Appraisal of the Livestock, Fruits, Vineyards and Agro ...

Report No. 100lb-CH - :.

Appraisal of the Livestock, Fruits, Vineyardsand Agro-Industry Credit Project ChileNovember 29, 1976

Regional Projects DepartmentLatin America and the Caribbean Regional Office

FOR OFFICIAL USE ONLY

Document of the World Bank

This clocument hias a restrictecd clistribution and may be used by recipientsonly in the performance of their otficial dLuties. Its contents rnav not

otherwise be disclosed without World Bank authorization.

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WEIGHTS AND MEASURES

Metric System

GLOSSARY OF ABBREVIATIONS

BECH - Banco del Estado (State Bank)

CB - Banco Central de Chile (Central Bank)

CORA - Corporacion de la Reforma Agraria (Agrarian Reform Corporation)

CORFO - Corporacion de Fomento de la Produccion (Development Corporation)

ICIRA - Instituto de Capacitacion e Investigacion en Reforma Agraria(Institute for Training and Research in Agrarian Reform)

INDAP - Instituto de Desarrollo Agropecua*rio (Small Farmer DevelopmentInstitute)

INIA - Instituto de Investigaciones Agropecuarias (Institute forAgricultural Research)

ODE,PA - Oficina de Planificacion Agricola (Agricultural Planning Officeof Ministry of Agriculture)

SAG - Servicio Agricola y Ganadero, Ministerio de Agricultura (Agri-cultural and Livestock Extension Service, Ministry of Agriculture)

SARA - Sociedad Agricola de la Reforma Agraria (Agricultural Society ofAgrarian Reform)

GOVERNMENT OF CHILE

FISCAL YEAR

January 1 - December 31

FOR OFFICIAL USE ONLY

CHILE

LIVESTOCK, FRUITS, VINEYARDS AND AGRO-INDUSTRY CREDIT PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ........................ i - ii

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

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

A. General ..................................... 1B. The Banking System and Agricultural Credit ..... 5C. Services to Agriculture .. ..................... 6D. Performance under the Agricultural

Rehabilitation Project ..... ................ 7

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

A. Definition ............................. 8B. Detailed Features ............................. 9C. Cost Estimates and Financing ................. . 12D. Procurement and Disbursement ................. . 14E. Organization and Management ......... .......... 15F. Accounts and Auditing .......... .. ............. 17

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

V. PROJECT BENEFITS AND JUSTIFICATION ................. 21

VI. RECOMMENDATIONS ................. ................... 22

This report is based on the findings of the appraisal mission, consist-ing of Messrs. K.W. Berg, F. Lucca, D.B. Parbery, and C. Wolffelt (Bank)and W.A. Price and M. Walshe (Consultants).

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

TABLE OF CONTENTS (Cont'd)

ANNEXES

1. The Agricultural Sector2. Land Reform3. Agro-Industries: Processing and Marketing4. Credit to the Agricultural Sector in Chile

A. GeneralB. The State Bank (BECH)C. The Development Corporation (CORFO)D. The Small Farmer Development Institute (INDAP)E. Others

5. Project Cash Flow6. Disbursement Estimate7. Medium and Long-term Investment Items under Project8. Income and Financial Rate of Return of Investments

Appendix 1 - Yield, Cost and Price AssumptionsAppendix 2 - Investment Models and Financial Rate of Return

9. Economic Rate of Return

MAP

CHILE


SUMMARY AND CONCLUSIONS

i. This report appraises a Livestock, Fruits, Vineyards and Agro-Industry Credit Project for which a Bank loan of US$25 million equivalentis proposed. The loan would support a three-year lending program by theState Bank (Banco del Estado--BECH), the Development Corporation (Corporacionde Fomento de la Produccion--CORFO), the Small Farmer Development Institute(Instituto de Desarrollo Agropecuario--INDAP), and commercial banks. TheRepublic of Chile would be the borrower and bear the exchange risk. A Pro-ject Commission under the chairmanship of the Central Bank (CB) would admi-nister the Project. The CB would act as the fiscal agent and lend Projectfunds under subsidiary loan agreements to the above-mentioned participatinglending institutions.

ii. Chile's agricultural sector employs less than one-fourth of thecountry's active labor force but contributes a much smaller portion to theGNP. Agricultural imports increased between 1970 and 1973 from US$168 mil-lion to US$595 million but have dropped since to US$472 million in 1974and to US$361 million in 1975 and to an estimated US$300 million in 1976.Agricultural exports stagnated around US$24 million per year during the1965-73 period but increased to US$54 million in 1974 and reached US$86million in 1975.

iii. The proposed Project would help increase agricultural exports anddomestic consumption through investments in fruits, vineyards and agro-industry and help reduce agricultural imports through investments in live-stock. The estimated incremental output would be US$35 million equivalentper year at full development for production investments, while the incrementaladded value from agro-industrial processing would be US$11 million per year.

iv. Under the Project some 4,300 small farmer families (including about2,500 "mini-fundistas" owning five basic ha of land or less) and some 500medium-sized farmers would benefit from the lending program directly. Inaddition, the loan would provide finance to some 80 agro-industrial enter-prises. The Project would also provide incremental employment for some 4,100people and reduce the underemployment of the above-mentioned 4,300 small farmfamilies. Furthermore, it would provide employment in industries supplyinggoods and services to farms and agro-industries.

v. The Project would provide a line of credit for long-term invest-ments which has been almost non-existent in most of the country's farmingsector. Thus, it would enable farmers and entrepreneurs to make long delayed

investments needed to upgrade production to quality levels suitable forexports. Without such a line of credit, these investments would be furtherdelayed or not made at all. Participating lending institutions would broadentheir experience in investment appraisal and provide valuable technical exper-tise to their clients. This is expected to have an important institution-building effect.

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vi. Total Project cost would be US$62.5 million equivalent. The loan ofUS$25 million equivalent would cover the Project's estimated foreign exchangecomponent, equivalent to 40% of Project cost. The balance would be contributedby the Government (40%) and sub-borrowers (20%). Sub-loans would be made forup to 15 years at 6 to 8% interest per year to farmers and 8 to 12% to agro-industrial units, the outstanding principal being adjusted, in each case, onthe basis of the changes in the indexed Consumer Price Index.

vii. Procurement of most items financed would be through normal commer-cial channels rather than through international competitive bidding since therange of items to be financed under the Project is diverse. However, theState Bank (BECH), which is supplying a considerable amount of farm machineryand fertilizer to its clients, would seek quotations from at least three Bankmember countries or Switzerland before awarding an import contract. Machineryand equipment items for agro-industrial investments would be procured in asimilar way.

viii. The financial rates of return for the various investment categoriesare estimated to range from 15% to 22%. The overall economic rate of returnis estimated at 27%. During negotiations the necessary assurances wereobtained, and the Project would be suitable for a Bank loan of US$25 millionequivalent to the Republic of Chile for a term of 17 years, including threeyears and a half of grace.

CHILE


I. INTRODUCTION

1.01 Preparation of the proposed Project which would finance invest-ments in livestock, fruits, vineyards and agro-industry began in early 1974and was completed through FAO/CP missions that visited Chile in October/November 1974 and again in February/March 1975; appraisal was undertaken inSeptember/October 1975. As a result, a Bank loan of US$25 million to theRepublic of Chile is proposed to help finance a Project to provide on-farminvestment credit to land reform beneficiaries and individual farmers forlivestock and export-oriented fruits and vineyards and to entrepreneurs forinvestments in related agro-industrial ventures.

1.02 In 1963, the Bank made loans of US$19 million (Loan 366-CH) toChile to help finance on-farm investments for milk and beef production, andanother the same year of US$3.7 million (Loan 367-CH) to support modern-ization and construction of milk processing plants and slaughterhouses. Dis-bursement was completed in 1972 for Loan 366-CH and in 1970 for Loan 367-CH.Loan 1119-CH for US$20 million which was signed June 4, 1975 and becameeffective on September 23, 1975, provided credit for seeds, fertilizers,pesticides, machinery and other production costs to small- and medium-sizefarmers. It was disbursed by September 1976.

1.03 This report is based on the findings of the appraisal mission,consisting of Messrs. K.W. Berg, F. Lucca, D.B. Parbery, and C. Wolffelt(Bank) and W.A. Price and M. Walshe (Consultants).

II. BACKGROUND

A. General

Area and Population

2.01 Chile's total agricultural land covers only about one-third, or25 million ha, of the country (74 million ha). Only 1.3 million ha areirrigated; 4.1 million ha are classified as dry land which is arable; and19.8 million ha are dry land but not arable.

2.02 Its population is about 10.4 million (1974), of which about three-fourths is urban. Population growth is approximately 1.7% per year. Some90% of the population live in the country's central region between theAconcagua River and Puerto Montt. The country is divided into five majorecological zones--from north to south; these are Desert, Arid, Mediterranean,Temperate and Humid (Map).

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Agriculture in the Economy

2.03 Agriculture's contribution to national output is small and hasbeen declining. According to national accounts, its share in 1973 was 6% ofGNP, down from 19% in 1960. However, it is estimated that, presently, thesector's real contribution is about 50% higher than indicated if measured atworld market prices. Agriculture's share of employment has also dropped from31% in 1960 to 23% in 1973.

2.04 Agricultural production has increased very slowly over the past 10years. The main problems have been inefficient use of available resources,lack of continuity in agricultural policy in general (and, until recently,price policy in particular) and a climate of uncertainty surrounding thelengthy agrarian reform process. These and other uncertainties graduallyaffected investments adversely. Agriculture value added increased by anaverage of only 2.0% annually between 1965 and 1974. During this periodfruit, wine, and milk production experienced annual increases of 3.2%, 1.7%and 1.2%, respectively, while the value of production from Chile's 14 prin-cipal annual crops decreased by an average of 0.7% per annum. This trend,however, was interrupted in 1973 when agricultural production fell drastically.

2.05 The Government's objectives in 1974 were to restore productionto the 1970 level and expand further thereafter. The first objective wasreached with the 1974/75 harvest. It was achieved by making supplies avail-able, supported by agricultural credit and appropriate prices to farmers andby initiating a massive land distribution program, providing small farmerland reform beneficiaries with titles to the land they cultivate. Prospectsfor the 1975/76 crop year appear good but production is expected to exceedthe 1974/75 level only slightly. With regard to longer term production ob-jectives, specific programs are underway: (i) expansion and rehabilitationof irrigated areas; (ii) a 1975-80 reforestation program of 350,000 ha creat-ing approximately 8,000 man-year jobs; (iii) expansion of production, mainlyfor the export market based on Chile's comparative advantage in fruits,vegetables, and vineyards; and (iv) investments in dairy/beef/sheep productionaimed at increasing domestic production and reducing imports. The proposedProject would make a significant contribution to the latter two programs.Moreover the Government is interested in improving the lot of 80,000 subsis-tence farm families (under 1 ha) and 200,000 families now employed as farmworkers. The Small Farmer Development Institute (INDAP) has sought FAO/CP andBank assistance in preparing a first rural development project to deal withthis problem and work is now underway.

2.06 Chile has relied heavily on food imports to bridge the gap betweenlagging domestic production and growing internal demand. This trend accel-erated during the early 1970s when wages rose substantially, resulting inunprecedented demand for foodstuffs. Food imports rose from US$140 millionin 1965 to US$595 million in 1973, then fell to US$472 million in 1974 andto US$361 million in 1975 and to an estimated US$300 million in 1976. Wheat,sugar, corn, and oils have been the most important food imports (US$389million in 1974), accounting for over 80% in value. Recent increases indomestic production, combined with decreasing consumer buying power and a

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realistic exchange rate, have served to curb food imports, boost exports, andimprove the balance of trade. Agricultural exports, which averaged only US$24million per year between 1965 and 1973, increased to US$54 million in 1974 andreached US$86 million in 1975 (Annex 1).

Land Reform

2.07 Action to start a land reform program began in the early 1960s(Annex 2). Chile's agriculture was characterized by a great concentrationof land and income, underutilization of resources, lagging production andsevere underemployment. In 1965, 80% of all agricultural land was owned bysome 11,000 farmers holding more than 80 basic ha 1/, representing less than7% of total farms. The legal minimum rural wage, including the value of pay-ments in kind, was less than US$0.75 equivalent per day. Agricultural out-put had increased by an average of only 1.8% per year since 1930, while thepopulation had grown by nearly 2.5% per year durinIg the same period.

2.08 Between 1965 and 1973, a total of 5,806 properties involving nearly10 million ha of land were expropriated (42% of all agricultural land). Dur-ing this period, only about 1.1 million ha of expropriated land was actuallyassigned to 10,035 families under group ownership. It was foreseen thatbefore assigning the land, the Agrarian Reform Corporation (CORA) wouldmanage the expropriated farms for three to five years until the "asentados"(the farm workers occupying the land) became proficient enough to administerthe properties on their own. The time between CORA's takeover and assign-ment of the land is known as the "asentamiento" period. During this period,a farming society is established between CORA and the asentados. This enter-prise has full legal status and is generally known as a Sociedad Agricolade la Reforma Agraria (SARA) 2/.

2.09 Since October 1973, there has been a gradual acceleration of theland titling process, with 4,343 individual titles assigned between then andDecember 1974. An additional 14,936 titles were assigned during 1975, and5,146 for the period January-October 1976, with the size of the distributedparcels averaging 8.7 basic ha each. CORA now estimates that according to workin progress some 10,000 additional titles will be assigned by December 1976and depending on the land remaining some possibly 7 to 8,000 in 1977 tocomplete the program in 1977, Thus. about 43,000 farm families (10% of allrural families) should receive property titles under the land reform programby the end of 1977. However, the process of land distribution and titling

1/ One basic ha is equivalent to one irrigated ha of the best soilslocated in the Maipo Valley; it is used as a common index to expressproductive potential of the soils in other regions. Eighty basic haare considered the maximum for a medium-size farm.

2/ Other farming societies like Centro de Produccion (CEPRO) and Centrode Reforma Agraria (CERAS) are also provided for in the law, but SARAis the most commonly applied.

requires detailed surveys in each case to provide an adequate income perfamily. Therefore, the exact final number of beneficiaries will be knownonly when all available land has been distributed.

2.10 Land reform alone cannot solve Chile's rural unemployment problembecause of the existing high population/agricultural land ratio. However, asubstantial number of the nation's rural families will receive title to landunder the reform program. Nearly all beneficiaries will have gained at leastsome experience in farm management and operation through their experiences asasentados (para 2.08). However, the reformed sector is characterized byundercapitalization and low levels of productivity. Therefore, investmentcapital must be provided if farmers are to make the investments needed toupgrade and expand their operations.

Project-Related Agricultural Sub-Sectors

2.11 Livestock. The livestock population included some 3.2 millioncattle and 5 million sheep in 1974. Cattle numbers have increased gradually(about 1% per year) from about 2.8 million in 1965 but sheep numbers havedecreased from about 6.7 million. Pasture land and forage land comprisingabout 14 million ha located in the Temperate, Humid and Mediterranean ecolo-gical zones have a good potential for pasture/forage-based livestock produc-tion (Annex 1). The technology required for development is well known inChile and main constraints have been the absence of investment capital andthe effect on the livestock industries of land reform, low producer prices,and unrestricted imports of livestock products at heavily subsidized prices,particularly dairy products. Output per animal and per ha could be increasedsubstantially. The main development objective should be to encourage low-cost animal production from pasture by: (i) increasing pasture productionthrough ploughing, reseeding and fertilizing old permanent pastures; (ii)improving grassland management through adopting rotational "paddock" grazingmanagement; (iii) providing adequate quantities of silage and hay for winterfeeding; (iv) adopting a spring calving pattern to best match feed produc-tion with the dairy herds' nutrient requirements to produce low cost manu-facturing milk; (v) adopting efficient milking and dairy husbandry practices;and (vi) out-wintering animals on pasture and thus avoiding the heavy capitaloutlay normally associated with dairying and beef production.

2.12 Orchards. Chile has a long tradition of fruit and nut cultivation.The central region of the country, with its warm summers, low frost incidence,and plentiful supply of cheap irrigation water, is ideally suited to thecultivation of a wide range of products.

2.13 During the recent past, production had stagnated due to uncertainmarket conditions, when prices in the local market dropped to below cost-of-production levels with the result that much produce was not harvested. Withthe periodical devaluation of the Chilean currency, attention is being focusedon export production. Chile has had access to export markets in North America,Europe and Latin America for many years, and the prospect of profitableexports is creating a strong incentive for orchard investment. Many producersare interested in making investments now, anticipating future improved marketconditions (Annex 3).

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2.14 Vineyards. Chile is a renowned producer of wines. It has import-ant advantages in production with its root-fungus (phylloxera) free vine-yards, good soils, cheap irrigation facilities, dry warm summers and analmost total lack of severe frosts (Annex 1). Most of the production isconsumed domestically, but recently incentives to export have increased.Restrictions on the planting of new vineyards have been lifted, and overseasmarkets are developing, especially in Latin America; therefore, the prospectfor an expanded wine industry is good. There is demand for investment fundsto rehabilitate and improve existing vineyards as well as to plant new ones.

B. The Banking System and Agricultural Credit

General

2.15 The principal institutional sources of agricultural credit in Chileare the banking system and the specialized public institutions. The bankingsystem consists of the Central Bank (CB), the State Bank (BECH) and 19 com-mercial banks, while the specialized public institutions are the DevelopmentCorporation (CORFO) and INDAP. CORA has ceased lending to agriculture, withloans to the land reform sector now handled by BECH. Some of these institu-tions are presently undergoing structural and policy changes; many of theGovernment-owned commercial banks are being sold to the private sector andbeginning to apply positive interest rates, while specialized public institu-tions are drastically modifying their activities. Non-institutional credit isprovided by agro-industries and by traders.

Banking System

2.16 The banking system is regulated by the National Monetary Council,a Government body, comprising the Ministers of Economic Coordination, Indus-try, Reconstruction, Development and Finance; the Director of National Plan-ning; the President of the Central Bank; and a representative of the Chief ofState. The Council, established by Government Decree in June 1975, rules onkey banking policy issues such as savings, internal and external debts,levels of reserves, exchange rates and rate of interest.

2.17 State Bank (BECH). BECH is Chile's largest- banking institution,holding about 50% of the country's loan balances, and it is also the onlyinstitution within the commercial banking system that can accept long-termsavings from the public. It is, in addition, by far the most importantsource of credit to the agricultural sector, granting in 1974 about 105,000loans to agriculture for a total of US$75 million equivalent, or about 85%of agricultural lending by the banking system and specialized public insti-tutions. About 50% of its agricultural lending is in the form of inputsdelivered directly to farmers. BECH is described in more detail in Annex 4.

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2.18 Commercial Banks. Nineteen commercial banks, besides BECH, operatein Chile. However, reserve requirement provisions and tight lending terms

have almost completely blocked their participation in investment financing,including that for agriculture, As these banks are not allowed to lend forperiods of more than 90 days, the bulk of thelr portfolios is in short-termcredit, mainly to industry and comLerce. The only exception is long-termlending to export-oriented undertakings fi-nanced through foreign currencyreceived by the Central Bank, as would be the case with the proposed Project.Commercial bank lending to the agricultural sector has been considerable inthe past but it has been gradually going down, from 50% of total lending tothe sector in 1963 to 18% in 1970, and, in 1974, it accounted for only 5%.

Other Credit Institutions

2.19 CORFO is a state-o-wned development corporation, which holds a subs-tantial amount of equity in various industries of the country. On December 31,1974, CORFO controlled part or all of 183 enterprises through equity totallingabout US$1,769 million equivalent. it has traditionally been a source for

medium- and long-term agricultural lending, including agro-industry. CORFO'stotal portfolio by the end of 1975 was US$347 million equivalent of whichUS$76 million, or 22%, were in the agricultural sector (Annex 4).

2.20 INDAP, the Small Farmer Deveelopment Institute, is part of theMinistry of Agriculture and works witrh small farmers outside the agrarianreform sector, providing them with credit and technical assistance. Itsoperations in 1974 accounted for about 5X of total agricultural lending bythe banking system and specialized public institutions (Annex 4).

2.21 Non-institutional credit provided by processors and wholesalers issignificant. They offer credit usually to sugar beet, vegetable oil, fruit,and tobacco producers, generally contracting for a certain area of production.They supply seeds, fertilizers, and, sometimes, harvesting quipment or cashand recover dues by deducting the amount advanced from the price paid to thefarmer when he delivers produce to the factory. Usually credit terms areharder than under institutional credit.

C. Services to Agriculture

Organizational Structure

2.22 There are about 30 public agencies dealing with agriculture; theyare scattered in five different ministries and employ a staff of about 15,000,although the number rose higher than 25,000 in 1973, double the size in 1970.Overstaffing resulted in overlapping functions and excessive centralizationunresponsive to the needs of the agricultural sector. A substantial reduc-tion of staff took place in 1975 coupled with a strong drive toward decen-tralization. The Government has employed a consulting firm to review thesituation and prepare a national plan for reorganization. The consultantsare partially financed by the Bank through Loan 1119-CH. Their report isnow under review by Government (para. 2.26).

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SuDply of Inputs

2.23 Private firms, usually representing manufacturers, handle anincreasing part of supply to the agricultural sector. BECH purchases largequantities of seasonal inputs, mainly fertilizers, and some machinery, anddistributes these items through its national system of warehouses. Thesupply is considered satisfactory.

Technical Assistance

2.24 The Ministry of Agriculture, through SAG (Servicio Agricola y

Ganadero), is responsible for extension; it has 170 professionals, including30 livestock specialists plus some 250 field technicians who attend landreform beneficiaries cn a priority basis. The credit supplying agencies suchas CORFO, BECH and INDAP also provide valuable technical services to theirclients. Due to the Government's austerity measures, there are an increasingnumber of well-qualified former Government technicians in the country. Theyoffer private contractual services to farmers and are expected to play a con-siderable role in providing technical services to Project beneficiaries andto complement limited Government services. The number of local consultingfirms increased from 10 to 15 in 1975, serving, particularly, export-orientedproducers of the type to be financed under the proposed Project. The Govern-ment also maintains a veterinary service of 137 veterinarians, 150 techniciansand 100 workers responsible for basic regulatory and disease control functions.In addition, the country has 600 to 700 veterinarians in private practice(Annex 1).

Research

2.25 The principal agency responsible for agricultural research is INIA(Instituto de Investigaciones Agropecuarias), a Government organization underthe Ministry of Agriculture. It maintains three regional research centers

and six sub-centers of which La Platina, near Santiago, is the most important.INIA has 160 professionals, 95 technicians, 97 administrative personnel andover 800 workers, and, although its staff has been reduced, its research is ofgood quality as is the caliber of its staff as reflected in the generally highstandard of agricultural production practices observed throughout the country.In addition, universities carry out basic and applied research of which theUniversity of Chile's research program is by far the most important. Inten-sive farm management training, over a one-month period, is provided by ICIRA(Instituto de Capacitacion e Investigaciones en Reforma Agraria).

D. Performance under the Agricultural Rehabilitation Project

2.26 A Bank loan of US$20 million equivalent to partially finance an

Agricultural Rehabilitation Project was signed June 4, 1975 and became effec-tive on September 23, 1975. The loan finances 36% of a US$55.5 millionProject, with Government contributing 36% and sub-borrowers the remaining 28%.

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The Project includes short-term production credit (82%), medium-term invest-ment credit (17%) and technical assistance (1%). BECH, INDAP, CORFO, theCooperative Development Bank (IFICOOP) and seven commercial banks have signedsubsidiary loan agreements with CB. The Bank loan was disbursed by September1976. Of the US$39 million equivalent of sub-loans made under the Project,76.5% went to small farmers, owning up to 12 basic ha. The Project financed astudy by consultants (Booz-Allen and Hamilton, US) regarding the role andreorganization of Government agencies which provide public services to theagricultural sector that has been completed. Its findings and recommendationsare being reviewed by Government; final recommendations and subsequent planand timetable for implementation will be submitted to the Bank for comments byJanuary 1977.

III. THE PROJECT

A. Definition

3.01 The Project would be a lending program for the agricultural sectorencompassing livestock, fruits, vineyards and agro-industry. Over a three-year commitment period, it would help to finance investments of on-farmdevelopment, including mainly pasture improvement, breeding stock, livestockhandling facilities, machinery and equipment, establishment of orchards andvineyards, and related processing facilities on loan terms ranging from fiveto 15 years. Investments would be made by small- and a few medium-sizedfarmers, both individuals and cooperatives, and by commercial enterprises incase of agro-industries. An estimated 4,800 farmers would receive investmentcredit through the Project, which for most benefitting farmers would be thefirst time they received such credit. The Project would also finance some 80agro-industrial enterprises. Investments would be supervised by qualifiedtechnicians from participating lending institutions. An expected 50% oflending funds would benefit small farmers with up to 12 basic ha each in thelower income group.

3.02 The Republic of Chile would be the borrower and bear the exchangerisk; it would be responsible for Project execution through a Project Commis-sion, using CB to on-lend Project funds under subsidiary loan agreements toBECH, CORFO, INDAP and commercial banks (para 3.21).

3.03 The following table shows the major investments expected to be madeover a three-year commitment period. Typical models have been constructed,analyzing the economic viability of proposed investments (Annex 8, Appendix2). Sub-loans would be made to individual farmers or to cooperatives equal tothe size of one investment model as presented.

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Total No. Averageof Farmers Investment

No. of Sub- Total and Agro- per Sub-Investments /3 loans Made No. of industrial project, Total

to be per Year Sub- Entrepreneurs Total including Invest-Financed 1 2 3 loans Benefitting Area Contingencies ment

(Basic (US$) (US$ '000)Owned Ha)

Livestock:a) dairy/beef 130 257 257 644 644 7,084 11,335 7,300b) beef/sheep 24 47 47 118 1,054 9,440 31,207 3,700

Fruits:a) table grapes/ 80 158 158 396 792 19980 18,953 7,500

peaches/nectarines

b) apples/almonds 94 188 188 470 940 3,290 17,029 8,000

Vineyards (forwine only) 71 144 144 459 1,377 4,590 34,836 16,000

Agro-industry 16 32 32 80 80 - 250,000 20,000

Total: 2,167 4,887 *26,384 62§500

/1 Details on investment items are shown in Annex 7.

B. Detailed Features

Dairy/Beef Farms (Model I)

3.04 The Project would develop about 650 dairy/beef farms, primarily smallindividual family farms which received their land under land reform and whichneed financing (para 2.09). The development model is based on a 55-ha farm(equivalent to 11 basic ha) in the central valley, Temperate zone, whichhas an excellent potential for milk and beef production from pastures. About90% of the investments in dairy/beef are expected to be in this zone. Beforedevelopment, each farm would typically have a carrying capacity of about 0.8Animal Units (AU)/pasture ha and a stocking rate of 0.3 AU/pasture ha (assum-ing 5 ha cultivated). At full development (Year 9), each farm would have acarrying capacity of about 2.0 AU/pasture ha and a stocking rate of about1.5 AU/pasture ha. Total investment per sub-borrower would be US$18,905equivalent. The remaining 10% of investments in dairy/beef are expected tobe made around Santiago in the Mediterranean zone. These are generallyirrigated crop producing farms (10 to 12 basic ha), with about 25% forage or

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pasture for livestock, of which dairying (fluid milk for Santiago) is impor-tant. It is expected that about 300 farmers would be financed in this area;of these about 150 would be individual farms run as discrete units while therest would be owned individually and receive separate sub-loans, but groupedin about 10 cooperatives for administrative purposes. Average investmentwould be about US$3,000 for each participating farmers. Total on-farminvestments would consist of pasture improvements and fence construction(28%), purchase of breeding stock (23%), farm machinery (21%), a water supplyand milking shed (17%) and dairy equipment (11%) (Annex 8).

Beef/Sheep Farms (Cooperative or Individual)(Model II)

3.05 The Project would develop about 1,050 beef/sheep farms, mostly co-operatives (asentamientos) established following the agrarian reform. Themodel is based on a 700-ha farm (equivalent to 80 basic ha) in the Temperatezone' s coastal belt, which has a good potential for beef and sheep productionfrom pastures. The model represents a 10-farm family cooperative. About 70%of the investments in beef/sheep are expected to be made in the Temperatezone, about 20% in the Mediterranean zone, and some 10% in Magallanes, Chile'ssouthernmost province, which also has a good potential for sheep and beefproduction from natural and improved pastures.

3.06 It is expected that about 104 cooperatives and 14 individual far-mers would benefit under the Project. Before development, each farm wouldtypically have a carrying capacity of about 0.4 AU/pasture ha and a stockingrate of about 0.3 AU/pasture ha. At full development (Year 8), each farmwould have a carrying capacity of about 0.6 AU/pasture ha and a stocking rateof about 0.6 AU/pasture ha. On-farm investments would consist of pastureimprovements (43%), purchase of breeding stock (22%), fence construction(17%), machinery (9%), and water supply, yards and wool press (9%) (Annex 8).Total investment for a typical cooperative would be about US$31,207.

Orchards (Models III and IV)

3.07 Sub-loans would be made for planting new orchards and rehabilitatingexisting ones, mainly under irrigated conditions with two farmer families work-ing together, and primarily in the central region of Chile. Two models arepresented (Annex 8) which depict important enterprises such as table grapes,peaches, nectarines, apples, and almonds. However, farmers would invest inother enterprises as well such as pears, plums, cherries, citrus, avocado,chirimoya and papaya. Initial production increases would be export-orientedbut the domestic market would receive increasing emphasis as inflation recedesand local prices recover from their current relatively low levels. Smallindividual farmers (up to 12 basic ha), who, before the Project, were mostlygrain producers, are expected to make long-term investments, establishingorchards or vineyards on only 1 ha at a time or possibly 2 ha, In case ofcooperatives, however, larger investments per sub-loan are expected. Medium-size farmers would invest in 3 to 15 ha at a time.

3.08 The Project is expected to benefit about 800 farmers growing tablegrapes and peaches or nectarines. The investment for a 5-ha irrigated orchardwould be US$18,953 (Annex 8) made over a two-year period for items such as

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mechanization (42%), trellising and fencing (16%), planting material (15%),labor (12%), transport (9%), and fertilization, pest and weed control (6%).The model indicates the commitments and benefits involved in moving from a5-ha annual cropping enterprise to an orchard of part table grapes (2 ha)and part peaches/nectarines (3 ha), mostly for export. Also shown is a modelrepresenting a small farm with 5 ha, investing in only 1 ha as a first step,while, in the meantime, continuing production on 4 ha with other crops, mostlyannual.

3.09 Approximately 940 farmers growing mainly apples and almonds wouldalso benefit from the Project. The investment for a 7-ha irrigated orchardwould be US$17,029 (Annex 8) made over a two-year period for items such asmechanization (50%), planting material (25%), labor (10%), transport (10%),and fertilization, pest and weed control (5%). The model shows the commit-ments and benefits involved in moving by stages from 7 ha planted with annualcrops before development to an orchard of part apples (5 ha) and part almonds(2 ha), mostly for export. Also shown is a model of a small farm with 7 ha,investing only in 1 ha as a first step.

Vineyards (Model V)

3.10 The Project would finance the rehabilitation and planting of vine-yards, both under rainfed and irrigated conditions, with three farmer familiesworking together in the central region of Chile. It is expected that about1,400 farmers would benefit from the Project. A vineyard of 10 ha wouldrequire an investment of US$34,836 (Annex 8) made over a two-year periodcovering such items as mechanization (49%), trellising and fences (18%), labor(9%), vines (8%), transport (9%), and fertilization, pest and weed control(7%). The model indicates the commitments and benefits involved in rehabili-tating part (4 ha) of existing irrigated vineyards and replanting part (6 ha)with improved vines, mostly for export wine manufacture. Small farmers in thesouth would also invest in grape production under rainfed conditions for bulkwine and alcohol manufacture for the domestic market. The model shows thecash flow of a small farmer with 10 ha developing only 1 ha as a first step.

Agro-industries

3.11 The Project would finance an estimated 80 sub-loans mainly fordairy processing, fruit cold storage and packing, and wine production. Threemodels have been developed for each of these types of enterprises (Annex 8)to demonstrate economic viability under the present conditions in Chile butinvestments under the Project would average about US$250,000 each, i.e.,there would be many small investments (improvements) in ongoing enterpriseswhich would be appraised as outlined in paragraph 3.23.

3.12 Dairy Processing (Model VI). Investments in dairy processing wouldbe mostly to expand plants. Investment items would include mainly weighingtanks; pumps; centrifuges; can washers; heat exchangers; holding tanks; bottl-ing lines; bottle washing units; equipment for making and packing butter, yo-gurt, ice cream and such; installation; and initial working capital whereappropriate in case of new investments.

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3.13 Fruit Cold Storage and Packing (Model VII). Investments in theorchard sector would be for construction of refrigerated depots for holdingfresh fruit. Most cold stores would be furnished with an adjacent line forwashing, grading and packing fruit in 20-kg boxes (mainly apples, pears andgrapes). Cold stores would be designed to operate at 0C and capacitieswould range from 400 tons for individual producers to 59000 tons for coopera-tives or associations of producers. Investment items would include con-struction of insulated cold stores; refrigerating equipment; fruit packinglines; corresponding shed, lift trucks, water and power supply, and otherinfrastructure and auxiliary equipment; and initial working capital whereappropriate in case of new investments.

3.14 Wineries (Model VIII). Investments in wineries would mostly be forrenovating old and obsolete facilities, including purchase of concrete fermen-tation and holding vats, grape crushers, presses and portable pumps. Anincreased demand for processing equipment such as filters, refrigerated steri-lizers, refrigerated vats, demijohn and bottle filling and washing equipmentand labelling machines is also expected since the Government intends to pro-hibit sale of wine in barrels in order to raise quality and prevent tax evasion.

C. Cost Estimates and Financing

Cost Estimates

3.15 Total Project cost is estimated at US$62.5 million equivalent, ofwhich 40%, or US$25 million, would be foreign exchange. Cost estimates,including foreign exchange requirements, are:

PercentageMedium- and Long-term ForeignInvestment Categories /1 Local Foreign Total Exchange

-- US$ Million ---

1. Livestock 5.9 5.1 11.0 462. Fruits, including grape

orchards 10.4 5.1 15.5 333. Vineyards 9.0 7.0 16.0 444. Agro-industry 12.2 7.8 20.0 39

Total: 37.5 25.0 62.5 40

/1 Details on investment items are shown in Annex 7.

Costs have been estimated at March/April 1976 prices. A physical contingencyof 5% has been included for agro-industrial investments while an expected priceincrease of 19% has been added to investment base-line costs for all investments.

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This price increase is based on the assumption that there will be an 8.4%

annual international inflation rate in 1976, 7.8% in 1977 and 7.5% in 1978,and that movements of the peso-dollar exchange rate will compensate for theexcess of internal over external inflation.

Financing

3.16 The Project cost of US$62.5 million equivalent would be financed bya Bank loan of US$25 million equivalent, or 40% of Project cost, and would

cover the estimated foreign exchange cost. The Government would contributeUS$25 million equivalent (40%) and the remaining US$12.5 million equivalent(20%) would come from sub-borrowers' contributions. The financing plan forindividual components of the Project is summarized in the following table:

Medium- and Long-term Sub-Investment Categories borrowers Government Bank Total

- US$ Million

1. Livestock 2.2 4.4 4.4 11.02. Fruits, including grape

orchards 3.1 6.2 6.2 15.53. Vineyards 3.2 6.4 6.4 16.04. Agro-industry 4.0 8.0 8.0 20.0

Total: 12.5 25.0 25.0 62.5

%: 20 40 40 100

The Republic of Chile would be the borrower and carry the exchange risk. TheBank loan of US$25 million would be for 17 years, including three years and ahalf of grace, at the standard rate of interest (Annex 5). The Governmentwould on-lend the proceeds of the loan through CB to participating banks andlending agencies. CB would establish a Project Account to which the Govern-ment would, as a condition of loan effectiveness, make available US$7 millionequivalent to start lending operations. It would further agree to maintainsufficient amounts available therein until the equivalent of US$50 million ofsub-loans had been lent to Project beneficiaries. Sub-loan repayments fromthe Project would accrue to the Project Account in CB and amounts not requiredto meet amortization payments on the Bank loan would be used for furtherlending for the agricultural sector. Assurances on the above were obtainedduring negotiations.

3.17 CB would on-lend under subsidiary loan agreements to participatingbanks and lending agencies (para 3.27). The signing of such subsidiary loanagreements, acceptable to the Bank, between the CB and BECH, INDAP and at leastone other participating bank or agency would be a condition of effectiveness.A minimum of 20% of the lending program, or US$10 million equivalent, would

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be reserved for lending by INDAP to small farmers holding up to 5 basic ha whoare outside the reformed sector. Assurances on these points were obtainedduring negotiations.

D. Procurement and Disbursement

Procurement

3.18 The on-farm investment items to be financed for the approximately4,800 farmers throughout Chile over a four-year investment period are variedand would not be suitable for bulk procurement through international com-petitive bidding. The farm machinery and agro-industrial units to be financedwould vary in nature, size, capacity and number. Therefore, investment itemswould be procured through normal commercial channels. Animals for breedingand planting material are available from local sources and are of good quality.Investors seeking sub-loans for agro-industrial investments would be requiredto obtain at least three price quotations from suppliers for machinery andequipment before purchasing such items, An assurance was obtained on this.Major suppliers of farm machinery from at least six Bank member countries arerepresented in Chile and service is satisfactory. Foreign exchange is madeavailable to importers by CB. BECH, which sells substantial amounts of farmmachinery and fertilizer to its clients, seeks quotations from several suppliers.Assurances were obtained during negotiations that BECH would continue theabove procedures and obtain at least three quotations from suppliers from Bankmember countries or Switzerland.

Disbursement

3.19 The Bank would disburse against statements of expenditures 50% ofthe amount disbursed by participating lending institutions to Projectbeneficiaries; CB would certify and document such expenditures appropriately.The documentation for expenditures would not be submitted to the Bank forreview but would be retained by CB and made available for inspection bythe Bank during the course of supervision missions. With participating lend-ing institutions' commitments extending over three years, their disbursementswould be spread over four years (two-year investment period per sub-borrower)and Bank disbursements over four and a half years. A schedule of estimatedBank disbursements is given in Annex 6. In the event expenditures under anycategory provided for should decrease, the amount of the loan allocated forsuch category and no longer required could, at the request of the borrower,be reallocated to another category.

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E. Organization and Management

Administration

3.20 A Project Commission under the chairmanship of CB would act asadministering agency for the Project. The Commission would be composed ofrepresentatives of the Ministries of Finance, Economy, and Agriculture andmembers of the participating banks and lending agencies. It would be respons-ible for supervision, coordination and implementation of the Project. A Pro-ject Commission with similar responsibilities was established for administer-ing the Agricultural Rehabilitation Project which is partly financed out ofLoan 1119-CH. The same Commission would be responsible for the proposedProject and would meet at least once a month. During negotiations, assuranceswere received on this point.

3.21 CB through its Credit Department would be responsible for coordina-tion of the Project with participating banks and lending institutions. CBwould also supervise Project implementation. Credit to sub-borrowers wouldbe channeled through banks and financial institutions under subsidiary loanagreements with CB, satisfactory to the Bank. BECH, the principal agricul-tural credit agency-in Chile, would be dealing with all types of farms exceptthose below 5 basic ha for which INDAP is specialized and would be respon-sible. CORFO, because of its specialization and experience, would extendcredit mainly to dairy and beef/sheep farmers. It is expected that thesethree organizations together would carry out most of the Project. Commercialbanks and other finance institutions would also be eligible.

3.22 To insure that investments financed under the Project are for thepurposes authorized and that sub-projects are technically, financially, andeconomically sound, CB would, through subsidiary loan agreements (para 3.27),require all lending institutions to follow sub-loan evaluation proceduressatisfactory to the Bank. Lending institutions would also be required, as acondition of participation, to employ sufficient qualified staff to insureProiect implementation as required. Assurances on this point were obtainedduring negotiations.

3.23 All sub-loans would be based on detailed investment plans, whichwould demonstrate the technical, financial (including cash flows) and economicjustification of the proposed investment, and would take into considerationthe key production coefficients included in Project models. Farmers wouldbe assisted by the lending institution in the preparation of farm developmentplans, while applications for sub-loans for agro-industrial development wouldbe supported by feasibility studies. The development plan or feasibilitystudy would form part of all sub-loan applications. Sub-loans exceeding

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US$100,000 equivalent for fruits, vineyards and livestocks (on-farm invest-ments) 1/ and exceeding US$200,000 equivalent for agro-industry would requireprior Bank approval. An assurance on the above was obtained during negotia-tions.

3.24 To allow monitoring and evaluation of the economic effects ofProject investments, CB would establish a system, satisfactory to the Bank,under which technical and financial data would be collected on at least 5%of the sub-borrowers in each category. Assurances to this effect wereobtained during negotiations. Bank supervision missions would assist CBin setting up such a system.

Lending Terms and Conditions

3.25 The CB would finance sub-loans granted by participating banks andlending agencies in accordance with the following schedule:

InterestAmount of Rate to Interest

Sub-loans to Loan Financed Participating Rate toBeneficiaries /1 by CB Agencies Beneficiaries /2

1. On-farm Investments 100% 2.5% - 4.5% 6% - 8%

2. Agro-industry 100% 4.5% - 8.5% 8% - 12%

/1 Including start-up working capital in case of new agro-industrialenterprises (five to 15 years).

/2 Provided, however, that any such interest rate shall not exceed bymore than 3.5 percentage points the interest charged by CB on thecorresponding portion of the subsidiary loan used to refinance suchsub-loan.

Cash flows of typical investments under the Project indicate that the follow-ing repayment periods for loans to sub-borrowers would be appropriate, butin no case would a sub-loan under the Project be made for a period of lessthan five years. Sub-loans would usually be made for up to 80% of investmentcost but small farmers with up to 12 basic ha could receive up to 100% financ-ing. Since medium-size farmers and entrepreneurs may require less than 80%financing, it is expected that overall sub-loan financing would average 80% oftotal Project cost. The purchase of breeding stock included in the livestockproducing investment plans, would not exceed the equivalent of 30% of thetotal cash of such invesment plans, and 50% in any individual case.

1/ On past experience, it is expected that there will be no sub-loanrequests beyond this limit, but any such exceptional requests, notlikely to exceed a dozen, may be made, probably by cooperative group-ings of farmers and ranchers.

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Maximum MaximumGrace Amortization

Period Period Total…(in Years) …

Dairy/Beef 5 6 11Beef/Sheep 5 7 12Fruits, including grapeorchards 5 10 15

Vineyards 5 10 15Agro-industry 3 8 11

These periods would not be exceeded without the Bank's prior approval.

3.26 Outstanding sub-loan principals would be adjusted on the basisof the Consumer Price Index (IPC). The IPC is established by the NationalInstitute of Statistics and published by the CB every month in the DiarioOficial (Government gazette). The procedures to be used for the applicationof the adjustments would be in accordance with Decree Law No, 455, dated May13, 1974, as amended. The proposed interest rates, although high, are inline with the present ongoing lending rates charged for similar loans andare within sub-borrowers' capacity to repay. Lending institutions would beallowed a 3.5% interest spread to cover their costs including technicalassistance and supervision required by Decree Law No. 1533 dated July 29,1976; these procedures were reviewed during negotiations and found satis-factory to the Bank.

3.27 Subsidiary loan agreements between GB and lending institutionswould, among other things: (i) incorporate on-lending terms between CB andlending institutions and between lending institution and beneficiary(types of sub-loans eligible, percentage to be financed, rate of interest,procurement, condition of establishing a Project Account and audit); (ii) pro-vide that repayment of loans granted by CB would be the same as the repay-ment schedule prescribed for sub-borrowers to the lending institution; (iii)provide for the employment of technical staff by the lending institution;and (iv) cover the obligations of CB and the lending institution for the pro-vision of complementary short-term loans to finance working capital needsof sub-borrowers. During negotiations, assurances were obtained that termsand conditions as specified in this and preceding paragraphs would be adheredto.

F. Accounts and Auditing

3.28 Accounts of the banks which are expected to participate in theProject are acceptable and properly audited by the Superintendency of Banks.However, accounts of the specialized public institutions, CORFO and INDAP,are inadequate and, according to the auditor reports prepared by the State

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Controller which operates in an independent manner, do not permit a fairanalysis of their financial standing. CORFO's main deficiencies are iden-tified as: poor evaluation of assets of enterprises converted to privateownership, insufficient information oni reserves, and unrealistic enterprisevalues acquired from the consolidated balance sheet, INDAP's accountingprocedures are considered inadequate. During negotiations, assurances wereobtained that (i) within six months of subsidiary loan signature, CORFO wouldproduce a consolidated balance sheet reflecting the value of all assets andliabilities to the full satisfaction of the State Controller; (ii) withinthree months of subsidiary loan signature INDAP shall take measures, satis-factory to the Bank, to improve its accounting system and procedures; and(iii) separate Project Accounts would be set up in all participating lendinginstitutions;these accounts would be audited by independent auditors accept-able to the Bank and copies sent to the Bank within six months of the end ofeach financial year.

IV. PRODUCTION, MARKETING, PRICES AND PRODUCER BENEFITS

Production

4.01 Incremental production financed under the Project would be theresult of the intensification of livestock production from underutilizedgrazing land, the conversion of cropping land to orchards and vineyards andthe improvement of existing orchards and vineyards. Yield increases from theProject are based on current yields on reasonably well managed farms and areconsidered realistic. However, a sensitivity analysis assuming 10% lowerbenefits still shows satisfactory results (para 5.01). The projected incre-mental production arising from the Project per annum at full development(compared with 1974 production levels) is as follows: 2,300 tons of beef;1,300 tons of mutton; 33,500 tons of milk; 245 tons of wool and some 200,000tons of fruits.

Marketing

4.02 Project production of milk and meat should be regarded as importsubstitutes. Although limited quantities of dairy products would be exportedto Latin America Free Trade Association ( ALALC) countries, it is expected thatChile will remain a net importer of dairy products in the foreseeable future.About 30% to 50% of Project production of orchard produce (table grapes,apples, peaches, nectarines and nuts) is expected to be exported to NorthAmerica, Europe and ALALC countries and the remainder would be consumeddomestically. Produce quality is the main constraint to expanding exportsof orchard produce and it is expected that exports would increase as qualityimproves. At present, only a small amount of Chilean wine (about 1%) isexported because of high internal consumption (40 liters/capita). Exportprospects for wine are good, and, because of favorable prices to producers,it is expected that a substantial amount of wine produced under the Projectwould be exported. The processing and marketing of the incremental productionunder the Project is expected to be handled primarily by the existing private

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and cooperative enterprises. The Project's agro-industry component will notonly help to ensure adequate cold storage and processing facilities for exist-ing and incremental project production but should also contribute signifi-cantly to improved produce quality.

Prices

4.03 The price situation for Project commodities is expected to be favor-able. Free market forces now determine the prices of all products affectedby the Project. Producer milk prices were controlled by the Government forseveral years up to September 1975, but are now set by the market conditions.The prices for cattle, sheep and wool are considered adequate to encourageinvestments. Orchard and vineyards (including wine) producer prices areincreasing from the low level recorded in 1973. Beneficiaries financed underthe proposed Project are expected to supply high quality produce primarily forexport, and export prices are attractive because produce is sold in US dollarcurrency, thus compensating for domestic inflation. Furthermore, as Chilerecovers from its severe depression, it can reasonably be expected thatproducer prices for all commodities to be consumed domestically will improvesubstantially over the next few years.

Producer Benefits

4.04 A summary of producer benefits, derived from illustrative models, isgiven on the following page:

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Small Farmers-1/ Medium Farmers2/ Agro-Industries

Fruit

Table Table Cold-Grapes/ Grapes/ Milk storage Wine

Dairy/ Necta- Apples/ Beef/ Necta- Apples! Proces- and Pro-Beef rines Almonds Wine Sheep rines Almonds Wine sing Packing cessing

InvestmentArea (basicha) 11 1 1 1 80 5 7 10 - - -

InvestmentCost (US$equivalent) 15,260 2,585 1,954 2,829 25,190 15,299 13,747 28,120 250,000 250,000 250,000

Net Incomebefore De-velopment(US$ equi- 3 85 3/valent) 602 562- 3,002-1,456 534 749 2,740

Net Incomeat FullDevelop-ment (US$equiva-lent 6,986 2,707 2,767 4,184 10,356 9,896 13,141 10,549 55,500 52,250 52,000

Debt Ser-vice atFull De-velopment(US$ equi-valent) 3,301 385 291 421 3,871 1,824 1,639 3,352 38,500 38,500 34,750

Incremen-tal NetIncomeafterDebtService(US$equiva-lent) 3,083 1,760 1,620 761 5,207 7,538 10,753 4,457 17,000 13,750 17,000

FinancialRate ofReturn (M) 20 22 19 14 16 22 19 14 17 19 22

1/ Small farmers receive finance to cover 100% of investment costs, excluding family labor. Forcomparative purposes, net income before and at full development for both farmer cate-gories is exclusive of family labor.

2/ Medium farmers receive finance to cover 80% of investment costs, including hired labor.3/ It is assumed that the small farmer develops the orchard or vineyard on one hectare

at a time drawing, however, on his existing crop area for subsistence and cash income.

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V. PROJECT BENEFITS AND JUSTIFICATION

5.01 The Project is of high priority because it would reduce constraintsimposed on the Chilean agricultural sector by the lack of foreign exchange forinvestments. Removal of this constraint should increase output which wouldlead to higher exports, increased domestic consumption, foreign exchangesavings through import substitution, increased employment and improvement inthe incomes of the poorer classes in Chile. Furthermore, the Project wouldsupplement the Bank's recent Agricultural Rehabilitation Project (Loan 1119-CH),which mainly provided short-term credit for crop production and, to a lesserextent, medium-term financing. The overall economic rate of return is esti-mated at 27%. Sensitivity analysis, assuming decreasing benefits by 10% andincreasing investment costs by 10% and 20%, respectively, still shows satisfac-tory rates of return (Annex 9). The economic rates of return for Projectenterprises are as follows: dairy/beef, 28%; beef/sheep, 26%; table grapes/peaches/nectarines, 31%; apples/almonds, 26%; wine grapes, 22%; milk pro-cessing, 26%; fruit cold storage and packing, 22%; and wine processing, 39%.

5.02 The estimated value of the incremental output of milk, meat, wool,breeding heifers, fruits and wine grapes would be US$35 million equivalentper year when fully developed and valued at October 1975 prices. In addition,the incremental added value from agro-industrial processing would be US$11million per year. Increased production of milk would save foreign exchangefor imports and increased fruit and wine production should lead to higher ex-ports. The net foreign exchange savings of the Project at full developmentwould thus be about US$46 million per year.

5.03 Direct beneficiaries under the Project would be (i) some 4,300 smallfarmers, of whom 2,500 are estimated to be owning up to 5 ha; (ii) an estimated500 medium-size farmers; and (iii) about 80 agro-industrial enterprises. TheProject would also provide employment on farms to roughly 4,100 people and inagro-industries. It would also increase the family labor used on the 4,800farms, thus lowering underemployment. Furthermore, it would provide employmentin industries supplying goods and services to farms and agro-industries.

5.04 The Project would help the poorer classes. Twenty percent of Pro-ject funds for farm development would be allocated specifically for thepoorest category of small farmers who are serviced by INDAP. The remainingfunds would be extended primarily to the beneficiaries of land reform. Theyare poor farmers who were farm workers prior to receiving title to theirfarms under land reform. It is estimated that the overwhelming portion ofindividual farmers investing in dairy/beef. table grapes/nectarines andapples/almonds will fall into the lower 30% income group of Chile. TheProject would also provide jobs for unskilled labor both on the farms and inagro-industries.

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VI. AGREEMENTS REACHED AND REC0O11ENDATION

6.01 During negotiations, assurances were obtained that theGovernment would:

(i) establish a Project Account in CB and make availableUS$25 million equivalent to it and use repayments forsimilar lending to agriculture (para 3.16);

(ii) carry the exchange risk (para 3.16);

(iii) cause CB to enter into subsidiary loan agreements withparticipating banks and lending institutions (paras 3.17and 3.27);

(iv) cause CB to reserve in the Project Account a minimum ofUS$10 million eouivalent for lending by INDAP to smallfarmers holding up to 5 basic ha who are outside thereformed sector (para 3.17);

(v) cause BECH to seek at least three quotations from suppliersfrom Bank member countries or Switzerland when importingmachinery and fertilizers and sub-borrowers for agro-industrial investments to seek at least three price quota-tions before purchasing machinery and equipment (para 3.18);

(vi) cause the Project Commission established under Loan 1119-CHto coordinate and supervise the proposed Project and to meetat least once a month (para 3.20);

(vii) cause CB to require participating lending institutions toemploy sufficient qualified staff to insure Project im-plementation (para 3.22);

(viii) cause participating lending institutions to seek prior Bankapproval for sub-loans exceeding US$100,000 equivalent forfruits, vineyards and livestock and US$200,000 equivalentfor agro-industry (para 3.23);

(ix) cause the CB to establish a monitoring system, satisfactory tothe Bank, collecting technical and financial data on at least5% of sub-borrowers in each category to evaluate Projecteffectiveness (para 3.24);

(x) cause participating lending institutions to on-lend Projectfunds under terms and conditions as outlined in paragraphs3.22 through 3.27;

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(xi) cause CORFO to produce an acceptable balance sheet reflectingthe value of all assets and liabilities satisfactory to theState Controller (para 3.28);

(xii) cause INDAP to take measures to improve its accountingsystem and procedures (para 3.28); and

(xiii) cause participating lending institutions to establish separateProject Accounts and have them audited by independent auditorsacceptable to the Bank and copies to be sent to the Bank withinsix months of the end of each financial year (para 3.28).

6.02 Conditions of effectiveness of the loan would be that:

(i) a Project Account had been established and the Governmenthad made available US$7 million equivalent to it (para 3.16);and

(ii) the CB had entered into subsidiary loan agreements with BECH,INDAP and at least one other participating bank or agency(para 3.17).

6.03 With the agreements reached as mentioned above, the proposed Projectis suitable for a Bank loan to the Republic of Chile of US$25 million for aterm of 17 years, including three years and a half of grace.

November 29, 1976

ANNEX 1Page 1

CHILE


The Agricultural Sector

A. Background

Location and Size

1. Chile is sub-divided into 25 provinces, and it stretches 4,300 km0 0 0 0

along South America's Pacific Coast between 17 30 S and 55 59 S. The coun-2

try averages about 175 km in width and has an area of some 750,000 km 2Chile's population is about 10.4 million (1974), of which about three-fourthsis urban. Some 90% of the population lives in the central part between theAconcagua River and Puerto Montt. Population is growing at about 1.7% perannum (Map).

Topography and Climate

2. Two mountain ranges run parallel to the Pacific. The Andes to theeast run the entire length of the country,forming a natural frontier withBolivia and Argentina. Further west, the coastal range rises steeply fromthe ocean but extends to latitude 42 S only. In between is the centralvalley, ranging in width from 40 to 80 km and containing almost all ofChile's agricultural land. Both the central valley and the lower elevationsof the coastal range are submerged beyond 42 S, leaving a long chain ofislands backing onto a rugged and fiorded coastline.

3. The climate is hot and dry in the north and changes progressivelyto cold and wet in the south, a transition from desert to maritime conditions(Mag). Mean annual temperatures decrease from about 18 C in the far north to6.5 C in the far south. Conversely, mean annual rainfall increases from lessthan 25 mm in the northernmost part to some 2,800 mm in the south. These tem-perature and rainfall gradients create five major ecological zones--Desert,Arid, Mediterranean, Temperate, and Humid.

Ecological Zones and Their Agriculture

4. The Desert zone in the north and the Arid zone to the south areboth too dry for cropping and, apart from a few irrigated river valleys andsome small sheep and goat operations in the foothills of the Andes, neitheris suitable for agriculture.

ANNEX 1

Page 2

5. The Mediterranean zone stretches from the Aconcagua River to theBio-Bio River (33 S - 37 S) and has a climate characterized by hot dry sum-mers and cool wet winters. Droughts last six to seven months in the northern

parts and decline to three to four months in the southern parts. Chile'smain cropping, vegetable, fruit, orchard, and vine producing areas and pop-ulation centers are located in this zone. Crops (including wheat, maize,barley, forages, tobacco and sunflowers), fruits, orchards and vineyards arealmost entirely dependent on irrigation. livestock operations are relativelyintensive, supplying milk, pork, and poultry products to the urban centers.

The Secano central coastal strip (about 1.4 million ha) is an area of hillyrolling land running for about 350 km along the coast from Melipilla-toCauquenes, extending inland about 40 km from the coast and located in Santiago,Colchagua Curico, Talca, and Maule Provinces. The vegetation is mainly nativepasture with scattered Acacia-type bush. Sheep and, to a lesser extent, beef

are the main farming enterprises. Some wheat is also grown but yields are verylow and only scattered areas are suited for cultivation.

6. The Temperate zone lies between 37 S and 42 S and encompasses theProvinces of Bio-Bio, Malleco, Cautin, Valdivia, Osorno, Llanquihue, and Chiloe.The zone contains about 9.5 million ha of agricultural land, about 85% ofwhich is under permanent pasture and the remaining 15% under cultivation ofwheat, sugar beet, potatoes and other temperate crops. Droughts are short-lived in the northern part, rarely lasting more than two or three months, and

are non-existent from 40 S to the zone boundary. Three distinct farming re-gions are included in the temperate zone--central valley, coastal belt and

Andean foothills. The central valley runs north and south through the centerof the zone averaging 50 km in width. Its potential for both pasture and cropproduction is extremely high because of its volcanic soils and favorable cli-mate. Average rainfall is about 1,250 mm and it is well distributed over the

year. Average temperature is about 12 0C. The coastal belt lies between thecentral valley and the sea and is characterized by undulating topography and

average annual rainfall of about 80 mm. Its red lateritic soils are poorerthan those of the central valley and there is a pronounced dry spell in sum-mer. Beef, and to a lesser extent sheep, are the main farming enterprises,with only about 10% of the area cultivated (wheat, oats and rapeseed). TheAndean foothills pose more variable farming conditions than those of otherregions. Average rainfall is high (about 2,000 mm) and a wider selection ofcrops are cultivated.

7. The Humid zone starts at 42 S and extends to the southern tip ofChile. This zone is mountainous, humid, and windswept. Sheep and beef farm-ing and forestry are the major agricultural industries.

8. In general, Chile's Mediterranean climate is excellent for growing

fruits and grapes. Summers are generally free of hail and are warm and drywhich permit ripening and harvest with a minimum of the fungus diseases thatoccur when rains fall during this period. Rainfall is deficient, however, andvirtually all fruit crops must be irrigated. The climate is unique in that it

ANNEX 1Page 3

permits cold-sensitive crops such as avocados and lemons to thrive along sideof drupe fruits like peaches and plums which require cold weather--as much as

1,500 hours below 450F during the winter months--in order to grow normally.Unless the drupes receive sufficient "winter chilling," buds may drop fromthe tree before opening and/or the buds may open very erratically over alonger period during the spring (delayed foliation), which can result in poorfruit set and a small crop. This has occurred occasionally but has not beenextensive enough or occurred frequently enough to pose a threat to the fruit

industry. Frosts occur from time to time, both in the Aconcagua valley to thenorth and in the southern provinces. However, frost areas are well definedand fortunately little frost damage occurs, allowing earlier season fruit setand harvest than is feasible in most other producing countries.

9. Chile's climate is unique also in that it has hundreds of micro-climates--small areas (as small as 10 ha, as large as 1,000) that differ inclimate (usually temperature) from each other. Thus, avocados may grow wellin a small area while half a mile away the climate may be too cold. Weatherdata can often be of little help in predicting the performance of a speciesat a specific location only a short distance from the weather observationpoint. Fortunately, most of the farmers in areas being considered for ex-panded fruit plantings have had many years experience in fruit growing andtheir knowledge is a helpful guide regarding local micro-climates.

10. Chile has about 350,000 ha of soil suitable for orchards and tablegrapes between the Aconcagua valley to the north and the Bio-Bio River to thesouth. The location and extent of each block of soil suitable for trees andgrapes is recorded on a series of soil maps.

Agricultural Land

11. Chile's total agricultural land covers only about one-third, or 25

million ha, of the country (74 million ha). Only 1.2 million ha are regularlyirrigated (another 750,000 ha are intermittently irrigated); 4.1 million ha areclassified as dry land which is arable; and 19.8 million ha are dry land butnot arable. The following table gives further details of land use:

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Million Ha

Unproductive 49.0Forest and Woodland 10.0Agricultural 15.0

Total Land Area: 74.0

Cultivated 1.4Fallow, Idle and Rotated Pasture 2.9

Total Arable: 4.3

Improved Pastures 2.7Natural Pastures 8.0

Total Pastures: 10.7

12. There is considerable potential for expansion of crop production byincreasing the amount of land under cultivation. Cultivated land devoted toproduction of major crops was reduced during the past administration to levelseven lower than usual because of uncertainties over agricultural policies,farm takeovers, and the breakdown in distribution of inputs and commodities.Pasture and grazing lands have also been underutilized.

Agriculture in the Economy

13. Agriculture's contribution to national output is small and has beensteadily declining. According to national accounts, its share in 1973 was 6%of GNP, down from 19% in 1960. However, it is estimated that the sector'sreal contribution to GNP is about 50% higher than indicated if measured atworld market prices. The share of employment in agriculture, as compared tototal employment, has also dropped, from 31% in 1960 to 26% in 1970 and to23% in 1973. The agricultural balance of trade deficit decreased from a highof US$576 million in 1973 to US$418 million in 1974 and is expected to beabout US$215 million in 1975. While the country's agricultural land isrelatively well endowed in relation to climate, soils, rainfall and irriga-tion facilities, production has gone up at a very slow rate over the last 10years. The main reasons have been the inefficient use of resources and thelack of continuity in agricultural policy in general and price policy inparticular, plus a climate of uncertainty surrounding the lengthy agrarianreform process that gradually affected investments adversely. Agriculture

value added grew by an annual average of only 2% between 1965 and 1974, whilefruit, wine, and milk production experienced annual increases of only 3.2%,1.7% and 1.2%, respectively. At the same time, the value of Chile's principalannual crops decreased by an average of 0.7% per annum.

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14. The present administration is attempting to restore stability to thesector and assist the private sector in increasing output. The present Gov-ernment's objectives in 1974 was to restore production to the 1970 level andexpand further thereafter. This first objective was reached with the harvestof 1974/75. It was achieved by making supplies available, supported by agri-cultural credit and appropriate prices to farmers and by initiating a massiveland distribution program. Prospects for 1975/76 crop year appear good butproduction is expected to exceed the 1974/75 level only slightly. With regardto longer term production objectives, specific programs are underway: (a) ex-

pansion and rehabilitation of irrigated areas; (b) a 1975-80 reforestationprogram of 350,000 ha creating employment in the order of 8,000 man-year jobs;(c) expansion of production, mainly for the export market based on Chile'scomparative advantage in fruits, vegetables, and vineyards; and (d) invest-ments in dairy/beef/sheep production aimed at increasing domestic production

and reducing imports.

15. Despite an increase in cattle numbers from 2.8 million in 1965 to3.2 million in 1974, the volume of marketed beef and milk decreased from 1971to 1973, due to low, controlled producer prices. Beef dropped from 166,400tons to 137,000 tons, while milk went from 940 million liters to 878 million(Table 1). There were signs in 1974, however, that both beef and milk produc-tion were beginning to recover.

16. Existing data on fresh fruit production are not very reliable.

Recent best estimates from CORFO indicate that supplies have been overestimatedin earlier years. Production for the 1973/74 season has been measured by an

on-farm survey by CORFO and was only 539,000 tons, almost 60% less than theestimate by ODEPA for the previous year (Table 1). With the low prices pre-vailing over the last two or three years, it is probable that much fresh fruitwas not harvested and rotted in the orchard, thereby distorting the statis-tics.

17. Wine production also showed the impact of uncertainties affecting

the country during the 1970-75 period. Wine production dropped sharply fromthe 1970/71 figure but has shown a small recovery for the 1973/74 season, up4.5% over the 1972/73 season (Table 1).

Agricultural Trade

18. Recent increases in domestic production combined with decreasingconsumer buying power and a more realistic exchange rate have served to curbfood imports, boost exports, and improve the balance of trade. Recently,Chile has relied heavily on food imports to bridge the gap between laggingdomestic production and growing internal demand. This trend was briefly ac-celerated during the early 1970s when nominal wages rose to high levels re-sulting in unprecedented demand for foodstuffs. Food imports rose from US$140

ANNEX 1Page 6

million in 1965 to US$595 million in 1973, then fell to US$472 million in1974. They are estimated to be around US$350 million in 1975. Wheat, sugar,corn, and oils have been the most important food imports (US$389 million in1974), accounting for over 80% in value.

Production Exports and Imports of Agricultural Products

Year: 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975

Index of Value ofPrincipal AgriculturalProducts (1965=100) 100 106 112 114 106 116 115 121 96 109

Value of Exports ofAgricultural andFishery Products(in US$ million) 23 21 23 25 27 33 29 19 25 54 86

Value of Food Imports(in US$ million) 140 162 168 166 166 168 260 405 595 472 361

Balance of Trade inAgriculture(in US$ million) -117 -141 -145 -141 -139 -135 -231 -386 -570 -417 -275

19. Agricultural exports, which averaged US$24 million per year between1965 and 1973, increased to US$54 million in 1974 and reached US$110 millionin 1975. Leading agricultural exports in 1974 were fresh fruits (US$18 mil-lion), beans (US$14 million) and lentils (US$5 million). Wine exports, valuedat US$1.8 million in 1970, increased to US$2.8 million in 1973 and US$3.6 mil-lion in 1974. Major purchasers of Chilean wines in 1974 were Venezuela(US$0.52 million), Brazil (US$0.51 million), and the United States (US$0.44million).

20. During the first five months of 1975, leading exports were tablegrapes (US$13 million), apples (US$12 million), sugar (US$8 million) 1/, andwool (US$6 million). Grapes were exported mainly to the United States,Brazil and Venezuela; apples to Colombia, Venezuela, Holland and Belgium;and wines to Venezuela, Brazil, the United States and Sweden.

1/ An unexpected 70% increase in domestic sugar production in 1975 placedChile in the position of exporting sugar (US$8 million) and also import-ing sugar (US$107 million) which was contracted during 1974.

ANNEX IPage 7

Services to Agriculture

21. Organizational Structure. The approximately 30 public agenciesdealing with agriculture encompassed five ministries and employed over 15,000people in 1975, reduced from 25,000 in 1970. Overstaffing resulted in over-lapping functions and excessive centralization which proved unwieldy and un-responsive to the needs of the agricultural sector. The Government's policytowards agriculture has as its main objectives consolidation of the presentadministrative organization and decentralization of decision-making. Toachieve these aims, the country has been divided into 12 regions, in three ofwhich the Ministry has already implemented new trial systems to improve coor-dination between all the agencies involved. It is expected that regionaliza-tion will be completed within four years. In addition, the Government hasemployed consultants to review the present situation under the Bank's Agricul-tural Rehabilitation Project. The consultants' final report is being completedand the Government's subsequent plan and timetable for implementing theirrecommendations will be submitted to the Bank for comments by January 1977.

22. Technical Services. The Ministry of Agriculture has four agenciesdirectly servicing farmers: (a) Servicio Agricola y Ganaderia, Ministerio deAgricultura (SAG); (b) Corporacion de la Reforma Agraria (CORA); (c) Institutode Desarrollo Agropecuario (INDAP); and (d) Instituto de InvestigacionesAgropecuarias (INIA). Historically, SAG has concentrated on regulatoryfunctions and provided limited extension services to large- and medium-sizedfarmers; CORA has been responsible for implementing agrarian reform andservicing affected farmers; INDAP has provided technical assistance to theminifundistas and administered subsidies; and INIA has been responsible forresearch.

23. Extension. SAG is responsible for agricultural extension and em-ploys 170 professionals, including 30 veterinarians, plus about 250 techni-cians. Technicians visit farms and each is expected to service some 200 farm-ers (in 10 groups of 20). Specialists in six main subjects (horticulture,animal production, fruits and vineyards, cereals and field crops, rural econ-omies, and rural credit) are distributed around the country to service thefarming community. Priority is given to beneficiaries of the land reformprogram. To service these, the extension service requires about 50 additionalagricultural engineers and 90 technicians, but the number of new appointmentswill depend on the outcome of the reorganization study (para 21). SAG'seffectiveness is curtailed by lack of transport and working capital. Inaddition, CORFO, BECH, INDAP and private banks provide valuable technicalassistance to their clients. INDAP is responsible for servicing the verysmall producers. Cooperatives also provide technical assistance to theirmembers.

ANNEX 1Page 8

24. Due to the Government's austerity measures, there is an increasingnumber of unemployed, but well qualified, technicians in the country offeringprivate contractual technical services to farmers. For example, the numberof local consulting firms increased from 10 to 15 during 1975, servicing,particularly, export-oriented producers of the type to be financed under theproposed Project. Up to 1973, CORFO maintained a list of specialists whocould provide technical advisory services for any type of rural investment,and borrowers were required, under the terms of the loan, to select one toassist them during the loan term.

25. Research. INIA is the principal agency responsible for agriculturalresearch. It maintains three principal research centers, of which La Platina,near Santiago, is the most important, and six sub-centers. Limited researchprograms are maintained on fruit and viticulture, livestock and field crops.INIA's staff comprises 160 professionals, 95 technicians, 97 administrativepersonnel and over 800 other staff. INIA is short of funds and depends heav-ily on revenues from produce sales for working capital. Despite severe opera-tional difficulties and extensive reductions in personnel, the ongoing re-search, particularly for fruits and vineyards, is of a good standard as isthe caliber of the professional staff. In addition, Chile draws heavily onoverseas technology, particularly from the USA (California) in fruits andgrapes, and from New Zealand in dairying and agrostology. With respect tolivestock, INIA is producing results which are important to pasture/forage-based production.

26. Besides INIA, five universities carry out basic and applied agri-cultural research. The University of Chile makes by far the largest contribu-tion through its agricultural faculty and two research farms. Ongoing re-search is assisted by small grants from overseas or from Chilean industry,and by receipts for produce from the university's farms.

27. Education and Training. Agricultural education and training isprovided at three levels: higher grade agricultural engineers, medium-gradetechnicians, and lower grade farmers. Graduate (engineer) training is pro-vided at five universities with agricultural faculties. The course takesfive years. Middle level training is provided by some 22 agriculturalschools which award a degree after three years. Lower level graduates canalso attend these schools for two years, and most return to farming. Thereis no shortage of well-qualified agriculturalists in Chile, and the educa-tional and training institutions continue to turn out graduates, many of whomthen fail to find employment. Intensive farm management training (one month)is provided by the Instituto de Capacitacion e Investigacion en ReformaAgraria (ICIRA) with the help of UNDP funding. In addition, refreshercourses on research progress and results will be provided within the re-organized Ministry to expedite dissemination of technical developments fromINIA, universities, and overseas.

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Agricultural Organizations

28. Farmer organizations and cooperatives have been encouraged by suc-cessive administrations and are generally successful in Chile. There arethree types: (a) Campesinos--primary level groups of small farmers, spon-sored by INDAP; (b) second level--marketing and credit cooperatives; and(c) Agro-industrial Cooperatives--operating processing and/or packing plantsin the dairy, wine, fruit and horticulture sub-sectors. Beneficiaries ofagrarian reform are being encouraged to join primary level cooperatives("sociedades de cooperacion agricola").

29. The cooperative movement has provided added impetus under thepresent Government's policy to encourage private sector involvement in ruraldevelopment. The Commission for Cooperative Coordination created in 1974 hasbecome the Government's major arms for promotion and reorganization of farmcooperatives. The Commission is located within the Agricultural PlanningOffice of the Ministry of Agriculture (ODEPA) and is composed of represent-atives from various Government agencies involved in Chile's cooperativemovement 1/. Soon after its inception, the Commission undertook a nationwidestudy of farmer cooperatives. On the basis of this study, cooperatives wereranked according to their overall effectiveness and efficiency in meeting the

needs of farmer members. Of the country's then 800 farmer cooperatives, fewerthan 100 were rated truly "viable" and capable of further expansion. TheCommission reached several conclusions in regard to the role of agriculturalcooperatives, which were that:

(a) smaller, less viable cooperatives and farmer organiza-tions sholuld affiliate with stronger cooperatives intheir region;

(b) as asentamientos are subdivided for individual assign-ment, the former asentados should retain a form of or-ganization similar to that under the SARA (Sociedad Agri-cola de la Reforma Agraria) system. This organization,which would be called a Society for Agricultural Coopera-tion, could then join a regional cooperative;

(c) efforts should be made to strengthen and expand the ser-vices offered by regional cooperatives; and

1/ Member agencies include the Agricultural Planning Office of theMinistry of Agriculture (ODEPA), Agricultural Extension LivestockService, Ministry of Agriculture (SAG), Small Farmer DevelopmentInstitute (INDAP), Agrarian Reform Corporation (CORA), and StateBank (BECH).

ANNEX IPage 10

(d) whenever possible, Government agencies such asIFICOOP for credit and COPAGRO for marketing shouldchannel financial, marketing, and technical assis-tance through the regional cooperatives to localcooperatives and farmer associations.

30. While the Commission for Cooperative Coordination has no formalauthority to enforce these changes, its member agencies exert strong in-fluence on the country's cooperatives and considerable progress has beenmade. For example, 120 former SARAs (now called Agricultural Society ofAgrarian Reform) have joined "Melipilla" cooperatives in the Province ofSantiago. Nearly all of the 100 regional cooperatives count at least someAgricultural Society of Agrarian Reform groups among their memberships. Amajor obstacle to the development of agricultural cooperatives is the lackof managerial capabilities among the farmer population. The Commission forCooperative Coordination is currently offering a series of cooperativemanagement courses with assistance from the Organization of American States.

Cooperativa de Productores Agricolas (COPAGRO)

31. COPAGRO, a second level marketing cooperative, is likely to playan increasingly important role in provision of services to regional coopera-tives. In addition to expanding its marketing programs, COPAGRO plans to be-come a major supplier of agricultural credit to member cooperatives and indi-vidual farmers. To this end, COPAGRO is trying to obtain long-term financingfor purchase of the O'Higgins Bank, currently owned by the Government. Aninitial payment of US$1.3 million equivalent has already been made and an ad-ditional US$11.3 million are needed. The Government has offered to guaranteeexternal financing for purchase of the bank by COPAGRO. Another recent COPAGROinvestment of potential importance to farmers is the purchase of the AgrarianReform Marketing Society (Sociedad Comercialidora de la Reforma Agraria--SOCORA). This agency, which served as the official channel for agriculturalexports under the previous Government will be managed by COPAGRO for a periodof three or four years and then sold to a group of export-oriented member co-operatives of COPAGRO.

Supply of Inputs

32. The supply of agricultural machinery and equipment, as well as pestand weed control chemicals, is handled to an increasing extent by privatefirms, most of whom act as local representatives of overseas manufacturers.Till recently Banco del Estado (BECH) purchased most of the fertilizer andsome machinery and distributes such items through its national warehousesystem. The National Seed Enterprise (Empresa Nacional de Semillas), a publicautonomous agency, purchases substantial quantities of seeds from approvedmultiplication centers and distributes them through its own facilities.Cooperatives act as purchasing agents for many farmers and receive discountsfrom suppliers based on trading volumes. They handle a broad range of inputs,including livestock and veterinary supplies. In summary, purchasing anddistribution arrangements work reasonably well and farmers generally havetimely access to the necessary inputs.

ANNEX 1Page 11

B. Commodities Specific to the Project

1. Livestock Production

Breeds (Cattle and Sheep)

33. Almost all the cattle in Chile are Friesians--a dual-purpose breedsuitable for milk and beef production. Average quality is good because breed-ing stock has been imported over a long period, mainly from Holland and theFederal Republic of Germany. The Hereford is the main beef breed and total'beef animals are estimated at 100,000 to 150,000. The national sheep flockof 5 million consists of three main breeds--Merino, Corriedale and RomneyMarsh. The Merino is a special wool breed but both the Corriedale and RomneyMarsh are good dual-purpose animals, producing both meat and wool.

Animal Health

34. Although all the common diseases found in Temperate and Mediterraneantype climates are present, they are controllable by modern techniques and do notconstitute a major constraint on production. The most important are foot-and-mouth (FMD) and brucellosis but the Government's veterinary service operates arigorous and effective control program for each. The last outbreak of FMD inthe entire country was in August 1974, but the last outbreak in the Temperatezone, which is the major cattle producing region, was three years earlier, in1971. In fact, the Province of Magallanes has been free of FMD since 1970.All cattle and sheep in the main livestock producing areas north of PuertoMontt are vaccinated twice yearly with FMD strains 0, C, and A. Most of thevaccine used is imported from Paraguay and Uruguay. The control strategy forbrucellosis is based on vaccination until the incidence is reduced to lessthan 5%, at which point it is economical to slaughter the remaining infectedanimals. The incidence in the Temperate zone provinces is now about 15%, soanimals are vaccinated, whereas in Aisan the incidence is only 2% and animalsare slaughtered. It is estimated that about 60% of replacement heifers havebeen be vaccinated in 1975. The veterinary service assigns about 390 membersof its staff to control and eradicate FMD and brucellosis, including 137veterinarians and 150 veterinary technicians, but by about 1977/78 the plan isto pass the responsibility for controlling these two diseases to the privateveterinary sector, with general supervision and guidance provided by theGovernment's veterinary service.

35. Other diseases which occur commonly are vibriosis, trichomoniasis,mastitis, tuberculosis, leptospirosis, and gastro-intestinal parasites. How-ever, all the veterinary medicines and drugs needed for effective control arereadily available through the private veterinary sector, consisting of about500 to 600 veterinarians operating as private practitioners or as employeesof farmer cooperatives.

ANNEX IPage 12

Production Zones

36. Pasture land and forage land constitute a major national resource,comprising about 14 million ha. The Temperate zone (para 6) is ideallysuited to grassland farming and the potential for increasing livestock pro-duction (milk, meat and wool) is excellent. About 60% of Chile's cattlepopulation and about 80% of total milk production is situated in this zone.Its potential for livestock production under modern grassland farming methodsis exce'llent. For example, with regular annual fertilizer applications andgood management, carrying capacities could be increased about three-fold, fromabout 0.8 cows/ha to about 2.5 cows/ha, and milk production could be increasedabout eight-fold, from about 1,000 liters/ha to about 8,000 liters/ha. Themain requirements for increasing production are (a) annual application ofphosphatic fertilizer on old and new pasture; (b) increased stocking ratesto utilize pastures; (c) provision of facilities such as fencing and milkingsheds to enable animals to be managed properly; and (d) better winter feedingby conserving more hay and silage. Under the proposed Project, it is expectedthat most of the investments for increasing milk production would take placein this region and that they would be made to finance the application of thetechnology recommended (Model 1). However, within the Temperate zone lies asmall coastal belt, where current levels of output are extremely low but thereis an excellent potential for increasing beef and sheep production by adoptingmodern farming methods. For example, carrying capacities in this area can alsobe increased about three-fold, from 0.4 AU/ha to 1.5 AU/ha, and production ofbeef/ha can be increased about five-fold. This would be the main area forinvestments in beef and sheep production under the Project (Model II) andinvestments would be made to finance the application of a technology similarto that recommended for dairying but with appropriate changes. Some invest-ments are also expected to be made in the Andean foothills with many goodpastures which are suitable for beef production (Model II).

37. The Mediterranean zone is also well suited for livestock production.Subterranean clover grows well in this zone which is the key to pasture im-provement. With it, phalaris, and ryegrass, carrying capacity could be in-creased about five-fold, from about one to five ewes per ha. However, at cur-rent prices for lamb, wool and beef, it is not economical to develop morethan 10 to 20% of improved pasture for strategic feeding. Under the proposedProject, limited beef/sheep farming would be financed in this area (Model II),but, during the course of the Project, financing institutions would need topay close attention to input/output relationships to ensure that investmentswere viable.

38. Natural tussock-type pastures (fescue spps.) cover vast areas ofChile's southernmost Province of Magallanes in the Humid zone. Average rain-fall is about 400 mm, and winters are cold, with harsh winds, limiting thegrowing period to about six months. Although carrying capacities are low,Magallanes has good potential for sheep and beef production because it isremarkably free from disease, and "saved" natural pasture has a relatively

ANNEX 1Page 13

high feeding value because rainfall is low. The livestock population of2.6 million sheep and 120,000 cattle are located on large estates. The sheepflock, almost entirely Corriedale, has declined from 3 million to about 2.6million, but the beef herd, assisted by recent imports of polled Herefordsfrom Australia and North America, increased from 50,000 in 1970 to 120,000head in 1975.

39. Sheep and cattle rely almost entirely on natural pasture but thereis usually a small area of improved pasture for strategic feeding. Grazingareas are divided into "summer" (usually highlands) and "winter" (usuallylowlands) pastures, and supplementary feeding is rarely practiced. Flockmanagement standards are high and patterned after Scotish highland practices.

40. Carrying capacity on natural pasture is about one ewe per ha, but,with pasture improvement, this could be increased to about three ewes per ha.With present price relationships, however, it again would not be economical toimprove more than 10 to 20% for strategic feeding. Improvement usually in-volves bush control (spraying with herbicides or slashing) and planting cocks-food and white clover after cultivation. It is common practice to leave 2-mwide bush strips every 12 meters to act as windbreaks for pastures and lambs.Some limited investments in beef/sheep are expected in this area under theProject (Model II).

41. Irrigated cropping farms (mainly the Mediterranean zone aroundSantiago) practice a four-year rotation, based mainly on wheat and pasture orforage. Forage (red clover, alfalfa, ladino clover and birdsfoot trefoil) isgrown on about 25% of the farm to maintain soil fertility and crop yields.INIA estimates that about 160,000 ha of rotated pasture or forage are avail-able within 150 km of Santiago and that a further 80,000 ha of marginal crop-ping land would be better utilized under irrigated pasture or forage. Thisforage land has a high potential for dry matter (16,000 to 20,000 kg/year) andmilk production. The average carrying capacity is about 0.8 cows/ha and milkproduction runs about 1,800 liters/ha. Using the system of dairying researchedand advocated by INIA, rates of 2.2 cows plus replacements/ha and 6,500 litersof milk/ha are attainable. The INIA (La Platina system) is based on 40% of thearea under grazing (alfalfa, red or ladino clover), 40% under alfalfa hay, and20% under corn silage. The alfalfa or other legumes require fertilizer onlyin the initial sowing year (about 300 kg triple superphosphate/ha). Dairyfarming (fluid milk for Santiago) is presently important under these condi-tions, but there is substantial room for improvement and expansion. Some in-vestments in dairying are expected to take place in this region under the pro-posed Project (Model I).

Development Strategy for Dairying

42. At present, Chile does not have an overall strategy for developingits dairy industry, leaving a number of important matters that must be ad-dressed. The important question that must be answered is how much does Chile

ANNEX 1Page 14

intend to depend on imported milk products to meet deficits. The answer tothis will have a major influence on the rate at which supplies of domesticmilk are developed since imports from 1967 to 1972 accounted for 35% to 42% oftotal dairy product consumption a year. World prices for such products werelow over this period and their export was actually subsidized by many countries.Consequently, Chile was importing at "dumped" prices to the detriment of itsown dairy farmers. Imports have dropped drastically since 1972 because ofeconomic considerations, but how much the Government intends to rely on domes-tic production to meet domestic requirements in the medium and long term isnot clear. There is no good reason for Chile not to rely completely on domes-tic production, considering the substantial savings in foreign exchange thatcould be made (import of dairy products amounted to about US$32 million in1972 and US$13 million in 1973). Also, the adoption of a self-sufficiencypolicy for dairying would boost overall investment in dairying farmerswould be willing to make.

43. One requirement for a strong dairy industry is a strategy to en-courage production of milk which will be consumed as fluid milk in the cities(fluid milk industry) and one for milk which will be manufactured into milkpowder and other dairy products (manufacturing milk industry). At present,no recognition is given to the fact that production for different purposes in-volves different objectives. The main objective in supplying a fluid milkmarket is to ensure a more or less even supply throughout the year. Further-more, the fact that it is usually more expensive to produce milk in winter(mainly because of higher feeding costs) has to be taken into account in set-ting summer and winter milk prices to the producers. The best approach is toadopt a system based on contracts between producers and the processing plants,with a premium paid on a portion of the milk produced in summer, determinedon the basis of the quantity supplied in winter. Amounts in excess of thequota based on the winter supply realize a lower price and will normally bechanneled to processing other than fluid milk. The main objective of milkindustry manufacturers is to procure raw material at the lowest possiblecost and this normally entails seasonal production--all cows calve in springand are dried off in winter. Under this system, almost all milk is producedfrom grazed pasture, which is the cheapest, and cows do not lactate in winter,requiring only maintenance feeding when feed costs are substantially higher.In Chile, the cost of milk production based on a year round production systemis about 30% higher than on a seasonal production system based on spring calv-ing. Seasonal production systems, however, present the processor with an un-even supply. Typically, the ratio between the quantity supplied per day inthe peak month and the valley month is about 10 or 15 to 1. Countries suchas New Zealand and Ireland, with well developed dairy manufacturing indus-tries, have found it advantageous to accept this situation because raw mate-rial is provided at the cheapest possible cost. In Chile, however, processorsare anxious to procure a more even supply and they plan to do it by alteringthe price paid on a seasonal basis. This is a dangerous path that could leadto a high-cost industry or reduce the profit to producers from milk and,consequently, slow the rate of growth of the industry.

AUNEX IPage 15

44. The processor's case for obtaining as uniform a supply as possibleover the year is based on the desire to utilize investments in processing asefficiently as possible. A processing plant operating at about 80% capacitythroughout the year would handle about twice the quantity of milk that couldbe handled with a typical seasonal pattern of production with a 15:1 ratio be-tween peak and valley months. An even supply would, therefore, result inlower unit processing costs. This is, however, a restricted view and a dif-ferent picture emerges if the efficiency of utilizing total capital invest-ment in processing and production is considered. In Chile, the average in-vestment in processing and production is about 15% and 85%, respectively, ofthe total investment in dairying (seasonal milk production system). There-fore, from the standpoint of utilizing capital efficiently, the investment inproduction is by far the most important.

Investment Potential

45. From the above review of livestock and pasture resources, it isevident that Chile has a vast potential for expanding livestock production.Furthermore, the technology needed for development is well known in the mainproduction areas although more information is required on input/output rela-tionships. Since development will depend on the wide-scale adoption of thistechnology, adequate financing must be made available, together with adequatesupporting services. Furthermore, the rate of development will depend onmarket demand for products and on the profits producers can expect to make asa result of their investments.

46. To increase Chile's milk production by 1% a year from the 1974 baseof 906 million liters, an additional 4,500 cows yielding about 2,000 liters ayear are required. This represents an investment of about US$2.4 million ayear with a US$526 investment per cow (using Model I yields and costs). Simi-larly, to increase meat production by 1% a year from the 1974 base of 175,000tons, an additional 7,300 animals would be required each year, or about 10,000breeding cows, for a total investment as about US$2 million (Model II). It isextremely difficult to estimate the rate as which Chile's milk and meat pro-duction will grow, but if it is to keep pace with population growth (1.7% peryear), the yearly investment in milk and meat should be about US$7.5 million.

2. Orchards

General

47. Chile's table grape and orchard industry is located primarily inthe central valley, lying between the Andes to the east and the Pacific Oceancoastal ranges to the west, extending south from Santiago for about 450 km,embracing 13 provinces. Four provinces in the central region of the country,Aconcagua, Valparaiso, Santiago and O'Higgins, account for over 70% of thefruit and grape area (Tables I through 4). Overall, fruit and table grapesaccount for about 7% of the value of agricultural production and 25% of

ANNEX 1Page 16

agricultural exports, while occupying, on mainly irrigated land, about 4%of the land devoted to crops.

Production Zones

48. The Aconcagua valley, about 90 km north of Santiago, is an impor-tant fruit zone extending from the Pacific Ocean about 130 km east to thefruit processing town of San Felipe. The warmer, western part of the valleyincludes subtropical species such as chirimoya, avocado, loquats and citrus,while to the east, table grapes, apricots, peaches and walnuts predominate.The Province of Santiago has the largest fruit area of any province in Chile,about 32% of the total land area. Approximately 40% of Chile's oranges, 30%of its table grapes, 50% of the plums and prunes, and 30% of the cherries andapricots are located here. O'Higgins Province contains about 18% of Chile'sfruit and table grapes, with cropping patterns similar to Santiago's but withvery few almonds. The Provinces of Curico and Colchagua together containabout 10% of Chile's fruit and table grape area. Cherries, plums, apples andpears predominate, with few of the warmer season species being grown. Furthersouth, including the Provinces of Talca, Linares, Nuble, Concepcion, Arauco,Bio-Bio and Malleco, fruit production is limited mainly to apples and cher-ries.

49. The latest estimates, from on-farm surveys by CORFO, indicate thatfresh fruit and nut production is 539,000 tons, valued at US$90 million, froma total orchard area of 59,158 ha, made up of 49,221 ha of producing orchardand 10,935 ha of new plantings. Peaches and nectarines (26%), apples (24%),lemons (12%), table grapes (11%), oranges (9%), and pears (6%) are the mostimportant crops. Some 64% (344,000 tons) of the total production in 1974/75was consumed within Chile and 36% (195,000 tons) was exported according toCORFO data (Table 6).

Irrigation

50. Generally, irrigation water in Chile is diverted from rivers intocanals that deliver water to the farmers. Water quality is uniformly goodand the supply is abundant due to the proximity of the Andean Cordillera,which forms a huge natural dam. Rights to water diverted from the riverswere granted to individuals, who, prior to 1953, could sell, lend or leasethe rights to others. Since 1953, the rights have been attached to the land.When land is sold, the water rights go with it. The history of irrigation inChile to some extent lessens its present effectiveness. Irrigation canalsare excessively long, are unlined, and run in parallel, thus tending to wastewater and inhibit the movement of men and machines. Many of the canals werenot designed for irrigation but were made by miners who sometimes enlargedchannels made by Indians hundreds of years ago. In many cases, farm landhas not been leveled properly for irrigation nor adequate on-farm facili-ties provided for controlling the water. Consequently, excessive amountsof water accumulate in low areas damaging crops while higher areas may re-ceive inadequate amounts of water.

ANNEX 1Page 17

51. Water charges are generally low, thereby providing little incentivefor farmers to reduce water wastage. Growers may irrigate during the day andallow the water to run on to the sea during the night. Too frequent irriga-tion is also common. Experimental irrigation trials conducted by a Universityof Chile-University of California team in a walnut grove resulted in a reduc-tion in the number of irrigations per season from 16 to three. This situa-tion is not necessarily typical but is indicative of the wasteful irrigationmethods practiced in some orchards.

52. Irrigation experiments conducted by CORFO indicate that peach treesnear Santiago require about 80 cm of irrigation water (8,000 cubic meters ofwater per ha) per year in addition to rainfall (about the same as California),and that 20 to 22 days should elapse between irrigations.

Varieties

53. Most of the varieties needed for the Project have been known inChile for a considerable time. New varieties, including dwarf rootstocks forapples, are also grown and are being multiplied on experimental farms and atGovernment nurseries. Considering the combined resources of Governmentnurseries, university and Government experimental farms and private nurse-ries, there is no lack of suitable planting material for any of the fruitor nut varieties, the principal ones of which are listed in Table 7.

54. Apples. Green Granny Smith and the red varieties--Starkirmson,Starking, Richared and Jonathan--are the best for export and at the same timewell adapted to the local market. Project beneficiaries would be expected tomove from lower density planting systems (200 to 300 trees/ha) to higher den-sity systems as the supply of improved rootstocks increases. The commercial-ization of dwarf rootstocks would also be enlarged.

55. Peaches. Peaches are widely grown in Chile and some difficultieshave been experienced recently with oversupply and lack of export demand.Nectarines are being substituted more and more as overseas demand is strongand nectarines with their firmer flesh can travel better than peaches. Allthe Le Grand varieties of nectarines are suitable, as well as Regina andSilverlode.

56. Table Grapes. Fresh grape production would be an important compo-nent of the Project. Plantations are expected to expand the high trellis sys-tem (Paronall), which is well known in Chile. Existing varieties are welladapted to the different producing areas of Chile and their staggered maturi-ties allow for an extended export period from mid-January (Perlette variety)through May (Almeria variety). Middle season varieties, such as Thompsonseedless, Ribier and Emperor are all successful, especially in export markets.Thompson seedless is also used for current production and there is a firm ex-port demand. This variety can produce very high yields, up to 30 tons/ha,but thinning is recommended to produce larger sized grapes.

ANNEX 1Page 18

57. Almonds. There is keen demand, particularly from new orchardists,for almond seedlings because of the good export demand and price. Although aminor crop at this stage, it is expected that the planted area would increasesharply during the Project period. Suitable varieties, such as Non-Pareil,are available from INIA and the nurseries.


58. Cultivation practices on Chilean orchards are generally sound andthe technical competence of orchardists is high. Some orcharding techniquesare out-of-date, and practices requiring investment capital, such as fertil-ization and pest control have been drastically reduced during the period oflow prices. New plantings, and changes to new varieties, either by seedlingsor grafts onto existing rootstocks, have also been curtailed during recentyears, but new varieties and new rootstocks are available in the country andwould be utilized under the Project. Improved pruning techniques would beintroduced, particularly for citrus, avocados and deciduous fruits. Addi-tionally, irrigation methodology, especially that dealing with frequency ofwatering, is expected to be improved through Project investments as excessivequantities of water are often applied to tree crops.

59. Orchard enterprises in Chile appear attractive at the present timesince the country has several important advantages over other fruit and grapeproducing regions:

(a) strong export demand for certain Chilean produce,particularly table grapes, nectarines, apples andalmonds;

(b) a recovering domestic market with improving prices;

(c) an almost ideal orchard and vineyard climate;

(d) relatively fertile land that is generally level andwatered, requiring no major infrastructure expense;

(e) almost free irrigation water, available practicallyfor the cost of applying it;

(f) a good supply of relatively cheap labor; and

(g) availability of most of the fertilizer required forfruit crops from local manufacturers at competitiveprices.

ANNEX 1Page 19

3. Vineyards

General

60. Vineyards in production occupy about 110,000 ha, both irrigated andrainfed, in,the central districts of Chile between latitudes 27.50 and 380 S.Chilean vineyards are distributed among some 32,000 growers, cultivating onthe average about 3.5 ha. However, a few wine companies still retain largevineyards which were not expropriated during the land reform. In contrast,many very small producing units (less than I ha) exist, mainly in the southernprovinces. Total juice production is about 480 million liters, of whichonly about 1% is exported as juice, wine, champagne and pisco (Annex 3).Annual juice production fluctuated from 430 to 580 million liters during thepast decade when the annual average production was 466 million liters. Asevere drought and frost limited production during 1968/69. The averageannual rate of increase from 1949 through 1963 has been 4%. The growth trendsubsequently was 87 liters/ha per annum (1.9%). Yields from irrigated vine-yards far exceed those from rainfed plantations. Based on 460 million litersin mid-1974, and a 1.9% growth rate, Chile would produce about 750 millionliters of juice by the year 2000, at an average of 6,821 liters/ha, a yieldthat is still far below Argentina (7,550 liters/ha) or the USA (13,260 liters/ha). Chile's best yields are 12,000 liters/ha of red wine and 20,000 liters/haof white from the central valley, near Santiago. USA technology is coming inmore and more and will have a significant impact on future trends.

61. For many years, the Government contained the planting of new vine-yards, but restrictions were eased toward the end of the 1960s although withlittle positive result. In January 1974, the Government abolished all re-strictions on the planting of new vineyards and it is expected that thislegislation will be a positive factor favoring the expansion of wine pro-duction under the Project.

62. ODEPA estimates and projections of vineyard areas are as follows:

ha

1965 109,0001975 120,0001980 130,0002000 145,000

The country has averaged 110,000 ha over the last 15 years. Chile underwentrapid vineyard expansion from 1930 to 1938, moving from 85,000 to 104,000 ha.Then, expansion ceased as a tax was imposed on new plantings, and the areaactually decreased to 93,800 ha from 1939 to 1947, stabilizing at 110,000 haby 1965.

ANNEX IPage 20

63. Chile was the first wine producing country in Latin America, datingback to the mid-16th century, 200 years before California. The country hasimportant advantages in wine production with its Phylloxera-free vineyards,dry climate, warm summers and almost total lack of killing frosts. Chileanwine is considered to be of superior quality, with uniform vintages. The har-vest in the northern and central regions can begin by the end of February, oras late as mid-April. It is complete by mid-May or, at the latest, by the

first day of June. Grapes with 11.50 to 12.50 alcohol are preferred, withoptimum acidity.

Production Zones

64. Six principal production zones are recognized (Table 8). The twomost important are the irrigated central valley, with 37,000 ha producing248 million liters of juice, and the unirrigated south central valley, withalmost 46,000 ha producing 130 million liters. Average yields from the firstzone are 6,681 liters/ha under irrigation, much higher than the second zone,with 2,838 liters/ha under rainfed conditions.

65. The next most important zones are the unirrigated central valley,with 9,000 ha and 36 million liters of production; the irrigated southernvalley, with 8,000 ha and 7 million liters; and the irrigated south centralvalley, with nearly 7,000 ha and 43 million liters. The smaller irrigatednorthern zone accounts for more than 2,000 ha and 16 million liters of juice.

66. There are two different types of vineyards in Chile. In theAconcagua and central valleys, vines are established on wine cordon (low) orparronal (high overhead) trellis and grown mainly under irrigated conditions.Grapes from the cordon trellis system are used for wine production and thosefrom the parronal system for table grape production. Generally, the ecologi-cal conditions in this northern zone are excellent for vineyards. Farm prac-tices are of a good standard and average yields are relatively high. Excel-lent varieties have been planted and the wine alcohol content easily reaches13% to 14%. Thanks to the warm, dry summer and low rainfall, fungal dis-eases are rare. However, acarian attacks are frequent and oidium is common,requiring control measures.

67. Further south, in the Provinces of Linares, Nuble, Concepcion andBio-Bio, vines are grown mainly under rainfed conditions, usually on smallfarms, without trellis. This is the region where Chilean vineyards began andit is still a large wine producing region, with about 60% of the country'svineyards. However, the climatic and soil conditions are not as favorablefor fine wine production as in the central valley. Yields are lower, andlower quality wines are produced in this region for the domestic market.

ANNEX 1Page 21

68. As is the case for fruit and nut production, irrigation water isalmost freely available by gravity from the streams draining the Andeanwater and snowsheds into the Pacific Ocean. More red wine grape varietiesare grown under rainfed conditions than irrigated (53,000 ha versus28,000), but production is less (147 million liters versus 156 million)because of the higher yields obtained under irrigation. The irrigatedvineyard area of almost 47,000 ha represents about 3.9% of Chile's totalirrigated land (1.2 million ha). The trend is similar for white winevarieties, with over 61,000 ha unirrigated and 47,000 ha irrigated (Table9), producing 173 million and 327 million liters, respectively. ForChilean wine production generally, irrigated yields average 6,300 liters/ha versus only 2,600 liters/ha for non-irrigated production. The almost62,000 ha of rainfed vineyard represents about 1.4% of Chile's rainfedarable land (4.3 million ha).

Varieties

69. Existing varieties such as Cabernet, Semillon, Sauvignon, Riesling,Verdot, and Cot are well adapted to local ecoclimatic conditions. The bestvarieties for each zone are well known and Chilean nurseries are quite ableto produce the required vine stocks. The areas planted to red and white var-ieties, under irrigated and rainfed conditions, are shown together with re-spective production (Table 9). Some 60% of production comes from red varie-ties and 40% from white. Chile makes better quality red than white wine al-though this situation could change as wineries are modernized. Generally,more sophisticated equipment is needed for the manufacture of high qualitywhite wines.

70. The oldest variety is Pais, dating back to the first Spanish colon-izers. It is adaptable to dry land and poor soil, giving reasonable produc-tion under the most severe conditions. It is disease-resistant, very respon-sive to improved conditions and gives an excellent performance under irriga-tion. This variety produces a light bodied wine with fast maturation quali-ties and wine quality is superior from unirrigated land. Two-thirds of Chile'sunelaborated wine and grape cider come from the Pais variety.

71. Cabernet. The variety is of French origin and is grown in Chilemostly under irrigated conditions. It has high productivity and produces ex-traordinarily high quality wines.

72. Cot, Merlot and Verdot. These red varieties mature earlier thanCabernet. They are blended into fine bottled red wines and common reds.Their combined production is less than half the total for Cabernet.

73. Carignan. This variety is the successor to Pais on irrigated land.It produces better color than Pais but is less disease-resistant.

74. Semillon and Sauvignon. These two varieties yield 87% of Chileanwhite wine production. Under irrigated conditions, they yield the highest ofall varieties. They are of French origin and process into fine quality wines.

ANNEX I

Page 22


75. Chilean wines are world renowned and there is an excellent oppor-tunity to capitalize on this base with investments under the Project. As theexport market strengthens, particularly in Latin America, and domestic marketprices continue to recover from their depressed levels of recent years, in-vestments would be made to rehabilitate and improve existing vineyards, aswell as to plant new ones. An adequate supply of vine stocks is availablefrom Chilean nurseries, and the relevant technology is known in the country.Some changes in cultivation practice are taking place at the present time,such as the switch from low cordon trellis to the higher California system onsome larger vineyards. Initial investment costs are higher, and yields maybe slightly lower, but grape quality for fine wine production is enhanced,which is beneficial for exports. Vineyard investment in Chile is attrac-tive at the present time. The cultivation advantages enjoyed by the fruitindustry apply equally to the cultivation of grapes for wine production.

ANNEX 1Table 1

CHILE


Production Trends of the Principal Annual Crops,Fresh Fruit and Nuts, Wine and Livestock: 1970-76

-____________________- '000 tons ---------------------------- l/Commodity 1969-70 1970-71 1971-72 1972-73 1973-74 1974-75- 1975-7&6-

Annual Crops

Wheat 1,306.9 1,368.0 1,195.1 746.7 757.1 1,096.7 1,203.6Barley 97.4 113.6 139.0 107.4 161.7 135.8 160.3Rye 10.7 12.3 12.4 8.5 18.9 9.4 14.6Oats 110.6 112.0 111.3 109.1 157.3 127.9 139.6Rice 76.2 67.1 86.3 55.0 26.4 73.3 89.4Maize 239.1 258.3 283.0 294.0 366.5 256.5 295.5Beans 65.6 72.2 82.9 65.0 73.2 k7.3 91.7Peas 7.4 8.5 10.7 8.8 13.5 14.7 14.6Chick pea 5.4 7.2 9.3 4.1 6.6 8.0 9.4Lentils 11.2 12.0 10.7 9.8 13.5 10.1 11.8Potatoes 683.8 835.8 733.1 623.6 928.9 744.8 806.4Sunflower 28.2 20.3 19.9 13.5 9.7 13.2 18.0Rapeseed 69.9 82.1 78.0 40.0 34.2 55.2 72.5Sugarbeet 1,655.1 1,390.7 1,201.6 855.9 953.7 1,320.0 1,806.0

Total 4,367.5 4,360.1 3,973.3 2,941.4 3,521.2 3,952.9 4,733.4

% Change - -0.2 -8.9 -26.0 +19.7 +19.0 +19.7

Fresh Fruit and Nuts2/ 1,037.2 1,300.0 1,426.4 1,332.0 539.4 566.4 594.7

Livestock

Beef 170.9 166.4 149.9 137.0 147.0 146.3 148.3Mutton and lamb 29.5 26.6 25.2 17.6 24.8 27.2 30.3Pigmeat 48.5 49.7 55.1 50.6 53.3 42.0 43.7Poultry meat 52.5 58.3 61.3 32.2 36.3 43.6 47.6Milk (million liters) 895.1 940.0 935.0 878.0 905.8 956.1 1,021.9Eggs ('000 units) 1,168.5 1,052.6 1,169.8 891.0 1,154.0 1,219.0 1,262.0Wool 19.8 18.1 16.2 17.7 16.8 17.3 18.0

Total 2,384.8 2,311.7 2,412.5 2,024.1 2,338.0 2,451.5 2,571.8

% Change - -3.1 -4.4 -16.1 +15.5 +4.8 +4.9

---------------------------'000 liters -----------------------------3/

Wine- 400,530 525,134 465,000 460,000 480,673 504,649 529,881

1/ ODEPA estimates, November 1976.2/ Oranges, lemons, apples, pears, stone Jruits and table grapes. Data should be consistent as best estimates

as precise data are difficult to determine.3/ Wine data are considered best estimates as it is difficult to determine precise figures.

Source: Chile, Agricultural Sector Brief. IBRD, August 1975.

CHILE

LIVESTOCK, FRtITS. VINEYARDS AND AGRO-INDUSTRY CREDIT PROJECT

Po.e Froit Production in Chile

APPLE PEARS QUINCENew Producing Total Average New Producing Total Average New Producing Total AvarageProvince Orchard Orchard Orchard Area Production Produiction Orchard Orchard Orchard Area Production Production Orchard Orchard Orchard Area Production Production-- - - - - --(ha) - - - - - (tons) (taon/ha) - - - - - - (ha) - - - - (tons) (tons/ha) - - - - - - - - (ha) - - - - - - (tons) (tons/ha)

Aconcaqua 57 33 90 790 23.9 12 258 270 3,012 11.7 38 76 114 1,672 22.0

Valparaiso 25 101 126 1,869 18.5 3 30 33 425 14.2 14 7 21 154 22.0

Santiago 48 151 199 3,199 21.2 143 624 767 11,086 17.8 65 204 269 4,488 22.0

O'higgins 1,739 1,235 2,974 25,130 20.3 272 541 813 9,106 16.8 65 133 198 2,926 22.0

Colchagua 758 786 1,544 12,471 15.9 43 213 256 2,978 14.0 45 65 110 1,430 22.0

Curico 268 2,625 2,893 43,560 16.6 2 136 138 1,813 13.3 61 103 164 2,266 22.0

Talca 242 870 1,112 15,711 18.0 2 185 187 2,869 15.5 17 28 45 616 22.0

Linares 447 281 729 4,600 16.4 20 75 95 1,615 21.5 2 5_ 7 110 22.0

Nuble 32 295 327 2,579 8.7 1 4 5 119 30.0 - 5 5 110 22.0

Concepcion 11 185 196 2,996 16.2 - - - - 2 - 2

Arauco 15 20 35 320 16.0 - - - - - - -

Bio Bio 69 541 610 12,674 23.4 3 27 30 515 19.1 14 2 16 44 22.0

Malleco 120 369 489 4.640 12.6 1 36 37 368 10.2 2 - 2 -

Total 3,831 7,492 11,323 130,539 17.4 502 2,129 2,631 33,906 15.9 325 628 953 13,816 22.0

Export ('000 tons) 78.3 20.3

Internal Consump-tion ('000 tona) 52.2 13.6 13.8

Grower Price (U8$/kg) 0.11 0.12 0.05

Prodoction Value (US$'000) 14,359.3 4,968.7 690.8

Source Corporacion do Fooento do la Produccion, October 1975.

November 26, 1975

CHILE

LIVESTOCK, FRUITS, VINEYAUSS ASS AERO-INEEITRY CREDIT PROJECT

Drupe Fruit Production in Chile

------------ P-ah t Nectarine- ------------------ ------------------- Apricot ----------------------- --------------------- Plum - ----------------------- ---------------- ---- Cherry ----------------- __- --_Total Total Total TotalNew Producing Or-hard Avorage Naw Prodocing Otchard Avecage N.o Po-du-iC, Orchard Averoge Nen Producing Orchard AverageProyince Orchard Orchard _A Prod-ction Production Orchard Orchord Area Production Production Orchard Orchard Atea Prodcti-on P-odoction Or-hard Orchard Are Production Production

(he) (ho) (he) (ton-) (toc-/ho) (he) (he) (ha) , (tons) (toca/ha) (he) (ha) (ha) (ton.) (toca/ha) (ho) (he) (h.) (tona) (toa/ha)

Aconcagu. 338 4,307 4,645 49,578 11.5 19 281 300 3,788 13.5 6 91 97 841 9.2 - a 8 21 2.6

Valpa-ieon 67 407 474 4,352 10.7 3 52 55 359 6.9 - 21 21 250 11.9 - - - -

S-ntia8g 159 5,310 5,469 61,399 11.6 80 733 813 6,526 8.9 44 1,016 1,060 8,420 8.3 35 194 229 841 4.3

O'Higgina 304 3,056 3,360 23,071 7.5 30 81 111 651 8.0 8 339 347 2,409 7.1 71 27 98 338 12.5

Col.heg.. 14 127 141 301 2.4 - - - - - 8 124 132 905 7.3 2 19 21 114 6.0

CErIco - 40 40 309 7.7 - 6 6 48 8.0 7 - 7 - - 136 306 442 1,774 5.8

Talc - I 1 4 4.0 - - - - - - -

Lina-e- _ 4 4 17 4.2 - - - - _ - _ - - - _ 1 1 3 3.0

Nuble 2 28 30 450 16.1 - - - - - - 2 2 14 7.0 53 58 111 261 4.5

Concepcion _ 9 9 40 4.4 - 2 2 16 8.0 - 2 2 14 7.0 29 11 40 49 4.4

Areuco- - - - -- -

Bio Bol 1 5 6 38 7.6 - - - - 5 5 35 7.0 - 7 7 31 4.4

MelInca - 1 1 9 9.0 1 0 2 8 8.0 _ 10 10 70 7.0 - - - - _

Totl1 885 13,295 14,180 139,568 10.5 133 1,156 1,209 11,396 9.8 73 1,610 1,683 12,918 8.0 326 631 957 5,432 3,4

Euport ('000 tone) 41.87 0 5.18 1.72Internet conouRption ('000 tons) 97.70 11.40 7.77 1.72Gr-ner price (US$/kg) 0.21 0.07 0.19 0.53Production vele (US$'000) 29,309.3 797.7 2,462.0 1,819.0 b-

Source: Corpor-i-on de Fo-ento de On Prod-ic-on, October, 1975.

Dece-ber 4, 1975

CHILE

LIVESTOCK, FRUITS, VINEYARDS AND AGRo-INDUSTRY CREDIT PROJECT

Table Grape and Nut Production in Chile

TABLE GRAPE WALNUJT AIND

Total Total TotalNew Producing Orchard Average New Producing Orchard Average New Producing Orchard AverageProvince Orchard Orchard Area Production Production Orchard Orchard Area Production Production Orchard Orchard Area Production Production(ha) (ha) - FT (tons) (tons/ha) (ha) (ha) (ha) ( (ton) tsa) (ha) (ha) (ha) (tons) (tons/ha)Aconcaqua 90 1,779 1,869 25,486 14.3 347 1,098 1,445 1,526 1.4 10 73 83 11 0.2Valparaiso 2 216 218 3,227 14.9 8 37 45 35 0.9 15 62 77 25 0.4Santiago 76 1,544 1,620 23,892 15.5 375 849 1,224 860 1.0 73 832 905 278 0.3O'Higgins 47 235 282 6,765 28.8 285 717 1,002 478 0.7 26 456 482 151 0.3Colchaqua - 7 7 284 40.6 - 15 15 16 1.1 - 3 3 1 0.3Curico - 14 14 372 26.6 6 49 55 52 1.1 - 11 11 3 0-3Talca - 4 4 35 8.8 5 - 5 - - 5 - 5 - -Linares 3 27 30 520 19.,i 1 3 4 2 0.7Nuble

6 3 9 2 0.7Concepcion 1 1AraucO

Bio Bio 4 4 8 3 0.8 4 4 1 0-3Malleco

31 31 30 1.0TOTAL TTW 3,826 4,044 60,581 15.8 1,038 2,806 1T29 1.41 T1,570 4 71

Export ('000 tons) 36-35 1.5 0.3Internal Consumption ('000 tons) 24.23 1.5 0.2Grower Price (US$/kg) 0.21 1.1 1/ 4.0 oValue (US$'OOO) 12,722.0 3,304.0 1,884.0

1/ In shell.2/ Shelled.

Source: Corporacion de Fomento de la Producion, October, 1975.November 26, 1975

CHILE


Warm Season Fruit Production in Chile

---------------------- Lemon ---------------------- ----------------------- Orange -------------------- ---------------------- Avocado -------------- _rA---New Producing Total Average New Producing Total Average New Producing Total Average

Province Orchard Orchard Orchard Production Production Orchard Orchard Orchard Production Production Orchard Orchard Orchard Production Production(ha) (ha) (ha) (tuna) (tons/ha) (ha) (ha) (ha) (tuna) (tona/ha) (ha) (ha) (ha) (tons) (tons/ha)

Aconcagua 51 524 575 5,692 10.9 33 200 233 2,281 11.4 85 558 643 2,995 5.4Valparaiso 233 713 946 7,592 10.6 33 66 99 1,041 15.8 594 1,096 1,690 6,262 5.7Santiago 344 2,572 2,916 28,366 11.0 213 859 1,072 14,027 16.3 111 725 836 2,492 3.4O'Higgins 316 1,800 2,116 15,039 8.3 896 1,802 2,698 27,654 15.3 151 1,045 1,196 3,347 3.2Colchagua 236 494 730 5,140 10.4 151 185 336 2,905 15.7 10 97 107 189 1.9Curico 3 6 9 10 1.7 - - - - - 9 - 9 - -Talca - 52 52 371 7.1 - 9 9 209 23.2 - 6 6 20 3.3Linares - - - - - - I 1 16 16.0 - - - -Nuble 1 7 8 122 17.4 _ 8 8 144 18.0 - _ _ _ _Concepcion 1 2 3 17 8.5 - - - -Arauco - - - - - -Bio Bio - 1 1 12 12.0 - - - - - - - -Malleco - 2 2 14 7.0 - 3 3 13 4.3

Total 1,185 6,173 7,358 62,375 10.1 1,326 3,133 4,459 48,290 15.4 960 3,527 4,487 15,305 4.3.

Export ('000 tons) 9,4 0 0Internal consumption

('000 tons) 53.0 48.3 15.3Grower price (U8$/kg) 0.08 0.10 0.40Production value (US$'000) 4,990.0 4,829.0 6,122.0

------------ Chirimyoy---------- ------------ Papaya -----------

Aconcagua 2 29 31 217 7.5 - 12 12 432 36.0Valparaiso 2 328 330 2,460 7.5 - 5 5 180 36.0Santiago - - - - - - - - -O'Higgins -Colchagua -Curico -Talca -Linares - - - - - - - - - -Nuble - - - - .4 .4 16 40.0Concepcion - - - - - - - -Arauco - - - -Bio Bio - - - -Malleco - _ - - -

Tatal 4 357 361 2,677 7.5 - 17.4 17.4 628 36.1

Export ('000 tons) 0 0Internal Consumption

('000 tons) 2.7 0.6Grower price (US$/kg) 0.80 0.70Production value (US$'000) 2,142.0 439.6

Source: Corporacion de Fomento de la Produccion, October, 1975.

November 26, 1975

CHILE


Fruit and Nut Production in Chile

New Producing Total Average Production Internal ProductionOrchard Orchard Orchard Production Production Percentage Export Consumption Value(ha) (ha) (ha) ('000 tons) (tons/ha) % ('000 tons) ('000 tons) (US$'000)

Pome Fruits

Apple 3,831 7,492 11,323 130.5 17.4 24,2 78.3 52.2 14,359.3Pear 502 2,129 2,631 33.9 15.9 6,3 20.3 13.6 4,069.0Quince 325 628 953 13.8 22.0 2.6 0 13.8 690.8

Drupes

Peach/nectarine 885 13,295 14,180 139.6 10.5 25.9 41.9 97.7 29,309.3Apricot 133 1,156 1,289 11.4 9.8 2.1 0 11.4 797.7Plum 73 1,610 1,683 13.0 8.0 2.4 5.2 7.8 2,462.0Cherry 326 631 957 3.4 5.4 0.6 1.7 1.7 1,819.0

Table Grapes 218 3,826 4,044 60.6 15.8 11,2 36.4 24.2 12,722.0

Nuts(un-

Walnut 1,038 2,806 3,844 3.0 1.lshelled) 0.6 1.5 1.5 3,304.0Almond 129 1,441 1,570 0.5 0.3(shelled) 0.1 0.3 0.2 1,884.0

Warm Season Fruits

Lemon 1,185 6,173 7,358 62.4 10.1 11.6 9.4 53.0 4,990.0Orange 1,326 3,133- 4,459 48.3 15.4 9.0 0 48.3 4,829.0Avocado 960 3,527 4,487 15.3 4.3 2.8 0 15.3 6,122.0Chirimoya 4 357 361 2.7 7.5 0.5 0 2.7 2,142.0Papaya 0 17 17 0.6 36.1 0.1 0 0.6 439.6

Total 10,935 48,221 59,156 539.0 100.0 195.0 344.0 89,939.7

Percentage (%): 18.5 0.15 36.2 63.8 Pi

Source: Corporacion de Fomento de la Produccion, October, 1975.

November 24, 1975

ANNEX 1Table 7

CHILE


Fruits and Nut Varieties Recoimmended for Chile

Species

Apples Granny Smith, Starkspur Golden Delicious, Goldspur Golden Delicious, Royal Red Delicious, Red Vance Delicious,Wallspur Delicious, Starkirmson, Starking, Richared, Jonathan.

Peaches Fortuna, Halford, Peak Cling, Dixon I, Reina Elena, Gaume, Pamona, Halford II, Paloro, Jungerman, Stuart, Klaut.(canning)

Peaches (a) Export: Coronet, Cardinal Regina, Redtrop, Suncrest, J.H. Hale, Fay Elberta, Fayette, Rio Oso,(fresh) Summerset, Fiesta, Halloween.

(b) Domestic Market: Springtime, Springold, Blaxingold, Robin, Dixired, Gold Dust.

Nectarines (a) Expert: Sunrise, Gold King, Early Le Grand, Le Grande, Late Le Grand, Silverlode, Regina,Early Sungrand, Autumngrand, Freedom, Early Sunrise, Nectar Grand.

(b) Domestic Market: Red June, Early Sun Grand, Rose, Sun Grand, Independence, Red King, Royal Grand,Late Le Grand, Grandeur, September Grand, Sun Free.

Table Grapes Sultanina (Thompson Seedless), Ribier, Emperor, Almeria, Tokay.

Lemons Genova, Eureka, Sutil.

Oranges Washington, Valencia, Tuncana.

pears Beuree Bose, Packam's Triumph, Red Bartlett, Summer Bartlett, Winter Nelis, Anjou.

Avocados Fuerte, Mexicola, Ryan, Princesa Eugenia, Hass, Edranol and local varieties.

Quinces Champin, Rea's Mammouth.

Plums El Dorado, Nubiana, Laroda, Queen Anne, Kelsey, Casselman, Burmosa, D'Agen, Stanley.

Apricots Tilton, Imperial, Modesta, Pariot, Royal Bleinheim, Perfection, Derby.

Cherries Bing, Anonay, Pigeon Heart.

Walnuts Eureka, Payne's Seedling, Hartley.

Chirimoyos Concholisa, Bronceada, Tumba, Deny, Canaria.

Almonds Non Pareil, Texas Prolifio, Ka Pareil, IXL, Drake's Seedling.

Source: CORFO, 1975.

January 5, 1976

ANNEX 1

Table 8

CHIE


Winegrape Production in Chile

(1974)

AverageTotal Vine- Total Vine- Average Vine- Wine Pro- Percentage of Wine Pro-

Number of yard Area yard Area yard Size duction Total Wine ductionPROVINCE Vineyards (ha) (X) (ha) ('000 litres) Production (litres/ha)

Zone I: Irrigated North Central Valley

Atacama 560 920 0.9 1.6 5,208 1.1Coquimbo 727 1,453 1.3 2.0 11 073 2.3

Subtotal 1,27 2,373 2.2 1.8 16,281 3.4 6,861

Zone II: Irrigated Central Valley

Aconcagua 270 542 0.5 2.0 2,252 0.5Valparaiso 219 508 0.5 2.3 725 0.2Santiago 808 8,403 7.7 10.4 54,217 11.3O'Higgins 1,284 5,992 5.5 4.7 39,676 8.3Colchagua 702 3,654 3.3 5.2 25,157 5.2Curico 434 5,539 5.1 12.8 35,168 7.3Talea 694 12 523 11.4 18.1 91.078 18.9

Subtotal~ 4,411 T4f T 3T4.0 8.4 248,273 51.7 6,681

Zone III: Unirrigated Central Valley

Ac oncagua - _- -Valparaiso 292 820 0.8 2.8 613 0.1Santiago 338 1,395 1.3 4.1 5,055 1.1O'Higgins 58 560 0.5 9.6 3,739 0.8Colchagua 495 2,179 2.0 4.4 7,203 1.5Curico 240 1,148 1.0 4.8 3,898 0.8Talea 2.950 2.7 4.2 15.735 2

Subtotal 2,122 9,052 3 4.3 36,243 7.5 4,004

Zone IV: Irrigated South Central Valley

Linares 699 5,846 5.4 8.4 36,362 7.6Maule 83 237 0.2 2.8 2,229 0.5Nuble 215 566 0.5 2.6 4.002 0 8

Subtotal 997 6,649 6.1 6.7 42,593 8.9 6,406

Zone V: Onirrigated South Central Valley

Linares 1,481 6,988 6.4 4.7 32,187 6.7Maule 2,777 7,132 6.5 2.6 25,766 5.4Nuble 7,516 17,437 16.0 2.3 43,650 9.1Concepcion 6.837 14.207 13.0 2.1 28,299 5.8

Subtotal 18,611 45,764 41.9 2.5 129,902 27.0 2,838

Zone VI: Irrigated Southern Valley

Bio Bio 3,448 7,740 7.0 2.2 7,050 1.4Malleco 188 491 0.4 2.6 314 0.1Cautin 23 51 0.1 2.2 17 0.0

Subtotal 3 659 8282 7.5 2.3 7 381 1.5 891Total 07 19 100.0 3 tt 100.0

Source: "Tierra del Vinoe - Journal of the ChileanAssociation of Exporters and Bottlers of Wine.Vol. 2:3, First Quarter 1975, pp.6-13.

March 10, 1976

CHILE


Wine Area and Production in Chile by Variety and Irrigated Versus Rainfed Cultivationestimate of 1973

Irrigated UnirrigatedVariety Area % Production % Area % Production %

(ha) ('000 liters) (ha) ('000 liters)

Pais 7,307 27.9 44,011 28.3 47,947 90.8 131,408 89.7Cabernet 11,218 42.8 68,494 44.1 339 0.7 5,664 3.9Cot 4,604 17.6 3,683 2.4 2,082 3.9 4,299 2.9Merlot 1,199 4.6 3,427 2.2 1,019 1.9 310 0.2Carignan 463 1.8 22,989 14.8 1,009 1.9 3,067 2.1Romano 513 1.9 1,140 0.7 129 0.2 322 0.2

Pinot 270 1.0 8,000 5.1 161 0.3 948 0.6

Verdot 331 1.3 2,005 1.3 21 0.1 50 0.1

Varias 299 1.1 1.721 1.1 129 0.2 394 0.3

Subtotal 26,204 100.0 155,470 100.0 52,836 100.0 146,462 100.0

White

Semillon 14,532 70.3 134,096 78.1 3,169 36.6 12,487 47.9

Italia 310 1.5 619 0.4 4,290 49.6 9,977 38.2

Sauvignon 3,072 14.9 24,231 14.1 407 4.7 1,308 5.0Torontel 1,539 7.4 9,911 5.8 341 3.9 949 3.6Moscatel 548 2.7 915 0.5 53 0.6 145 0.6

Cristal 159 0.8 695 0.4 178 2.1 628 2.4Pinot 83 0.4 304 0.2 11 0.1 18 0.1Varias 422 2.0 997 0.5 209 2.4 571 2.2

Subtotal 20,665 100.0 171,768 100.0 8,658 100.0 26,083 100.0

Total 46,869 327,238 65.5 61,494 172,545 34.5 H

Source: Tierra del Vino. Journal of the Chilean Association of Exporters and Bottlers of wine. Vol. 1: 2, MSeptember/October, 1974

March 10, 1976

ANNEX 2Page 1

CHILE


Land Reform

Background

1. By the early 1800s, most of Chile's good farm land had beenconsolidated into very large estates under the economienda system 1/. Forthe most part, these were cattle ranches producing for the domestic market.Late in the same century, new export markets opened up, especially in Peru,and many hacendados began to shift from cattle to wheat. This requiredmore labor, so the landowners sought to establish large resident laborforces on their properties. This was the beginning of inguilinaje (literally"renters"), an arrangement which has formed a central part of the Chileanrural structure for nearly a century.

2. The inquilinos were attracted to the haciendas through a varietyof arrangements ranging from simple rental contracts to sharecrop tenancy.Initially, the inquilinos were renters in the conventional sense, paying incash or shares for the use of hacienda lands. Thus, they were not wagelaborers but entrepreneurs in their own right. However, as their numbersincreased, and as a combination of opportunities and economic pressures stim-ulated the hacendados to take over more direct control of their lands, theinquilinos began to lose their relatively independent status. Gradually,their bargaining power eroded until they were, in fact, laborers who received

a part of their pay in the form of subsistence plot and the right to pasturea few animals within the hacienda's boundaries.

3. By the time Chile gained its independence in the early 19th century,the landed aristocracy dominated politics in both rural and urban areas. Formore than 100 years, this power remained virtually intact. The integrity ofthe landed aristocracy as the major force in Chilean politics remained viablewell into the present century. It was not until after World War I that landreform became an issue of any real political importance. And even then, thelanded aristocracy was able to deter efforts to change the rural structure bymaking minor concessions and "deals" with the growing urban middle class andreformist or anti-establishment groups and political parties. The principaloutcome of these alliances was that throughout more than half of the 20thcentury the rural order remained essentially unchanged. Even so, thehacendado's ability to resist mounting pressures for change was, with eachconcession and each new alliance, gradually eroding. By the early 1960s, thetraditional system of rural property was under serious tension.

1/ The economienda (literally "trust") system placed enormous tracts of landunder the control of conquistadores and other Spanish families.

ANNEX 2Page 2

Expropriation Concepts and Policies

4. Chile's first major agrarian reform law (Law No. 15,020) waspassed in 1962 and a Government agency, the Agrarian Reform Corporation(Corporacion de la Reforma Agraria--CORA), was created. The law authorizedCORA to expropriate land only where very low productivity or virtual abandon-ment could be proven. Even this limited power was not implemented to anyextent until Frei came into office in 1964.

5. At the time of the 1964 elections, Chile's agriculture was in dif-ficulty, characterized by concentration of land and income, underutilizationof resources, lagging production, and underemployment. Less than 7% of thefarms accounted for nearly 80% of the land. The legal minimum rural wage,including the value of payments in kind, was less than US$0.75 equivalent perday. Nearly 42% of the irrigable land in the central valley was in unimprovednatural pasture. Agricultural output had increased by an average of only 1.8%per year since 1930, while the population had grown by nearly 2.5% per yearduring the same period.

6. The agrarian reform program initiated in 1964 began as an essentially"populist" or compromise strategy which combined reformist and more classicalmodernization policies. Large unproductive farms and farms experiencing in-tense labor conflicts were expropriated while better managed and sociallystable units were encouraged to modernize along conventional lines. This dualpolicy is reflected in the 1962 land reform law, and even more so in the actualexpropriation policies, which exempted many owners outright and allowed othersto subdivide their farms privately, to keep a large reserve, and to receivegreater compensation if their farms were especially productive. It was alsoreflected in highly subsidized credit and machinery importation policies forthe modernizing commercial sector. One study reported an incrase of 164% inmachinery and equipment on a sample of private farms between 1964 and 1969.

7. The initial expropriations during the 1964-1970 period were carriedout within the context of the 1962 land reform law. At the same time, however,Congress was pressured to pass a new land reform law giving greater power toexpropriate. With the prospect of such a tougher law, some hacendados preferredto sell under the terms of the 1962 legislation. As it turned out, they didget a better deal than those who waited, benefitting from relatively moreliberal assessments, higher land prices, larger downpayments, and greater like-lihood of keeping a sizeable reserve.

Broadening the Scope of Land Reform

8. During 1964-1974 two major obstacles were encountered in carryingout changes in land tenure: the constitution and the land reform law. Inessence, the constitution prohibited the expropriation of land unless paymentwas made on the spot, but sufficient public funds were not available to carryout an extensive land reform program on a cash payment basis. Secondly,Agrarian Reform Law 15,020 restricted expropriations to the holdings which

ANNEX 2Page 3

were virtually unexploited. The Government accordingly pressured Congress

for amendment to Article 10 of the constitution and for passage of a landreform law which would broaden the scope of expropriations. In addition tolimiting expropriation to poorly cultivated holdings, Law 15,020 restrictedthe application of land reform in several other ways. It did not allow theGovernment to redistribute water resources, to allocate land indiscriminatelywithout giving first priority to peasants living on the expropriated estates,to organize the beneficiaries of land reform, or to assign land in definitiveownership on any basis except that of individual property. The provisions ofthe new Land Reform Law (No. 16,640) of 1967 empowered the President to settlethe above issues and expanded the grounds for expropriation to include land inexcess 80 basic ha regardless of whether such lands were rationally exploited.

Expropriations 1965-70

9. Between 1965 and 1970, 1,406 estates were expropriated covering3,557,000 ha. This was 14% of the country's farms and accounted for 23% ofthe irrigated acreage and 14% of the total agriculture area. The 1,406estates were equivalent to 29% of the number of agricultural properties thatwere larger than 80 basic ha and hence expropriable under Law 16,640; but thefigure also included properties expropriated under other articles of Law16,640 as well as under the previous Land Reform Law 15,020.

Expropriation and Land Quality

10. The 1967 reform law created a new unit of land measurement calledthe Basic Irrigated Hectare (BIH), in an attempt to devise a fair system forfixing the "size" of a farm for purposes of taxation and/or expropriation.This was done on the basis of an aerial survey of the entire central zone.Some characteristics of the soil itself were taken into consideration, butthe most crucial distinction was between arable lands that were situated be-low existing canals, and lands that were neither arable nor irrigable.

11. On the basis of the aerial survey, the country was divided intozones and "coefficients of equivalence" were derived for each zone. Thestandard for the BIH was "1 ha of high quality irrigated land in the MaipoRiver basin." The coefficients were designed to take productivity intoaccount and were then used to adjust the gross size of a given farm accord-ingly. Thus, a very fertile farm of 50 ha with plenty of water mightbe judged expropriable (equivalent to more than 80 basic ha), whereas afarm of several thousand unirrigated ha might not be considered expro-priable.

ANNEX 2Page 4

The Asentamientos

12. By September 1970, the reform sector included 1,406 formerly privatefarms. Approximately 25,000 families had been settled on this expropriatedland, which represented about one-fourth of the Government's original goal.It was foreseen that before legally assigning the land, the Agrarian ReformCorporation (CORA) would manage the expropriated farms for three to five yearsuntil the "asentados" (the farm workers occupying the land) became proficientenough to administer the properties on their own. This period, after CORAtakes possession of the farm and until land is assigned is known as the"asentamiento period." Within this period, a farming society is establishedbetween CORA and the asentados. This enterprise has full legal status and isgenerally known as a Sociedad Agricola de la Reforma Agraria (SARA) 1/. Ac-cording to the law the peasants on each asentamiento (which averages about 30families) would decide at the end of this period whether to continue withcooperative ownership and management, to divide the land into individual units,or to pursue some combination of the two. The Frei Government encouragedcooperatives and mixed options, and most of the asentamientos which maturedduring his term choose accordingly 2/.

The Land Reform Program during 1970-1973

13. During this period land reform was planned in a broader context andwas not limited to redistribution of land usually not cultivated. The newprogram, however, was conditioned by the processes set into motion by thereform legislation of the previous peri od, by the existence of asentamientos,by land title assignment procedures and by growing and by then organizedpeasant unrest.

14. Rural unrest was manifested by tomas, i.e., squatter invasions andtakeovers of agricultural estates and properties which were even smaller thanthe 80 basic ha limit set by law. There had been tomas during this periodbut of limited significance in both incidence and magnitude. They alloriginated in conflicts with the estate owners. The subsequent takeovers

emphasized the slow pace of agrarian reform and the small number of those whobenefitted by it and pointed the way to a method of settling worker-employerconflicts which the appropriate authorities had failed to resolve. In addi-tion, during and after the presidential election campaign of 1970, the organ-ized peasants wished to afford proof of their determination to take part indecisions on national issues. Thus the number of property takeovers rosesteadily from 1967 to 1971:

1/ Other farming societies like Centro de Produccion (CEPRO) and Centro deReforma Agraria (CERAS) are also provided for in the law, but SARA isthe most commonly applied.

2/ Since September 1973, many cooperative farms have requested permissionto subdivide their properties for individual assignment. The present

Government has granted this request and CORA now expects that most ofthe 200 cooperative farms will be subdivided.

ANNEX 2Page 5

"Tomas"' of Agricultural Properties

Year No.

1967 91968 261969 1481970 4561971 1,978

Total: 2,617

Expropriations

15. The expropriations that took place in 1970-73 were characterizedby peasant pressure, participation by the Local Councils (Consejos Comunales)and state interventions. The peasant takeovers of estates were aimed at hast-ening their expropriation where there were conflicts or peasants who had longhoped for the expropriation of the lands they cultivated. There were take-overs on small as well as large properties. The takeovers of estates werenot intended solely to press for rapid expropriation. There were also at-tempts to gain control over the working capital (machinery, livestock, etc.)which was not included in normal expropriation procedures.

State Intervention

16. The takeover of estates by farm workers posed a threat of decreasedagricultural output since the workers often lacked organization, managementskills, and access to supporting services needed to maintain production. TheGovernment, therefore, intervened in properties taken over by peasants, ap-pointing administrators who were put in charge of all the estates, includingall their assets.

17. From the beginning of 1972 until June 1973, about 4,400 propertiescovering about 6.4 million ha were expropriated. The land expropriated since1971 represented a substantial proportion of the country's area, although thenumber of properties affected constituted but a fraction of Chile's farms inview of the large number of minifundios.

ANNEX 2Page 6

Proportion of Chile's Agricultural Propertiesand Main Land Categories Expropriated during 1965-1973

TotalTotal Available Expropriationsin 1965 before Expropriations Expropriations as % of LandLand Reform 1965-1970 1971-1973 Categories

Properties (No.) 232,955 1,406 4,400 2.5

Land Area ('000 ha):Irrigated 1,253.7 293.0 436.5 58.2Dry arable 4,124.2 359.0 1,141.9 36.2Dry uncultivable 19,782.2 2,905.0 4,830.5 39.1

Total: 25,160.1 3,557.0 6,408.9 133.5

Consolidating the Benefits of the Agrarian Reform

18. Soon after September 1973, the present Government announced itsintention to restore stability to the agricultural sector, including conso-lidation of the benefits of the lengthy agrarian reform process. To thisend, the Government has (a) settled disputes with former hacendados involvingillegal land expropriations and rights to land reserves; (b) determined guide-lines for the assignment of forest land and barren land expropriated underthe land reform law; and (c) accelerated the process of land title assignments.Support measures have also been adopted to encourage more active private sectorparticipation in agricultural development.

Settlement of Land Disputes

19. The accelerated pace of land expropriations and tomas 1/ duringthe early 1970s resulted in (a) illegal confiscation of many properties; and(b) many land owners being deprived of a basic land reserve they were entitledto keep. After September 1973, many of these former land owners filed griev-ance with the new Government in an effort to repossess all or a portion oftheir land. Most cases were settled on an individual basis with claimants(though some were settled in court), and between September 1973 and end1975, nearly 2.4 million ha were returned to former owners. A few more casesare being settled.

1/ Peasant takeovers of properties.

ANNEX 2Page 7

20. According to agrarian reform law, a claimant is entitled to retainup to 50% of an expropriated property, not to exceed 80 basic ha plus 10basic ha for each male child 1/.

Forest and Other Lands not Appropriate for Agricultural Use

21. According to Decree Law No. 701 of October 1974, all forest land,whether natural or planted as well as "other lands suited for forestry pur-poses," is exempt from expropriation under the agrarian reform law. Thislaw is intended to prevent destruction of Chile's vast forest resourceswhich play an important role in the current Government long-term develop-ment strategy (para 2.05). It paved the way for a September 1975 agreementbetween CORA and the National Forestry Corporation (CONAF) which may exemptup to 5.5 million ha (220,000 basic ha) of expropriated lands from assign-ment under the land reform program. This land, presently held by CORA, isclassified as forest land, "other land best suited for forestry purposes,"and barren land. Land use studies are currently being carried out todetermine the exact amount of land in these categories. Preliminary find-ings indicate that only a small part of the 5.5 million ha is appropriatefor assignment; the remainder will be transferred to CONAF and will then be:(a) returned to original owners; (b) assigned to new owners; or (c) retainedby the state.

Land Available for Redistribution

22. The latest CORA estimate is that some 43,000 farm worker familieswill receive some 8 to 9 basic ha each of land under the agrarian reform pro-gram by December 1977. As recently as September 1974, it was estimated that61,000 families would benefit from the agrarian reform. Two factors havenecessitated revision of this earlier figure: (a) at the time of the 1974estimate, only 120,000 basic ha had been returned to original owners, but be-tween October 1974 and December 1975 an additional 85,000 basic ha were re-turned; and (b) more importantly, since the 1974 estimate, a decision wasmade to reclassify approximately 5.5 million ha of forest and other lands as"not appropriate for individual assignment" (equivalent to about 270,000basic ha).

Assignment of Expropriated Lands

23. The present Government has declared in early 1974 its intention ofrestoring stability to the agricultural sector, including assignment of allexpropriated lands in the shortest time possible. During the entire period1965-73 (September), only 1.1 million ha equivalent to 95,000 basic ha hadbeen assigned to 10,000 families under cooperative ownership. Since October1973, there has been a gradual acceleration of the land titling process. Fourthousand three hundred and fourty three individual titles were assigned betweenOctober 1973 and December 1974. A total of 14,936 titles were assigned during

1/ Even this total may not exceed 100 basic ha except in cases of excep-tionally productive operations. During the entire claim settlementperiod, less than 20 land owners were able to regain ownership of over100 basic ha.

ANNEX 2Page 8

1975. On average, 8.7 basic ha were assigned per family. CORA now estimatesthat an additional 23,000 titles will be assigned to complete the land titlingdistribution. Thus, an estimated 43,000 farm families (10% of all ruralfamilies) should receive property titles under the land reform program underthe present administration by the end of 1977.

24. The assignment of land requires in each case a soil survey, thepreparation of a cadastral map showing the lot size to be assigned, theselection of qualified beneficiaries, and finally the title issue process.Up until June 1975, CORA conducted these studies with its own field team.Since June, however, in order to speed up the land titling process, CORA hascontracted private firms to carry out the technical-economic components ofthe process such as soil surveys, land use, water rights and preparation offarm size units. In addition, it has employed local lawyers for the prepara-tion of title deeds and their recording in the appropriate land registry.Of the 14,936 titles assigned during 1975, over 10,000 were issued duringOctober, November and December. For the period from January to October 31,1976, CORA distributed 5,146 titles for 44,523 basic ha, and current estimatesare that, as for 1975, the bulk of titles for 1976, will be distributed inNovember and December 1976, including about 10,000 titles for about 175,000basic ha. CORA's further estimates show that for 1977, the final year of thecurrent agrarian reform program, about 103,000 basic ha will be assigned.

November 23, 1976

ANNEX 3Page 1

CHILE


Agro-Industries: Processing and Marketing

A. The Dairy Industry

Milk Production

1. Total milk production in Chile has increased steadily from 1960 to1974 except for a decline in 1972 and 1973. The following table gives details:

Total Milk Received byYear Production Plants for Processing

- (Liters Million) %

1960 760 361 481965 810 416 511970 895 526 591971 940 571 611972 880 506 581973 855 442 521974 905 523 58

2. Accurate statistics are not generally available for total production,and the figures used are estimated by CORFO, but the quantities received bythe processing plants are from actual records. Although the proportion ofmilk for processing has increased gradually, a level of about 60% is rather lowand suggests that about 30% is still consumed in the rural areas and the urbancenters as unprocessed milk, leaving about 10% for calf-feeding, on-farm humanconsumption and spoilage.

3. From the standpoint of milk supply, three distinct geographical re-gions can be identified: the central region, the mid-southern, and southern.The central region comprises the Provinces of Santiago and Valparaiso and someparts of Aconcagua and O'Higgins. The region is in a radius of about 150 to200 km of Santiago, with a population close to 5 million people and is themost important market for fluid milk and dairy products in Chile. This regioncould probably be self-sufficient in milk production but total production hasdeclined over the years, as shown in the following table:

ANNEX 3Page 2

Milk Received by % of Total MilkPlants in Region Received by Plants

Year for Processing Countrywide(Liters Million)

1960 130.8 361965 89.7 221970 83.9 161971 81.1 141972 56.5 111973 38.6 91974 48.8 9

4. It is difficult to determine the reasons for this drop but it ispossible that more profitable cropping options were open to farmers, or thatcompetition was too great from low priced and reconstituted milk from locallyproduced, as well as imported, milk powder. Since the main milk producingareas are too distant for freighting fresh milk, this drop in production hasresulted in an inadequate supply of good quality fluid milk to Santiago andthe other cities in the region.

5. The mid-southern region, comprising the Provinces of Nuble, Con-cepcion and Bio-Bio, shows the following production statistics:

Milk Received by Z of Total MilkPlants in Region for Received by Plants

Year Processing Countrywide(Liters Million)

1960 50.8 141965 55.6 131970 78.7 151971 78.5 141972 69.7 141973 62.6 141974 74.4 14

The region is located between 400 and 550 km south of Santiago and hastraditionally been considered too distant to be a source of fresh fluid milkfor that city. Production has, therefore, adjusted to the local demand ofthe main cities in the area--Chillan, Concepcion and Los Angeles--and to thedemands of plants located in that area. This region, however, has consider-able dairy potential and it is within trucking distance of Santiago. Itcould, therefore, supplement the central region in supplying fresh fluidmilk to that market.

6. The southern region includes the provinces of Cautin, Valdivia,Osorno and Llanquihue. Dairying has developed considerably in this regionand milk supply now accounts for over 70% of the total milk production inChile. The growth in supply is detailed in the following table:

ANNEX 3Page 3

Milk Received by % of Total MilkPlants in Region Received by Plants

Year for Processing Countrywide(Liters Million)

1960 165.7 461965 259.3 621970 343.4 651971 388.6 681972 358.4 711973 318.9 721974 380.5 73

7. The region is too far (800 to 1,000 km) from Santiago for transport-ing fluid milk and most of it is processed into powder. The main market forthis product is Santiago, where the powder is reconstituted to supplement thesupply of fluid milk to that city.

Present State of the Industry

8. From the processing standpoint, Chile's dairy industry has the follow-ing important characteristics:

(a) most of the production is concentrated in the southern part ofthe country;

(b) milk supplies show a marked degree of seasonality; and

(c) main markets are located at considerable distances from theproduction areas.

These characteristics have had a strong influence in the location and type ofdairy processing developed in Chile. (They also explain the ample supply ofgood quality milk available in the south, in contrast to the low quality milkmarketed in the major cities in the central part of the country.) Milk pro-duction has a good potential in Chile (Annex 1) and by directing more invest-ments to the mid-southern and the central regions, more and better quality milkcould be placed on the markets of the cities of Santiago and Valparaiso. Infact Chile's dairy potential should ultimately generate an exportable surplusof milk powder, thus terminating the import of this commodity which has beensubstantial in the past.

9. There are about 42 dairy processing plants operating in Chile andduring 1974 they received a total of 523 million liters for processing. Co-operatives accounted for 41% of the volume. Five cooperatives own and operateseven dairy plants and an additional 12 cooperatives collect and supply milkto private dairy plants.

ANNEX 3Page 4

10. In the central region, there are five main plants, one in Valparaisowith a capacity of 60,000 liters/day and the other four in Santiago. One of

these plants has a capacity of 200,000 liters/day, and the remaining three,a total combined capacity of 150,000 liters/day. This is obviously insuffi-cie!nt for a market of about 5 million people whose consumption (estimated

to be about 85 liters/capita annually) would require the equivalent of [.16million liters/day for fluid milk and dairy products.

11. This estimated demand is made up approximately as follows, taking

into account that the seasonality ratio (winter:summer production) of thesupply of fresh milk from around Santiago is not greater than 1:2.

Central Region: Source of Milk Consumed(Based on 1974 Statistics)

Type and Source Summer Average Winter Average Average

Fresh Milk Liters/day % Liters/day % Liters/day %

A) Processed in Plants:

1) From Central Region 190,000 16 90,000 8 140,000 12

2) From Mid-SouthernRegion 120,000 10 80,000 7 100,000 9

B) Loose Milk 270,000 22 130,000 12 200,000 17

Reconstituted from Powder 470,000 39 650,000 59 560,000 48

Other Dairy .-roducts:Cheese, etc. as Milk 160,000 13 160,000 14 160,000 14

Total Milk Consumed: 1,210,000 100 1,110,000 100 1,160,000 100

12. From the table, it can be seen that nearly one-half of the milk sup-ply in the central region comes from powder, less than 20% is consumed as un-processed milk and the balance is consumed as processed milk (pasteurized) and

dairy products. Although powder will continue to be an important component inthe milk supply for this region, increased demand would mainly be in the formof good quality fresh milk and dairy products made from such milk. Supplies offresh milk from the mid-southern region have been estimated at 100,000 liters/day which is the amount projected to be received early next year. The bulk ofthe milk powder produced is purchased by consumers and reconstituted by them.However, the processing plants also reconstitute to supplement their needs,particularly in the winter to maintain a stable supply. Milk reconstitutionfrom powder adds to the workload of the plants and wipes out the apparent sur-plus processing capacity that the data indicate. To reduce the amount of loose

ANNEX 3Page 5

milk consumed and meet the increasing derinand for more fluid quality milk anddairy products, a processing plant of about 100,000 liters/day capacity wouldbe required.

13. The processing plants in the central region are in satisfactoryphysical condition, except for two old plants in Santiago (Soleche andDelicias) whose combi.ned capaclty is 120,000 liters/day.

14. In the mid-southern region, there are four main plants with a totalcapacity of 460,000 liters a day; all but one are owned by individual coopera-tives. One, with a capacity of 100,000 liters/day, manufactures cheese exclu-sively. The other tLwo, one of which is located in Los Angeles and the otherin Chillan, produce pasteurized milk and products other than powder for theregion and have started freighting fresh milk to Santiago. The fourth plant,located in Concepcion, has a capacity of 130,000 liters/day and produces milkpowder exclusively. These plants are generally in good condition and there areplans to expand capacity to meet the rising demand for fluid milk and dairyproducts in the region and to meet projected increased freighting of fluid milkto Santiago. The ratio between winter and summer supply in this region rangesfrom 1:2-1:4. To provide a steady supply to the cities in the region and toSantiago, plants intend to pay higher prices in the winter to reduce the sea-sonality ratio. As indicated in Annex 1, however, this may not be in the bestinterest of producing milk at lowest cost possible in Chile.

15. The southern region, which has grown into the most important milk-shed in Chile, has 21 dairy plants, six of which process over 60% of the milkvolume. Most of the production is in the form of milk powder, but cheese isalso an important product. In general, the plants are well equipped withmodern machinery and are well maintained. There is no shortage of capacity.However, this may not be true if a strategy for dairy development based onseasonal calving is implemented. With procurement prices decontrolled as ofSeptember 1975, the industry may revert to the former practice of payinghigher prices for winter milk to reduce the winter/summer ratio, which cur-rently is about 1:10 and even 1:15 for some plants. This region producesmilk for manufacturing purposes essentially and it may be more profitable forthe dairy industry as a whole to accept the pronounced seasonality than forcean unnatural ratio which eventually will only increase the cost of powder andother manufactured products.

16. Normally milk is transported to plants in 50-liter cans by motorlorries. However, a number of plants are changing or considering changing tobulk collection, which would involve the installation of bulk holding tankson farms and collection by refrigerated tankers. There is a danger, however,that not enou-gh consideration will be given to the technical and financialimplications and that development will take place on an "ad hoc" basis, witheach plant adopting its own approach.

ANNEX 3Page 6

17. The sanitary quality of milk produced in Chile is poor relative toquality levels normally found in countries with well developed dairy industries,but this is not surprising because the prices paid by processors are related onlyto fat content and milk is accepted, provided it is not sour. Under thesecircumstances, farmers pay little attention to producing "clean" milk.

Strategy for Developing the Dairy Industry

18. Objectives. The objectives in developing Chile's dairy industry areto:

(a) increase production of milk powder, not only to reach self-sufficiency and discontinue importing this commodity, butalso to generate a surplus for export; and

(b) improve the quality and the quantity of fluid milk availableto urban centers in Chile, particularly in the central regionof the country.

19. The first objective requires intensified development of the southernregion, with emphasis on on-farm investments to increase production, while thesecond requires an increase in milk production, both in the mid-southern aswell as in the central region, and a corresponding increase in processingcapacity, particularly for Santiago. Investments should therefore be gearedmostly to expanding plants in and around Santiago, in the Provinces of Bio-Bio and Nuble (mid-southern region), and, to a lesser extent, in the leadingdairy Provinces of Osorno and Llanquihue (southern region). Typical equipmentneeded would include milk weighing tanks; pumps; centrifuges; can washers;heat exchangers; holding tanks; bottling lines; bottle washing units; equip-ment for making and packing butter, yogurt, ice cream and such; and civilworks and installation. Recommendations are made in the following paragraphson ways to deal with specific problem areas.

20. Location of Fluid and Manufacturing Milk Production Areas. Fluidmilk, which is required mainly to supply the cities of Santiago and Valparaiso,should be produced as much as possible on irrigated forage land within a radiusof 200 to 300 km of Santiago. Furthermore, fluid milk should be produced undercontract and the price paid for fluid and manufacturing milk should be relatedto the market price of the final product.

21. Milk Assembly. In designing a milk assembly system, considerationshould be given to a number of important technical and economic factors, in-cluding (a) herd sizes, location of farms relative to processing plants androads, and projected growth rate of milk supply and of farmers' herds;(b) availability of water supplies, electrical supplies and access roads suit-able for tankers; (c) comparison of total costs involved and the sharing ofcosts between processor and farmer when milk is collected from each farm andwhen a group of farmers deliver to a sub-station for collection by the

ANNEX 3Page 7

processor; (d) standards and technical specifications suitable for localconditions, including sampling and analytical procedures; and (e) choiceand procurement of equipment to meet specifications.

22. Worldwide experience shows that the sanitary quality of the milksupplied can be dramatically improved over a few years when a quality pay-ment scheme is introduced. If a milk quality payment scheme is introduced,it will be necessary to instruct farmers on clean milk production. Thisservice is often provided by the processing plants and it would appear to bethe best approach in Chile. Milk as produced by the cow is normally a cleanproduct (almost sterile) with bacterial contamination taking place after itleaves the cow's teat. The main sources of contamination include dirty uten-sils, milking machine, milker, cow's udder and surrounding surfaces. Conse-quently, quality milk production revolves primarily around cleanliness andthe adoption of efficient cleaning techniques. A good supply of clean waterin the dairy shed is a prerequisite but the milker must also receive trainingand instruction in hygienic methods of milk production, including washingcows' udders before milking; cleaning the milking shed, milking machine anddairy utensils; and using detergents and sterilants.

23. After cleanliness, cooling is the next important step. Milk shouldbe cooled as quickly as possible after it is taken from the cow. Under practi-cal milking conditions, some level of bacterial contamination is inevitable,even when high standards of cleanliness are observed. Milk is cooled to slowdown bacterial growth, to reduce deterioration in storage, and to prolongstorage life. At present, only about 5% of Chile's milk supply is cooled onthe farm.

Marketing

24. Local Market. Imports, mostly in the form of powder, have supple-mented local production about 10 to 30% over the past decades. The peak wasreached in 1973 (41%), followed by a sharp decline in 1974 due to importrestrictions; no imports were recorded in 1975 and none are projected for1976, as shown in the following table:

Direct USAID % Imported Reconstituted Unit Price ofImports, Donations, Milk of Total Powder,

Year tons tons Consumed US$/ton

1965 17,261 7,862 24 3881970 6,541 5,433 12 4801971 9,371 9,958 17 6171972 28,356 5,048 28 7931973 53,103 605 41 6051974 15,343 15 14 8301975 - -

1976

ANNEX 3Page 8

All imports are handled by an official institution, Empresa de ComercioAgricola (ECA), including donations from USAID as well as purchases fordistribution to the Government and private plants or other outlets.

25. With the growing domestic production of milk and dairy products,it is probable that imports of milk powder will remain low in the comingyears. The fact that the main milk producing region is so distant from themain center of consumption will foreseeably lead to a situation where theproduction of powder in the southern region will exceed the internal demandand yield an exportable surplus. The central region will still have an un-satisfied demand for fresh pasteurized milk, due to the increasing income of

the population there, which will allow consumers to cater to an expectedpreference for fresh pasteurized milk over reconstituted milk from powder.This is supported by the following statistics, showing main product mix andquantities produced by all dairy plants in Chile.

1960 1965 1970 1971 1972 1973 1974

Pasteurized Milk 117 86 81 134 151 160 165(Liters Million)

Cheese, tons 4,410 6,594 12,924 17,761 18,572 16,728 13,298

Butter, tons 4,625 6,206 5,904 6,608 5,322 4,285 6,465

Powder, tons 12,553 18,593 28,135 32,837 27,262 28,788 31,314

Pasteurized milk shows a considerable increase in the last four years, duemainly to the increased output of the Chillan and Concepcion plants in themid-southern region and the Vina del Mar and the Delicias and Soprole plantsnear Santiago in the central region. The trend is levelling off as plantshave reached saturation, and volume can be increased only by either reducingseasonality of milk deliveries or investing in expanded capacity, particularlyfor Santiago, where potential demand is greatest. Plants mix reconstitutedmilk from powder with fresh milk to produce two types of pasteurized milk, onewith 2.5% butterfat sold at US$0.125 equivalent in 1-liter bottles and theother with 3% butterfat sold at US$0.175 in 1-liter bottles. This latterquality milk is also sold in expendable containers at US$0.203 per liter.

26. Only the 2.5% butterfat quality milk is subject to Government pricecontrol and vendors are required to stock this product at all times. If sup-plies run out, any of the other quality pasteurized milk available is sold atthe same price as the controlled variety. Under these conditions, approximate-ly 60% of the pasteurized milk sold is of the 2.5% butterfat variety.

27. Up to September 1975, when procurement prices were controlled,plants paid producers a uniform US$0.077 per liter. Collection costs varybetween US$0.01 per liter around Santiago to US$0.025 per liter for the milkbrought to Santiago by road tanker from the mid-southern region.

NA7NNEX 3IPageL

28. Although demnrand for pasteur'ized mil-k is expected to contlnue tori:se, there are serious obstacles: most retailers do not have facilitiesfor keepin,g th- mijlk u-nder refrigeration and only abouct _<2 off -he hoauseholds in Sanc'ago are reported to have refrigerators. Pasteurized milk inTetrapak carLa.s is available at US$0Y273 equivalent per iter b-ut sold i-nvery limited volume due to its high price. Loncoleche, in its plant InCautin, intends to produce sterilized milk in an asceptic containear far sale_over the ent ire countryv

29. u -eesee Iike powder, is a-n er'ective product for axtendJng theshelflrIe Coh milk, lheese production showed impressive gains unt-il 1972 whenprices dropped in relation to powder. IJnlike f1uid n.ilk and powder 9 salle ofcheese is levied with a 20% (IVA) tax. The main cheese varieties are freshand soft cheese, gouda type and hard cheese. Cuirrent wholesale prices areUS$1.66 equivalent per kg for hard cheese and US$1.55 per kg for gouda cheese.In general, the price of cheese runs about 18 to 22 tbmes the cost of rawmilk. Demand for cheese is expected to essentially keep pace with the Dopu-

lation increase in the next few years.

30. Butter is an important by-oroduct from the producLion cf powderand standardized fluid milk. It has no, sho-wn any partl-clari -p--adct-'ontrend except a pronounced drop in 1973. Future de rand for butter beou1 beexpected to correlate with population growth compounded wirth increased income per capita. Current price is US$2.f0/kg equivalent to the consumer,

31. Powde- is the most important dairy product in C- i re ani-.t isconsunied wi 4 iin the country except for a small but groWIlng e-- 0 Fordomestic consun>,Pt on, the industry produces, inT addirtion to ki.w iilk c-oar1,milk with three different levels of fat 6ontent: 26% 13% -. m

milk powder is used by the processing plant for reconsta

with fresh mi'lk ta produce pasteurized -c-'IkG Plarnts also mJ i--mii-

powder and butrleroil.

32? 2,1il -1 o nwoer. n 26% and ' Dce---.;_erfat co,^tent is 5s

in the consumer -_;rke-' in cans of O.ZS, kgs, kg and 2 kg each5 The cur--e&treta'il p-ri -9 7IS-_,95 eouiv-alent per f,Yor 26% Fat cortsnc- &,7.'per kc fcor the 18% fa conte-it. w'Jderit a 1l20 fat lva--- l sproduced and sold by the industry exc usi-vely to the National 1realth Service(Servicio Nacional de Salud- SNS) for supplying milk to hcspitals andschools. The current dereand is about 45 000 tons arnually a-ad 1- rs expec-edto increase. 'IT ce is not con-trolled and SNS has beer rjlaig US4S0.86per kg. The industry also produces a Alow cost reconstitute, fa,--1F food frompowder, 5UppLeweoced with hydrolized wheat flour. it coot- m /' oroteinant s`ells ivo'- a-o : US$1 45 equivale-nt per kg to the nenS

33. Production of milk powder is expected to increase nn view of thepotential of the southern region. However, because of the likely preferen-cefor pasteurized millk antd other products. a growing surplus for export wouldCooear to be a ogical consequence.

ANNEX 3Page 10

34. Export Market. The export market for milk powder is very competi-tive and currently there is an oversupply of this commodity in the world.However, under the tariff concessions of the LAFTA market, Chile has exported

milk powder to several South American countries--two shipments have been madeto Colombia (one for 300 tons and another for 200 tons) and a 300-ton shipmenthas been made to Venezuela. Discussions are also being held with Ecuador and

Bolivia concerning exports to those countries.

35. The current international price for skim milk powder is US$680 per

ton, or US$0.68 per kg. Allowing for the value of US$1.80 per kg butter foran initial 3.5% butterfat in the milk and a conversion rate of 9:1 from milk

to powder would leave US$0.826 per liter of milk to cover the price paid tothe producer, plus collection, processing and marketing costs. The margin

seems small and can be profitable only if producers and processors optimizetheir symbiotic relationship to reduce costs as much as possible. Since pro-

curement prices were decontrolled in September 1975, the processing industry

in Chile has on many occasions expressed its intention to adjust prices in a

manner that would reduce seasonal fluctuations and increase plant throughputs,

thus avoiding heavy investments in expansion of capacity. However, thiscould lead to an overall increase in the cost of powder and render it uncom-petitive in the export market.

B. The Fruit Industry

General

36. Chile's production of citrus, apples, pears, stone fruits and table

grapes have increased at an annual rate of about 3% since 1960. Populationduring the same period grew at about 2.5%, thus indicating a net increase percapita. During the 1960s, large producers and wholesalers lived under the

uncertainty of land reform, and there were no significant investments made in

the industry. However, because exports expanded rather vigorously up to themiddle 1960s, with volume up by 80% and value by 115%, CORFO commenced theconstruction of fruit cold stores and packing lines mostly in strategic loca-tions in the fruit growing areas. The objective was to provide refrigeratedwarehousing and grading and packing facilities for growers and exporters to

avoid fruit spoilage, improve quality, and comply better with export marketrequirements.

37. Although export volumes declined between 1970 and 1974, total

values increased from US$7.1 million in 1968 to US$12.5 million in 1973.Production and exports were increasing in 1975, and, supported by Govern-ment's economic policy, growers, wholesalers, and exporters are consideringthe time ripe for considerable investment in the industry in the form ofcold stores and packing lines. However, more than half of the projectedplans have been deferred due to lack of credit.

ANNEX 3Page 111

Present Sta, ;-

38. -:-..o> aoeo:n h each modulewith a stoa - - ie os kg/box of fruit Thesecold seoz-, as - -r-f o S A. (ENAFRI),a subsidiary o- a a. `aer ehich time ENAFRI started toselL some of Fh-3 - - c CCrt- : oe-2oers- EtN.AFTs continued existence is underreview by the I: - -S - a neede` service to the areas

which lacK 0-ie -J a a-.:ecu' ace d t is felt that trans-ferr-iag <cc i:. -.. 2- c c ->i 2 .c ½a to a situation ofmonopol,- cn -ialt i?_ he same area.

39. AL- through¢ the ports ofValparaiso ani a -n Ai o.a raso) w th about 55% ofthe volume going tS-a- '.n-3i h-s is expected to increase to 65%in 1980. The pso>e-J. spents for fw- ut are as follows:

San Antonio~a--kg Boxcs …-

2,057,000

3,9 05Q000

40. Valpaoaisci L 'so clandIs rost o t= pel-h.abe imports that requirerefrigerated S<c-a-as met '. facilities for thistype of sco -. . O- S ainc . n a. E-NAFRI is just finishing theconstruote'_-n of .- r c d.- Vz i.-z. -sr-cr Y co r T T I- - capaclty of 3759000 boxes

(7,500 pons3 a-i. pa he ebqupped to fumigategrapes befofre sh_pfnei - i, L a a i i£ In the USA. The operation willtake place undeo -e- - U SBA cence, the requirement toplace the dep 9'-9e _ns '£ poi-t oerirmete Ct iensure a stiort and controllableroute to the sg r- <a r

4 I . The p-Aa - _ a s port anid this led tothe two-story A° : and to operate. In general,the project -. s. 2 a d m-ere is doubt that it is

0~~~~~commercially vizb>½ -pr<5 pears and3 a;apes are stored at 0 C; however, theentire depot has be£e e2Sg. 0ed 'or car-y-ing -21 C The advisability of break-ing the- C sh-ppi IO-re , as debated,This requires -L'-- Z e ' ' euatcl-.eraure an it is contended thatsuch an opeo -lity Cold store rates chargedby ENAFRI are r -C- j n a n <er box per month. Private ex-porters are bui :. a I K' their own needs. Theirstrategy is to pr-c-lu r:aa-:arate apots in the producing areas to storethe fruit inmmediately a f tac- oa rveset -n as -wel1 as cold store capacity near

ANNEX 3Page 12

the port of shipment for prompt delivery to freighters in suitable loads.The main single exporter, who in 1974 handled 25% of the total exports of

apples and pears and 47% of the export of grapes, is currently building

three cold stores, all in the capacity range of 200,000 to 300,000 boxes.

42. With the port of San Antonio projected to beceme the main outletchannel for fruit exports, CORFO began construction of a cold store theresimilar to, but smaller than, the one in Valparaiso. It has one story anda capacity of 200,000 boxes (4,000 tons). Construction was interrupted due

to lack of funds in April 1974, with about 50% of the civil works completed

and the refrigerating equipment landed on the site. The estimated cost was

US$2 million; however, to complete the Project an extra US$1.5 million wouldbe required.

43. At present, there are about 68 fruit cold stores in Chile, with a

total capacity of 5,234,000 boxes; 29 are located in Santiago, representing

50% of the total capacity, which is far in excess of the requirements of thatcity. CORFO has estimated the total national need for 1974 at about 5,800,000

boxes, which results in a net shortage of 570,000 boxes. However, the real

deficit in the production areas is much greater as it is masked by the excesscapacity in Santiago. CORFO estimates that the Provinces of Curico and Talca

have a shortage of 1,500,000 boxes, whereas Santiago has a surplus capacity

equivalent to 1,800,000 boxes. The Province of O'Higgins also has a shortage

of about 400,000; Colchagua of 300,000; and Concepcion of 400,000. Based on

projected fruit production, total requirements of refrigerated storage space

in 1980 would be about 9,100,000 boxes, representing an increase of 57% overthe 1974 requirements.

44. The work method in the fruit cold store and packing industry is asfollows: the fruit received from harvesting is stored under refrigerationimmediately in wooden bins of about 400-kg capacity each. These bins are

stacked by lift trucks, and the depot is maintained at 0 C with ceiling-typeforced draft refrigerating units. The packing line is generally installed in

an adjacent shed and its operations are scheduled to meet market demand andalso level the workload to avoid fluctuations in the rate of employment oflabor. The operations involve washing, waxing, grading and packing. Fruitfor export is generally packed in cartons and for the local market in woodencrates. Export volumes are packed in March and April, when the bulk of theexported fruit is shipped. About 85% of the exports of apples are shippedin March and the balance in April. Packing plants operate for at least sixmonths of the year to supply the local market. The cold store serves as aconvenient buffer to reduce fluctuations in fresh fruit prices in the localmarket.

ANNEX 3Page 1.3

Market

45. Local Market. Fresh fruit marketing for domestic consumption in-volves a series of intermediaries which result in relatively high prices to theconsumer and at times not very attractive prices to the producer. Most fruitmarketing takes place in Santiago. The chain of cold stores existing and pro-posed will help to level prices throughout the year although it will also per-mit a certain amount of speculation. Reject fruit from the packing firms issold in bulk or crates as unclassified fruit to small merchants, but it couldserve as excellent raw material for a fruit processing industry to produce fruitjuices, concentrates, preserves and fruit in syrup. However, the lack of acheap and good quality can has so far prevented this development on a significantscale. Between 70 and 80% of the production of apples, pears and table grapesare consumed in the domestic market.

46. Export Market. With its location in the southern hemisphere, Chileenjoys the advantage of being able to supply fresh fruit to the markets in thenorthern hemisphere during their off-season. Although Chile regularly exportsabout 11 different types of fruit (apples, pears, grapes, nectarines, lemons,plums, cherries, melons, peaches, almonds and walnuts), apples and grapes areby far the most important. Together they account for over 80% of the value offresh fruit exports. Pears are third with around 10%. The Chilean fresh fruitindustry is thus essentially based on three main products. Apple productionshowed an impressive increase of 127% from '1968 to 1972, pears registered a gainof 70%, and grapes, including wine grapes, went up 28%. Although productiondeclined in all cases in 1973, all fruits showed improvements in 1974 as in-dicated in the 'Lol:Lowing table:

Wine andYear Apples Pears Table Grapes

-------------- (Tons)

~968 66,000 20,000 813,000i970 82,000 22,000 668.0001971 93,000 22,000 910,000

1972 50,000 34,000 1,037,0001973 148,000 32,000 953,0001974 155,000 34,000 960,000

Source: FAO Yearbook,

ANNEX 3Page 14

47. In spite of production increases, export volumes stagnated duringthe period 1970-73 due mainly to the aggressive marketing policies and system-atic market penetration by Chile's main competitors, South Africa, Australia,New Zealand and Argentina, as shown below:

Year '000 Tons US$ '000

1960 21 2,4501968 43 7,1091970 45 9,5581971 55 11,4401972 46 10,0691973 45 12,543

Source: FAO

Apples Pears Table GrapesTotal % of Total % of Total % of

Year Exports Production Exports Production Exports Production(Tons) (Tons) (Tons)

1968 20.9 32 4.0 25 13.4 1.61970 18.9 23 5.4 25 15.9 2.41971 28.0 30 7.3 33 17.4 1.91972 23.9 16 5.3 16 15.4 1.5

48. The main export markets have traditionally been the USA for tablegrapes and pears, Europe for apples and pears and Latin America for apples,pears and table grapes. In general, the share of Chilean exports to the USAand Europe has declined, while the share to the Latin American countries,where Chile enjoys lower freight and tariff advantages offered by LAFTA, hasincreased. However, the trends from 1968 to 1972 cannot be considered as in-dicative of Chile's future fruit exports. The'Government's favorable policieshave made producers, processors and exporters more confident and this is lead-ing to new investments which will result in increased exports to both tra-ditional and new markets, although these investments are limited due to thelack of credit.

ANNEX 3Page 15

49. The USA has been the most important export market for freshChilean fruits, except for apples. In 1968 and 1969, it accounted for about50% of Chile's total export earnings (US$7.9 million) from fresh fruit. About95% of the volume of grapes, peaches, plums and prunes exported is shipped tothe USA and, on an average, the USA obtained over 50% of the grapes it importsfrom Chile. Grapes do not stand up very well in storage, which frees theChilean imports from having to compete with local production during the off-season. Grapes should continue to do well in the USA market, whose importsincreased considerably in 1974, as shown in the table below:

Total USA Chilean Exports to USAYear Imports Volume % of USA Imports

--------------- ('000 Tons) … -

1968 11.01970 9.91971 - 11.91972 21.3 10.3 481973 16.0 -1974 28.9

50. Apples have never been exported to the USA although one exporterhas made some test shipments of green apples (Granny Smith variety) to theUSA and Canada. Since USA production of apples stands up well in storage,it seems unlikely that Chile would be able to compete with domestic producersor with such countries as Argentina and South Africa that have transportationadvantages.

51. Although domestically produced pears provide strong competition,Chile has exported the fruit to the USA. Volume declined considerably in1972, but it is increasing again as shown below. USA imports, however,dropped in 1974, as shown in the same table:

Total USA Chilean Exports to USAYear Imports Volume % of USA Imports

…-------__----- ('000 Tons)

1968 2.31970 1.11971 - 2.4 -1972 9.6 0.5 51973 12.61974 9.3

52. Freight costs are comparatively high for Chile, due to its geo-graphical location and the relatively small size of the shipments. There-fore, since fresh fruit from Chile cannot compete with the USA west coastproduction, it is shipped to the eastern seaboard where 90% is generallylanded in the port of New York and the balance in the port of Baltimore.The USA buys the fruit on free consignment and most of it is auctioned

ANNEX 3Page 16

off to wholesalers in the port of New York and the rest directly to dis-

tributors. Fruit is generally not kept in cold store, with shipments beingscheduled to meet consumer demand. In general, there is a premium for thefirst shipments of fruit to arrive in the off-season. One drawback is thatfruit is not identified by origin, which is regarded as a disincentive fornational promotion.

53. Europe has been an important outlet for fresh Chilean apples andpears, but not for table grapes, peaches, plums or prunes. About 60% of

the total export volume of apples is marketed in Europe, primarily in theFederal Republic of Germany, The Netherlands and Sweden. The European Comon

Market is a gigantic growing outlet whose total imports of apples amountedto 1.3 million tons in 1974, an increase of 9% over the previous year. TheFederal Republic of Germany, the largest single market, imported 695,000 tons

in 1974, up by 17% over 1973. However, exports from the EEC were also 9%higher in 1974 than in 1973. The most important suppliers of apples in 1974

to the EEC and the Federal Republic of Germany in particular were as follows:

Federal Republic

of GermanyEEC Imports % Imports %

('000 Tons) ('000 Tons)

France 545 42 266 38

Italy 258 20 194 28

South Africa 125 10 40 6

Argentina 87 7 43 6

Netherlands 75 6 45 6

Australia 49 4 9 1

New Zealand 42 3 12 2-------------------------------------------------------------

Chile 15 1 6 1

Other 104 7 80 12

Total 1,300 100 695 100

Source: Fruit Intelligence

ANNEX 3Page 17

54. The EEC markets are dominated by France and Italy. Among thesouthern hemisphere producers, Chile trails far behind South Africa,Argentina, Australia and New Zealand. However, it should be able to com-pete with Australia and New Zealand if it adopts more aggressive marketingtechniques. The history of Chilean exports to its main European buyers ofapples and pears is shown below:

Chilean Apple ExportsFederal Republic

Year of Germany Netherlands Sweden…('000 Tons)

1968 8.3 - 2.31970 5.1 1.6 1.61971 5.9 2.3 2,11972 5.2 5.2 0.31973 2.4 5.0 NA1974 5.9 8.2 NA

Chilean Pear ExportsYear Netherlands Sweden

…('000 Tons) -

1968 - 0.31970 0.7 0.81971 0.9 1.01972 1.0 0.81973 - NA1974 1.2 NA

Source: Fruit Intelligence

55. Chilean sales to the European markets are on an FOB, or minimumguaranteed price basis, with letter of credit. Any difference in the finalprice is shared between exporter and importer. South Africa and New Zealandsell on a free consignment basis and Australia and Argentina on minimumguaranteed price basis. Chilean exports have fluctuated considerably, bothin totals and between countries, a situation that is likely to continue. TheEuropean market also offers good prospects for fruit juices and dried fruits.Production of these items is being started but volumes are small.

ANNEX 3Page 18

56. Major exports of apples to other Latin American countries aremainly to Colombia and Peru; table grapes, mainly to Brazil and Venezuela;and pears to Brazil and Peru, as shown on the following table:

Chilean Apple ExportsYear Colombia Peru

---- ('000 Tons) ----

1968 0.7 5.21970 2.8 5.61971 6.6 5.11972 7.8 3.1

Chilean Table Grapes ExportsYear Brazil Venezuela

('000 Tons) …

1968 0.3 1.31970 2.0 2.01971 1.7 1.91972 2.0 1.7

Chilean Pear ExportsYear Brazil Peru

---- ('000 Tons) ---

1968 0.4 0.71970 - 1.41971 0.6 0.91972 0.1 1.1

57. In Brazil, Chile suffers very strong competition from Argentina.However, in the Andean market Chile is reported to have made good progress,particularly in 1974 in Peru, Colombia, Venezuela, Ecuador and Bolivia. Asusual, apples, pears and table grapes account for over 90% of all Chileanfresh fruit exports to Latin America. All fruit exported to this marketis sold on a firm FOB or CIF basis but, in general, importing agencies lackexperience, which results in a poor feedback to the exporters. It is verylikely, however, that, with its favorable location with regard to the Andeanmarket countries and the growing income of these nations, the Latin Americanmarket ultimately will replace Europe as the principal export outlet forChilean apples and pears.

58. There are about 37 exporters of fresh fruit in Chile. However,six firms handle 80% of the export volume and three are cooperatives. Pri-vate exporters advance interest-free money to growers to cover inputs andthey purchase the production at harvest time. They also provide technical

ANNEX 3

Page 19

service to farmers on a basis of one technician to about 40 producers. Co-

operatives render a marketing service to their producer members and pay theprice resulting from their sales after deducting expenses.

59. Prices. A 6-kg box of table grapes is sold at about US$14 in the

USA. After deducting expenses, the price paid to the farmer is US$2.16equivalent. Following is a summary of the cost breakdown:

US$16-kg box of grapes

Cost at farm-gate: 2.16Commission 0.04

Cost at cold store: 2.20Co'ld store, inland freight, port fees, etc. 1.40

Cost at Chilean port 3.60Ocean freight 3.40Commissions, duty, insurance 1.00

Cost at USA port 8.00Marketing in USA 6.00

Price to USA wholesaler 14.00

60. FOB prices of green apples are about US$7 per 20-kg box, mostlyexported to Europe, and US$6.20 per box for red apples, generally sold to theLatin American market. Pears are sold at US$6.50 per box FOB Chilean port.In general, the Chilean producer gets less than 20% of the wholesale pricequoted in the importing country.

Investments Required in the Fruit Industry

61. Investments in the fruit industry should be mostly for new coldstores, fruit packing lines, and expansion of existing units, and new facili-ties should be built near the producing areas, particularly in the Provincesof Curico and Talca. Cold stores are likely to range in size from the equi-valent of 20,000 to 250,000 boxes. The smaller units would be owned mostlyby small independent producers and would rarely include a complete packingline. The larger depots would belong to cooperatives or associations ofproducers or to the leading wholesalers in the export or local markets.Complete packing lines would generally be included, ranging in capacity from3,000 to 8,000 boxes in eight hours. Dried fruits and dehydrated vegetablesare also gaining importance in export volumes and some investment in relatedequipment is also expected.

ANNEX 3Page 20

C. The Wine Industry

Background

62. Chile has been a wine producing country since the early days ofSpanish rule. Annual production in the last 10 years has averagedabout 470 million liters, with 14 cooperatives accounting for about 24% ofthe total. Wine quality improved substantially around the middle of the 19thCentury when French varieties and processing techniques were introduced, and,as a result, Chilean wines achieved worldwide recognition and prestige.

Present State of Industry

63. The Chilean wine industry has been "frozen" in place for many years.Improvements have been limited regarding introduction in the cultivation ofgrapes and in the techniques of wine processing; many facilities and equip-ment have grown old, worn and obsolete. As a result, the industry as a wholerequires substantial investments.

64. High taxation, restrictions on new plantations, and unfair compe-tition by producers who elude taxes also have contributed to the onset ofthis process and are making it difficult to halt its progress. Low yieldsfrom old plantations are common in rainfed areas, and about 35% of the grape-vines are reported to be over 50 years old. There are also important draw-backs in the processing method itself, ultimately affecting the quality ofthe wine. Improper crushing equipment, for example, has allowed ground seedsand stalks to be included, as well as dust and foreign matter. There is ageneral lack of refrigerating equipment and a shortage of isothermal vatsfor stabilizing wine and of modern filtering equipment. Additionally, importrestrictions for the last 30 years have prevented the normal replacement ofwooden vats essential to ripening red wine. There have also been difficul-ties because the wine bottles used are not uniform, particularly the diameterof the neck, which has led to leakage from loose fitting corks. INDITECNOR,the official organization for setting standards, has issued specificationsfor quality and size of wine bottles, but the two main manufacturers havebeen slow to comply.

65. A license is required to produce wine, but controls are not alwaysenforced and many producers have acquired basic equipment (grape crushers,screw presses, portable pumps and filters) and built the necessary fermentationand holding vats to produce wine without license. This product is generallysold in barrels (400 liters each) in the neighboring areas or the suburbs ofSantiago and Valparaiso. Since wine grapes are harvested from February toApril, the small producers who lack adequate processing facilities must selltheir wine before September (to avoid souring) and this causes a markedseasonal drop (winter) in the price of the wine, which affects particularlythe small producers. Small- and medium-sized producers also sell wine in bulk

ANNEX 3Page 21

to firms who specialize in processing and who sell wine in bottles anddemijohns 1/ under their own brands. Such firms normally own vineyards buta large part of their supply is still purchased bulk wine all of which ismarketed under the firm's own brand label, These processors submit the wineto a process of stabilization in insulated isothermal vats at -5°C, filteringit afterwards through special asbestos-based material. A controlled processof ripening follows in vats of concrete or oak.

66. Sales of bottled wine have increased steadily; from about 20 millionliters annually (1969) to 156 million liters in 1972, according to a surveyby CORFO. This latter figure represents about 34% of total production. Also,in 1972 about 179 million liters (39%) was sold in demijohns. Bottles anddemijohns together accounted for 73% of the total national production andrepresented the wine processed and sold by licensed firms. The balance, 27%,was sold in barrels by unlicensed producers.

67. The Government has announced its intention to prohibit sale of winein barrels commencing in 1976, which should reduce illicit wine making, reducetax evasion, and raise average quality since only wine in bottles or demijohnswould be marketed. This measure would force many small producers who cannotafford to bottle and market under their own brand to sell their entire produc-tion to other firms, join existing cooperatives, or form new cooperatives orcommercial associations with other producers in similar situations. Wine-making would thus, in general, pass from the small individual producer to newlarger plants owned by cooperatives or commercial enterprises, which is propersince the larger wineries could better afford the modern equipment and tech-nical staff to monitor wine-making adequately to produce wine of consistentquality for the local and the export market.

Marketing

68. Domestic Market. The domestic market is by far the most importantas it absorbs over 98% of production. Annual wine consumption dropped fromover 70 liters per capita in the 1950s to 45 liters per capita in 1974, butwith rising consumer purchasing power, coupled with improved yields fromreplacement of old plantations, it is expected to increase substantially overthe next five or 10 years. Wine is subject to a 20% added value tax (IVA),compounded by an additional 20% tax applicable on alcoholic beverages (ILA).Dumping wine during the winter months (May to August) by tax-evading producerscauses considerable price fluctuations which hurt law-abiding firms. Forexample, wholesale bulk wine prices in June 1975 were US$0.04/liter but byOctober, when probably 70 or 80% of the wine production had been sold, bulkprices jumped to US$0.11 per liter. Wine in 0,7-liter bottles sold atUS$0.64/liter and in 5-liter demijohns at US$0.24/liter. Cost of productionis estimpated at US$0.09 per liter. Restriction on the sale of wine in barrelsand strong action against illicit and tax-evading producers should help con-siderably in stabilizing prices.

1/ Demijohns are large glass bottles (1 to 5 gallons) encased in a protec-tive bucket-type mesh-

ANNEX 3Page 22

69. Export Market. Wine exports contributed about 2% to Chile'smerchandise export earnings in 1974. Exports reached a record level in1958 with 34 million liters but after that the drop was dramatic. Volumeis picking up again since the low level in 1971/72 but there is a long wayto go to even come close to reaching earlier achievements, as shown below:

Chilean Exports of Wine

Volume ValueYear (Liters Million) (US$ Million)

1970 4.6 1.81971 3.6 1.81972 3.6 2.11973 4.2 2.91974 4.7 3.6

Prices (FOB) have increased as shown below:

Bottled Wine Bulk WineYear (US$/Liter) (US$/Liter)

1970 0.74 0.121971 0.65 0.261972 0.76 0.201973 0.82 0.291974 0.91 0.40

70. The European market offers very limited possibilities due to thedominance of French, Federal Republic of Germany, Italian and Spanish winesand the protective tariffs adopted by the EEC. Algeria is also an importantexporter of wine to Europe and has the advantage of proximity to that market.Nevertheless, Europe is so far the most important market for Chilean winesin bulk, as shown in the following table:

Exports of Wine in Bulk(US$'000)

Market 1970 1971 1972 1973 1974

Andean 6.5 12.8 - - 17.1Other LAFTA 0.1 - - - -North America - 1.0 - 17.4 38.5Central America - 0.1 - - -

Europe 311.0 346.0 224.1 342.5 540.1Other countries 0.3 9.4 0.2 5.5 -

Total: 317.9 369.3 224.3 365.4 595.7

ANNEX 3Page 23

The main importing countries of Chilean wine in bulk in 1974 were Ecuador,Venezuela, Canada, Switzerland, Federal Republic of Germany, Belgium andthe United Kingdom.

71. Bottled wine accounts for about 84% of the total value of wineexports. The predominant market is the Western Hemisphere, and, withinthis area, the Andean market (Bolivia, Peru, Ecuador, Colombia and Venezuela).It is not yet known to what extent Chile's position within the Andean Pactwill affect wine exports to these countries. Relevant export statistics forthe period 1970 through 1974 are as follows:

Exports of Wine in Bottles(US$'000)

Market 1970 1971 1972 1973 1974

Andean 408.8 428.0 692.2 954.3 1,347.0

Other LAFTA 192.0 115.1 256.8 3503 784.3

North America 282.8 237.9 254.3 783.8 682.5

Central America 608.8 627.9 582.0 273.3 121.1

Europe 18.9 13.9 24.9 86.0 11.6

Other countries 10.0 13.3 34.2 37.1 56.9

Total 1,521.3 1,436.1 1,844.4 2,484.8 3,003.4

72. Chile has made great progress in the South American market, despitethe competition from Argentine wines, which also enjoy preferential tariffsas members of LAFTA. As a member of the Andean Pact, Chile benefited fromstill further tariff reductions in its exports to Colombia and Venezuela bythe "treaty of Cartagena." Venezuela, an OPEC country, is expected to importabout US$3 million in wine in 1977, of which Chile expects to account forone-third. Although Brazil is the third largest wine producer in SouthAmerica (200 million liters annually), it is also an important net importer.Chilean exports to Brazil in 1973 amounted to US$221,000 and in 1974 toUS$512,000 (an increase of 131%). In North America, Canada represents animportant growing market, imported wine amounting to about US$50 million in1972. However, the USA is the largest market for bottled wine in the worldand imports in the last few years have been spectacular (see table below);however, the Chilean share of total USA wine imports in 1973 was 0.4% anddropped to 0.3% in 1974, on a volume basis.

ANNEX 3Page 24

United StatesWine Sold According to Origin

(Liters Million)

Year California Rest of USA Total of USA Imports Total

1965 541 115 656 62 7181970 739 159 898 114 1,0121971 853 165 1,018 137 1,1551972 900 197 1,098 178 1,2761973 915 190 1,105 209 1,3141974 939 189 1,128 195 1,323

73. Although exports to the USA increased in 1973, Chile faces strongcompetition from Argentina, as shown:

USA Wine Imports from Argentina and Chile(US$'000)

Country 1972 1973 1974

Argentina 77 570 1,500 (estimated)

Chile 215 464 Lower volume than 1973,value not available

74. The USA market offers undoubtedly the largest export potential forChilean wines, but certain problems exist, which can be summarized as follows:

(a) bottle manufacturers in Chile have been slow to respond to theneeds of the export market: production of bottles of the stan-dard sizes required by the USA market is limited, neck sizes havetoo much variation, corks are frequently too short and of poorquality, and labels are of poor quality;

(b) Chilean exporters and producers are not fully familiar with theUSA market, they do not have enough information of what themarket requires and the standards it demands; and

(c) wine is not consistently of good quality.

ANNEX 3Page 25

75. There are about 12 wine exporters in Chile, five of which handleabout 80% of the volume. If the Government continues maintaining realisticrates of exchange, export earnings should be attractive enough to encouragethe leading firms to overcome the problems mentioned.

Investments Required to Modernize the Industry

76. To modernize the wine industry, the following actions are needed:

(a) existing winery equipment and facilities of single producersshould be replaced so that they could continue to operateindependently. Typical investment items needed are grape-crushers, screwpresses, portable pumps, filter presses,concrete vats for fermentation and holding wine and shedsfor housing these facilities;

(b) a few wineries should be built or existing wineries owned bycooperatives or commercial societies should be rehabilitatedto replace obsolete wineries owned by smaller producers; and

(c) processing equipment for improving wine quality and fillingbottles and demijohns should be purchased. Typical investmentitems would be refrigerating equipment, insulated isothermalvats, asbestos filters, bottle and demijohn filling lines,bottle nd demijohn washing machines and labelling machines.

Corresponding civil construction and installation are required. The fore-going items typify the investments in wine processing to be financed underthe proposed Project (Annex 8).

77. There are two firms in Santiago which manufacture winery equipmentduplicating the European designs. However, the more complex heat exchangersfor refrigerating wine, the isothermal vats, filters, and bottle filling andwashing equipment must be imported. Argentine equipment, including servicing,is readily available and is more competitive than French, Spanish and Italianequipment which can be imported.

78. The Government can best help by providing credit such as that tobe supplied under the proposed Project. The larger firms are in the bestposition to correct the industry's present ills. Partnership with foreignfirms, such as Pedro Domecq of Spain, with whom arrangements have alreadybeen made, should give the Chilean wine industry valuable processing andexport marketing know-how.

November 23, 1976

ANNEX 4Page 1

CHILE

LIVESTOCK, FRUITS, VINEYARDS AND AGRO-INDUSTRY PROJECT

Credit to the Agricultural Sector in Chile

A. General

1. Institutional credit to the agricultural sector in Chile is pro-vided mainly by the State Bank (Banco del Estado--BECH) and two specializedGovernment institutions--the Development Corporation (CORFO) and the SmallFarmer Development Institute (INDAP)--and to a lesser extent by other commer-cial banks and private development banks. A reportedly substantial amountof non-institutional credit is also provided by agro-industries and by traders,but actual figures are not known.

B. The State Bank (BECH)

2. BECH is an autonomous public institution established in 1953 bya merger of five public institutions, dealing, respectively, with savings,mortgage, commercial credit, agricultural credit, and industrial credit.In 1960, however, a Government Decree (DFL 251) modified BECH's statutes,policies, and procedures, authorizing it to handle: (a) banking, developmentand commercial operations; (b) savings deposits; (c) mortgage lending; and(d) issuance of bonds. It also was appointed as fiscal and financial agent ofGovernment-owned enterprises. BECH is currently the only bank in the countryallowed to hold long-term savings deposits, although plans are being made toextend this prerogative to private banks as well; Tables 1 through 5 providedetails of BECH's financial condition.

Organization and Management

3. Although, by statute, BECH has a Board of Directors composed of16 members representing the main banking institutions and professional acti-vities in the country, a Government Decree issued on October 25, 1973 concen-trates all Board responsibilities and prerogatives in the hands of thepresident of BECH. He also acts as administrator, with the assistance of anadvisory committee, composed of senior executives, including the executivevice president, the general manager, the chief of economic advisors, and thecontroller. The committee advises the president on (a) economic and finan-cial policy setting, including the establishment of rates of interest forshort-term lending and savings accounts following guidance of CB; (b) admi-nistrative and personnel management; (c) control of accounts and budgetary

ANNEX 4Page 2

policy; (d) internal and external sources of financing and cost of capital;and (e) organization and control of branch offices. BECH's main departmentsare foreign trade, savings; development credit responsible for all medium-and long-term lending (including agriculture); trust funds; agriculture,which handles agricultural short-term lending only; and operations, respon-sible for commercial short-term non-agricultural lending. The main adminis-trative departments are controller, personnel administration, organization,and data processing.

4. BECH, as of June 30, 1975, had a network of 195 branches, two sub-branches, and six ancillary sub-branches, scattered widely throughout Chile.Each branch has a manager who has a well-defined level of responsibility andauthority and an agricultural section staffed with experienced technicians whohave ready access to advice from a group of 54 senior agronomists attached toBECH at a regional level. BECH also owns and operates a country-wide networkof warehouses which is linked with the state railways system and is used tostore agricultural inputs to be sold on credit to farmers, but this activityis now gradually transferred to the private and cooperative sector.

Staffing

5. Staff, as of June 30, 1975, totalled 5,952, representing a decreaseof 222, or a drop of about 4%, from December 31, 1974 (Table 2). About 700are professionals or technicians and about 250 hold managerial positions.The agricultural department employs 803 persons, 224 of which are technicians.The staff is generally of good caliber. BECH has a good training department,open to all levels of staff, and it encourages and finances independent train-ing in universities and specialized institutions within and outside Chile. Inaddition, it offers a variety of fringe benefits, among which are housing andschooling facilities for staff families. Salaries, however, are low due tothe present economic recession, which is currently causing a serious braindrainof technicians to other South and North American countries.

Lending Policies

6. Tn 1974, BECH accounted for about 80% of agricultural lending of thenational banking system and specialized public institutions. BECH's lendingpattern during the 1970-74 period clearly reflects a shift in emphasis fromindustry and trade to agriculture (Table 1). In fact, loans to agricultureincreased from 29% of total lending in 1970 to 68% by June 1975. Within theagricultural sector, BECH finances mainly working capital (fertilizers andseeds) of small- and medium-size farmers, using a special line of credit(integrated agriculture credit) of the Central Bank and its own short-termdeposit funds. About 50% of its lending is in kind. Term lending is financedbasically with long-term savings deposits and a US$22 million loan from IDBmade in 1974, extended at 2-1/2% annually to BECH to finance mainly farmequipment, irrigation wells and canals, silos and stables. By November 1976,IDB had disbursed US$15.5 million eqivalent. BECH's short-term lending isextended at current rates of interest, which are slightly higher than the rateof infiation,

ANNEX 4Page 3

Financial Structure and Operational Performance

7. As in the case of most financial institutions in Chile, financial

resources have been severely affected by operating under high inflation. Inthe years shortly before 1974, BECH was acting as a Government agency,supplying low cost money to agriculture and other sectors of the economy.

Funds were made available by the Government at no cost and interest ratescharged to beneficiaries ranged between 20% and 60% while inflation was

already running over 200% a year, causing a substantial capital erosion.Since 1974, however, efforts have been made to make BECH a sound financialinstitution and to spur economic recovery and development in the country.Short-term interest rates are now higher than the inflation rate and are

continuously revised to avoid capital erosion. Long-term rates are setbetween 8% and 12%, with principals indexed to the Consumer Price Index. Thefinancial structure indicators (Table 2) reflect this situation. The total

debt to net worth ratio, measuring the relationship of all short-term andlong-term debt, plus guarantees to capital and reserves, has decreased from37.3 to 1 in 1973 to 9.6 to 1 in 1974, while the long-term debt to net worth

ratio was 0.7 to 1 in 1974. BECH's financial structure, which is character-ized by very limited own resources (capital and reserves), is generally inline with its operations, which are mainly short-term lendings. Overduesand delinquent loans, which also were within reasonable proportions duringthe period under consideration, were reduced to a level of less than 1% in1974 and were always adequately covered by provisions for doubtful debts.

The same situation is apparent in agricultural lending (Table 3), for whichthe level of arrears over the last three years was kept at less than 2%

and defaults at one-third of 1%.

8. BECH's operational indicators show that steps are being taken toreduce costs and increase income. Although the cost of debt as a percentageof debt has grown rapidly over the last two years, income from lending hasincreased proportionally, thus maintaining a satisfactory spread betweenBECH's income and costs. Administrative expenses were at an acceptable level

(4.4% of total assets) in 1974. This is also reflected in the administrativecost per unit of professional staff, which was reduced from US$7,700 in 1973to US$5,500 in June 1975, despite the decrease in the number of professionalstaff (para 5). The number of loans handled per professional staff is high,although short-term lending, which often involves the supply of seeds andfertilizers and constitutes about 85% of BECH's portfolio, does not normallyrequire specialized extension services.

Accounts and Auditing

9. Each of BECH's departments keeps its own accounts and all areconsolidated at the end of the year. These accounts are well handled and

information on such matters as arrears and volume of deposits is periodicallysupplied to headquarters, duly processed, and made available for analysisto the various departments by the data processing department, which is ser-viced with IBM hard- and soft-ware facilities.

ANNEX 4Page 4

10. Internal auditing until recently was less than satisfactory asit was undertaken by the fiscal division at year's end only on accountssupplied by the different departments and branch offices. Since September1975, however, staff members of a newly created independent auditing divi-s-on visit the field periodically and control both operational activity andaccounts. External auditing is provided by the Superintendency of Banks,an independent public institution which exercises accounting and opera-tional control of all Chilean financial institutions. It is carried outeffectively through periodical control on financial and administrative opera-tions on a sample of branch offices selected at random and through an annualcontrol of the departmental and consolidated accounts at headquarters. Theannual audit report is usually made available within three months after theend of the fiscal year.

C. The Development Corporation (CORFO)

General

11i. The Development Corporation (CORFO) is an autonomous public devel-opment corporation established by Law No. 6640 in 1939 to plan, promote,and coordinate public and private investment. Directly or through itsaffiliates, CORFO is involved in a wide variety of activities, such asagricultural, industrial, mining production and development; modernizationand development of communication and transportation networks; investigationand exploitation of natural resources; trade promotion; and technologicalresearch and development. In the agricultural sector, it controls all sugarreflning, and oilseed processing; and a substantial share of grain storage,poultry production, and meat and fruit freezing capacity.

12. During the previous administration, CORFO acquired a number ofcompanies, which are now in the process of being sold back to the privatesector. Among these are 40 agro-industries that are offered to cooperativesor bidders who control sufficient agricultural production to supply morethan 40% of the plants' processing capacity.

Organization, Management, and Staffing

13 A Naticnal Council, composed of representatives of the main eco-nomic ministries, banks, and corporations in the country, and presided overby the Minister of the Economy, decides on policy issues and allocation offunds to CORFO, while administration is in the hands of an Executive Com-mittee, headed by an executive vice-president and composed of a generalmanager and the heads of four main operational departments--affiliated com-panies, development, financial operations, and administration. Since 1960,

ANNEX 4Page 5

CORFO has followed a policy of administrative decentralization under whichit has set up 12 regional offices and 25 agencies. Ten of the regionaloffices handle agricultural development and production.

14. CORFO's professional staff increased from 1,800 to 4,500 between1970 and 1973, a period when the corporation was acqui'ring many expropriatedoperations. Since 1973, however, CORFO has been divesting itself of theownership of most small- and medium-size enterprises, hence reducing dras-tically its staff. As of December 1974, CORFO's professional staff wasreduced to 1,500 and as of September 1975 to 746. The present plans areto reduce it further to a core of 500 well-qualified professionals, a con-siderable part of which would work in the regional offices and in the agencies,and provide sectorial development planning and technical assistance todevelopment corporations. About 75% of the present staff members are t:ech-nicians, among which are 110 agronomists and 45 agriculturalists, and thebalance, administrative personnel.

Investment and Lending Policies

15. As the major Government corporation for the economic and socialdevelopment of the country, CORFO either owns directly or it has lent sub-stantial funds to most of the largest service and manufacturing enterprisesin the country, and it has interest in industry, mining and agriculture.

16. CORFO's loan portfolio as of December 1975 amounted to US$347million, of which 22% was for agriculture. Over 1972-74, it had an averagedistribution of about 40% of loans to industry, 25% to agriculture and live-stock (Table 6) and the balance mainly to mining and fisheries. About 90% ofagricultural lending was medium and long term, mainly for fruit, livestock,agricultural machinery and rural electrification. Loans are usually extendedfor a five- to 10-year period at rates of interest averaging about 8% and areindexed to the Consumer Price Index (IPC) (Table 7). During 1974 and thefirst six months of 1975, when CORFO was changing its policy from equity par-ticipation to the extension of long-term loans, its volume of agriculturallending increased substantially. This shift in lending policies, also ap-parent from the decrease in the number of beneficiaries from 13,000 in 1971 to1,700 in 1974, indicates that the corporation is becoming more selective inextending its loans to larger agricultural undertakings and to agro-industry.

Financial Structure and Operational Results

17. The balance sheet shows (Table 8) that CORFO is basically a GOv-ernment financial holding. As of December 1974 about 84% of its assetsconsisted of either stockholdings, bonds or certificates of guarantees of183 Government-controlled enterprises, while only 15% represented its loanportfolio. Its main sources of funds are: the Government budget, the CentralBank and external credit from private and public institutions. In 1974, theGovernment made a US$300 million equivalent capital contribution by paying allCORFO's outstanding long-term debts with local banks, and it also contributedsubstantially to increase its level of reserves. The most relevant sources offoreign credit are the USA and European corporations and banks, and amonginternational institutions--IBRD, IDB and AID. The level of long-term loans

ANNEX 4Page 6

in arrears amounted to about 23% of the total portfolio in 1973 and 1974.About 14% of these arrears are in the form of delinquent noncollectibleloans. However, the situation in agricultural lending is more normal, aslevels of arrears reached, respectively, 3% and 4% of the total agricul-tural portfolio in 1973 and 1974. The income and expenditure account (Table9) indicates that, in 1974, CORFO had produced a surplus for the first timesince 1971. This was due mainly to an impressive reduction of administrativecosts from US$57 million in 1972 to US$18 million in 1974, and to a parallelreduction in financial costs determined by the Government redemption ofCORFO's outstanding debts within the country.

Accounts and Auditlng

18, CORFO's accounting is hampered by the existing organization. Themost relevant deficiencies listed in the report of the Government ControllerGeneral, which is CORFO's external auditor, are: (a) poor evaluation of assetsof enterprises converted to private ownership; (b) utilization of the officeof the internal auditor for operational purposes other than control of accountsand operations; (c) insufficient information on the nature of the reserves;and (d) unrealistic enterprise values acquired from the consolidated balancesheet. The report contains strong recommendations for a thorough analysis ofthe real value of CORFO's assets and liabilities and for an improvement of itsbookkeeping.

D. The Small Farmer Development Institute (INDAP)

General

19. INDAP was established in 1962 under the General Law of the AgrarianReform as an autonomous institution of the Ministry of Agriculture to promotethe economic, social and cultural development of small farmers and fishermenand peasant cooperatives. It now provides technical assistance and investmentand production credit to a sector of the economy traditionally excluded fromaccess to institutional financial resources. However, it does not deal withland reform beneficiaries.

Organization and Management

20. INDAP's agricultural and financial policies are set by a NationalCouncil, presided over by the Minister of Agriculture, and comprising therepresentatives of the country's main organizations involved in agriculturalinvestment and development. The institute's administrator is the executivevice president, appointed by the Council. INDAP is presently organized infour departments--planning, finance, fisheries, and administration--and itcarries out its operational activities through 13 regional offices and 101area offices, scattered throughout the country.

ANNEX 4Page 7

21. INDAP is now undergoing a reorganization aimed at transforming itinto a more efficient body, with particular emphasis on improving agricultural

investment project appraisal, extension services, and administration of itsloan portfolio. This has brought about drastic reductions in personnel,staff totals dropping from 4,429 in December 1973 to 2,532 in September 1975.The core of professional staff is made up of agricultural engineers, veteri-narians, and agricultural extensionists.

Lending Policies

22. The bulk of INDAP's credit is for short-term production (Tables 10and 11), and is mostly provided in the form of inputs and agricultural imple-ments. The rate of interest charged is subsidized, averaging about 60% of thecurrent banking rate. Investment credit, which in 1974 was about 15% of thetotal loan portfolio, is usually extended to small farmer cooperatives afterfeasibility studies and sub-loan appraisal, specifying acceptable rates ofreturn for the project financed. Such credit is usually granted for livestock,fruit and vineyard development for periods of five to 10 years, indexed to theConsumer Price Index (IPC), and carries interest rates of 4 to 8%. The levelof portfolio arrears was reduced from about 20% of total loans in 1971 toabout 4% in 1974, but this may be the result of the recent application of anegative interest rate on short-term lending.

Financial Structure

23. Most of INDAP's short-term credit is financed through revolvingfunds and Government budgetary allocations, which, in 1974, amounted toabout US$6 million equivalent (Table 12), or about 35% of total income.Long-term credit is financed entirely by Government contributions and fromthe proceeds of a long-term IDB loan.

Accounts and Auditing

24. Accounting and internal auditing is poor. Accounts are not analyzedsufficiently to give such information as the current position and age of theportfolio, details on short-term and long-term loan arrears, or data on numberof loans and beneficiaries' property size. Also, INDAP does not have the capa-city to use the data it has for short- and long-term financial planning. Theexternal auditor's report prepared by the Government controller's office forthe fiscal year ending December 1974 points out some of these deficiencies andexpresses the view that INDAP's accounting system needs thorough revision andthat its assets and liabilities should be re-evaluated to provide a more meaning-ful assessment of its net worth.

E. Others

25. A number of specialized financial institutions and commercial banksare becoming increasingly active in supplying credit to agriculture. The most

ANNEX 4Page 8

relevant in terms of number of loans and portfolio is the Cooperative FinancingInstitute (IFICOOP), established in 1965 as a development bank. It is ownedby its member cooperatives and has BECH as a minority shareholder. Its statedobjectives are to provide credit facilities and technical and managerial ser-vices to cooperatives, and to encourage a more rational distribution ofresources between urban and rural areas. The IFICOOP has a group of 30 well-qualified professionals, among which are 13 agriculturalists who visit thefield periodically. It has one branch office located in Osorno, which servesas the center for IFICOOP operations in the south. All loan applicationsare approved in Santiago. IFICOOP's loan portfolio of US$4 million inSeptember 1975 consisted of about 50% short-term production loans, financed byoperating income, local banks and the Ministry of Agriculture, and 50% develop-ment loans financed mainly by USAID. In April 1975, USAID made a US$15 millionlong-term loan to IFICOOP for rural and fisheries development.

26. Other banks providing significant agricultural lending are the Mort-gage Bank, which has recently opened a development finance corporation toorganize and finance agro-industrial enterprises; the Spanish Chilean Bank;and the United Development Bank, established in January 1975 with a capitalof US$5 million equivalent by local industrialists and banks (60%) and byforeign investors in the USA and Western Europe (40%). It finances princi-pally small and medium enterprises, among which are agro-industries.

November 24, 1976

CHILE

LIVESTOCK, FRUITS, VINEYARDS ANDf AGRO-INDUJSTRY CREDIT PROJECT

State Bank (ECH)

Total Lendin

Until June 301970 l__ 1971 % 1972 j 1973 197h4 % E 975 %

Agriculture!/ 55,718 29.3 94,042 30.8 110,1412 4o.0 76,166 49.0 74,801 65.4 49,768 68.1

Industry 70,388 37.1 120,700 39.5 147,720 53.4 66,570 42.8 32,948 28.8 19,148 26.2

Banking 63,706 33.6 90,957 29.7 18,178 6.6 12 690 8.2 6,573 -. 8 41178 5,7

Total: 189_812 100.0 305,699 100.0 276,310 100.0 15 100.0 114 322 100-0 732094 100.0

J/ Includes livestock, fishery, forestry and poultry.

March 12, 1976

CHILE

LIVESTOGK FRUITS, VINEYARDS AND AGRO-INDUSTRY CREDIT PROJECT

State Bank_(BECH)

Operational and Financial Indicators1/

1 973 197 975OPERATIONAL INDICATORS:

Surplus as ~o-f-Net Worth 4hAi 3.3 2.6Gross Income as % of Total Assets 1.5 4h.0 .3Administrative Expenses as % of Total Assets 4.5 4.4 4.1Administrative Expense/No. of Professional (US$) 7,710 6,662 5,520Volume of Loan Approval/Professional Staff _ 275 235Year End Professional Staff 6,224 6,174 5,952

FINANCIAL STRUCTURE INDICATORS:Total Debt/Net Worth 37.3 9.6 13.3Long Term Debt/Net Worth 2.5 0.7 1.3Overdues-/as % of Portfolio 0.5 0.8 3.4Delinquent Loansl/as% of Portfolio 0.1 - 0.1Provision for Possible Losses as % of Loan and Equity

Portfolio 0.8 0.4 0.7

Interest Coverage 1.0 1.1 1.2

Total Assets Excluding Contingent Liabilities (US$'000) 1,056,195 921,501 830,716

Share Capital and Reserves (US$'000) 36,778 116,328 67,232

1/ As of September 30, 1975. NL2/ Over 30 days.3/ Under legal procedures.

March 12, 1976

CHILE

LIVESTOCK. FRUITS. VNYRSADAO-INDUSTRY CREDIT PROJECT

State' Sash (SEtH)

Agricultural Lending(in US$ '000)

1972 1973 1974 _ 1 9 7 5 L!No., of No. of No. of No. of

No. of Bene- No., of Bene- No. of Bene- No. of Bene-Sub-Sectors Cash 12pts Total L iclarfes ash lp.ts Total 7oans _ciaries Cash Inputs Total Loans ficiaries Cash Inputs Total Loans ficiaries

Agricolture 75,680 15,398 91,078 92,109 45,515 42,115 25,601 67,716 121,787 54,116 26,663 40,209 66,872 92,727 45,210 17,555 25,264 42,819 52,710 29,877

Livestock 13,852 3,873 17,725 15,025 7,310 6,293 1,194 7,487 12,144 5,851 6,666 308 6,974 10,527 6,586 6,244 199 6,443 8,391 5,417

Fishery and Forestry 812 16 828 958 732 426 21 447 1,223 723 137 3 140 537 390 28 1 29 175 90

Poultry 687 _ 94 781 1,442 829 470 46 516 _ 702 797 18 815 1,043 558 474 3 477 702 398

Total: 91,031 19.381 110, 412 L09,534 54,386 49,304 76,166 136_574 61392 34,263 40,538 74,801 104_834 52,744 24,301 467 49,768 61978 35782

% of % of % of % of

Total Total Total Total Total Total Total Total

Current Loans 104,399 94.6 74,324 97.6 74,292 99.3 46,809 98.1

Overdoes 4,514 4.1 1,590 2.1 433 0.6 818 1.6

Delinquent Loans 1-499 1.3 252 0.3 76 0.1 141 0.3

Total: 110,412 100.0 76,166 100.0 74801 lOO.0 49,768 100.0

/L As of Septerber 30, 1975.

March 12, 1976

Table I

CHILE

LIVESTOCK. MWUITS. VINBARDS AJID AG1O-INDUSTRY CREDIT PRJECT

State Bank (BZCH)i1

Balance Sheets'(in' U3S,m)

December 31Jue31973 197 1975

ASSETSTSt Assets

Cash 29,479 39,813 22,867Banks 299,970 181,780 137,746Inventory 17 511 86.377

Sub-totea l l u377152169

Loans PortfolioCurrent Loans 1,077 323,206 270,036Loans Overdue 2,145 2,470 9,481Delinquent Loans 3186 227

Sub-total lam

Total Current Assets 651.967 526.73&

Fixed Assetsnvestmentt

Real Estate ii,688 29,516 11,1 5Stocks, Bonds and Others 7,602 36,975 6,653Zquipient and Furniture 1 52 65 6 2,806

Total Fixed Assets 29T4

Other AssetsCurrency Revaluation - - 151,684Interests Receivable 11,046 37,215 139,051Exchange Operations 574S488 434,819 247,220Others 32.224 3 22 319

Total Other Assets 6TT-AM

Total Assets 1.408.260 1.228 668

Total Assets in 00 0 P51 2M 2,275.311.112 5,538,103,700

LIABILITIESCurrent Liabilities30 Dajs 532,210 368,694 297,671More than 30 Days 219,816 197 190 12 4

Sub -total 7

Due BanksCentral Bank 68,871 81L,558 39,907Local Banks and Others ,8- 25Foreign Banks 201 337 218 068 20953

Sub-total Due Banks _ _ 27 160.'

Other LiabilitiesCurrency Revaluation - - 158,091Exhange Operations 319,594 2Ib,990 139,411Other Liabilities 29 654 28151,0

Total Other Liabilities 74914 243

Capital and Reserves 35,233 112,606 65,548

Profit 1. 7 - I !6kTotal Liabilities 1 128o__8260____ 7._

Total Liabilities in 000 go 548-324.499 2.275.311,112 5.538.103.,00

ue to the high inflationary trend shown by total values in esoudos, accontsfigures have been all. cnverted in Jce 1975 values, on the basis of the iacreae ofthe C.P.I. values thus obtained were converted into dollars at the US dollar,l:soudo exchange rate of June 1975; US$1 - l5 5,000.

March 12, 1976

CHILE


State Bank (BLCH)

Consolidated Income and Ex2Mediture Accounts(in US$ '000)

,,, 1973 1974 19751st and 2nd 1st and 2nd 1st and 2nd

Semesters Semesters Semesters

INCOMEInterest ain Commissions 123,676 134,790 42,532Input Sales 8,049 17,665 12,205Others 4,043 2 074

Total: 135,s768 174575 62

EXPENDITUREAdministrative Costs 47,960 40,845 16,431Financial Costs 67,898 60,363 17,925Taxes 106 94 237Provision for Lc3change Losses 16,504 67,878 215157Provision for Doubtful Debts 1,755 1,673 4s,860Net Profit 1, _3722 68

Total: 13s,768 174 575 62,294

January 21 s 1976

OFeolopmcooi CocoocTtioo (00910)

Agolooltopo 1 Lending

1970 - 1971 1972 9913 E1 _- 914 9975-

(No.) (o (T. (To.) ((N. (N..) (No.) (Ne _) (No.) (No.) (NS (no.)

-gti-on Wo-k. 115 119 8,098,387 _ 17 87 1,039,364 15 15 2,988,4614 - 2 3 1,600,000 - 3 3 42,800,000 - I 1 41,094,0QG

V-neyop 6 fiI4 1,177,274 - 22 118S 2,261.843 - 112 3,421 45,201,515 - 73 73 38,744,992 82 127 644,751,214 - 4 4 324,715,400

Fvis7)1 90 5,964,799 . 71 1,612 7.672,392 90 249 17,474 ,541 - 87 87 52,138,750 - 50 58 1,170,495,727 12,500 6 6 358,967,022 -

Beef 178 2,130 31.338.346 - 132 821 26,879,910 - 150 2.453 38,155,269 _ 1 1 120,006 _ 117 117 2,296.395,544 - 29 30 3,431,617,632 152,800

Pigs -od Pooltop 4 4 330,000 - 11 3,980 855,897 - 15 78 5,231,331 - I 1 3,204,103 27,958.57 1 1 96,748 - - -_

Agoi-ltol-l M-ahi-o, 445 8,420 32.964,423 - 196 3,179 41,309.940 - I0 158 126,837,873 - 29 79 8,410,961 - 510 1,132 2,439,927,863 - 42 45 976,143,388 138,642.40

Agoi-lool-l tMir-lI-10 1,093 4,409,761 858,776.66 8 488 1.997,913 703.538 2 0 716,090 . 2 2 2,753,000 - 22 22 14,565,736 _- - -_

RooI tltrpl 900920 80 1,112 15,887,944 - 53 1,694 14,442,329 - 54 1,584 25,063,745 1 273 4.450 205,560,205 . 105 - 2,629,547,134 - 83 - 3,228,381,592 1289121.61

Imported Po-olo 26 13 20,943,138 1,500 1 1 187,500 - - - . - - -

AgpioolConNl TcarktCio- 5 1,780 36,392,O70 762,000 2 2 2,500,000 30.000 4 1.505 11,880,000 500,000 - - - I 1 397,0000.00 324,680 2 2 1,707,997,223 640,000

Dalry Plant.. 4 1,539 6,795,286 - - - -

3mongoooy Lonso - - - - 131 190 14,423,672

Live-rock Rood - - - _ - _ _ _ _ _ _ _ 259 259 1,779,574,861 . 59 59 566,369,819 10,890

T006L 949 16,3)1 164, 21., 359 1,622,270666 644 13,239 113.570,760 (33,539 302 9,465 273,550,740 500,000 368 4,446 312,532,711 17,990.57 2,152 1,720 11,415,154,920 337.190 239 160 10,635,286,076 1,335,333.19

7l0 Eqoloa9ot at YoooA-.pag. Rate of Roohonge 12. 21 13,454,4650.4 12.21 9,301,454.54 40 6.838,768.5n 280 1,116,185.75 1,250 9,132,123.86 5,300 2,086,875.67

Noobo19 1975

ANNEX 4Table 7

CHILE

LIVESTOCK. FRUITS. VINEYARDS AND AGRO-INDUSTRY CREIT PROJECT

Develoment Corporation (CORFO)

Long-Term Lending Loans

GraceItem Years Term Period Interest Index

Irrigation Work 1965/1975 6 2 7% I.P;C.Vineyards 1966/1973 10 3 7% I.P.C.

ft 1974 10 3 5% I.P;C.

it 1975 10 5 9% I;P.C.

Fruits 1966/1973 10 3 7% IP.C.it 1974 10 3 5% I.P.C.

It 1975 10 5 9% I.P.C.Beef 1966/1973 10 3 7% I.P.C.& 50% I.P,C..

1974 10 3 5% n n

1975 10 5 9% ft

Pigs and Poultry 1966/1974 5 2 7% I.P.C.Agricultural Machines 1966/1973 4/5 - 7%/10% I.P.C.

1974 5 2 7% I.P.C;1975 5 - 9% I.PoC*

Agricultural Miscellaneous 1966/1974 10 3 7% I.P.C.Rural Electrification 1966/1974 6/12 - 6%/15% No Indexing

1975 6/18 2 6%/9% IoP*C.Beef Imports 1966/1970 8 3 2% I.P.C.

1971/1975 6 3 7% I.P.C.Agricultural Marketing 1969/1975 10 3 7% I.P.C.Dairy Plants 1970 10 3 7% I.P.C.Emergency Loans 1971 6 1 4% I.P,c.Livestock Fund 1974 5 2 9% I.P.C.

1975 10 5 9% I.P.C.Irrigation Pumps 1975 5 - 8% US$

I.P.C. Indico Precios Consumidor.

November 13, 1975.

CHILE

LIVESTOCKR FRUITS VINEYARDS AND AGRO-INDUSTRY CREDIT P1RJECT

Development Corporation (CORFO)

Consolidated Balance Sheeti'/

1970 1971 1972 1973 1974ASSETS Us$Mm US$$M 7 -S$us$ m

Cash and Banks 8.0 0.4 17.4 0.8 26.2 1.6 16.9 1.0 31.8 1.3Long-term loans 259.3 14.1 356.5 16.9 223.8 13.7 167.1 9.4 370.8 15.0Affiliates Stocks 1,305.7 70.8 1,415.3 66.9 969.2 59.3 1,096.3 61.9 1,446.8 58.1Bonds 87.8 4.7 89.1 4.2 86.5 5.3 86.4 4.9 3065 1.2Guarantees 99.4 5.4 147.0 6.9 127.14 7.8 146.3 8.3 240.2 9.6Other Inventories 5.0 0.3 1965 0.9 59.4 3.7 85.7 4.8 44.9 1.8Fixed Assets 74.7 4.0 72.8 3.4 140.0 8.6 169.7 9.6 321.6 12.9Project Studies 5.6 0.3 0.2 - 0.2 - 1.8 0.1 2.5 0.1

Total 1,84515 100 2,117.8 100 1,632.7 100 1,770.2 100 2,489.1 100

LIABILITIES

Short Term 113.6 6.2 261.8 12.4 325.2 19.9 330.5 18.7 184.4 765Long Term 395.6 21 .4 435.0 20.5 503.0 30.8 537.6 30.4 682.6 26.6Capital 507.6 27.5 781.8 36.9 819.7 50.2 799.4 45.2 1,103.4 44.3Reserves 818.9 44.4 612.8 28.9 184.2 11.3 188.5 10.6 508.4 21,2Net Earnings or Losses 9.8 0.5 26,4 1.3 ( 199.4) (12.2) ( 85.8) ( 4.9) 10.3 0.4

Total 1.,845.5 100 2,117.8 100 1,632.7 100 1,770.2 100 2,1489.1 100

1/ The conversion in US$ was done by using the average rate ofexchange Eo -US$ of the years under examination. CD

Mareh 15, 1976

CHILE

LIVESTOCK FRUI,S VINEYARDS AND AGRO-INDUSTRY CREDIT PROJECT

Development.Corpo2ration (CORFO),

Income and kp.zaJditure Aocounts

INCOME 1970 1971 1972 1973 94.

Government Contribution 32.4 24.6 3.1 1.5 51.7Affiliated Companies 42.3 47.5 40.6 24.6 13.0Interest and Commissions 26.4 22.1 19.3 8.3 18X1Other Income 23e6 4.8 3.6 3.1 58.OLosses - - 199.4 85.8 -

Total: 124.7 99.0 266.0 123.3 140,8

Development Costs 38e1 19.0 91,2 30,7 4.7Financial Costs 20.7 21.3 100.3 43.1 91.0Administrative Costs 22,2 26.5 56.6 24.0 18.4Depreciation and Provisions 12,6 5.8 14.5 2L.0 5.7Other Expenses 21 .3 - 3.4 1.5 10.7Profit 9.8 26.4 - - 10.3

Totals 124,7 99.0 266.0 123e3 140,8

November 14, 1975

CHILE


Loan Portfolio

Year Total Short Term LongTerm Arrears Percentage

June 1971 26,194,025 11,896,790 14,297,235 5,126,171 19.5

June 1972 38,105,077 16,986,205 21,118,872 6,778,893 17.8

June 1973 16,690,482 6,824,569 9,865,913 1,977,822 11.8

December 1973 8,398,154 5,472,920 2,925,234 353,562 4.2

December 1974 9,645,083 8,351,687 1,293,296 4215490 4-.4

1r

November 17, 1975

Table 11

CHILE

LIVESTOCK, PRUITS. VINEYARDS AND AGRO-INDUSTRY CREDIT PROJECT

Small Farmer Development Institute (INI)AP)

Balance Sheets(US$ '000)

…- (at June 30)-----…19723 1974

ASSETSCash 28 35 5Deposits in Banks 4,50 3,070 628

Sub-total: 4588 3,105

Operational LoansUp to 1 year n.a. 20,650 12,130Above 1 year n.a. 2,420 3.14

Sub-total: 314,1I0 23,070 16,0

InvestmentsReal Estate and Awiliary 4,476 5,900 2,398Machinery and Equipment 2,O100 3,200 2,258Agricultural Inputs Inventories 8 058 17,?900 9 6 14

Sub-total: 27,000 142270

Accounts in Transit, Other -3,948 8.220 3.192

Total: 54,250 61,395

LIABILITIESShort-term Obligations 31,260 37,870 8,097Long-term Obligations 6,000 9,690 7,462Other Short-term 3.600 1 200 7.754

Sub-total: 1;0,660 Z2,313

Capital 12,990 12,075 10,176

Reserves and Others 400 560 650Sub-total: 13,390 12,35 10,526

Total: 54,250 61, 395 34 139

January 21t,976

ANNEX 4Table 12

CHL

LIVESTOCK, FRUITS, VINEYARDS AND AGOR-3INDUSTRY CREDIT PRO)JECT

Small Farmer Development Institute (INDAP)

Income and E~tpenditure Accotnts(US$ ?0)

…(------ (at June 30) ----1972 1973

INCOME AND TRANSFMSInterest Income 17,200 12,900 9,930Services, Sales 1,l40 1,240 950Government Contributions 15.1 80 15, 800 88

Total: s,520 29,940 16.76

EXPDITURECost of Loan Funds 15,250 10,000 7,845Administration 18,270 19.940 8,920

Total: 33.520 22a9I2 16A765

January 21,, 1976

CHILE

LIVESTOCv. FRUITS VINEYARDS AND AGRO-INDUSTRY CREDIT PROJECT

Central Sank - Project Cash Flow(US$ 'DII)

Yesr: . , , ,,..... 1 2 3 4 5 6 7 S 9 10 11 12 13 14 15 16 17 18 TOTAl,

INFLOW

IBRD Loan... 1,300 8,800 9,000 4,900 1,000 _ _ _ _ _ _ _ _ _ _ 25,000

Govere,sent Fpada 73000 9,000 9,000 - - 25,000

Debt Service (interest plusprErOipalE):

Dairy/Beef 46 145 250 263 263 415 743 1,091 1,132 1,132 1,132 933 507 54 - _ _ _ 8,106

Seef/Sheep 20 67 120 133 133 188 318 465 502 502 502 502 427 251 S0 - 4 ]180

Fruits 146 466 912 1,066 1,066 1,437 2,101 2,722 3,138 3,138 3,138 3,138 3,138 3,138 3.138 2,647 1,614 432 36.575

,Xgra-il,clstrrie 48 240 540 034 1.290 2,003 2_431 2.431 2, 2,43'L 2_431 .269 1 68 __1- - -_21_60_

Sob-total, 260 918 1 822 2, 296 2 752 4.043 5 0_ 3 6709 7,203 ,3 703 842 5.693 4._91 3.1_8 2647 432 70 469

Total, 9 .560 jI=,7j ~1 L96 -12 4.043 5.593 6,709 7.200 63 . 4,5 3,188II 2 647 43U2.67 2039 6 3__ 7203 61 84225693 _ _ _120,69

ODTFIOW

Li-estock:Dairy/Berf 1,028 2,196 2,336 280 _ _ _ _ _ _ _ 5,840

Deef/Sheep 444 E3 1 296 _ _ _ _ _ _ _ _ _ 2_960

Sub-total, L,479 3,g2. 3 520 _76 - - - - - - - - -_.800

Fruits:Gruit 996 2,296 2,400 409 _ 6,001

Apples 486 1,766 2,560 1,587 _ _ _ _ _ _ _ _ _ 6,399

Vi-ny-rds 1,997 4.556 _ 1_26 _ _ _ _ 12.798

Yak-total: 3,479 ,518 10,079 122 2519

R6r0-15t4otoisot 1,066 4,266 6,665 3,999 - 15,996

IB0D L-oan ReP.Y-0tIntera-L 166 899 1,700 2,073 2,002 1,836 1,669 1,502 1,335 1,168 1,001 835 668 501 333 167 - 17,55S

Frlscipal _ - 707 1,792 1,87 5 1,825 1,875 5 1,875 5 l175 1875 1,875 1875 1_8 7 5 241999

5,l,-tual: 208 S999 1L 2, _78 _3,74 3,711 3_544 3_,37 _ _1°43 2_876 _,710 2t543 2,376 2_22, 42 854

Total ~ 71,961. 11,477 3 U94 Wt U1-77 1O 1 3 2D47 2 ,876'O710 2-14

3 2,376 _2,8042 875 __ 97,41)

(ask Oulanro 2,427 1,803 (2,142) (3,281) (42) 332 2,049 3,3321 3,993 4,160 4,327 4,232 3,150 1,675 042 605 (261)

Ca.po.ndd c Bltulative OulOtco 2,427 4,473 2,778 (225) (289) 14 2,064 5,602 10,115 1S,330 71,5l0 27,541 33,445 38,464 43,202 48,127 82.698

N0-TE:I IBRD -to of interest 8.9% ISaptamb-r 20, 1976)2, C-sh balats c- poundod at 107.

Ontober 30, 1976

ANNEX 6

CHILE


Disbursement Estimate

IBRDFiscal Year Disbursement Cumulative Disbursementsand Quarter during Quarter at the End of Quarter

1977

/14th 200- 200

1978

lst 500 7002nd 600 1,3003rd 1,300 2,6004th 2,500 5,100

1979

lst 2,500 7,6002nd 2,500 10,1003rd 2,500 12,6004th 2,500 15,100

1980

Ist 2,000 17,1002nd 2,000 19,1003rd 1,800 20,9004th 1,500 22,400

1981

1st 1,000 23,4002nd 600 24,0003rd 500 24,5004th 500 25,000

/1 Estimated date of Loan signing: January 1977.Estimated date of Loan effectiveness: April 1977.

November 24, 1976

ANNEX 7

CHILE

Livestock, Fruits, Vineyards and Agro-Industry Credit Project

Medium and Long-term ForeignInvestment Items Local Foreign Total Exchangeunder the Project ---- US$'000…---- %

On-Farm Investment

Fertilizer and chemicals(orchards & vineyards) 319.1 1,276.6 1,595.7 80

Pasture improvement 941.2 1,411.9 2,353.1 60

Planting Materials (fruits& vines) 3,568.1 3,568.1

Fencing & Trellising 2,995.8 1,409.8 4,405.6 32

Sheep and Cattle Yards 89.9 59.9 149.9 40

Machinery 3,674.5 4,491.1 8,165.6 55

Other equipment 497.0 745.5 1,242.5 60

Water Supply 346.4 186.5 533.0 35

Livestock 1,716.4 302.9 2,019.3 15

Freight and Mechanization 3,767.5 4,081.4 7,848.9 52

Labor 2,543.4 3,146.0 _

Total Base Line 20,459.3 13,983.5 34,425.0 41

Price contingencies(19% of base line) 4,799.1 3,275.9 8,075.0 41

Sub-total25,258.4 17,259.4 42,500.0 41

Agro-Industries

Base line cost of civilworks and machinery andequipment 9,839.0 6,290.0 16,129.0 39

Physical contingency (5%) 492.0 314.0 806.0 39

Price Contingency (19%) 1,869.0 1,196.0 3,06512,200.0 7,800.0 20,000.0 39

Grand Total 37,458.0 25,059.0 62,500.0 40

March 16, 1976

CHIILE

LIVESTOCK, FRUITS, VINEYARDS AND AGRO-INDUJSTRY CREDIT PROJECT

Model 1: Dairy/Beef Fare (Individual) - El Basic Ha-l

Nierd Deveopntroetn

------------------------------ End of Yer -----------------------------Pre-

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

Nerd Composition

Cows and Replacements 10 29 28 29 33 36 39 43 44 44 44Calves Weaned/2 6 13 20 19 22 25 27 30 32 32 32Heifers (1-2 years) 2 2 6 10 10 11 12 14 15 16 16Bulls 1 1 1 1 1 1 1 1 1 1

Total Animals: 18 45 55 59 66 73 79 88 92 93 93

Animal Units/3 12 32 35 40 44 48 52 58 60 61 61Milking Cows 6 15 22 21 24 26 29 31 34 35 35

lertality

Cows and Replacements 1 2 1 1 2 2 2 2 3 3 3

Purchases

In-calf Heifers (2-3 years) - 10Heifers (1-2 years) - 10Rolls _ 1 _ _ 1 _ _ _

Total: - 21 - - 1

Cattle Sales

Cull Cows 1 2 2 4 4 5 6 6 6 7 7In-calf Heifers (2-3 years) - - - - - - - - 4 5 6Steers (1-2 years) 3 3 7 10 9 11 13 13 15 16 16Bulls - - - - I _ - - I _ -

Total: 4 5 9 14 14 16 19 19 26 28 29

Milk Sales (liters) 7.800 24 000 44,000 44,100 52,800 65,00 0 77,50 85,00 0 87,50 87,500

Technical Coefficients

Calving Rate (%) 70 75 75 75 80 80 80 80 80 80 80Calf Mortality (T) 14 13 10 10 10 10 8 8 8 8 aAdult Mortality(%) 5 5 4 4 4 4 4 4 4 4 4Cow and Replacement Cul1ing (%) 10 10 10 14 14 15 17 17 17 17 17Milk Sold (liters/cow) 1,300 1,600 2,000 2,100 2,200 2,500 2,500 2,500 2,500 2,500 2,500Age at First Calving (months) 36+ 36+ 36+ 36+ 36+ 36+ 36+ 36+ 36+ 36+ 36+

/1 Equivalent to 55 physical ha in the Central Valley, Osorno Region. {K/2 After calf mortality is taken into account.

73 Animal Unit (AU); animal over one year.

October 31, 1975

CHILE


Model II: Beet/Sheep Farm (Cooperative or Individual) - 80 Basic Ha-i

Herd Develo,oment Projecliun

-------------------------------------------------------- End of Year ---Pre-

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

Herd Composition

Cows and Replacements 70 90 90 95 102 114 120 120 120 120Calves Weaned 45 53 53 63 66 71 80 84 84 84Heifers (12-24 months) 21 21 25 25 30 32 34 38 40 40Steers (12-24 months) 22 22 26 26 31 32 35 38 40 40

Bulls 2 3 3 3 3 3 4 4 _4 4

Total Animals: 160 189 197 212 232 252 273 284 288 288

Animal Units/2 115 136 144 149 166 181 193 200 204 204

Mortality

Cows 4 5 5 4 4 4 5 5 5 5Heifers (12-24 months) I 1 1 1 1 1 1 2 2 2

Steers (12-24 months) 1 1 1 1 1 1 1 2 2 2

Heifers (24-36 months) I 1 1 1 1 1 1 1 1

Steers (24-36 months) I I I I I I I I 1 1

Total: 8 9 9 8 8 8 9 11 11 11

Purchases

In-calf Heifers - 20 - - - - - - - -

Bulls 1 2 1 1 1 1 2 1 1 1

Total: 1 22 1 1 1 1 2 1 1

Sales

Cull Cows 7 9 9 9 10 10 11 12 12 12Heifers (24-36 months) 9 6 6 6 3 3 9 16 20 22Steers (24-36 months) 21 21 21 25 25 30 31 34 37 39Bulls 1 1 1 1 1 1 1 1 1 1

Total: 38 37 37 41 39 44 52 63 70 74


Weantig Rate (%) 65 65 65 70 70 70 70 70 70 70

Adult Mortality(%) 5 5 5 4 4 4 4 4 4 4Cow culling Cl) 10 10 10 10 10 10 10 10 10 10

Bull Culling (%) 50 33 33 33 33 33 33 25 25 25

I Equivalent to 700 physical ha in the Costal Belt-Osorno Region.i Animal Unit (AU); animal over one year.

November 2, 1975

CHTILE


Model II: Beef/Sheep Farm (Cooperative or Individual) - 80 Basic HaLi

Flock Development Projection

---------------------------------------------------------- End of YearPre-

Development 1 2_3 4 5 6 7 8-20

Flock Composition

Ewes and Replacements 600 748 774 794 845 905 986 1,000 1,000Ewe Lambs 166 235 235 263 285 323 285 263 263Rams 30 40 40 40 42 45 49 50 50

Total Animals: 796 1_023 1 049 1,097 1,172 1,273 1,320 1 313 1,313

Animal Units/2 120 150 155 159 167 181 197 200 200Lambs Weaned 480 640 636 696 754 845 905 986 1,000

MoYtality

gwes 36 48 45 46 40 42 45 49 50gwe Lambs (4-12 months) 11 15 15 17 is 17 15 14 14Ewe Replacements (12-24 months) 10 10 14 14 13 14 16 14 13Rams 2 2 2 2 2 2 2 3 3

Total: 59 75 76 79 70 75 78 80 80

Purchases

Ewes (2-tooth) - 200 - - - - -Rams 8 18 10 10 12 13 15 14 13

Total: 8 218 10 10 12 13 15 14 13

Sales

Cull Ewes 120 160 150 155 159 169 181 208 200Bams 6 6 8 8 8 8 9 10 10Lambs 303 390 386 416 454 505 605 709 723

Total: 429 556 544 579 621 682 795 927 933

Wool (kg) 1,990 2,558 3,147 3,291 3,516 3,946 4,092 4,070 4,070


Lambs Weaned (%) 80 80 85 90 95 100 100 100 100Ewe and Ram Mortality (%) 6 6 6 6 5 5 5 5 5Ewe Lamb Mortality (4-12 months) (%) 6 6 6 6 5 5 5 5 5Ewes Culled (%) 20 20 20 20 20 20 20 20 20Rams Culled (%) 20 20 20 20 20 20 20 20 20Rams (h of Breeding Ewes) 5 5 5 5 5 5 5 5Wool/Animal (kg) 2.5 2.5 3.0 3.0 3.0 3.1 3.1 3.1 3.1

/I Equivalent to 700 physical ha in the Costal Belt-osorno Region. w m,7T Animal Unit (AU); five ewes.

November 2, 1975

ANNEX 8

Appendix 1Table 4

CHILE

LIVESTOCK, FRUITS, VINEYARDS AND AGRO-INDBSTRY CREDIT PROJECT

Yield, Cost and Price Assumptions

Cost Assumptions: On-farm Investment (Models I and II)

US$

Pasture Establishment per Ha (Years 1-2)Cultivation - plough, harrow seed and roll 50Fertilizer - 200 kg ammonium phosphate (18% N, 46% P205),

100 kg potash (48% K20) 60Seeds - 16 kg ryegrass, 4 kg clover 40

Total: 150

Fencing per 1,000 mWire 223Staples 21Posts 90Labor (33 days @ US$2/day) 66Transport of Material and Miscellaneous 20

Total: 420

Water Supply (Dairy Farm)Australian Tank - 25 m 165Four Concrete Troughs - 1,300 1. capacity 66Plastic Piping - 400 m x 1" diam 168Plastic Piping - 800 m x 3/4" diam 208Water Pump 686

Total: 1,293

Water Supply (Sheep Farm)Six Concrete Troughs (US$66 each) 396200 m 1" Plastic Piping 84

Total: 480

Milking Shed and EquipmentMilking Shed - four units 1,400Milking Machine and Equipment 1,600

Total: 3,000

MachineryForage Harvester 2,200Fertilizer Spreader 400Tractor Trailer 620

Total: 3,220

Sheep Yards - 980 m2

(6 Pons) 400

Cattle Yards - 1,000 m2

(5 Pons) 800

Wool Press 500

LivestockIn-calf Dairy Heifer (3 years) 200Breeding Heifer (dairy)(2 years) 120Dairy Bull (1-2 years) 300In-calf Beef Heifer (3 years) 130Beef Bull (1-2 years) 2002-tooth Ewe (1-2 years) 11Ram 28

March 10, 1976

CHILE



Operating Cost Assumptions (Models I and II)

Model I Model II

Labor ½ labor unit pre-development and one labor unit Four men, costing US$686/man/yearYears 1-20, costing US$686/man/year

Pasture - Maintenance Plough, cultivate and re-seed, US$155/ha Plough, cultivate and re-seed, US$155/ha

- Fertilizer 200 kg ammonium phosphate (187. N, 46% P205) per 150 kg ammonium phosphate (18% N, 467, P20 5 ) perha on improved pasture, US$42/ha/year ha on improved pasture, US$32/ha/year

Animal Health Vaccines, drugs, medicines, minerals and veterinary Vaccines, drugs, medicines and veterinaryassistance, US$10/Animal Unit/year assistance, US$7/Animal Unit/year

Artificial Insemination US$7/lactating cow/year

Shearing US$0.10/sheep

Machinery Hire and Freight US$20/Animal Unit/year US$10/Animal Unit/year

Repairs and Maintenance 10% of investment costs, excluding pasture 5% of investment costs, excluding pastureimprovement and breeding stock/year - improvement and breeding stock/year -Years 2-20 Years 2-20

November 4, 1975

CHILE



Price Assumptions (Models I and II)

Model I Model II

Purchases

In-calf Heifers US$200/head US$130/head

Breeding Heifers US$120/headBull US$300/head US$200/head

2-tooth Ewes US$11/head

Rams US$28/head

Sales

Milk US$0.90/literWool US$1.00/kg

Cull Cows US$150/head - 500 kg liveweight Pre-development and Year 1 - US$140/head - 470 kg

liveweight/head; Years 2-20 - US$150/head -500 kg liveweight/head

Cull Bulls US$170/head Pre-development and Year 1 - US$140/head;Years 2-20 - US$150/head

In-calf Heifers US$200/headHeifers (24 to 36 months) Pre-development and Year I - US$90/head;

Years 2-20 - US$120/head

Steers (24 to 36 months) US$90/head (300 kg) - sold in Spring Pre-development and Year 1, sold in Autumn -US$140/head (400 kg/head); Years 2-20, sold inAutumn - US$175/head (500 kg/head)

Cull Ewes Pre-development and Year 1 - US$7/head (45 kg/head);Years 2-20 - US$9/head (50 kg/head)

Cull Rams Pre-development and Year I - US$8/head (52 kg/head);

Years 2-20 - US$9/head (55 kg/head)

Lambs Pre-development and Year 1 - US$7/head (28 kg/head);

Years 2-20 - US$9/head (33 kg/head)

November 4, 1975 a,

ANNEX 8Appendix 1Table 7

CHILE


Model III: Table Grapes - Peaches/Nectarines -- Irrigated North Central Valley: 5 ha Enterprise

Costs per Hectare and Assumptions

Before ------ Year --------------------

Development 1 2 3 4 5 6 7 8-19 20INVESTMENT COSTS (US$/ha)Capital Items

FenceaL! _ 28Machinerv2/ _ 656Trellis (grape)3/ - 469 -

Orchard EstablishmentPlanting material/ - 425 42 - - -Fertilizers5/ - 60 55 - - - - - - -Chemicals.6 - 16 36 - - - - - - -Freight7/ - 248 21 - - - - - - -Mechanization8/ - 385 267 - - - - - - -Labor9/ - 245 105 - - - - - - -

OPERATIONAL COSTS (US$/ha)Planting material 16 - - 8 8 8 8 8 8 8Fertilizers 109 - - 92 134 165 196 196 196 196Chemicals 9 - - 79 94 106 120 134 134 134Freight 17 - - 27 36 42 49 51 51 51Mechanization 152 - - 344 519 519 549 587 587 587Labor 34 - - 126 208 242 251 261 261 261Miscellaneous-LO/ 5 - - - - - - - - -

Ta x11/ 12 24 36 48 60 72 84 96 96 96

ASSUMPTIONS

Orchard: Area (ha)Annual crops 5 0 0 0 0 0 0 0 0 0Table grapes 0 2 2 2 2 2- 2 2 2 2Peaches/nectarines 0 3 3 3 3 3 3 3 3 3

Orchards: Yields (kg/ha)Table grapes - - - 1,500 4,000 8,000 12,000 16,000 18,000 18,000Peaches/nectarines - - - 2,000 4,500 8,500 12,500 15,000 16,000 16,000

Fruit: Price (US$/kg)Table grapes - - - 0.18 0.18 0.18 0.18 0.18 0.18 0.18Peaches/nectarines - - - 0.21 0.21 0.21 0.21 0.21 0.21 0.21

Trees/vines: Salvage value - - - - - - - - - 1,979

1/ Lightweight fence of treated wooden posts and strand wire.2/ Tractor 45 hp, plow, disc harrow, sprayer, sulfur applicator (grapes), trailer, pruning and harvesting equipment: US$19,685 sufficient

to work 30 ha.3/ Parronal trellis of treated wooden post, strand wire and overhead wire grid construction.4/ Planting density grapes 1,650 vines/ha, peaches/nectarines 331 trees/ha available from local nurseries,5/ Superphosphate (triple) imported. Potassium nitrate of local manufacture. All fertilizer prices include a 20% sales tax.6/ Sulphur, miticides and insecticides all imported.7/ Freight charged on all materials at 15%.8/ Basic daily rate of US$43.32 for tractors, US$18.18 for implements.9/ Basic salary US$1.12/day plus benefits of US$1.24, giving daily wage of US$2.36.

10/ These charges apply only to annual crops.11/ 12% on land valued at US$100/ha before development increasing to US$800/ha at full development.

March 10, 1476

CHILE


Model IV: Apples/Almonds -- Irrigated Central Valley: 7 ha Enterprise


Before ------ Year ---------Development 1 2 3 4 5 6 7 8 9 10 11-19 Z(

INVESTMENT COSTS (US$/ha)Capital Items

Machinery]/ - 715 387 - - - - - - - - - _

orchard EstablishmentPlanting material - 412 303 - - - - - - - - - -

Fertilizers3/ - 41 46 - - - - - - _- -

Chemicals4/ - 17 38 - - - - - - - - -

Freight!/ - 178 116 - - - - - - - - - -

Mechanization_6/ - 233 200 - - - - - - - - - -

Labor7/ - 154 123 - - - - - - - - - -

OPERATIONAL COSTS (US$/ha) (7 ha) (5.8 ha) (3.9 ha) (10.2 ha) (8.6 ha) (7.0 ha)

Plantlng matefial 16 16 16 27 10 9 9 9 9 9 9 9 9

Fertilizers 109 109 109 76 96 136 186 236 250 250 250 250 250

Chemicals 9 9 9 54 85 122 147 173 198 223 247 257 257

Freight 17 17 17 22 28 40 54 65 72 75 79 83 83

Mechanization 152 152 152 167 193 224 297 325 340 393 422 422 422

Labor 34 34 34 72 91 127 151 181 212 241 258 263 263

Tree supports8/ - - - - - - 22 15 22 15 22 15 15

Miscellaneous7/ 5 5 5 2 1 - - - - - - - -

Tax.10/ 12 17 29 28 43 65 77 89 96 96 96 96 96

ASSUMPTIONS

Orchard: Area (ha)Annual crops 7.0 5.8 3.9 3.2 1.6 0 0 0 0 0 0 0 0

Apples 0 3 5 5 5 5 5 5 5 5 5 5 5

Almonds 0 0 2 2 2 2 2 2 2 2 2 2 2

Orchard: Yields (kg/ha)Apples - - - - 500 6,000 10,000 15,000 20,000 25,000 30,000 30,000 30,000

Almonds (shelled) - - - - - 100 200 400 600 800 B00 800 800

Fruit/Nut: Price (US$/kg)Apples - - - - 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11

Almonds (shelled) - - - - - 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00

Trees: Salvage Value - - - - - - - - - - - 1,878

1/ Tractor 45 hp, plow, disc harrow, sprayer, trailer, elevator (apples), pruning and harvesting equipment: US$21,451 sufficient to work 30 ha.

2/ Planting density apples 312 trees/ha, almonds 357 trees/ha available from local nurseries.

3/ Superphosphate (triple) imported. Potassium nitrate of local manufacture. All fertilizer prices include a 20% sales tax.

4/ Fungicides, miticides and insecticides all imported.5/ Freight charged on all materials at 15%.

6/ Basic daily rate of US$43.32 for tractors, US$18.18 for implements.7/ Basic salary of US$1.12/day plus benefits of US$1.24, giving daily wage of US$2.36.

8/ Treated wooden posts to prevent trunks splitting and breakage of overladen branches.

9/ These charges apply only to annual crops.10/ 12% on land valued at US$100/ha before development increasing to US$800/ha at full development.

March 10, 1976

ANNEX 8

Appendix ITable 9

CHILE


Model V: Vineyard -- Irrigated Central Valley: lp ha Enterprise


Before ---- _----____----------------------------- Year --------------------------------------Development 1 2 3 4 5 6 7 8-19 20

INVESTMENT COSTS (US$/ha)Capital Ite%ns

Fences-i - 50- ------ 2! - 68~~ ~~ ~ ~ ~ ~~0 - - - - - - - -Machine 680Trellis- - 370 97

Orchard,EstablishmentVines-- 188 28 -Fertile 5/ - 65 67 - -Chemicals -- -2 7Freight7 207 34 - -Mechanzationo8 - 403 302 - -Labor9 - 197 56 - - - - - - -

OPERATIONAL COSTS (us$/ha) (4 ha) (4 ha)Ir~e-M-s - - - 3 2 2 2 2 2 2Vines 3 3 3 3 3 3 3 3 3 3Fertilizers 75 75 75 1d1 101 101 101 101 101 101Chemicals 39 39 39 78 78 78 78 78 78 78Freight 18 18 18 60 24 24 24 24 24 24Mechanization 380 380 380 574 638 638 638 638 638 638Labor 130 130 130 164 211 211 211 211 211 211

TaaAPJ 12 29 41 53 65 77 89 96 96 96

ASSUMPTIONS

Vineyard: Area (ha)Existing 10 0 0 0 0 0 0 0 0 0Improved 0 4 4 4 4 4 4 4 4 4New 0 6 6 6 6 6 6 6 6 6

Vineyard: Yields (kg/ha)Existing 5,000 - - - - - - - -Improved - 7,000 8,500 10,000 12,000 12,000 12,000 12,000 12,000 12,000New - - - 1,500 4,000 7,500 11,000 13,000 15,000 15,000

Grape: Price (US$/kg) 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16

Vines: Salvage Value - - - - - - - - - 1,055

1/ Light weight fence of treated wooden posts and strand wire.21 Tractor 45 hp, plow, disc harrow, sprayer, sulfur applicator, trailer, pruning and harvesting equipment: US$20,386 sufficiesat to

work 30 ha.3/ Cordon trellis of treated wooden post and strand wire construction.4/ Planting density 2,000 vines/ha available from local nurseries.5/ Superphosphate (triple), and sulphate of potash imported. Potassium and sodium nitrate of local manufacture. All fertilier prices

include a 20% sales tag.6/ Sulfur, miticides and insecticides, all imported.7/ Freight charged on all materials at 15%.8/ Basic daily rate of US$43.32 for tractors, US$18.18 for implements.i/ Basic salary US$1.12/day plus benefits of US$1.24, giving daily wage at US$2.36.

10/ 12% on land valued at US$100/ha before development increasing to US$800/ha at full development.

March 10, 1976

CHILE

LIVESTOCK. FRUITS. VINEYARDS AND AGRO-INDUSTRY CREDIT PROJECT


Agro-Industries (Models VI, VII and VIII)(US$)

Fruit Cold Store andMilk Processing Plant Packing Plant W i n e r v

Yield or No. of Yield or No. of Yield or No. ofUnits at full Cost or Price Units at full Cost or Price Units at full Cost or PriceDevelopment per Unit Development per Unit Development per Unit

VolumeTotal raw milk processed, million lts. 18 -- -- -- -- --

Total fruit (apples) packed, boxes 20 kg/ea. -- -- 250,000 -- -- --

Total wine produced, million lts. -- -- -- -- Avg. 72% yield --

SalesPasteurized milk in bottles (3% butter fat) 94% 0.16/lt at plant -- -- - -_

Butter 5 kg/1,000 lt 1.80/kg at plant -- -- -- __

Yoghurt and ice cream 5% 0.50/kg at plant -- -- -- __

Packed fruit for export mkt. -- -- 30% 7.-/box FOB port -- --

Packed fruit for local mkt. -- -- 65% 6.-/box at wholesaler -- --

Crated reject fruit for local mkt. -- -- 5% 2.-/crate dt wholesaler -- --

Wine in bottles for export mkt. -- -- -- -- 20% 1.10/lt at wholesaler

Wine in bottles for local mkt. -- -- -- -- 20% 0.50/lt at wholesaler

Wine in demijohns for local mkt. -- -- -- -- 30% 0.40/lt at wholesaler

Wine in bulk -- -- -- -- 30% 0.35/it at winery

Operating CostsRaw milk purchases 3.5% butterfat 0.09/lt at farm -- -- -- --

Raw fruit purchases -- -- 1% waste 240.-/box at farm -- --

Raw grape purchases -- -- -- -- Avg. 72% yield 0.16/kg at farm

Direct labor: skilled persons 40 x 12 mo. 220/mo. 20 x 12 mo. 180/mo. 10 x 12 mo. 180/mo.unskilled persons 50 x 12 mo. 160/mo. 80 x 6 mo. 120/mo. 25 x 3 mo. 120/mo.

Purchased power 80 KWh/l,000 It. 0.03 KWH 2.5 KWH/box 0.03/KWH 150 KWH/l,000 It. 0.03/KWHFuel, chemicals 80 kg F.O./1,000 It 0.12/kg F.O. -- -- -- --

Packing, misc. miterials, bottles 8% breakage 0.11/bottle -- -- -- --

cups 6/lt 0.02/cup -- -- -- --

Cartons -- -- 20 kg/ea. 1.10/carton -- --

Crates -- -- 20 kg/ea 0.55/crate -- --

Bottle -- __ __ 0.7 It 80%/reuse 0.11/bottleDemijohns -- -- -- -- 5 lt. 90% reuse 0.33/demijohn

Freight of raw material (Radiu 100 km 0.015/lt Radius 300 km 0.30/box Radius 50 km 7.-/tonDistribution and marketing cost Rdu10km 015iRaus30m 0./bxRadius 300 kmi 0.03/ItTaxes: IVA 20% excepting fluid milk -- -- Except bulk 20%

ILA -- -- -- -- Except bulk 20%Maintenance (labor + 100% for materials) 8 persons x 12 mo. 250/mo. 8 persons x 12 mo. 200/mo. 4 persons x 12 mo. 200/mo.Administration expenses -- 24,000/yr. -- 18,000/yr -- 14,400/yr.

Technical, administrative and supervisorypersonnel 12 persons x 12 mo. 400/mo. 10 persons x 12 mo. 350/mo. 6 persons x 12 mo, 350/yr

Management 3 persons x 12 mo. 800/mo. 2 persons x 12 mo. 700/mo. 2 persons x 12 mo. 700/yr

Total direct employment generated/plant 113 persons 120 persons 47 persons

November 10, 1975 x

ANNEX 8Appendix ITable 11

CHILE



Cost Assumptions: Agro-Industry Investments (Models VI, VII and VIII)(US$ '000)

Fruit Cold Store andMilk Processing Plant Packing Plant W i n e r y

Plant Capacity 75,000 Lts/two shifts Cold Store: 100,000 boxes/20 ea. 100 tons grapes/dayPacking : 3,000 boxes/shift 3,000,000 lts.

Investment Items

1. Land and Site Preparation 3 6 3

2. Civil WorksAccess roads and plant yards 40 40 20Fencing and infrastructure 6 6 6Processing bldg. and cooler 140 - _Insulated cold store - 204Main packing shed - 100Fermentation and holding vats - - -Sheds for vats and processing - - 150Office, lab., amenities 75 75 90Garage, store, engine room, aux. bldgs. 30 40 45Sewage treatment 24 12 30Sub-total 315 477 341

3. UtilitiesWater wells, pumps, tank, chlorinator 48 24 8Power substation and controls 22 24 26Package steam generator and aux. 36 - _Refrigerating equipment and aux. 120 180 90Service lines 23 23 12Crating, freight, insurance 25 25 14Installation 41 38 23

Sub-total 315 314 173

4. Machinery and EquipmentMilk receiving and can washing 60 - _Milk pasteurization, chilling, C.I.P. 200 - _Milk storage tanks 100 - -Dairy products processing equipment 120 - -Bottle washing and filling line 130 - -S.S. piping and fittings 31 - -Fruit bins _ 50Fruit receiting and washing equipment - 120 _Grading and packing lines - 180 -Grape grinders, conveyors, presses - - 30Heat exchangers, portable pumps, filters - - 20Demijdhn washing and filling line - - 15Clarifying filters, sterilizer, insulated vats - - 100Bottle washer and bottle filling line - - 80Office, lab., spares, tools, miscellaneous 40 20 30Crating, freight, insurance 68 37 28Installation 75 81 61Sub-total 824 488

5. Transportation Equipment 54 44 14

6. Engineering and Overhead 145 128 88

7. Import Duties 318 229 160

Total Investment W/O Contingencies 1,974 1,686 1,143

8. Contingencies, Physical 5% 99 84 57

9. Working Capital 70 320 413

Total 2,143 2,090 1,613

10. Foreign Exchange Component (%) (52%) 1,118 (36%) 742 (28%) 452

11. Number of equivalent plants that would be financed 2 4 3

12. Depreciation Charge 139 113 73

March 12, 1976


Producer Income and Financi al Rates of Return

Model I: Dairy/Beef Fars (Individual) - 11 Nssic HR(US$)

Develop-ent 1 2 3 4 5 6 7 8 9 10 11 12-19 20

On-fans Investment Coasts

Psstura Improvement - 1,395 1,395 -Fencing - 1,050 420 - - - - - - - - -Water Supply - 1,300 -Milking Shed - 1,400Milking Equipment - 1,600Machinery - 3,200Breeding Stock 500

SDb-tatal: - 13,445 1,815 - - - - - - - - - -

Operating Casts

Labor 343 686 686 686 686 686 686 686 686 686 686 686 686 686

PFatrce Mainte-nce - - - 775 775 775 - - - - - - -Fertili:er - - 378 756 966 1,176 1,386 1,386 1,386 1,386 1,386 1,386 1,386 1,386

Animal Health 120 320 350 400 440 480 520 580 600 610 610 610 610 610Artificial Inseeinttion 42 105 154 154 168 182 203 217 238 245 245 245 245 245

Machinery Rire and Preight 240 640 700 800 880 960 1,040 1,160 1,200 1,220 1,220 1,220 1,220 1,220

Repairs and Mainte-neee - - 857 900 900 900 900 900 900 900 900 900 900 900

Bull Purchase - - - - 300 - - - 300 - - - -Land Ta 68 68 68 68 68 68 68 68 68 68 68 68 68 68

Small Equip-ent Items 50 100 150 150 150 150 150 150 150 150 150 150 150 150

Sub-total: 863 1,919 3,343 4,689 5.333 5,377 4,953 5,147 5.528 5,265 5.265 5s265 5,265 5.265

Total: 863 15364 5158 4689 5,333 5377 5 5147 52 265 5,265

Gress Production Value

Milk 702 2,160 3,960 3,969 4,752 5,850 6,525 6,975 7,650 7,875 7,875 7,875 7,875 7,875

Cattle 420 570 930 I,soo 1,580 1,740 2,070 2,070 3,220 3,490 3,690 3,690 3,690 3,690

Total: 1,122 2,730 4.890 5.469 6,332 7,590 8.595 9,045 10,870 11,365 111565 11.565 119 565

Net Income Befare Project 259 259 259 259 259 259 259 259 259 259 259 259 259 259

Net Flow Fram Project (12,893) (527) 521 740 1,954 3,383 3,639 5,083 5,841 6,041 6,041 6,041 15,678/1

Financial Rate of Return: 207,

Cash Flow

Out Y I-vestment Cast 12

- 13,445 1,815 - - - - - - - - - -operatimg CostsL

2520 1,233 2,657 4,003 4,647 4,691 4,267 4,461 4,842 4,579 4 579/3 4,579 4,579 4,579

Interest/Annuity - 1,076 1,221 1,221 1,221 1,221 3,301 3,301 3,301 3,301 3,3017S 3,301 - -

It- Sale' 4

1,122 2,730 4,890 5,469 6,332 7,590 8,595 9,045 10,870 11,365 11,565L 11,565 11,565 11,565 X

Loan4 - 13,445 1.815 - - - -_ - - - -_ _Surplms (Deficit) 602 421 1,012 245 464 1,678 1,027 1,283 2,727 3,485 3,685/3 3,685 6,986 6,986 _ xs

/ Includes incr-me.tal herd value - US$9,637./2 Excluding labor cant, contributed by farm family.Th Full development year./4 100lS f investment costs.

March 12, 1976

CH ILE

LIVESTOCK, FIDUITS, VINEYARDS AND AGRO-INDUSTRY CREDHT PROJECT

Proddcer Income and -in1an Dte f Retur

Model II Be-f/She-p Panp <Cooperatieor Ia divtd-al) - SO Basic Re

Beue ------------------------------------------------------------ ------ ---------- Year- --------------------------------------------- ---------------------------- _------Developmsent 1 2 3 4 5 6 7 8 9 l0 11 12 13-19 20

On-fern Invest-ent Costs

Pasture Jnprovneo- t _ 4,650 6,200 -FPOen g - 4,460 -

Wate.r Spply - 505Sheep Yards - 400Catte Yards - 800Woo I re 500Machin-ry 2,200Sheep - Breeditg Stock - 2,480Cattle - Breediag Stark - 3-000 - -- - -

Sab-total: - 18,990 6,200 - - - - - - - - - - -

Speatatng fasts

Lahbo 2,744 2,744 2,744 2,744 2,744 2,744 2,744 2,744 2,744 2,744 2,744 2,744 2,744 2,744 2,744Pasture Mai.te-usee - - - - - - - 775 1,550 1,550 775 - - - -Fertili-er - - 960 2,240 2,240 2,240 2,240 2,240 2,400 2,720 3,040 3,200 3,200 3,200 3,200Anifal Health 1,990 2,410 2,525 2,603 2,483 2,777 3,000 3,400 3,440 3,440 3,440 3,440 3,440 3,440 3,440Bulla and Rams 424 222 480 480 536 564 820 592 564 564 564 564 564 564 564Shearing 80 102 105 110 117 127 132 131 131 131 131 131 131 131 131Machinery lire and Fr-ight 2,350 2,860 2,990 3,080 3,350 3,620 3,900 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000Repairs end M.ai.taLante 100 100 500 500 500 500 500 500 500 500 500 500 500 500 500Land Tan 625 625 625 625 625 625 625 625 625 625 625 625 625 625 625Snall Eqfip-ent Itess 100 100 200 200 200 200 200 200 200 200 200 200 200 200 200

S,,b-tot.l: 8,413 913 11.129 12.582 12,795 13.397 14,161 15,207 16,154 16,474 16,019 15.404 15,404 15,404 1,0

Total: 8_413 28,153 17,329 18 2 13,397 14,161 15 207 16,154 16,474 1 15,404 15_404 15.404

GDeas Pr-duction ValDa

Sheep and Weal 4,999 6,456 8,043 8,502 9,105 10,084 11,247 12,413 12,467 12,467 12,467 12,467 12,467 12,467 12,467

Cattle 4,800 5.895 6,595 6_385 7,260 8,305 9. 820 10,825 11, 415 11,415 11. 415 11. 415 11.415

TYtal: 986 11336 13,938 15,097 15,490 17,344 19,552 222233 29 23.882 233,82 23.882 23 882 23_882

Net Incame Before Projert 1,456 1,456 1,456 1,456 1,456 1,456 1,456 1,456 1,456 1,456 1,456 1,456 1,456 1,456 1,456

Net Flas F-ese Projett - (18,273) (4,847) 1,059 1,239 2,491 3,935 5,570 5,682 5,952 6,407 7,022 7,022 7,022 30,443L1

Fi.assatl Rate of Retrtn: 16%

Cash Flew

Oat: I_vest_ent Csts/L2 - 18,990 6,200 - - - - - - - - -operatins C.nt.L2 6,355 7,105 9,071 10,524 10,737 11,339 12,103 13,149 14,096 14,416 13,961 13 346/3 13,346 13,346 13,346lntere-t/An..ity - 1,215 1,612 1,612 1,612 1,612 3,871 3,871 3,871 3,871 3,871 3,87 1/L - - -

Itn- Sal74 9,069 11,336 13,938 15,097 15,490 17,344 19,552 22,233 23,292 23,882 23,082 23,882/3 23,882 23,882 23,882Loan_~ - 15,192 4,960 - - - - - - - - - _ _ _S-rplus (Defitit) 3,514 (782) 2,015 2,961 3,141 4,393 3,578 5,213 5,325 5,595 6,050 6,665/3 10,536 10,536 10,536

/1 Includes incremental herd value - 110023,421./2 Excluding 757. lahbr tent, tonttibuted by Cane iially./3 Fu11 develapment year./4 80% of tinest-ent teat.

Jantary 12, 1976

CHILE

LIVESTOCK, FRUITS. VINEYARDS AND AGRO-INDUSTRY CREDIT PROJECT

Model III: Table Grope: - Peachgs/Nectarines -- Irrigated North Central Vallev: A. 5 ha Medium Former Esterprlse

Investment Costs Deve-oDpsnt C 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16-19 20

Fences - 140 -Machinery 3,281Trellis (grape) - 2,344

Planting material - 2,126 212

Fertili-ers _ 302 276

Chemicals - 80 181 - - - - - - - - - - - -

Freight - 1,241 103

Mechanization - 1,925 1,335

Labor - 1,226 527

S8btotal - 12,665 2,634

Operational costa

Planting material 80 - - 39 39 39 39 39 39 39 39 39 39 39 39 39 39 39

Fertilizers 547 - - 458 673 826 979 979 979 979 979 979 979 979 979 979 979 979

Chemicals 47 - - 393 471 532 602 671 671 671 671 671 671 671 671 671 671 671

Freight 85 - _ 136 180 212 245 256 256 256 256 256 256 256 256 256 256 256

Mechanization 759 _ - 1,722 2,593 2,593 2,745 2,935 2,935 2,935 2,935 2,935 2,935 2,935 2,935 2,935 2,935 2,935

Labor 170 - - 628 1,038 1,210 1,257 1,304 1,304 1,304 1,304 1,304 1,304 1,304 1,304 1,304 1,304 1,304

Miscellaneous 25 - - - _ - - -

Subtotal 1,713 - - 3,376 4,994 5,412 5,867 6,184 6,184 6,184 6,184 6,184 6,184 6,184 6,184 6,184 6,184 6,184

Tox 60 120 i80 240 300 360 420 480 480 480 480 480 480 480 480 480 480 480

Overall total 1,773 12,785 2,814 3,616 5,294 5,772 6,287 6,664 6,664 6,664 6,664 6,664 6,664 6,664 6,664 6,664 6,664 6,664

Sales 2,137 - 1,800 4,275 8,235 12,195 15,210 16,560 16,560 16,560 16,560 16,560 16,560 16,560 16,560 16,560 16,560

Salvage valor trees/vines - - - - - - - - - - - - - - - - - 9,896

Net 364 (12,785) (2,814) (1,816) (1,019) 2,463 5,908 8,546 9,896 9,896 9,896 9,896 9,896 9,896 9,896 9,896 9,896 19,792

Net Project - (13,149) (3,178) (2,180) (1,383) 2,099 5,544 8,182 9,532 9,532 9,532 9,532 9,532 9,532 9,532 9,532 9,532 19,428

Financial Rate of Return: 227

Cash Flo-/

Out: Investment Coats2/ - 12,665 2,634 - - - - - - - - - - - - - -

Operatiosal Cost 1

1,773 120 180 3,616 5,294 5,772 6,287 6,664 6,664 6,664 6,664 6,664 6,664 6,664 6,664 6,664 6,664 6,664

Interest/Annuity.l/ - 811 979 979 979 979 1,824 1,824 1,824 1,824 1,824 1,824 1,824 1,824 1,824 1,824 - -

In: SIle,4 2,137 - - 1,800 4,275 8,235 12,195 15,210 16,560 16,560 16,560 16,560 16.560 16,560 16,560 16,560 16,560 16,560

Loan- - 10,132 2,107 - - - - - - - - - - - - -

Surplus (Deficit) 364 (3,464) (1,686) (2,795) (1,998) 1,484 4,084 6,722 8,0725/ 8,072 8,072 8,072 8,072 8,072 8,072 8,072 9,896 9,896

1/ 1-es.t-asnt Is 2 ha of table gropes. sd 3 ha of peoches/nectari-es d,rring year t.

2/ lncluding complete labor cost.3/ Interest 87., 5 years grace, repay-ent eavr 10 yeacr.

4/ 80°. of inve-tment costs.5/ Poll development year.

'a

February 25, 1976

CIIILE

LIVESTOCK. FRUITS VINEYARDS AND AGRO-INDUSSRT CERIST PROJECT

lodal 111, Table Grapes - Pe-ches/Nertorties -- TrAxpsed North CeBtral Valley: 3. 5 ho Small FPorer f.tteSprise* ~~~~~~~~(US$)

Imestsoent Cost Sevolopsaot -1 2 3 4 _ 6 7 8 9 10 11 12 13 14 15 16-19 20

Feces 23 - - - -3Maohinery - 653 - - - - - - - - - - - - - -Trellis 387 -Pleetiog materiol - 446 44FertiSleors - 58 14 - - - - -

Chemicals - 15 36Freight - 237 21l9eehemieatioe - 364 247Lbor -

Subtotal - 2,183 402

Operational Costs

Planting moteriol 79 64 64 73 73 73 73 73 73 73 73 73 73 73 73 73 73 73Fertiliear- 547 438 438 531 575 609 643 643 643 643 643 643 643 643 643 643 643 643Chemicals 46 37 37 115 132 146 162 177 177 177 177 177 177 177 177 177 177 177Freight 85 68 68 96 104 112 119 121 121 121 121 121 121 121 121 121 121 121Mlechanization 759 607 607 926 1,088 1,088 1,122 1,165 1,165 1,165 1,165 1,165 1,165 1,165 1,165 1,165 1,165 1,165

Labor - - - - - - - - - - - - - - - - - -Tam.6 72 84 96 109 120 132 144 144 144 144 144 144 144 144 144 144 144Tax _ 60 72 84 _96 108 120 132 54~~~~~ ~ ~~~ ~ ~ ~~~~~~44 14 14 14 14 IL 4 4 14 1/ 4

Sbtrotal 1,576 1,286 1,298 1,837 2,080 2,148 2,251 2,323 2,323 2,323 2,323 2,323 2,323 2,323 2,323 2,323 2,323 2,323

Cash FloAlV

Out: Iovestment Costsz/ - 2,183 402 - - - - - - - - - - - - - - -Ope-tio.al Costs2/ 1,576 1,286 1,298 1,837 2,080 2,148 2,251 2,323 2,323 2,323 2,323 2,323 2,323 2,323 2,323 2,323 2,323 2,323Interest/Annuityl/ - 175 207 207 207 207 385 385 385 385 385 385 385 385 385 385 - -

In: Sales 2,138 1,710 1,710 2,080 2,581 3,381 4,182 4,771 5,030 5,030 5,030 5,030 5,030 5,030 5,030 5,030 5,030 5,030La-eA/ - 2,183 402 - - - - - - - - - - - -8ueplus (Deficit) 562 249 205 36 294 1,026 1,546 2,063 2,3225/ 2,322 2,322 2,322 2,322 2,322 2,322 2,322 2,707 2,707

1/ Investment io 1/3 ha vimeyard, 2/3 ho orchardl (peach/necta) dortig year 1; remaining 4 ha cropped as baesf.2/ gExlodiog labor cast, cootniboted by form family.3/ Interest 8K, 5 years grce., repayment over 10 years.4/ OOTI of i-vestment costs.5/ FPll dev-lapm-ot year. v IR

Febe-ary 25, 1976 |x m

CHILE

LIVESTOCK. FRUITS. VINEYARDS AND AGRO-INDUSTRY CREDIT PROJECT

Model IV: Appleo/AI,nnds -- Irrigated Central Valley: A. 7 ha Medin F-arrer Enterprise

(US$)

Before -------------------------------------------------------------------------- Year- ---------------------------------------------------

Investzent Costs Dovelonnent 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16-19 20

Mechin-ry - 2,145 2,711 - - - -

Planting nsterial - 1,236 2,124 -

Fertilieer - 124 321 - - - - - - - - - - - - - _ -

Chemicals - 50 268 -

Freight - 533 814 -Mechanization - 699 1,403 - - _ _ _ _ - _ _ - _ _ _ _ _

Labor - 61 858 _ - - - - - - - - - - - _ -

Subtotal - 5,248 8,499 - -

Operational Costs

Planting ,naterial 112 93 62 275 88 63 63 63 63 63 63 63 63 63 63 63 63 63

Fertilizer 766 635 427 772 828 954 1,305 1,655 1,751 1,751 1,751 1,751 1,751 1,751 1,751 1,751 1,751 1,751

Cheelcils 65 54 37 552 727 857 1,029 1,211 1,386 1,560 1,729 1,799 1,799 1,799 1,799 1,799 1,799 1,799

Freight 119 99 66 230 241 281 375 455 503 522 555 580 580 580 580 580 580 580

Mechanization 1,063 880 592 1,701 1,665 1,570 2,076 2,278 2,380 2,748 2,951 2,951 2,951 2,951 2,951 2,951 2,951 2,951

Labor 239 198 133 735 782 892 1,1056 1,257 1,481 1,687 1,807 1,838 1,838 1,838 1,838 1,838 1,838 1,838

Tree supports - - - - - - 154 103 154 103 154 103 103 103 103 103 103 103

Mincollaneoss 35 29 19 16 8 - _ - - _ - _ _ - - - -

Subtotal 2,399 1,988 1,336 4,281 4,335 4,617 6,058 7,022 7,718 8,434 9,010 9,085 9,085 9,085 9,085 9,085 9,085 9,085

Tax 04 120 204 288 372 456 540 624 672 672 672 672 672 672 672 672 672 672

Overall total 2,483 7,356 10,039 4,569 4,707 5,073 6,598 7,646 8,390 9,106 9,682 9.757 9,757 9,757 9,757 9,757 9,757 9,757

Sales 2,993 2,48o 1,667 1,368 849 2,890 6,220 10,350 14,700 19,050 21,800 22,900 22,900 22,900 22,900 22,900 22,900 22,900

Salvage value trees - - - - - - - - - - - - - - - - - 13,143

Net 510 (4,876) (8,372) (3,201) (3,858) (2,183) (378) 2,704 6,310 9,944 12,118 13.143 13,143 13,143 13,143 13,143 13,143 26,286

Net Project - (5,386) (8,882) (3,711) (4,368) (2,693) (888) 2,194 5,800 9.434 11,608 12,633 12,633 12,633 12,633 12,633 12,633 25,776

Financial Rate of ReturD: 19%

Cash Pnl,l/

Out: InvestaeDt Costs-/ - 5,248 8,499 - - - - - - - - - - - - - -

Operational tCosta2 2,483 2,108 1,540 4,569 4,707 5,073 6,598 7,646 8,390 9,106 9,682 9,757 9,757 9,757 9,757 9,757 9,757 9,757

Intere-t/Ann-ityl/ - 336 880 880 880 880 1,639 1,639 1,639 1,639 1,639 1,639 1,639 1,639 1,639 1,639 - -

In: Sale 82,993 2,480 1,667 1,368 849 2,890 6,220 10,350 14,700 19,050 21,800 22,900 22,900 22,900 22,911 22,900 22,900 22,900

Loa-g/ - 4,198 6,799 - - - - - - - - - - - - - - -

S.rplu- (Deficit) 510 (1,014) (2,453) (4,081) (4,738) (3,063) (2,017) 1,065 4,671 8,305 10,479 11,5045/ 11,504 11,504 11,504 11,504 13,143 13,143

11 Investment in 3 ha of apple orchard doting year 1, pl-c 2 ha during year 2 together with 2 ha of almond, with iste-row cropping for 3 yeorc.

2/ Including complete labor cost.3/ Interest 87,, 5 years grace, repaym.ent 1ovr 10 years.

4/ 807. of isveStnent casts.

5/ Full developn.e.t year.

February 25, 1976

CIIILE

LIVESTOCK. F'RUITS. VTNINAROS AND) ACRO-INOSTRY CREDIT PROJECT

Model IV: Apples/Almonds -- Irrigated Control Valley: B. 7 hl Smell Farmer Enterprise(US$)

Before ------------ --------------------- ----------------------------------------------- yea ------------------------------------------------------------------------------lnvesteent Costs Ievelopent 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16-19 20Machinery _ 696Planting aterial - 456 45 - - - - - - - - - - - -Fertilizer - 43 49Chemicals - 15 60Freight 185 23Mechanization - 234 152 - - - - - - - - - - - - -Labor - - - ---------

Subtotal - 1,625 329

Operational Costs

Pl-ntig material 151 106 103 111 104 104 104 104 104 104 104 104 104 104 104 104 104 104Fertilizer 766 723 712 782 770 819 869 905 905 905 905 905 905 905 905 905 905 905Chemicalr 65 62 60 155 168 19Y 218 244 269 294 320 320 320 320 320 320 320 320Freight 119 112 ill 136 137 148 166 169 178 176 186 186 186 186 186 186 186 186Me-hasization 1,063 8,002 987 1,174 1,113 1,164 1,240 1,253 1,265 1,335 1,335 1,335 1,335 1,335 1,335 1,335 1,335 1,335Labor- - -------

--------Tree supports - - - - - - 38 - 38 - 38 38 38 38 38 38 38 38Toe - 13 106 119 _132 145 158 172 185 185 183 185 583 18585 5 185 185 185 185

Sabtotal 2,132 2,111 2,092 2,490 2,437 2,584 2,807 2,860 2,944 2,999 3,073 3,073 3,073 3,073 3,073 3,073 3,073 3,073Cbsh Flo.I/

OSt: Invest-ent Costs2a - 1,625 329 - - - - - - - - - - - - - - -Operating Coets-/ 2,137 2,111 2,092 2,490 2,437 2,584 2,807 2,860 2,944 2,999 3,073 3,073 3,073 3,073 3,073 3,073 3,073 3,073Interert/Annuity3/ - 130 156 156 156 156 291 291 291 291 291 291 291 291 291 291 - -

Is: Baling 2,993 2,821 2,779 2,736 2,706 3,260 3,790 4,402 5,015 5,427 5,840 5,840 5,840 5,840 5,840 5,840 5,848 5,840Loan_' - 1,625 329 - - - - - - - - - - - - - - -surples (Deficit) 856 580 531 90 113 520 692 1,251 1,780 2,137 2,4765/ 2,476 2,476 2,476 2,476 2,476 2,767 2,767

1/ Ievestment ia I ha of orchard (3/4 apples, 1/4 almond) d-ring yper 1 with inter-row cropping fot three years; remaining 6 ha cropped as before.2/ Excluding labor east, rontribhted by fars faRily.3/ Interest 879, 5 years g-rce, -epaysent over 10 years.4/ 1007. af inve-tmest costs.5/ FP11 development year.

Februacy 26, 1976

CHILE

LIVESTOCK. FRUITS. VINEYARDS AND AGRO-INDUSTRY CREDTT PROJECT

Model V: Vineyard - Irrigated Central Vallev: A. 10 ha Mediun Farmer Enterprise(USM

Before ____________________--__--------------_-------------------------------------- Year ------------------------------------------------------- ~------------~~~~------------Investment Costs Development 1 2 3 4 5 6 7 S 9 10 11 12 13 14 15 16-19 20

Fences - 503 - - - - - - - - - - - - -

Machinery - 6,795 -Tellis - 3,702 972 - - - - - - - - - - - - - -

Vines - 1,880 284Fertilizers - 648 669Chemicals - 287 374Freight - 2,072 345Me-hanization - 4,032 3,024Labor 1 I.969 564 - _ - - - _ _ - - _ - - - -

Subtotal - 21,888 6,232 -

Operational Costs

Trelli - - 2,304 22 22 22 22 22 22 22 22 22 22 22 22 22 22Vines 30 12 12 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30Fcrtilizer- 746 298 298 1,005 1,005 1,005 1,005 1,005 1,005 1,005 1,005 1,005 1,005 1,005 1,005 1,005 1,005 1,005Chemicals 391 156 156 781 781 781 781 7851 781 781 781 781 781 781 781 781 781 781Freight 175 70 70 596 239 239 239 239 239 239 239 239 239 239 239 239 239 239Mechanization 3,798 1,519 1,519 5,743 6,381 6,381 6,381 6,381 6,381 6,381 6,381 6,381 6,381 6,381 6,381 6,381 6,381 6,381Labor 1,304 522 522 1,636 2,113 1_)3 2_13 2 2.113 _,11 1 2J1 2,113 2,113 2,113 2,113 2,113 2.113

Subtotal 6,444 2,577 2,577 12,095 10,571 10,571 10,571 10,571 10,571 10,571 10,571 10,571 10,571 10,571 10,571 10,571 10,571 10,571Tax 120 288 408 528 648 768 888 _ 960 960 960 960 960 960 960 960 960 960 960

Overall total 6,564 24,753 9,217 12,623 11,219 11,339 11,459 11,531 11,531 11,531 11,531 11,531 11,531 11,531 11,531 11,531 11,531 11,531

Sales 8,000 4,480 5,440 7,840 11,520 14,880 18,240 20,160 22,080 22,080 22,080 22,080 22,080 22,080 22,080 22,080 22,080 22,080

Salvage value vines - - - - - - - - - - - 10549

Net 1,436 (20,273) (3,777) (4,783) 301 3,541 6,781 8,629 10,549 10,549 10,549 10,549 10,549 10,549 10,549 10,549 10,549 21,098Net project - (21,709) (5,213) (6,219) (1,135) 2,105 5,345 7,193 9,113 9,113 9,113 9,113 9,113 9,113 9,113 9,113 9,113 19,662

Financial Rate of Return: 14°/,

Cash Flow/

Out: Investment Coet_2/ - 21,888 6,232 - - - - - - - - - - - - - - -Operating Cost_2/ 6,564 2,865 2,985 12,623 11,219 11,339 11,459 11,531 11,531 11,531 11,531 11,531 11,531 11,531 11,531 11,531 11,531 11,531Interest/Annuity3/ - 1,401 1,800 1,800 1,800 1,800 3,352 3,352 3,352 3,352 3,352 3,352 3,352 3,352 3,352 3,352 - -

In: Sales 8,000 4,480 5,440 7,840 11,520 14,880 18,240 20,160 22,080 22,080 22,080 22,080 22,0850 22,080 22,080 22,080 22,0580 22,080Lo._4/ - 17,510 4,986 - - - - - - - - - - - - - -

Surplus (deficit) 1,436 (4,164) (591) (6,583) (1,499) 1,741 3,429 5,277 7,1975i 7,197 7,197 7,197 7,197 7,197 7,197 7,197 10,549 10,549

1/ Investment in 6 ha of new vineyard, 4 ha of rehabilitated vineyard doting ye-r I.2/ Including complete labor cat.

3/ Interest 8h, 5 years grane, re-poyent over 10 years./ 80/. of Investment coats.

5/Fill development year. zs- |

Febroary 20, 1976 so R

CHILE

LIVESTOCK FRUIITS, VINEYARDS AND ACRE-INDUSTRY CREDIT PROJECT

Model V: Vingyard - Irrigated Central Volley: B. 15 Is Snl Former EntSSi-e

Investment Costs _evelepaent 1 2 3 4 5 6 7 8 9 iS 11 12 13 14 i5 16-19 '20

Fences - 270 -Machinery - 679 - - - - - - - - - - - - - - - -Trellis - 462 7 - - -_ _ -_ _ _ _ _ - - -Vines - 295 30Fertili-ers - 58 62 - - - - - - - - - - - - - -Chenmi-ls - 22 36Freight - 238 20M-echaniztion - 464 386 - - - - - -Labor - - - - - - - - -

Siobtotal - 2,288 541

9perational Costs

Trells - - 382 2 2 2 2 2 2 2 2 2 2 2 2 2 2Vines 29 26 26 29 29 29 29 29 29 29 29 29 29 29 29 29 29 29Fertili.ers 485 437 437 513 513 513 513 513 513 513 513 513 513 513 513 513 513 513Chenicals 391 352 352 430 430 430 430 420 430 430 430 430 430 430 430 430 430 430Freight 175 157 157 241 181 181 161 181 181 181 181 181 181 181 181 181 181 181Mechanoiation 3,798 3,418 3,418 3,950 4,057 4,057 4,057 4,057 4,057 4,057 4,057 4,057 4,057 4,057 4,057 4,057 4,057 4,057Labor- - - - - - - -Tao 120 120 132 144 156 168 180 192 204 204 204 204 204 04 204 254 204 204

Subtotal 4,998 4,510 4,522 5,689 5,368 5,380 5,392 5,404 5,416 5,416 5,416 5,416 5,416 5,416 5,416 5,416 5,416 5,416

Cash Flo-1/

Out: Inestnent Costs2/ - 2,288 541 - - - - - - - - - - - -Operating Costs_/ 4,998 4,510 4,522 5,689 5,368 5,380 5,392 5,404 5,416 5,416 5,416 5,416 5,416 5,416 5,416 5,416 5,416 5,416Interest/Auity3

/ _ 183 226 226 226 226 421 421 421 421 421 421 421 421 421 421 -

In: Sales 0,000 7,200 7,200 7,440 7,840 8,400 8,960 9,280 9,600 9,600 9,600 9,600 9,600 9,600 9,600 9,600 9,600 9,600Leon4

/ - 2,288 541 - - - - - - - - - -_ Surplos (Defirit) 3,002 2,507 2,452 1,525 2,246 2,794 3,147 3,455 3,7635/ 3,763 3,763 3,763 3,763 3,763 3,763 3,763 4,184 4,184

1/ Investment in 1 ha of new vineyard doting year 1; remainin8 9 ha cropped an before.2/ Encluding labor cost, cont,ibuted by far family.3/ Interest 82, 5 yearn grace, repayment over 10 years.4/ 100% of iovestment costs.5/ FDll development ye-r.

Fecbrary 23, 1976 e'f| r

In A en

i> IN

ChILE


Agro-Industry Income and Financial Rate of Return

Model VI: Milk Processing(us$ '000)

------------------------------------------------------------- Years -------------------

Inveat,sents/l 1 2 3 4 5 6 7 8 9 10 11 12 13-16 17 18 19-20

Land and site preparation 3 -Civil works 315 -Utilities 90 225 - - - - - - - - - - - 157 157Machinery and equipment 272 552 - - - - - _ - _ _ _ - 412 412

Transportation equipment 7 47 _ - - - 54 - - - 54 - 54 -Engineering and overhead 102 .43 - - - - - - - - - 57 57

Import duties 318 _ _ _ _ 28 - - - - 28 _ 165 137Total Investment 789 1,185 8 - -_ X _ 7

Contingencies, physical, 5% 39 60 - - - - 4 - - - - 42 38

Working capital - 70 _- _ _ - _ _ _ _ _ - _

Sub-total: 828 1,315 - - - - 86 - - - - 887 801

operating CostsRaw milk purchases - - 920 1,620 1,620 1,620 1,620 1,620 1,620 1,620 1,620 1,620 1,620 1,620 1,620 1,620Direct labor - - 150 200 200 200 200 200 200 200 200 200 200 200 200 200

Purchased power, fuel, water - - 130 215 215 215 215 215 215 215 215 215 215 215 215 215treatment

Packing, misc. materials _ - 150 250 250 250 250 250 250 250 250 250 250 250 250 250

Milk collection & retailing _ _ 165 270 270 270 270 270 270 270 270 270 270 270 270 270expenses

Taxes - 75 120 120 120 120 120 120 120 120 120 120 120 120 120

Maintenance - - 35 50 50 50 50 50 50 50 50 50 50 50 50 50

Administration expenses - - 20 25 25 25 25 25 25 25 25 25 25 25 25 25

Technical, administrative andsupervisory personnel - - 50 60 60 60 60 60 60 60 60 60 60 60 60 60

Management - - 0O 30 30 30 30 30 30 30 30 30 30 30 30 30

Sub-total: _ 1,725 2,840 2,840 2,840 2,840 7,840 2,840 2,840 2,0 2,840 2,840 2,840 2,840 8

Total: 828 1,315 1.725 2,840 2.840 2.840 2.,926 2,840 2.6_40 2,840 2,840 2,926 2,840 3,727 3.641 2.840

Income

Pasteurized milk sold _ _ 1,655 2,705 2,705 2,705 2,705 2,705 2,705 2,705 2,705 2,705 2,705 2,705 2,705 2,705

Butter sold - - 100 160 160 160 160 160 160 160 160 160 160 160 160 160

Yoghurt and ice cream sold - - 275 450 450 450 450 450 450 450 450 450 450 450 450 450

Total: _ 2,030 3,315 3,315 3,315 3,31 3,315 3,315 3,315 3,315 3,315 3,3i5 3,315 3,315 3,315

Net Flow From Project (828) (1,315) 305 475 475 475 389 475 475 475 475 389 475 )(42) (326) 3475

Borrower's Equity, 20% 166 263 - - - - - - - - - - - -

Long Term Loan 662 1,052

Short Term Loan 10 64

Last Year's Cash Balarnce - 10 10 79 95 95 89 9 13 13 8 249 404/1077 1,318 672 62/103

Debt Service: Long Term Loan Interest, 8% - 53 137 137 122 105 87 68 47 24 - - - - -Long Term Loan Principal - - - 192 207 224 242 261 282 306 - - - - - -Short Term Loan Interest, 8% - 1 5 - - - - - - -Short Term Loan Principal _ 10 64 - - - - - - -

Income Tax, 407,/2 - - 10 80 86 92 100 107 116 125 134 134 134 134 134 134

Dividends Distributed _ - 20 50 60 60 40 35 30 25 100 100 100 100 150 300/350

Cash Balance At Year's End 10 10 79 95 95 89 9 13 13 8 249 404 645/1,318 672 62 103/94

Financial Rate of Return: 17% r

/1 Transportation eqelip.ent replaced in Years 7, 12 and 17; utiliries, machinery and equipment in Yeat 17 and 18.

/2 After interest charges and a depreciation charge of US$139,000.

January 22, 1976

CHILE

LIVESTOC A AGRO-TNDUSTRY CREDIT PROJECT

Agro-Industry income ad Financial Rate of Return

Model VII: Fruit Coldstore and Parking Plant(us$ '000)

---------------------------------------------- - -~ ----- ------- Y ears- --------- -----------------------------------------------------------

1 2 3 4 5 6 7 8 9 10 11 12 13-16 17 18 19-20Investments/-

Tand and site preparation 6Civil works 477Utilities 92 Z2 - - - - - - - - - - - - -2

Machinery and equipment 120 368

Transportation equipment 7 37 - - - - 44 - - - 44 - 44 -Engineering and overhead 90 38 - - - - - - - - - -- - 40 40

Import duties - 229 _ - 38 _ _ _ 38 _ 122 84Total Investment 792 8 - - 82 - - - - 82 - 206 124

Contingencies, physical 52. 40 44 - - - - 4 - - - - 4 - 29 26

Working capital - 320 - - - -Sub-total: 832 1,258 86 - - - - 86 - 235 150

Operating CostsRaw fruit purchares - - 165 606 606 606 606 606 606 606 606 606 606 606 606 606Direct labor - - 80 101 101 101 101 101 101 101 101 101 101 101 101 101Purchased power - - 15 19 19 19 19 19 19 19 19 19 19 19 19 19Cartons, crates, misc. materials - 121 179 179 179 179 179 179 179 179 179 179 179 179 179Freight and marketing - - 60 75 75 75 75 75 75 75 75 75 75 75 75 75Taxes - - - - - - - - - - - - -

Maintenance - - 30 38 38 38 38 38 38 38 38 38 38 38 38 38Administration expenses - - 15 18 18 18 18 18 18 18 18 18 18 18 18 18Technical, administrative and

supervisory personnel - - 34 42 42 42 42 42 42 42 42 42 42 42 42 42Management - - 17 17 17 17 17 17 17 17 1]7 17 17 17 17 17

Sub-total: - - 537 1,095 T,9 1,095 t,O95 10O9S 1.555 1,93 1

Total: 832 1,258 537 1.095 _.095 1,O95 1_181 1.095 1.095 1.095 1.095 .1.Jbl iO9 1_.245 2

IncomePacked fruit sold for export - - 420 525 525 525 525 525 525 525 525 525 525 525 525 525Packed fruit sold for local - - 780 975 975 975 975 975 975 975 975 975 975 975 975 975Crated reject fruit sold for local 20 25 25 25 5 5 5 25 25 25 25 25 25 25

Total: _ 1220 1, 1525 1 525 1 525 2 _ 1.525 1E,525 1 1.525 1.525Net Flow From Project (832) (1,258) 683 430 430 430 344 430 430 430 430 344 430 195 280 430

Borrower's Equity 20% 166 752

Long Term Loan 666 1,006

Short Term Loan 10 64

Last Year's Cash Balance - 10 10 268 257 240 217 111 83 47 10 267 388/809 966 487 43/50

Debt Service: Long Term Loan Interest 8% - 53 134 134 119 103 85 66 46 24 - - - - - -Long Term Loan Principal - - - 187 202 218 236 255 275 299Short Term Loan Interest8 - 1 5 - - - - - - -Short Term Loan Principal - 10 64 - - - - -

Income Tax 407.LZ2 - - 172 76 82 88 95 103 Ill 120 129 129 129 129 129 129

Dividends Distributed - - 50 50 50 50 40 40 40 30 50 100 ]50/150 150 200 300

Cash Balance at Year's End 10 10 268 257 240 217 111 83 47 10 267 388 545/966 487 43 50/57

Financial Rate of Return: 19% n.

/I Transportation equipment replaced in Years 7 12 and 17; utilities, machinery and equipment in Years 17 and 18./2 After interest charges and a depreciation charge of US$113,000.

March 15, 1976

CHILE

LIVESTOCK. FRUITS, VINEYARDS AND AGRO-INDUSTRY CREDIT PROJECT

Agro-Industry Income and Financial Rate of Return

Model VIII: Winery(USS '000)

Investments-/! prpraIn1 2 3 4 5 6 7 8 9 10 11 12 13-16 17 18 19-20

Land and site preparation 3 Civil works 341Utilities 49 124 - - - - - - - - - - - 86 86Machinery and equipment 98 266 - - - - - - - - - - - 182 182

Transportation equipment 7 7 - - - - 14 - _ _ 14 14 -Engineering and overhead 61 27 - - - _ - _ _ _ _ - - 27 27

Import duties - 160 - 10 - - - - 10 - 85 75Total investment 559 584 - - _ _ 24 - _ _ 24 - 394 370

Contingencies, physical, 57O 28 29 - - - - I - - - - 1 - 20 19Working capital - 413 - -

Sub-total: 587 1,026 - - - - 25 25 - 414 389

Operating CoatsRaw grape purchases - - 31 555 555 555 555 555 555 555 555 555 555 555 555 555

Direct labor - - 25 31 31 31 31 31 31 31 31 31 31 31 31 31

Purchased power - - 9 11 11 11 11 11 11 11 11 11 11 11 11 11

Bottles., demijohns, misc. materials - - 30 37 37 37 37 37 37 37 37 37 37 37 37 37

Freight and marketing - - 61 77 77 77 77 77 77 77 77 77 77 77 77 77Taxes - - 194 242 242 242 242 242 242 242 242 242 242 242 242 242

Maintenance - - 14 19 19 19 19 19 19 19 19 19 19 19 19 19

Administration expenses - - 12 14 14 14 14 14 14 14 14 14 14 14 14 14

Technical, administrative andtechnical personnel - - 20 25 25 25 25 25 25 25 25 25 25 25 25 25

Management _ 17 17 17 17 17 17 17 17 17 17 17 17 17 17

Sub-total: _ _ 413 1,028 1,028 1,028 1,028 1,028 1,028 *1,028 1,028 1,028 1,028 1,028 1,028 1,028

Total: 587 1,026 413 1,028 1 1,028 1,053 1028 1028 12

1028 1,053 1,028 1,442 1.417 1.028

IncomeWine in bottles sold for export - - 440 550 550 550 550 550 550 550 550 550 550 550 550 550

Wine in bottles sold for local - - 200 250 250 250 250 250 250 250 250 250 250 250 250 250

Wine in demijohns sold - - 240 300 300 300 300 300 300 300 300 300 300 300 300 300Wine In bulk sold - - 210 263 263 263 263 263 263 263 263 263 263 263 263 263

Total: _ - 1,090 1,363 1,363 1 ,363 1,363 1,363 1,363 1,363 1,363 1,363 1,363 1,363 1,363 1,363

Net Flow From Project (587) (1,026) 677 335 335 335 310 335 335 335 335 310 335 (79) (54) 335

Borrower's Equity 20% 117 205 - - - - - - - - - - - - - -

Loclg Term Lean 470 821

Short Term Loan lo 49

Last Year's Cash Balance - 10 10 312 328 320 288 227 186 139 87 38 143/533 663 379 70/60

Debt Service: Long Term Loan Interest, 87% - 38 103 103 93 82 71 59 45 31 15 - - - - -

Long Term Loan Principal - - - 122 132 143 154 166 180 194 200Short Term Loan Interest 8% - 1 4 - - - - - - - -Short Term Loan Principal - 10 49 - - - -

Income Tax 407/2 - - 199 64 68 72 76 81 87 92 99 105 105 105 105 105

Dividends Distributed - - 20 30 50 70 70 70 70 70 70 GO 100 100 150 240

Cash Balanc2 At Year's End 10 10 312 328 320 288 227 186 139 87 38 143 273/663 379 70 60/50

Financial Rate of Return: 22% s .

E1 Transportation equipment replaced in Years 7, 12 and 17; utilities, machinery and equipment inl Years 17 and 18.L. After interest charges and a depreciation charge of US$73,000.

January 22, 1976

ANNEX 9

Page 1

CHILE


Economic Rate of Return

1. The rate of return from the Project to the economy has beencalculated both separately for each model and as an overall rate of returnfor the Project. For the economic evaluation, the following assumptionshave been made:

(a) except for beef, present prices prevailing inSeptember 1975 have been used for estimating benefitsthroughout the life of the Project. Beef prices havebeen adjusted in accordance with the projections of theBank's Commodity and Export Projections Division;

(b) present prices have been used for investments and currentexpenditures after making due allowances for taxes andcustoms duties on imported items;

(c) the residual value of breeding stock and orchards has beenaccounted for;

(d) investment costsinclude physical contingencies; and

(e) farm labor has been priced at the prevailing commercialrate.

2. Based on these assumptions, the Project's economic rate of returnper investment category has been estimated as follows:

(a) dairy/beef 28%(b) beef/sheep 26%(c) table grapes/peaches/nectarines 31%(d) apples/almonds 26%(e) wine grapes 22%(f) milk processing 26%(g) fruit cold storage and packing 22%(h) wine processing 39%

The overall economic rate of return for the Project has been estimated at27%.

ANNEX 9

Page 2

3. To measure the Project's sensitivity to deviations from basicprice and benefit assumptions, four alternative sets of benefits and costshave been used:

(a) benefits would be 10% less than estimated;

(b) benefits would be 10% less than estimated and costs wouldbe 10% higher than estimated;

(c) benefits would be 10% less than estimated and costs wouldbe 20% higher than estimated; and

(d) investment costs would be 10% higher than estimated.

As a result of these alternative assumptions, the overall rate of returnfrom the Project drops to 21%, 19%, 17% and 25%, respectively.

4. Social benefits of increasing employment and benefits, particularlyfor small farmers and in agro-industries, cannot be measured accurately.However, they would enhance the Project's already satisfactory economicrate of return.

November, 1976

CHI L E

LIVESTOCK,FRUITS,VINEYARDS AND AGROINDUSTRIES CREDIT PROJECTMAJOR ECOLOGICAL ZONES AND THEIR AGRICULTURE

NOVEMBER 1975ro-A L A PFA : L R1VA 11 A , !; TR MIGATED ARE, 1 Nt A A NJAL PEA ANNIJ1A TL

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