r e

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 5448-PH

PROJECT COMPLETION REPORT OVERVIEW

PHILIPPINES

SECOND GRAIN P'ROCESSING PROJECT

(LOAN 1269-PH)

February 6, 1985

East Asia and Pacific Regional Office

This docuineut bo a reticted disribution and my be used by recipients only In the performnce oftheir official dudes. Its tents may not otherwise be disclased without World Bank athoriztion.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

Name of Currency Peso (P)Currency Exchange Rate USDollars:Pesos

Appraisal Year Average US$1:P7.5Intervening Year Average US$1:P7.5Completion Year Average US$1:Il.O

WEIGHTS AND MEASURES METRIC SYSTEM

1 hectare (ha) 2.47 acres1 kilometer (km) 0.62 miles1 meter (m) 39.37 inches1 kilogram (kg) 2.205 pound1 cavan (paddy) 50 kg -

1 cavan (corn) 57 kg

ABBREVIATIONS

ACA - Agricultural Credit AdministrationALD - Agricultural Loans Department (of DBP)ASD - Agricultural Supervision Department (of DBP)BAADs - Branches and Agencies Departments (of DBP)BAEcon - Bureau of Agricultural EconomicsCB - Central Bank of the PhilippinesCOA - Commission on AuditDBP - Development Bank of the PhilippinesGOP - Government of the PhilippinesGPD - Grain Processing Division (of DBP)IRRI - International Rice Rese7ich InstituteMOA - Ministry of Agriculture- /2MAF - Ministry of Agriculture and FoodL-NAPHIRE - National Post Harvest Institute of Research

and ExtensionNEDA - National Economic Devel7iment AuthorityNFA - National Food Authority/NFAC - National Food and Agriculture CouncilNIA - National Irtigation AdministrationPCR - Project Completion ReportPCRO - Project Completion Report OverviewPNB - Philippine National BankRCA - Rice and Corn Administration S

/1 The former wieght of 44 kg for cavan is sometimes still usedin the Philippines.

/2 MOA was the predecessor of MAF. Executive Order No. 965 issuedJune 1984 renamed MOA as MAF, transferring to it certain agenciesengaged in food- production.

/3 National Food Authority was previously National Grains Authority.

FOR OMCIAL USE ONLY

PHILIPPINES

SECOND GRAIN PROCESSING PROJECT

PROJECT COMPLETION REPORT OVERVIEW

Table of Contents

Page No.

PREFACE. ..............................

BASIC DATA SH.EET ........... . ............

HIGHLIGHTS .................. . ........

BANK OVERVIEW OF THE PROJECT COMPLETION REPORT:I. Introduction.............. . .1.....II. Project Objectives and Achievements....... . . 1III. Project Financing .................. . .... G. P.. . 3IV. Project Implementation.. . 4V. Institutional Impact. . . ................. 5

VI. Financial and Economic Impact ............ 6VII. Other Benefits.................... 7VIII. Commodity Study Component ............. . 7IX. Post Harvest Grain Loss Study Component ....... 8X. Bank's Role During Project Implementation ...... 8XI. Conclusion..................... . 10

ATTACHMENTS: Comments from the Borr'Gwer

MAP: IBRD Map No. 12005, Phi-lippines: Second Grain ProcessingProject

This document has a restricted distribution and may be used by recipients only in the perfonnanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

PREFACE

This is a performance review of the Second Grain Processing Projectin the Philippines, for which Loan 1269-PH of $11.5 million was approved onMay 13, 1976. The loan was fully disbursed and closed on November 17, 1983-

This report consists of only the Project Completion Report Overview(PCRO) prepared by the East Asia and Pacific Projects Department. Thedetailed Project Completion Report (PCR) which was prepared by the DevelopmentBank of the Philippines (DBP) is available on request from the OperationsEvaluation Department (OED). The Project has not been subject to audit byOED.

Comments on the PCR from other agencies involved in project imple-mentation and the National Economic Development Authority (NEDA) are incor-porated in the final PCR which was submitted to the Bank in February 1984.Attachment III reproduces NEDA's comments sent to DBP on the draft PCR.Copies of the Bank-prepared PCRO were sent to the Borrower in October 1984.Comments received from NEDA have been incorporated and are reproduced asAttachments. DBP sent a telex stating that it was generally in agreement withthe Overview, and therefore offered no further comments. A copy of the telexis also included as Attachment II.

The data and analyses in the PCR provide an accurate presentation ofthe project's performance, and the PCRO, while it summarizes the project'ssalient features and performance, also discusses the Bank's role in projectimplementation.

- Li -

PRoJYCT COMPLrTION REPORT

Philtppin. - Crain Proc...inn 11 - Loan 1269-PH

DASIC DATA SIIECT

IEY PROJECT DATA

AppraLsal Actual or Actual an X ofexpectation rurr.nt estimate appraisal estimate

project -at (USs siulton) 28.5 39.8 /a :40 /aLo- n/Credit arount (I2S5 aiIion) 11.5 I1.5 100Date Board approval 0506f 05113/7b Date eff.ett-ven. 0l5t4/76 11/12/76Date phystic1 components complet-d 06/30/RD 06/30/83 176 /b

Proportion then coaplmt.d 12) I00 56Lloing date 06/30/81 06130/83 141 /bEconomic ratr of return (ZS 28 19 IC

9 F'1.inncLl1 raEe af return (1) 27 18

CUMULATIVE DSRtlRSEHFNTSFY77 FY78 7Y79 FY80 FY81 FY8N2 FY813 FYR4

ApEl ata esItiate (US$ ) n 0.1 3.3 7.1 10.9 31.1 13.1 5 3.5 11.5.rt.. (MSs r) - - 0.3 1.8 N .2 a.3 11.1 3.5At.tual as: of .at.awt. 0 0.0 4.2 16.S 15.7 72.7 96.5 00.0Date .,f fI,aI. dl.burr aeo! 11/07/13

fISStION DATA

Dat.t No. of !.n-wecks Specializatlios Performance Type ofYIasoln (mo/yr) p_r.n. In field repre....t..d /d rating /e T-und If p-nbles,s Is

Identification fh NiA N/A N/A N/APrpr-tion /bh n5'7' 'I N/A NIA N7AAppr;I 1-1 05/7 5 42.0 /1

Suobtoal 5 ;2.0

.p.ro lr I.n 3 11/7i. 2 *.0 M N/A N/A I/ASuperv"i-on 2 (01f7 Z 1.4 O.e N'A N/A NI/ASupervision 3 05/9 I/k _ 4.6 c,d.. 2 2 F,MS.pe"rv[Ion 4 I1/n /k I 1.2 c,d.e 3 ' F,HoSuperv,IIon 5 Ot-/81 _ 1 3.2 b I I FSuperviiion F. 8/N81 /1 I 0.2 b N/A X!A N/ASupervtsion 7 "Wb/H2 1 2.H b I 2Su.pe-Ii-inn 8 O9,'M2 *. I 0.6 b 1 2Suprvto q83 - 3.0 i I 2 0

Subt.t.1 If 22.0

'n.. 71 64 o

TDHER PROJE'CT DATA

Borrower Cnv.rnment of th, Philippin aEcecuting .%enle. Ornelopsrnt Bank nF the Phillppin-. (ODP., 8inlstrv of Agrtculture (MOA) and

Nrlonal PoPt-Hirreat Inatito tr for Rsarch *nd F.Ktenalon (NAPHIRE)Fj,I Y.-r of Fnrrwrr: .i-nuav I - D.c.be 31

ris.. of *,.rr..cv (abbreviatiten) ts(P)Apor.1-le1 r avcr.,ge 1170 US5100 - P 7.',lt ..rv.n Ig ve..r. averave 1980 USSI.00 7 7.5lomaplet-on year a=vcrag_ 1983 USS$IOn - P l .I)

Fo Iin-on proJ-ct:N..se _ A gricultura.l Credit ProjectLoon/credit nsh..r :iMot yet determinedi.oot/credlt alnos ut (11SS .1lion): 100.0

* Dnte Hoord ppr .val N/A

a Coat -cerr-n of 39' only In rhe credit corponent. Houver, there us an additional study costing 50.3mlillon -dd an t.. th. project

* AppraIsal AcrtulI Art..al' :ppral.Il--- million) -- ('1

DPP 28.2 1992 139VX0A f. 0.3 N/A

NAPHIRE 0.1 0.3 I00

-t;I '_15 39 3 140

/b Calculated In ronth* over the period from Board sppruval date.7/ Calculated on A different basIs than the appraisal, thug not directly c.par.. A-i-t-... rF; in.dea

b-nrfitt pr.vioun..1 not I-tclded in the appralsal -stimate/d n - vgrtcr lturItrI b - agricuitural - ecno- ist; c - financIal analyst d - c-e-'l I.- r . - rul-

tural engineer/l I - problem-fre. or mtior problema; 2 - moderat. prblem..: and 1 - saor problTf I - iopr-ving; 2 - sc.tionary; I - deterlorating.

F - fioanctAl; H1 managerial: T - technicai; P - political; and 0 - other./ i nhis in a follo.-on project to Grain Processing I and Storage Project (Loan 720-PH) -_d - - -en

neitrer an IdentIfication nor a preappralsal mission./1 Date of th. Bank receipt of D1P preparation report.

E The mission spent ftiv weeks In the field plus another week of travel time./k Because of thr delays In completing the Grain Processing I project (Ln. 720-PH). the actu.l I- nc:ug of

CraIn' II -s also delayed. t the meantim emsions whieh supervised Ln. 721-PH la. devoted .om- timeto Ln. 12b9-PH. on wh!ch there ws no oab actlon until Fr7Q.

/1 Pa,ck-to-Offle- report; no supervision report -as issued.7i= SPreslon update, 1souance of Form 590 only.

- iii -

HIGHLIGHTS

The project was designed to increase the supply of rice and corn inthe Philippines in continuation of the first Crain Processing Project (Loan720-PH). It proposed to do so by providing credit througlh DBP for construc-tion, rehabilitation and acquisition of milling, drying, storage and transport

* facilities, tlhereby inducing increased production and reducing post-harvestgrain losses.

The project contributed to the much needed physical facilities ofthe country for grain processing and storage; however, recovery rate ;and useof installed capacity are below expectation (PCRO, para 16) accounting forsubproject financial rates of return below appraisal estimates. Poor subloanrecovery and high overhead have contributed to the adverse financial positionof DBP. While this loan had been fully disbursed, factors extern.al to DBP'sagricultural lending operations have caused DBP to stop all subproject lendingincluding its lending for grain processing and storage.

Although project impact on the economic condition of the country hasnot come up to the level expected during appraisal (PCRO, para. 17), themajority of the subborrowers are optimistic about prospects of their invest-ment (PCRO, para 25).

One of the lessons learnt from this project further reinforces thefindings of the audit mission for the First Crain Processing Project, Dn thcimportance of adequate project planning and preparation. There were short-falls in three areas of project preparation for the Second Grain ProcessingProject. First, there was an overestimate on the forecast nf credit demandfor grain processing and storage. Second, there was no anticipation ofalternative sources of credit supply, i.e. an implicit tnderestimate of theforecast of credit supply. This was because there were funds made availablefrom private non-institutional sources. Third, there was inadequate m;arketsurvey/research on potential sub-borrowers which resul ed in an underestimateof pre-operating expenses and working capital requirements. On the otherhand, another lesson learnt from the First Grain Processing Project had beensuccessfully applied in this Second Project. This lesson is to have flexibil-ity during implementation. Several amendments were made to the loan agreement

* which successfully brought about accelerated subloan disbursements. The amcnd-ments included one that enabled expansion of end-uses and end-users as well asone that enabled financing of working capital and completed works started notmore than a year from the date of the subloan applications. These amendmcntsdirectly addressed and corrected for preparation shortfall of insufficientprovision for working capital and pre-operating expenses.

- I -

PHIL I PPLNES

SECOND GRAIN PROCESSING PROJECT (LOAN 1269-PH)

Overview of the Project Completion Report

Introduction

1. The ProjecL Completion Report (PCR) for the Second Grain ProcessingProject in the Philippines was prepared on behalf of the Government, by theAgricultural Supervision Department (ASD) of the Development Bank of thePhilippines (DBP). Draft copies of the PCR were sent for review internally byDBP's departments involved in implementation of the project. the AgriculturalLoans Dep:artment (ALD) arid the Branches and Agencies Departments (BAADs). ThePCR was also reviewed by the co-implementing agencies of the non-credit compo-nents ot the project, the Ministry of Agriculture (MOA) and the National PostHarvest Institute of Research and Extension (NAPl1iRE), as well as the NationalEconomic Development Authority (NEDA), and the National Food Authority(NFA). Review responses were incorporated in the finai report which wasapproved by DBP Board of Governors on January 18, 1984, and submitted to theBank on February 6, 1984. seven (7) months after the closing of the loan onJune 30. 1983.

2. The project is a continuation of the First Rice Processing andStorage Project (Loan 720-PH) which was approved by the Board on January 26,1971, and became effective on May 10, 1971, and for which a PCR was circulatedon November 1. 1982. The Bank has made a total of 17 lines of credit to DBPsince 1971. of which eight (8) have been for industrial investment, eight (8)for agricultural investments, and one (1) for inter-island shipping. Withinthe Bank. responsibility for broad institutional and financial supervision ofDBP is assigned to lhe Industrial Development and Finance (AEPID) Divis on,with participation of the Philippines Agriculture (AEPA2) Division as warran-ted. Agricultural supervision activities, thus, center solely on DBP's agri-culLural lending and reltLed supporting operations. This PCR focuses on DBP'sleniding Ifor the Second Grain Processing Storage Project analyzing project-related impact oDl DBIP and the Philippines economy.

E'roject Objuctives and Achievements

3. Thle purpos.- of the projc:t was Lo increase the supply of rice andcorn in Lhe Philippines by: a) providing the needed milling. drying, storageand transport zacilities: b) inducin2 increased production in areas thenwithout ade'qua.e proce:;sing tacilitie:;: and c) reducing post-harvest grainlosses. The. proiect. prepared by DBP. was appraised in August/September1975. Nenotiations took place in April 1976. Board approval was in May 1976,and the pro ct becam.' e2ecti:e on November 12. 1976.

4. Th. projoect was *xpecl:-d to finance about 155 rice and corn millsand a.1soc:aLted m-chanicai .ind ;ular driers. warehouses. trucks, and ancillarycquipment. 'n actualitv. DBP t.nanced a tota' a 340 subprojects, with thenumher u: r c. mills iI nanced ar excoedintg the estimate. and the number ofcorn mil!s inanced ar 90 of the est_imate. Table I summarizes and comparesappraisal and actuai number and investment amount of subprojects financed by

DBP.

Table 1: APPRAISAL VS. ACTUAL SUBPROJECT FINANCED BY DBP(Amounts in P million)

Actual/Capacity Appraisal Actual appraisal (Z)(input/hr) Number Amt./a Number Amount Number Amount

Rice MillsUp to 1/2 ton 34 8.4 31 6.2 91 73Over 1/2 ton to 1 ton 68 84.0 167 39.7 246 47Over 1 ton 33 72.9 75 102.1 227 140

Subtotal 135 165.3 273 148.0 202 90

Corn Mill'Up to I ton 14 17.9 15 2.6 107 14Over 1 ton 6 28.6 2 6.9 33 24

Subtotal 20 46.5 17 9.5 85 20

Feed Mills - - 8 20.0 N/A N/AOthersRice and corn mills combined - - 7 13.1 N/A N/ASupport to existing mills - - 35 103.2 N/A N/A

SubtotaL - - 42 116.3 N/A N/A

Total 155 211.8 340 293.8 219 139

/a Including price contingencies of P 50.7 million.

5. Although the number of subprojects far exceeded appraisal estimate,total related investments were below estimate. This was because relativelyfew subprojects put up all the physical facilities prescribed in the appraisalmodels, resulting in a smaller than anticipated average subproject size.Table 2 shows average cost of rice mills and corn mills at 44% and 24Z oftheir respective estimated costs at appraisal.

- 3 -

Table 2: APPRAISAL VS. ACTUAL AVERAGE COST OF SUBPROJECTS

Capacity Appraisal Actual Actual/appraisal(input/hr) (P'00O) (p'o00) (W)

Rice MillUp to 1/2 ton 248 200 81Over 1/2 ton to 1 ton 1,235 238 19Over I ton 2,207 1,361 62

Average 1.224 542 44

Corn MillUp to I ton 1,279 171 13Over I ton 4,769 3,444 72

Average 2,32b 556 24

Feed Mill - 2.499 N/A

OthersRice and corn mills combined - 1,880 N/ASupport to existinig mills - 2,948 N/A

Average - 2.769 N/A

Total Average 1.366 865 63

6. Geographical locations of subprojects were as expected utappraisal. Of total rice mill subprojects, 49% were in l.;zon, 5Z in Visayas,and 36% in Mindanao. Most of the corn mills (82%) were in Mindanno.

Project Financing

7. The sharing of subproject financing was substantially ditterent tromappraisal estimate. Table 3 compares appraisal and actuaL subproject financ-ing. Total costs of the credit component exceeded appraisal estimate by 39:because DBP financed a larger number of subprojects than was expected atappraisal. Subborrowers had to finance 31Z of total costs, instead of theestimated 17Z. This is because the appraisal mission did not take intoaccount pre-operating expenses nor made sufficient provision for workingcapital in its estimate of subproject costs. The expenses shortfall wereultimately provided by the subborrowers. thereby substantially increasingtheir financing share. Moreover. project subborrowers whose ubloancollateral was deemed deficient (per DBP lending guidelines) had to put upmore equity than otherwise required.

- 4 -

Tat-le 3: APPRAISAL VS. ACTUAL SUBPF.OJECT FINANCINC

Actual /Appraisal Actual appraisal

Amount Share Amount Share Amount(P mn) () (P mln) (t) in %

Subborrowers 36.7 17 90.8 31 247Cofinancinit ot ithpro ectsi/A - - 17.0 b N/ADBP 91.8 43 97.2 33 lot)IBRD 83.3 40 88.7 30 Loh

Total 211.8 lCD -93.8 100 119

PNB r( -inancs'd with Elp P 17 m i Ion on NFA wnrehoust' s;uhjro pct.

P'roi jict Impi *mo-nr rat ion

8. D)l .av in nc-got-.at icnq of the subsidiarv loan .arr-ement hetw-vn the,Philippine Cove'rnm,-iat and DBP ca.u;ed the pro jct to become ettectivyt a monthlate. on November 12. 197b. However. it was not until Julv 1, 1977. seventionths l.ater. j'icn tunds trom the First Rice Process:nat and StoraRe Yro ject(Loan 720-PHl) had biren !ullv committed. that DBP finallv began to commitsubloans under this proiect. Consequentlv. disbursements which were to start:n the last quarter ot FY77 did not start unt:i one and one-halt yearsl.iter in the s-rcond quir c-r of FY79.

). lTh- I'CR falit% r he- 1.-nk (par.a '.!. on pa*r 11 of the PCR) tor

h.lv:: n; .ilppra i;d The' pro jecu t} .toon co th.at it bec.am' rtferti ye pr zror tfltul ;unmm;mt-nt ot Iliw pri-'-di'dn. projicct. Notwithst'anding :he i"CR' cl.im.Ba.nk ricord'; ':h;w *hat :n .1av 1975 whon the prol -ct was appr.ii fd. DM' 'nde

xp. iI *-x; -d t undc rom m: h.- t i r!;t pro j-r It to h.av bIE.'n ! Si I I crfhIMI I .-1ihy rtanu 0 . 197b s.r t ur (4) months before cr htduled el tect vr-ns-- of I h;sri-':. - ! n I Iow uip pro -rct I : w.-. a: * hat t iin. .'ppropria-t. t hat .'na-ppr.i .al. hb itiunche-d i*mmdiatel v :o that cubpro iec! tunding7 would not I) -.nLi'rrupl vd. Subt;u'nt lv* h.'r. were se-eral dliv:. .and hi' pr-ce.dinproI 1. oan 720-ilt be.camli uilv committIed . vs--r 1a ;n .une i977. *;'-n(7) rnr;n' '-; a rter *hic t 1i OW-Up pro ]ec! had become .-: :':e.

The FiC! shows a con:us:on between fiscal and caiend.tr v,'ar'. Ur :ke *he1.ink s tiscal ye.ar. the Ohi ippines' fIscal year :s the same i1s .hez.ai"ndar year. 'here.tore. where.as the- PCR c'aims *ha.t ;nitial dicburse-m-n~ rl s-w.re . xpected :n the last -iuarrsr 11 :497. h. .tppr.t;.ul actu.tilv.i;'.-rned *h:; t-h be the 'asr -iutirter vt FY.7 .'r S' r: -;:n. 977.

O(-) -n.-r r74 .4and Octvber ::475 Stuporr:;i on I ; r * *r !.onn 720-Pi. RK c.-: s cei n r a .. C St 3ragr '- h-- h.-h *-sI ima-d d .; vinI ti-ns-nLnt ot h-: .'

t- iln.30. 197fw.

10. Onces -.I art .'d. ihe- prO l-i'c was .- I-;o -;ILW I o di hlatarse hbecause ot wa-w nki1.-mand tcar 1)111' Tsaa I w rn-.. *EIam-pt r - a omp-I ci er. t roam -;upr' Ii- r- ' credi r h!cw.-Il Ia go.-n.-vral app..rt-h.-n; i(m on a i ovt- rnlhm ul p riCL cOEW rcil ,t riC t aind corl.

M.arvcver. 1 illP S a n;::a 11 !IY j.Asckage (p;aara 1) jasar -; as lirvw Iis.aral,a rat I anan cine g or

ata-.-,.t t*r-; wt.su ar- I vplzrai 1 v -1.i1 I- i l i-iiad. All h -. , ri-I I.-c-I shcrt lial 2 %.dijria. pr )t'r I 1err,-.parali mta .mnad ap;-ra a .- V.- -rori I.;l I'; IIr n th iri--irs-;i: a c ) tM-rs t ama: :I m rat c-dtta *i-misaid I or gr.raaa lror-as ;-;!;ilg -and ii ciraRt-:.(Ia) mntlc-r--.1 cimlt! :an uo al i,-rnal iv- ,.oiriC-% ol cresdiI -*Lijjaplv: ;and (iii0) Ilark

)u -i.-r rII-. maa I.ek.-? r%--.e.arch IIt paaa [ i-taliral -.aIl-tjirriawa-r-. 'c-rn.It-tilSlla I it I..;

.- ,4 I m-i a 1t I .I mne-uit prm a I .- I I hli- itlcaat1 rv.

I I - Alt,-EA ..-. -rd .tatin-aaelmc-ia -1,I I ItIllI- I;1 ari-im -til 'la a clhI II(- I tade--. :uta

* ;-~pl-.a'-:i 'I .-1 *¶ .1~1.- * l-taft-.e- . diiit .I-iih.-;s-r-. -t 1)1141'-; -et1-I 'aaa,;. r-b''.',;* 1)a 'ir U

'II- tt .atelcl-. ,t -.1otl caI; .a -;:aI ala! hc-r 1 I v, ; Iccri'.-si- '1 l)liI"-; a d;i I:adent I| IIn

.apprirc.;a I atih, r- t-t v. .ilieI d -I r T 1 ot ,! ! Cit r-q;iaI rm-mlatit I *r -.1cttI o,i a : val aur-;k

al I -. ual-i -tIl pi m;'i-o5 '; ' '-w:1a1y-: lIMIt V-*-a ' -- nl .F ta aI I a .I -ltar ;r -m.-taa w;. ; im.- nmui T- , 1 t ta r - ;r-; b--ta: :a.1 d-a 1 eiao I t-

at :- aIit a .ea.a !rjtam. ' I

;-.' . lii ;-r . 1 .-r r ri- - -a I tr.n1ca l .I .'D- i 1)111' nwi lt* tea Ilil'; 1 l' t

-aiam: ;a i:m ra' r. 'l w-xpstr--.-; anal ;-'-)t asafi t -'i i IrV. View .r, e-cam;rl r a: iii u *hil-r-,rr -al c *I 1. .:an. I Ihi'. .ai ] *-aia-- .t;;1'o-~ t lr;; -ron i--rt . a; wat h of Ihr-; eaiitidtr

:ll l -) * r-rd a t : t-. ., a-min-.I ra t-' a -- :ivra: a till ro- cE--nrv . xnd he-ncc be-l lw-

.I.:--r.m .I arr'ar.a --;. Vla.- arr-xars rat T1a i 'r i-tahi-'an; cinder th. pro ]tecI ill 1982; i)f. c;-t;l.lrat1 ! tl i*a. r. 2-ar a--ra] I i r aIal r iral *:.-rr c*r.

' 2. h.- i"?H ;na :n *: ltj? a:cd the6- K a can c-tnrur-;, that a h u,l)HP' s.:c;1 I .'an.'-' I a[ c;t;arar er -.a;a-.-r-:a 'a -.:ar'-a- :)-'In-a al. c';l a ant a,; lackine.!.-r:-. r:t. '.-... a h.- Rt-rpran I -'c u. t hat IH11 scJ-er-: -I o. l jt; p;r'leers have I ed

*ii W- 'a'niI .--n-.;tV :v -: ' jii--r-v 'r i.- ln * 'rr S. N%l)' t- --- l'; th.g th h lack at-aa?apr' 3'~ -ti:*. ia-r--: ti: on : anot pr!) I-c? -;;t- re hiel a i in i n?! at eit aon:al probl Im

1 ,l I;; -r- t he-ti. rP f.l-a; -*-x-r: .1 .-h1 ln *; 11 rD-Na -ana ;a i nor t ianal St renr t henang

: -. pr - I ; mm I et Isr i :1 anti --.- Ja1 rI '. a1, n n i lar' w'i c h Ilit.- Kink is cuJpliort ing.lteit- r a. . ..-..---pri- I an- h' Th: 't'hir Li gt.vi:t e k and i: -:Ctrr.-'; Irt-di 1'rot ]-tIC

ai. aic 8.'1-.;-i-!I ). I III- m-anwh I . .- - D)I'l mayv 1i.- -- mt ipha -:-e I *.d%upe-rva I Ion o I HRI); ;; maria *t1 -:at;ir ' '-a-c T -;,. : t *.'---t'.1l I I ;.ort a t : o ro%u: i t a n- a n t ho-o-;a.5t: r--: . b~-* tei t -ati .11r.'r.)-,-'

* -.. - - .. a!r;rx a, t* r:; lair* ' -:t r¾ ................................. t ¶tli2il':fll0;Xi* - '~~~~~~'.- -vm r tll - N- ;-(-I h--o ;r*-~m a! .et caloabi -

; * - *-'-- ati -a.a '- anei tia;e-r.- . .a -: -- :%: a arb;tr- n a. n u l-I' _h i h h.lei a- zen!.-c ; p-. - -r-a.:;a a ;.-r;.:; :? - !a:.1:.:f. hId -:-;m:rhar;li.

; : *-~~A A c .- m.- .: I-t :. 'r -_- .r;. ;;

N;:*la w l ; : r: : .-'--* ; : ~.- - a-- rm-n' -; a- '-…1' . * ( t .-. ) *'t'; -' -t ha- --. * - m.!re :n.- I .- : r'-- - n r: r- ; ::.- :ar' -; -'V .a rn,kH h - V11 w

- - r;ar- A th- ba,rr--_ar -,Xr a.l - -1 an .A -r 1- l.k shuifLd >w

-6-

Financial and Economic ImpacL

15. PBP surveved 56 samples of the subprojecrs financed and comparedtheir operat ions and income potential with appraisal models. On average, Lhetinancial rate of return (FRR) of the subprojects surveyed is 18%. and theeconomic rate of return (ERR) is 39%, compared to the appraisal estimaLes of27_ FRR and 28% ERR. Tables 4 and 5 summarize appraisal vs. actual FRR andERR hv rypves of subprojects financed.

Table 4: APPRAISAL VS. ACTUAL FINANCIAL RATES OF RETURNON SUBPROJECTS FINANCEI)

Financial Rates of RrturnCapa.c Iit v

(input /fr) Appraisal Actual

R141 MulUl toI l2 t ont 27 11Ov.-r :-2 Ton t, I t on 25 (A)Over I t on 27 21

Corn MillUp to I ton 18 2

Over I ton '8 27

Feed Mill _ 50Others

Rice and corn mills combined 22Weighted Averfage 27 Id

lb. The PCR cites world economic recession. government price controls.and in;tj!ticucnt Lechnic.al assistL.ncr to subprojects ,as reasons for thesubpro jects' unsatistactorv fin.incial per:ormance. Other re.asons tor the FRR

.) *-ubprojvcts being lowtr than appraisal are .15 tollows:

li) Low milling recovery ratt -- tor r:cr mills ot one ton .andov.r. milling -ecoverv rate is 55_. not the expected b9: perSAR

(ii) Low capacitv use -- 70: t:lr corn mllUs compared to expected100' for all mills per SAR.

(iii) The SAR provided for some working capital in its costing ofsubprojects. Howe:er. the work:nz capital -as left out of thetotal investment amount from which the FRRs were calculated.Theretore. the FRRs per SAR wer-.' r.-erstated.

- 7 -

17. The PC'. appropriately adjusts the subproject financial cash flowsremoving taxes and duties, applying shadow prices for foreign exchange andlabor to arrive at net benefit streams for economic analyses. PCR's calcula-tion of ERR differs from the method used in the SAR where benefits weredefined to include only reductions in post harvest spoilage, increase in mill-ing recovery and inducement of corn production. In the PCR, benefits includedare income from operations, therefore, appraisal versus actual ERRs shown inTable 5 are not directly comparable. However, since actual FRR is well belowappraisal FRR, it is most likely thac actual ERR would also be below appraisalERR (if the same definition of ERR had been used in both cases).

Table 5 APPRAISAL VS. ACTUAL ECONOMIC RATES OF RETURNON SUBPROJECTS FINANCED

Economic Rates of Return

CapacityInput (hr) Appraisal Actual

Rice MillUp to ½ ton 16 14Over ½ ton to 1 ton 27 4Over 1 ton 30 50

Corn MillUp to 1 ton 29 5Over 1 ton 30 47

Feed Mill - 57

OtherRice and Corn mills combined - 47

Weighted Average 28 39

Other Benefits

18. The project is expected to provide 7,277 seasonal and full timejobs. This far exceeds the appraised target of 2,921 jobs, primarily becauseof the larger numbers of subprojects financed and the relatively larget- millswhich will need to hire more workers.

Commodity Study Component

19. This component has enabled the Ministry of Agriculture to conductpilot projects on (a) coconut land-use matrix planning; (b) multi-storeycropping; (c) coconut product and by-product utilization; alLd (d) acceleratedirrigated area development. Results from these pilot projects will formgroundwork for further project preparation.

- 8-

P.st Harvest Grain Loss Study Component

20. The National Post-Harvest Institute for Research and Extension(NAPHIRE) conducted eight (8) studies on two topics: (a) on-farm and off-farmgrain deterioration and (b) non-conventional sources of energy for graindrying. Findings of these studies and other research data were disseminatedthrough various seminars and training as well as a regularly published news-letters targeted to farmers. Success of this component has attracted E

financing from other regionaL and international agencies for NAPHIRE'scontinuing research and extension projects.

The Bank's Role During Project Implementation

21. In terms of the frequency of Bank supervisions and the staff timedevoted to this task, it might appear that the project was not adequatelysupervised during the first two years. However, Grains I was still notcomplete in October 1976 when Grains II became effective, and sincedisbursements for a single large loan under Grains I continued well afterGrains II das launched, the supervision of the former continued, and providedan opportunity to review the rather limited developments under Grains II. Inthe meantime, the unexpected steep decline in the demand for DBP funds tofinance rice mil;: resulted in a slow start for Grains II, and consequentLydisbursements of the Bank loan started only in 1979. During this period, moreintensive or frequent supervisions would not have been justifiable.

22. Actual disbursements during the first four years of the projectamounted to only 16.5% of the appraisal estimates. During this period, DBPconfronted an unusual situation insofar as borrowings from DBP for rice millswere quite limited, although new mills were being established by the privatesector through other financing and existing mills were being rehabilitated.The Bank repeatedly urged DBP to investigate this anomoly and to make suchadjustment in the use of loan proceeds as might facilitate a more expeditiousutilization of the loan. This was eventually accomplished by DBP's decision(approved by the Bank) to finance working capital as well as spare parts andequipment for mills. Although this did contribute eventually to improved loanwithdrawals, the lack of support for these items did not appear earlier to DBPor the Bank to be significant.

23. Both in the period before and after the project became effective,the Bank was involved in a major dialogue with DBP concerning variousproblems which were affecting the Latter, particularly the deterioration inthe quality of its portfolio, its growing arrears and its ass:umption ofresponsibility at Government's urging for loans which had been made at thelatter's behest. However, the Bank did not see the project itself as avehicle -or addressing institutional questions. This was because there wereseveral other projects which seemed a more appropriate setting for suchdiscussion. Moreover, Grains II was envisaged as a vehicle for meeting thefinancial needs largely of established entrepreneurs, and there were nosignificant policy issues to be addressed specifically in the context of theproject. Nevertheless, it would be appropriate to conclude in hindsight thatthe Bank's dialogue with DBP would have produced better results if it hadpressed its points in the context of all the projects it supported.

- 9 -

24. The PCR comments that Bank staff could have been more helpful indealing with distressed projects. While this is a legitimate borrowerexpectation and the Bank should always be prepared to extend maximumassistance to borrowers in this regard, the project itself did not present anunusual number or variety of problems, barring the general one of slack demandfor funds. In fact, borrower deliquencies were fewer, and repaymentperformance generaLly better, than in other DBP projects. The Bank might havedone well to identify somewhat sooner the working capital constraintsaffecting some subborrowers. However, as noted above, this was not theprincipal problem facing the project.

Conclusion

25. While the project has contributed to the much needed physicaL facil-ities of the country for grain processing and storage, its impact on theeconomic condition of the country has not come up to the level expected duringappraisal. However, the majority of the subborrowers (73%) are optimisticabout prospects for their investments. Failures among small borrowers havebeen more frequent than among large ones mainly due to small borrowers'inaccessibility to working capital. The PCR recommends that DBP be moreselective in its appraisal of new grain processing and storage subprojectsbecause it feels that the Philippines now has adequate milling capacities,especially for rice. It also stresses the need for effective subprojectsupervision. These are both valid points. Although there is a continuingneed for rehabilitating and modernizing rice and corn mills ADB is supportinga project for this purpose.

26. DBP has prepared a useful PCR which covers adequately the project'ssalient aspects and its results. In preparing the PCR, DBP undertook a usefulfield review of subprojects leading to a more thorough understanding ofsubproject operations and problems.

27. In the meanwhile, DBP has practically stopped all subproject lendingdue to its financial problem, particularly its lack of liquidity.

28. There will be no follow-up project to the one which has beencompleted. Instead, the Region is proposing to support agricultural credit ona consolidated basis through the AgricuLtural Credit Project (ACP) which wasappraised in October 1984. The project will provide for long-term agricul-tural credit funds to be drawn on by any financial intermediaries which meetthe criteria prescribed by the Central Bank, unlike the project under review,where a single institution was the financial intermediary.

Attachment IBORROWER'S COMMENTS Page 1

REPUBLIC OF THE PHILIPPINESNATIONAL ECONOMIC AND DEVELOPMENT AUTHORITY

NEDA sa Pasig, Amber AvenuePasig, Metro Manila

- 11 - Cable Address: NEDAPHILP.O. Box 419, GreenhillsTels. 673-50-31 to 50

10 December 1984

Mr. vukinori lWatanabeActing Director GeneralODerations Evaluation DepartmentInternational Bank for Reconstruction

and Development1818 H Street, N.W.Waahhington, D.C. 20433U.S.A.

Dear Mr. Watanabe:

Re: Project Completion Report on the Second GrainStorage and Processing Project (Loan No. 1269-PH)

We thank you for sending us a copy of the draft Project CompletionReDort (PCR) on the abovementioned project for our review and comment.The Development Bank of the Philippines (DBP). the project's imple-menting agency, submitted to us the same draft report in November 1983for our comment which we are attaching for your reference. In addition,we would like to make the following comments on the Bank's overview onthe project with reference to the following paragraphs.

On Project Planning and PreDaration (Para 10)

The exnerience under this Droject reveals the importance ofadequate project planning and oreparation. Poor forecast in demandfor DBP sub-loans contributed to a low disbursement rate during theperiod of initial imDlementation of the Droject. The exDerience gainedin the implementation of the first Grains Processing Project (Loan No.720-PH), where the same type of problem was also encountered, may nothave been sufficiently taken into account in the planning and pre-paration of Grains Processing II. It was one of the findings of theAudit Mission for Grains Processing Project I that the appraisal ofsaid project failed to carrv out a serious market research of thepotential sub-borrowers, thus, contributing to a delay in the imple-mentation of tbe project and a low disbursement rate.

Perhaps the appraisal mission for Grains Processing Project ITdid not take into account pre-onerating expenses nor adequate workingcapital requirements, resulting in the sub-borrower having to shoulderthe full pre-operating expenses, thereby substantially increasing thesub-borrower's share in the financing scheme. This became more evidentwhen the disbursement rate increased after amendments were made in the

Attachment IPage 2

- 12 -

loan agreement to include financing for working caDital and forcomnleted works started not more than a year from the date of the sub-loan anplication.

Moreover, the availability of credit from other sources at lessonerous terms than that offered by the DBP may have contributed tothe slow loan availment.

This nroblem could have been avoided or minimized if adequateinformation on the tvve of credit facility demanded had been availableduring Droiect planninR staee and if promotions were undertaken.

On Institutional Imnact (Dara. 3)

We feel that the need for more intensive oroject monitoring andsupervision not onlv on the nart of the borrower but also on the partof the Bank should be emphasized and be given adequate consideration.We have noted that this ;roblem is not project specific but more of aninstitutional oroblem of DR', mainlv attributable to budgetary andstaffing constraints. In this connection. DBP has exerted efforts atreorganizing and strengtheninR its nroject monitorine and evaluationsystem. Moreover, under the Bank-financed Third Livestock Project(Loan No. 1894-PH), Drovision has been made for technical assistancefor the expansion and ungrading of PBP's monitoring and evaluationsystem.

We appreciate your giving us the onportunity to comment on theaforementioned draft overview and we hone that the above comments willbe helpful in its finalization. We would also welcomne onportunitiesus to assist you in your Dost-evaluation activities in the PhilipDinesas Part of our continuing liaison with your office.

Best wishes for the Christmas season.

VTery trulv vours,

ETUARP G. COR

Assistant sirector-teneral

- 13 - Attachment II

BOQRROWER1 S CO*MENTS

zrC7Z DIST0564 RCA7489OEDODkLF : TCP FCA

RCA7489248423 WORLDBANKDEC 17 84WORLDBANKWASH DC

FOR MR. YUKINORI WATANABE

REURLETTER TO CHAIRMAN CESAR C. ZALAMFA DATED 26 OCTOPER 1994, WF AR

EGENERALLY IN AGREEMENT WITH THE OVERVIEW OF THE PROJECT COMPLETIONREPORT RENDERED ON THE SECOND GRAINS PROCESSING PROJECT t'..CAN NO.1269-PH) PREPARED BY YOUR REGIONAL OFFICE.

ACTING CHAIRMAN JOSE R. TENGCOI JRDEVELOPMENT BANK OF THE PHILIPPINES

248423 WORLDBANK45128 DBPHIL PM.....VIA GMCRDEC 17 84 15:17RESPOND TO 45128DBPHILP

=12170720

-12170535

ALT RTD FROM:OEDM

NNNN

- 14 -

Attachment IIIPage 1

BORROWER'S COMMENTS

December 1, 1983

Mr. Jose Tengco, Jr.Vice-ChairmanDevelopuent Bank of the PhilippinesMakati, Metro Manila

Dear Mr. Tengco:

Thank you for sending our office a copy of the draft Project Completion Report(PCR) on the Second Grain Processing and Storage Project (Loan No. 1269-PH)for our review and comments. We have reviewed the document and noted withgreat interest the report's substantial findings with which we concur ingeneral. We only have a few comments on the following aspects of the saidreport.

On the Project Implementation Schedule

We agree with the PCR's finding that the Project would have been betterdesigned if the Credit Line granted by IBRD was made after the loans underGrains Processing I had already been fully committed. DBP should have anti-cipated this at the time of its proposal for a second loan to IBRD whichshould have guided the latter in the appraisal of the project. The need for afollow-up of the first project because of its success was justifiable, howeverthe matter of right timing is also a vital consideration.

On the Physical Facilities Prescribed

Relatedly, and as indicated in the PCR, the project was approved even beforean evaluation of the actual performance of sub-projects financed under theGrains Processing I was undertaken. The results of such an evaluation wouldhave somehow indicated at an early stage that a number of physical facilitiessuch as grain transport, mechanical driers and ancillary equipment were eitheralready owned by some sub-borrowers or that more practical and less expensivesubstitutes were available. Thus, the demand for the said facilities couldnot have been as projected, had adequate information on actual conditions beenacquired earlier.

- 15 - Attachment IIIPage 2

On the Business Operation of Sub-Projects Financed

Unfavorable performance of subprojects financed based on the results of asurvey of sample sub-projects has been attributed to, among others, theinadequate assessment by DBP of the various criteria for the selection of sub-projects to be financed. While we agree that those projects which show highdegree of success especially as regards managment capabilities of proponentand location should be considered, it is likewise deemed essential that anassessment of the quality of technical assistance available to sub-borrowersbe undertaken to help farmers get better returns.

On the Need for Supervision and Monitoring

We endorse DBP's move to give full emphasis to improving project supervisionand monitoring for grain processing and storage sub-projects. Indeed, thesteady downward trend of the collection ratio during the period of 1979-1982and the consequent increase in arrears call for closer supervision activitiesfor the sub-projects. This undertaking could be further strengthened with thesupport of the Bank. The PCR did not cover an assessment of the Bank's super-vision efforts.

We hope that the above comments would be useful to the final PCR on theProject.

Very truly yours,

/s/

Antonio M. LocsinDeputy Director-GeneralNational Economic and Development Authority