI 67. 57.99 -. 3.3 0 6.612.6

3. other opertteg Cot..~..............I.. .15 0".03, t2.37 32< >0 ~ 97 0c ~ n33 96.02 59.6 '3.7 9.7269. 97.7q 0 31 76.697' 7

4. Bonking Service....I.... .......... 0.23 0.67 1.14 1.09 0.93 0.70 0.50 0.3 0.33 0.11 0.03---

lob-tota.2.7.................7.............11).7 i61,.64 59.79) 166.7 15.5 0JH. (7 120,.61 ui6.45 11o.40

INVEOTMNYB

1. Intgrated Coconot/leef tattle Fotteolg ...... 0,08 "1 3.56 D.643 96l (0 13-------

2. Integrate .C.cont/Oe-l Cattle Breding/Fotte-ing 0.35 1.~33 .3 03 0.625 ---------3. 0t ef Rce....................0.63 1.23 1.38 1.07 0.43 ---

4. FIR Fac.u........................ 4.65 13. 1 ~ 15.1.4 3.0< ---------

3. Broiler Fa-e......6.....I.....5.... . 06' 5~ 6.00 - ----------6. Egg Fam. . ..................... 4.06 6<61 ~ .3. 1.Ž3 - ----- ---

7. Ola-ght-rbua.........I....... 1.44 0.0 9 .32 1.17 ----------8. Technical and AdeiRit-troe -Sice .e.v.c...1,55 1.50 ~ .57 1.12 0.27--------

0n6 -Iotl.13................... I ............ o.6 4 ---

PROJECT FINANCIAL BALANCE ................ (14.245 ~2o->T3 302,23 13.07 25.15 27.30, Ž9.65 30.76 30.69 30.95 45.53 38.66 M4.2 49.68

ADJUSTMENTS-TO FINANCIAL BALANCE

I. Canes.~~~~~ ~~~~~ ~~~~~ ~~~~~ ~~~~0.06 0.95 2.11 3.18 3.27 3.28 3.28 3.28 3.28 3.26 3.06 2.68 2.30 2.30

2. Labor1.00 0.435 .0 16 1.67 10 1.1.721.73 .7 .81.32 1.06 1.06

Sah-tata.i .......... I.......... 0.14 1.40 5.21 4.79 4.90 4.098 1.99 5.01 0.01 5.01 4.64 4.00I 3.38 3.36

PROJECT ECONOMIC BAI.ANCE ... .............. (14.103 AŽ2 m5u <. 331Ž 3ŽŽ 3131.76 67 ..6.6 4517 1 -66 33 ~ 3.~

E-o-oe late of Raten _= 36t

1/ Th opporlunity cot of facn labor Re os-d to equal 257 of ite flno-1i1 cot.

120 122? 124-

The b-Indtides thwn mt hin mtop do It! ? EAEipby endorement or acceptance by to,e CHINA1W,ed Benkerd ih s17,itr CI NA

-- "-~~ TAIWAN .. ,Cn04C --9a // 11001J ONG ------ -cocCAGAYAN VALtEY A CtCEAC

ILOCOS AND -y*HIUPPINES

MOUNTAIN PROVINCE L 2 N IIngonQ

S OUrH p F J S

CHINA

SEA N D

O

CENTRAL LUZON ( O 9(Ofl

UlZ Lt, BLACAN CPIGS PMN POULTRY PAEYA TARLAC,

NISadPLLO UEVA KIMA ..PANGASINAN PROINCEs

P H / I I P P I N MANILA w )C

-14' ~~~~~SOUTHERN TAGALOG 'BICOL14

PIGS and POULTRY .CAVfTE LAGUNA 1d

HILL 8EEF RANCHES {MINIOAA ISLAND ty S E A

3 DBP BRANCHES - PROJECT AREAS HILt BEEF RANCHESt MASBATE fSLAND

*CDSP AGENCIES - PROJECT AREAS Sql 7 /1 ~~~~EASTERN VISAYASREGIONAL BOUNDARIES C'

-52' PRIMARY HIGHWAYS -1'

-. o . I ,-. RAILROADS AN

PROJECT AREAS A S

I PIGS AND POULTRY WESTERN VISAYAS 4

c HILLSBEEF RANCHES \1oiL-

INTTEGRATED COICONUIT!.---i-JBEEF CATTLE 5 r

I ~ ~ ~ C10~S PIGS

LL. EVND. I NA 0 NORTH MINOvANAO4 -II-. 1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~O ~~~~~MISAMIS ORIENTAL PROVtNC/E INIORATED/ '~ ~< f > _ COCONUT/ROEF CATTLE

v/ ~ ~ ~ ~ ~ ~ ~ ~ O >Xi a y a n ~~~~~~~~~~~~~~~~~~~~~~~~d. Oro )

PHILIPPINES

LIVESTOCK DEVELOPMENT PROJECT SO U CH=M_NANA

0 40 a0 i60 1 6 NTEGRAT D 0CONUT/J-7 SOUTH MINDANAO0 _-' EPI KL t ; REF CATTLEKILOlfEtERS PIGS SOUJTHERN COTASATO PROVINCE --' oi zA @ 6p a,o lr?-0 20 40 60 80 100

MILES E B ES S A

120' 122 124' 126'

MARCH 1972 IBRD 3602R