Document of

The World Bank FLE c FOR OFFICIAL USE ONLY

Report No. 2907a-RO

STAFF APPRAISAL REPORT

ROMANIA

ORCHADS PROJECT

May 28, 1980

Regional Projects DepartmentEurope, Middle East and North AfricaAgriculture III

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

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CURRENCY EQUIVALENTS

Lei 18 = US$1

WEIGHTS AND MEASURES

1 hectare (ha) = 2.5 acres

1 kilogram (kg) = 2.2 pounds

1 kilometer (km) = 0.6 mile3

1 cubic meter (m ) = 1.3 cubic yards2

1 sq meter (m ) = 1.2 square yards

1 ton (t) = 2,200 pounds

ABBREVIATIONS

BAFI = Bank for Agriculture and Food Industry

CAP = Agricultural Production Cooperative

GEDH = General Economic Directorate of Horticulture

IAS = State Agricultural Enterprise

ICA = Intercooperative Association

ICB = International Competitive Bidding

MAFI = Ministry of Agriculture and Food Industry

p.a. = per annum

p.c. = per capita

SMA - Agricultural Mechanization Stations

UAC = Unified Agroindustrial Council

ROMANIAN FISCAL YEAR

January 1 to December 31

FOR OFFICIAL USE ONLY

APPRAISAL OF

AN ORCHARDS PROJECT

ROMANIA

Table of Contents

Page No.

* I. INTRODUCTION .................................... I

II. THE AGRICULTURAL SECTOR ......................... l

A. Role of Agriculture in the RomanianEconomy ..................................... I

B. Development Constraints and Issues .......... 3C. Sector Planning, Strategy and

Investment Program .......................... 3D. Bank Assistance in Agriculture .... .......... 5

III. THE BANK FOR AGRICULTURE AND FOOD INDUSTRY ...... 5

IV. THE ORCHARD SUBSECTOR ........................... 7

A. Role in Agriculture ......................... 7B. Production and Production Organization ...... 8C. Domestic Consumption and Export .... ......... 10D. Handling, Storage and Processing .... ........ 11E. Subsector Institutions ...................... 11F. Subsector Strategy and Plan .... ............. 12

V. THE PROJECT ..................................... 15

A. Concept and Objectives .15B. Project Content ............................. 15C. Project Costs ............................... 17D. Financing Plan .............................. 18

VI. MARKETS AND MARKETING ........................... 19

VII. TECHNOLOGY AND RESEARCH ......................... 25

A. Production Technology and Research .... ...... 25B. Storage Technology .......................... 26C. Fruit Marketing Technology .... .............. 26

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

Table of Contents (Continued)

Page No.

VIII. PROJECT IMPLEMENTATION ............................ 27

A. Organization and Management .... ............... 27B. Lending Policies and Procedures .... ........... 28C. On-lending Terms .............................. 28D. Procurement ................................... 29E. Disbursements ................................. 30F. Accounts and Audit ............................ 30G. Monitoring .................................... 31H. Environmental Impact .......................... 31I. Role of Women ................................. 32

IX. PROJECT BENEFITS AND JUSTIFICATION .... ............ 32

A. Production and Prices ......................... 32B. Financial Analysis ............................ 34C. Economic Analysis .............................. 35D. Project Risks and Sensitivity Analysis ........ 36

X. RECOMMENDATIONS ................................... 37

ANNEXES

1. Detailed Project Description and Phasing 39

2. Tables and Charts 45

Table 1 - Allocations of Fruit Production:1976-78Table 2 - Fruit Production ForecastsTable 3 - Allocations of Fruit Production with

the Project: 1988Table 4 - Project Procurement EstimatesTable 5 - Estimated Schedule of DisbursementsTable 6 - Incremental Fruit ProductionTable 7 - Summary of Economic Costs and Benefits

Chart 1 - Organization of the General EconomicDirectorate for Horticulture

3. Selected Documents and Data Available in theProject Implementation File 53

MAP

1. Fruit Producing Areas and Cold Storage System(IBRD 14850)

APPRAISAL OF

AN ORCHARDS PROJECT

ROMANIA

I. INTRODUCTION

1.01 The Government of the Socialist Republic of Romania has requestedassistance from the Bank in financing a portion of its investment program fororchards and fruit storage. An identification mission reviewed possibleproject components in Romania in September/October 1978. Romanian preparationreports were presented to the Bank in June 1979, and proposed project compo-nents were reviewed by a preappraisal mission in September/October 1979. Theproject was appraised by a mission consisting of Messrs. Noon, Clough, Schertz(Bank) and Moulton (Consultant) in November/December 1979. A special missionconsisting of Messrs. Noon, Clough (Bank),. and Lynn (Consultant) visited TheNetherlands and Italy in January 1980 to review proposed project technology.The findings of the following report are also based on work undertaken byMessrs. Lazar (Bank) and Lynn as part of the preappraisal mission, and byMessrs. M. Pekonnen and F. Wright (Bank) for computer applications used inproject analysis.

II. THE AGRICULTURAL SECTOR

A. The Role of Agriculture in the Romanian Economy

2.01 Agriculture plays an important role in the Romanian economy. In1978, agriculture accounted for 15.3% of national income and provided 32.5% ofall employment. Agriculture provided almost all of the country's food and theraw materials required for a number of processing industries. In additionagriculture supplied 14% of exports in 1978. The agriculture sector has alsoacted as a reserve pool of labor which has been used to meet growing employmentneeds of other sectors, especially industry.

2.02 The rate of growth of the Romanian economy has been impressive overthe past two or three decades. From 1951 to 1978 national income grew at anaverage rate of about 9% per annum. During this period national income inagriculture grew at an average rate of 3.5% per annum. As the rate of growthin agriculture was less rapid than in other sectors of the economy, agricul-ture's share of national income declined from 27.8% in 1950 to 15.3% in 1978.

2.03 Between 1948 and 1978 the population of Romania increased from 15.9to 21.0 million. During the same period the rural population declined from12.2 million to 11.2 million. The proportion of people living in the rural

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areas therefore declined from 77% in 1948 to 51% in 1978. The decline in theagricultural labor force has been even more marked, from 74% in 1950 to 33% in1978. Despite these significant changes, more than half of the populationstill lives in the rural areas and one third of all employment is provided byagriculture.

2.04 Romanian agriculture benefits from relatively good soils, a climateseasonally suitable for production, and exploitable water resources. Out of anational total of 23.8 million ha, 14.9 million are used for various types ofagricultural production. Of the agricultural total, arable land accounts for65.8% (9.8 million ha), pasture 20.1% (3.0 million ha), meadowland 9.4% (1.4million ha), and vineyards and orchards 4.7% (0.7 million ha). Romania can bedivided into three agroclimatic zones based on climatic factors, topography,soils, and other natural conditions influencing land use and agriculturalperformance. The Plains Zone, located in the western, southern, and easternparts of the country, is especially well endowed with fertile soils andirrigation infrastructure; it contains approximately 53% of total arable landbut only 18% of land under pastures and meadows. Crop yields tend to behighest in this region. The Foothills Zone, situated mainly to the north ofthe Plains Zone, is characterized by shallow, less productive soils. About28% of the total arable land and 32% of total pasture and meadowlands aresituated in the Foothills. The Mountain and Tableland Zone, including dis-tricts in the northern and central parts of the country, accounts for 19% oftotal arable area, but 50% of pasture and meadowlands.

2.05 Romanian agriculture has undergone a major transformation followingthe collectivisation measures introduced since the Second World War. Todayagricultural production, especially crop production, is dominated by stateagricultural enterprises (UASs) and agricultural production cooperatives(CAPs). Production by individual farmers and from small private plots ofcooperatives members is relatively unimportant except for certain productsincluding fruit and livestock. Agricultural Mechanization Stations (SMAs)play a major role in providing machinery hire services to all producers.Recently a number of Intercooperative Associations (ICAs) have been formedthrough combining the activities of a number of individual cooperatives.These ICAs are engaged in various large scale agricultural operations such aspig and poultry production. ICAs are expected to undertake about 30% ofinvestment in new orchards from 1980 to 1985 and will play an increasinglyimportant role in fruit production.

2.06 In 1978, crop production accounted for 56% of total agriculturaloutput. About two thirds of all arable land is planted with cereals, espe-cially wheat and maize. Other important crops include soyabeans, sunflower,sugar beet, potatoes and vegetables, fodder crops, grapes and fruit. Livestockaccounted for 44% of agricultural output in 1978. In that year the livestockpopulation in Romania included 6.5 million cattle, 10.3 million pigs, 15.6million sheep and 100 million poultry.

B. Development Constraints and Issues

2.07 Although considerable progress has been made in increasing agricul-

tural production in Romania in recent years, the sector remains relatively

underdeveloped. One of the main constraints preventing rapid agricultural

development has been the low and erratic rainfall in the principal agricul-

tural areas of the country, especially in the Danube plains. Many areas have

also suffered from flooding at certain times while soil erosion has also been

a problem. Fortunately the soils in most of the crop producing areas are

good, and there is an excellent source of water in the Danube and its tribu-

taries. Romania has therefore given high priority to development of irriga-

tion, flood control and drainage. The total area under irrigation has been

increased from 200,000 ha in 1960 to 2.2 million ha in 1979. The latter is

equivalent to 23% of all arable land. Government plans to increase the area

irrigated to 3.7 million ha by 1985. Development of irrigation would there-

fore continue to play a central role in agricultural development strategy.

2.08 State farms and producer cooperatives are the most important forms

of production unit in Romanian agriculture. These farms have at times suffered

from a shortage of material inputs such as machinery, fertilizers and other

agricultural chemicals. Due to a shortage of foreign exchange, Government

has sometimes exported fertilizers or reduced importation of pesticides and

insecticides which were needed by Romanian agriculture. In the past IASs have

received a higher share of investment relative to their share of cultivated

land while CAPs have been relatively neglected and have consequently been less

productive. IASs have also been better endowed than CAPs with good land,

skilled management and farm inputs such as fertilizers. Recently Government

decided that it would discontinue its previous policy of giving favored

treatment to IASs and would instead accord equal treatment to IASs and CAPs.

This new policy is to be implemented through newly created Unified Agroindus-

trial Councils (UACs) which are responsible for providing equal levels of

services and inputs to cooperative and State sector farms. There will be

about 700 UACs, one for each SMA, which will operate under an annual plan from

the Judet General Department for Agriculture of the Ministry of Agriculture

and Food Industry (MAFI). Each UAC will in turn be responsible for coordina-

tion of all agricultural activities, and the production and other operating

results of the State and cooperative units in its area. One of the major

features of the reorganization is the centralization of all farm mechanization

services for both State and cooperative farms under the direct control of the

UAC.

C. Sector Planning, Strategy and Investment Program

2.09 Agricultural policy is formulated within the framework of a national

plan approved by Government and the Romanian Communist Party. The plan is

comprehensive and determines the physical and financial framework for all

important areas of the economy. The next development plan will cover the

1981-1985 period. The guidelines for this plan were approved by the Party

Congress in November 1979, and the detailed plan will be released later this

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year. Each year, annual development plans are prepared and these provide thebasis for implementation of the overall targets set out in the five yearplans. Approved Government plans are enacted as laws and it is mandatory forall actual investment decisions to be made within the framework of the plan.

2.10 For the 1981-85 plan, the guidelines forecast that national incomewill increase at a rate of between 6.7 and 7.4% p.a., gross industrial produc-tion is to increase in the range 8.0 to 9.0% p.a. and gross agriculturalproduction at 4.5 to 5.0% p.a. Investment in agriculture in this period willamount to 155 billion Lei (US$8.6 billion), equivalent to about 12% of totalnational investment for the plan period. The main thrust of agriculturaldevelopment strategy will be to increase crop and livestock yields through theuse of more efficient techniques, especially improved mechanization, increaseduse of fertilizers and other inputs, and further large investments in irriga-tion. The plan also aims to improve the efficiency of management and organi-zation within agriculture especially through the creation of the new UACs andthrough a reorganization of the Ministry for Agriculture and Food Industry(MAFI) in August 1979.

2.11 Specific investments planned for the agricultural sector during the1981-85 plan include:

(a) investments of Lei 133 billion (US$7.4 billion) on Stateand cooperative farms;

(b) an increase of arable area by about 154,000 ha, by 1985,through reclamation of land in the Danube delta and inother zones, bringing the total to about 10 millionha;

(c) an increase of irrigated areas from 2.2 million ha in1979 to about 3.7 million ha by 1985;

(d) provision of drainage facilities for an additional 0.8million ha and soil erosion control works to protect anadditional 1.0 million ha;

(e) an increase in the use of high power tractors, to reach140,000 units, and self-propelled harvesters to 40,000units, including a wide range of other multipurpose farmmachinery and equipment;

(f) an increase in fertilizer applications to about 3.8million tons p.a. by 1985;

(g) provision of increased quantities of pesticides and highyield seeds and seedlings; and

(h) improvement of the present breeds of livestock and devel-opment of new ones.

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2.12 Developments planned for the orchard sector in the 1981-85 periodwould be consistent with the overall plan strategy of increasing yieldsthrough the introduction of improved production methods. New orchards to bedeveloped during the plan period would produce fruit yields much greater thanpresent average yields, through the introduction of improved tree varieties,more intensive planting, the increased use of fertilizers and crop protectionchemicals, and improved management. Most of the new orchards -to be developedin the new plan period would be irrigated.

D. Bank Assistance in Agriculture

l

2.13 The Bank has made 25 loans to Romania since it became a member inDecember 1972, for a total volume of lending amounting to US$1,537.8 million.Eleven of these loans, totalling US$691.5 million, were for agriculture.These included six irrigation projects, one agricultural credit project, aflood recovery project and three livestock projects. The first irrigationproject (Guirgiu-Razmiresti, Loan 1082-RO) has been completed satisfactorily,and a completion report for the project is being prepared. No OED reportshave yet been prepared for agricultural projects in Romania. Progress withall agricultural projects has been satisfactory. These projects have beensupervised regularly by Bank staff.

III. THE BANK FOR AGRICULTURE AND FOOD INDUSTRY

3.01 The Bank for Agriculture and Food Industry (BAFI) is a State-ownedcredit institution established in 1968 to finance and supervise investmentsand operations in agriculture and agroindustries. The Administrative Councilis BAFI's policy-making body. Between the sessions of the AdministrativeCouncil, the Executive Bureau acts as the decision-making body. BAFI'soperations are carried out by 39 branches, 57 sub-branches, 35 agency branchesin offices of the National Bank and about 850 credit cooperatives which serveas BAFI'S agents for small-scale lending. Enterprises of national importanceare served by the three operational departments in the head office (agro-industries, cooperative sector and state sector).

3.02 BAFI makes short, medium and long-term loans to the cooperativesector and to a limited degree to individual borrowers (coop members andprivate farmers). Short-term capital requirements of State enterprises arefinanced mainly by equity contribution (State budget allocations channeledthrough BAFI) and partly by BAFI production credits. Long-term investments inState enterprises are likewise generally financed with equity from the Statebudget channelled through BAFI.

3.03 One of BAFI's most important functions is that of financial agentfor State investments in agriculture and agroindustries. BAFI reviews and isempowered to require changes in proposed development plans, disburses accord-ing to approved plans, supervises implementation with particular emphasis onadherence to appraisal estimates and plan targets, and collects depreciation

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payments 1/ and net incomes for the State budget account. BAFI is paid acommission for this service at the rate of 0.5% of the investment channelledthrough it. Over the past several years, State equity contributions forinvestments disbursed by BAFI were as follows:

IndexFY Million Lei 1970 = 100

1970 27,077 1001973 39,471 1461976 70,598 2611977 93,445 3451978 110,100 406

In terms of their relative importance, net investments financed with Stateequity channelled through BAFI were equivalent to about (31%) of BAFI's totalassets at the end of 1978.

3.04 Loans are primarily secured by "credit engagements" of borrowers,who commit all present and future income to debt service and are obliged tomaintain all their financial assets in BAFI settlement (deposit) accounts.Under BAFI policy, short-term credit extended to cooperatives cannot exceed60% of the contracted value of the commodity whose costs are being financed,and interest and principal repayments are deducted from the borrowers' accountwhen sales proceeds are realized.

3.05 The various sources of the funds channelled through BAFI as of theend of 1978 were the State budget (35%), 2/ short term loans from the NationalBank of Romania (53%), deposits of State enterprises and cooperatives (6%),BAFI's statutory capital and reserves (2%), and IBRD borrowings (4%). BAFIhas also undertaken US$300 million in other foreign borrowings in the pastten months under cofinancing arrangements for three Bank-financed agriculturalprojects, US$100 million in 1979 for the Second Livestock Project (Loan 1669-RO) and US$200 million in April 1980 for the Mostistea Irrigation (Loan1670-RO) and Third Livestock (Loan 1764-RO) projects. BAFI's on-lendinginterest rates for investments under the proposed project will vary from 3 to4% depending on the type of borrowing entity. Although these rates are lowerthan the interest rate which BAFI will pay on the Bank's loan, the overallaverage spread on BAFI's total loan is positive about 1.7% due to othersources of funds which have lower effective costs.

1/ Depreciation charges are assessed on capital inputs on the basis ofcost and the legal life of each item, to provide for full cost recoveryand accumulate savings for future investments.

2/ Balance sheet items included under this category are the "Fund for shortterm credits", the "Fund for medium - and long-term credits", accountspayable to the State budget, and the State budget investment accountadministered by BAFI.

3.06 BAFI's financial condition is strong and is expected to remain so.

The balance sheet reveals a prudent matching of assets lives with financing

sources. Net worth is about 2% of total assets, a ratio that is similar to

those of Western commercial banks and adequate in relation to the low propor-

tion of BAFI's repayable long-term debt, the low volatility of BAFI's revenue

and deposits, and the quality of its asset portfolio relative to loan default

risk.

IV. THE ORCHARD SUBSECTOR

A. Role in Agriculture

4.01 Much of the arable land in Romania has suitable soils and is in

areas where the climate is favorable for fruit production. While fruit are

grown throughout the country, most species are grown in particular areas where

production conditions are most favorable (see Map). Apples, plums, pears,

sweet cherries and sour cherries are produced mostly in the Foothills Zone of

the Carpathians and in the rolling plateaus in the northern Mountain and

Tableland Zone where soils and terrain are suitable for orchards but less

desirable for field and row crops. Peaches and apricots are generally grown

in the Plains Zone in the south since they do better in the deeper and lighter

soils. Also, the warmer and drier climate in the plains is more suitable for

soft fruits.

4.02 The Statistical Yearbook indicates that the total area under fruit

in Romania was 418,000 ha in 1978. This was equivalent to 2.8% of all agricul-

tural land. The total area shown in the official statistics included 282,000

ha in the socialist sector (199,000 ha on CAPs and 83,000 ha on state enter-

prises). Data in the statistical yearbook, however, are misleading in that

they include areas under very old orchards which are no longer productive and

exclude significant portions of the individual producer sector for which many

trees around households were not recorded. A more recent fruit census con-

ducted by MAFI in mid-1979 indicated that the total area of fruit in the

socialist sector was about 253,000 ha, 29,000 ha less than the figure in the

Statistical Yearbook. This census also estimated that individual producers

have about 65 million fruit trees, over half of which are plums. The recent

census is considered more reliable as it has excluded from the area under

fruit a large amount of old orchards which had degenerated into pasture and

ceased to be productive, and sought to record trees of individual producers.

4.03 Although apples and plums are the most important species of fruit

grown in Romania a wide variety of other fruits are also produced. This

provides consumers with a choice of different fruits while it also helps to

extend the harvest season over a wider period. During 1976-78 local consump-

tion of fruit accounted for 93% of total production (excluding table grapes).

Only 7% of production was exported. The volume of exports has been erratic

and has not shown any increasing trend for the last 20 years. In addition to

fresh fruit which is sold through the marketing system for consumption within

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Romania, a significant amount of fruit is consumed directly by producers, in-cluding individual small farmers, plotholders on CAPs and private householders.Some fruit is also processed in various forms including canned fruit, fruitjuices, and distilled alcoholic beverages, especially plum brandy (Tuica).

B. Production and Production Organization -

4.04 Fruit production in Romania has been relatively neglected and hasshown only a slightly increasing trend in the last few years as shown inthe table below. Total fruit production amounted to 1.2 million tons in 1965

Fruit Production by Species, 1965-1978 'OOOs Tons

1965 1970 1975 1976 1977 1978

Apples 217 176 315 470 593 359Plums 695 697 414 567 510 602Pears 55 54 81 66 97 80Peaches 13 29 65 65 53 73Cherries 36 61 59 53 47 67Apricots 21 47 63 35 57 34Nuts 41 33 26 30 31 30Strawberries 22 32 23 29 30 28Other Fruit 59 47 55 36 37 42Total 1,158 1,174 1,101 1,350 1,455 1,316

and in 1970. This had increased to between 1.3 and 1.5 million tons during1976-1978. However production has tended to increase more noticeably forcertain species of fruit. The data in the table indicate no significanttrend in the growth of production for plums, cherries and apricots, althoughincreases have been apparent for apples, pears and peaches. Romania has notuntil recently been replanting sufficient old orchards to maintain the nationalorchard in a healthy condition. In the period 1971-1975, orchard replantingsin the socialist sector averaged about 5,000 ha p.a., or about 2% of the areaunder Socialist sector orchards. During 1971-75 there were no radical changesin the type of technology adopted and the yields obtained, and given an averagetree life of about 25 years it is necessary to replant about 4% of the orchardseach year if production is to be maintained. Thus in the period 1971 to 1975if Romania had replaced 4% of its socialist sector orchards, replantings wouldhave averaged about 10,000 ha each year compared with the 5,000 ha actuallyachieved. During 1976 to 1978 the rate of replanting in the socialist sectorincreased to about 7,000 ha per annum while major changes were also made inproduction methods. Most of the new plantings made since 1976 have been basedon more intensive planting systems while many have been provided with irriga-tion. Yields from these new orchards are expected to be much higher thanthose from the older established orchards. In addition to replanting, a major

orchard modernization and improvement program has also been started in thesocialist sector since 1976. Thus, fruit production from existing orchards inthe socialist sector is expected to increase in the next few years as recentlyplanted and modernized orchards come into full production. While data onreplantings are available only for the socialist sector, very little plantingmaterial has been provided to fruit producers in the private sector during thelast decade and these producers must therefore have had difficulty maintainingtheir fruit trees in a healthy condition.

4.05 The current very poor levels of production from Romania's orchards,together with the concomitant low level of fruit consumption, provide the mainrationale for the orchard project described here. There is an enormous gulfbetween the level of yields which would be obtained under the project usingmodern orchard production practices and the actual level of yields currentlyobtained in Romania. This is illustrated by the data below:

Existing Average ofClassical All Romanian ProjectOrchards Orchards Orchards---------------…-tons/ha-----------------

Apples 2.3 3.5 20.0-30.0Plums 2.0 2.1 15.0Pears 2.5 2.8 30.0Peaches 2.5 6.2 20.0Apricots 2.9 3.2 12.0Cherries 1.0 1.1 10.0

4.06 Fruit is produced by state enterprises and CAPs in the socialistsector and by individual farmers, CAP plotholders and private householders inthe private sector. Although it has been given very little encouragement byGovernment, the private sector plays a major role in fruit production. In1978 about 57% of total fruit production came from individual producers whilethe remaining 43% came from the socialist sector. Within the socialist sector56% of production came from state enterprises and 44% from CAPs. Productionin the co-operative sector was very poor, for CAPs had more than twice the areaof orchards compared with state enterprises yet produced less fruit than thestate sector. The official statistics indicate that in 1978 yields on Stateenterprises averaged 3.8 tons/ha while on CAPs yields were only 1.2 tons/ha.Although these yield statistics must be treated with some caution because oflack of accurate area statistics, there is no doubt that CAPs control a majorshare of Romania's orchard lands yet obtain very poor yields. The performanceof CAPs represents a major weakness in Romania's fruit industry which to someextent must reflect the Government's earlier policy of concentrating develop-ment, investment and input supplies on State enterprises.

4.07 The relative importance of fruit production in the socialist sectorcompared with the individual farm sector varies according to the type of fruitproduced. In 1978 about 66 percent of all plums, 83 percent of all cherries,

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and 74 percent of apricots were produced by individual farmers and CAP plot-holders. On the other hand 63 percent of apples and 90 percent of peacheswere produced in the socialist sector. In the socialist sector new orchardplantings are now based on intensive methods of planting with much higherplant populations than the traditional methods. These intensive methodsproduce fruit more quickly than the traditional methods, and because the treesare short, enable most work to be done without the use of ladders. Theytherefore permit the much more efficient use of labor, an important considera-tion with a labor demanding crop such as fruit. The intensive plantingsrequire much larger numbers of plants per hectare and Romania has startedto modernize its orchard nurseries in order to produce increased quantities ofbetter quality planting material.

C. Domestic Consumption and Export

4.08 Fruit is produced in Romania primarily for domestic consumption. Ofthe seven main species (apples, pears, plums, sweet and sour cherries, peachesand apricots) over the period 1976-1978, 63% was used locally as either freshor processed fruit, 29% was distilled in order to make alcoholic beverages,and only 7% was exported (see Annex 2, Table 1). Of the amount consumedwithin Romania 35% was consumed directly by producers, 28% was sold fresh and36% was processed. Exports included 61% as fresh fruit and 39% as processedfruit. The major export markets were in western Europe (45%) and the Comeconcountries (40%).

4.09 For fruit grown in Romania local consumption during 1976-1978averaged 44.2 kg per capita (see Annex 2, Table 1). In addition consumptionof imported fruit, primarily citrus, amounted to about 3 kg per capita. Thislevel of consumption was low compared with most other countries at a similarstage of development. For example, fruit consumption in Bulgaria, Turkey andGreece has been about 101, 100 and 106 kgs per capita (p.c.) respectively inthe early 1970s. Consumption in Romania has been low primarily because it wasconstrained by the lack of supplies of local fruit, while Government has keptfruit imports to a minimum in order to conserve foreign exchange. The qualityof fruit available on the local market has also been very poor partly becauseof production and grading problems on the farms, but also because of inadequatefruit handling and storage facilities in the marketing system. At presentRomania has limited cold storage capacity while it has no controlled atmospherestorage. It has not therefore been possible to keep significant quantities offresh fruit for consumption in the off season.

4.10 Although 29% of all fruit produced in Romania was distilled, thisheavy use for distillation resulted primarily from the manufacture of plumbrandy. Plums accounted for 93% of all fruit used for distillation and thistype of use was unimportant for all other types of fruit. Individual producersaccount for the bulk of the plums used to make brandy in Government-owned dis-tilleries.

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D. Handling, Storage and Processing

4.11 Romanian post-harvest fruit sorting, grading and packing facilities

are characterized by lack of uniformity and poor presentation of the products

in domestic and export markets. Fruit handling begins with hand picking,

fieldsorting and packing into boxes and/or box pallets for transport by truck

or trailer to local collection centers. The boxed fruit is stored normally in

non-refrigerated storage for a short period prior to entering the market dis-

tribution system. Fruit for domestic consumption is usually transported in

non-refrigerated trucks to urban market centers and fruit for export is

transported by refrigerated truck, but normally without precooling prior to

shipment. At collection centers, fruit may be packed into consumer size

packages or into boxes for distribution to wholesale markets. Conventional

mixed fruit cold storage plants are located primarily in urban areas and are

used on a very limited basis for cooling and holding fresh fruit to prevent

product quality losses and to extend shelf life. In 1979, Romania had a

total fruit storage capacity of 331,000 tons of which 190,000 tons was non-

refrigerated and 141,000 tons was refrigerated. There was no controlled

atmosphere storage.

4.12 In 1979, Romania had 69 fruit processing facilities, with a total

processing capacity of 376,600 tons per year which produced such products as

compote, juice, jellies, jams, fruit syrup, nectar and frozen and dried

fruit. Present capacities are adequate, but since many of these facilities

have old, inefficient equipment and utilize obsolete technology, the 1981-85

plan provides for modernizing 13 of them. To keep pace with expanding produc-

tion ten modern fruit processing facilities are to be constructed by 1985 to

provide for the production of a larger variety of products.

E. Subsector Institutions

4.13 The General Economic Directorate for Horticulture (GEDH) of the

Ministry of Agriculture and Food Industry is the central institution dealing

with all aspects of fruit production, processing and marketing in Romania

(Annex 2, Chart 1). About 440 State farms and 765 cooperative units are

responsible for the bulk of actual fruit production in the socialist sector,

but GEDH working through its Orchards Trust determines the technical packages

used by these units and coordinates the establishment of their production

targets. The Orchards Trust is also responsible for a system of 21 research

stations, 41 orchard nurseries and about 12,000 ha of orchards under the

direct control of its Institute for Research and Orchard Production. The

research stations of the Orchards Trust also provide some extension support to

individual fruit growers.

4.14 All fruit processing is undertaken by the Fruit and Vegetable

Processing Directorate of GEDH. This Directorate is responsible for 39

judet-level Enterprises for Processing and Industrialization of Fruit and

Vegetables. These are responsible in turn for individual fruit and vegetable

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processing facilities. Production plans for the enterprises are establishedcentrally by the Directorate. The Research Institute for Marketing of Fruitand Vegetables has the responsibility for new product development, adaptationof new technology in processing and packaging, development of quality standards,design engineering, storage technology and transportation methods. The Insti-tute is adequately staffed with well qualified engineers and technologists,but lacks modern laboratory, quality control, pilot plant and-specializedequipment necessary to adequately support the packaging and processing of theexpanded production of fruit when new orchards become fully productive.

4.15 The Commercial Directorate of GEDH is responsible for marketing allfresh fruit within Romania. This Directorate has 39 judet-level Fruit andVegetable Enterprises which operate sorting, packing and storage facilities,and a system of retail fruit shops. The enterprises contract annually withproduction units under a national marketing plan which is later adjusted bythe Commercial Directorate on the basis of pre-harvest production forecasts.This adjusted plan provides the basis for final allocations among immediateconsumption, storage, processing and export channels. Individual producersconsume their fruit at home or market it fresh through local farmers markets.Some individuals also contract to deliver fruit to the Judet Fruit and Vege-table Enterprises, and use their contracts as the basis for securing BAFIcredit and inputs. Fruit exports are handled by Fructexport, a foreign tradecompany responsible jointly to the Ministry of Foreign Trade and the Ministryof Agriculture. Fructexport is a trading company relying on the handling,storage and processing capacities of the Judet-level marketing and processingenterprises.

F. Subsector Strategy and Plan

4.16 The Government plans in the forthcoming Five-Year Plan to shift theemphasis of its development strategy toward allocation of an increasing shareof GDP to consumption. Bank economic work has endorsed this shift, which willresult in a reduction in savings from 28% of GDP in the current (1976-80) planperiod to 23 or 24% for 1981-85. In keeping with this change in strategy, theplanning authorities have established (on the basis of Romanian scientific andnutritional studies) consumption targets for 1990 for a wide range of food-stuffs including fruits. The Romanian consumption target for fruit and tablegrapes established as part of this process is 129 kg p.c. In comparison withlevels of consumption in other countries, this target is quite high and con-sumption in the range of 95 to 105 kg p.c. would more reasonably be expectedfor Romania. This disparity and its possible marketing consequences are dis-cussed further in the paragraphs below and in Chapter VI.

4.17 In order to reach consumption targets, the Government strategy forthe subsector is to increase fruit production substantially by replacing older,classical orchards with modern, intensive plantings on large-scale State farmsand cooperatives (including here and elsewhere below both CAPs and ICAs). Theprocess of orchard intensification, begun early in the current (1976-80) planperiod, would be accelerated with 70,600 ha of new orchard plantings plannedfor 1980 to 1985 as follows:

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1980 1981 1982 1983 1984 1985 Total------------------------ ha-------------------------------

Apples 3,720 4,260 4,100 3,740 4,020 3,780 23,620Pears 350 300 500 500 250 250 2,150Plums 1,400 1,500 2,500 3,380 - - 8,780Apricots 2,750 1,500 1,750 1,800 450 550 8,800Peaches 420 2,500 2,500 1,000 2,500 2,500 11,420Sweet Cherry 1,040 1,000 1,500 2,400 - - 5,940Sour Cherry 3,890 1,200 2,000 2,800 - - 9,890

Total 13,570 12,260 14,850 15,620 7,220 7,080 70,600

A program to modernize 36,500 ha of the better existing apple and plum orchards,already begun with interplanting to increase tree density, would be completedduring this period, bringing the total area of new and modernized orchardsto over 100,000 ha. The Government also plans related investments in bothconventional and controlled atmosphere cold storage, in fruit processingcapacity and in orchard nurseries. In addition to increased production, otherobjectives of the program are: (i) to improve yields and production withoutincreasing the total area under orchards; (ii) to irrigate in most areas toovercome summer water deficits, thereby improving yields and fruit quality;(iii) to increase labor productivity, primarily with new planting systems; and(iv) to improve product quality for domestic consumption and export.

4.18 Romanian production plans associated with its investment in thesubsector call for a three-fold increase in production from 1.3-1.4 milliontons in 1976-78 to 4.0 million tons in 1990. This plan should, however, beviewed more as a target than a forecast. The appraisal mission's analysis ofpast performance of established orchards in the socialist sector and ofexisting individual orchard holdings, and a detailed yield build-up for recentand planned orchard plantings, shows that production in 1990 is more likely tobe about 3.3 million tons. Recent production performance and plan targets arecompared with production forecasts in the following table: 1/

MissionActual Performance Production

and Romanian Plan Targets Forecast-----------------'000 tons------------------

1975 1,1011976 1,350 -1977 1,453 -1978 1,316 -1979 (prelim. est.) 1,537 -

1980 2,410 1,5001985 3,200 2,4001990 4,000 3,300

1/ Excludes table grapes and melons.

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Annex 2, Table 2 presents a more detailed summary of the production forecastsused in appraisal.

4.19 Based upon the findings in Chapter VI, a more reasonable expectedlevel of domestic consumption for all fruits and table grapes in 1990 would bein the range of 95 to 105 kg p.c. The table below summarizes the dispositionof forecast supplies based upon consumption at 100 kg p.c.:

Disposition of 1990 FruitForecast Supply -'000 tons

Domestic Fruit Production Forecast 3,315Table Grape Production Forecast 555Citrus and Tropical Import Plan 75

Total Supply 3,945Less Average Losses at 5.7% 221

Available Supply 3,724

Less: Domestic Consumptionat 100 kg p.c. 2,500

Less: Distillation at 1976-78levels p.c. 430

Residual 794

This analysis suggests that the 1980-85 investment plan could result inabout 800,000 tons of fruit and table grape production which would have to beabsorbed either by export markets or through additional domestic consumption.About 400,000 tons equivalent of all fruit and table grapes can reasonably beexpected to be exported (Chapter VI), but the risk remains that, if theGovernment's 1980-85 investment program is implemented in full, Romania couldface an oversupply of fruit by 1990. As indicated in Chapter VI, this problemwould not arise as a consequence of investments planned through the end of1982, but there is a risk that investments planned from 1983 to 1985 couldresult in over production in the late 1980's and early 1990's. Such problemsof oversupply could be particularly acute for apples and table grapes forwhich later planned investments are especially large. This raises questionsas to (i) whether plantings planned for 1984 and 1985, and possibly 1983,should be made and (ii) whether related investments in new orchard nurseriesare required. Against this background, the Romanian authorities should reviewtheir consumption and export targets for 1990 before undertaking furtherorchard investments after the project. During negotiations, it was agreedthat the Government will carry out detailed domestic and export market studiesto assist in making future orchard investment decisions, and that it willsubmit full reports of there studies to the Bank for review and comment byJune 30, 1982.

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V. THE PROJECT

A. Concept and Objectives

5.01 The project is a credit scheme designed to support increases inRomanian consumption levels of fresh and processed fruits from an averageof about 47 kg p.c. for 1976-78 to about 95 kg p.c. by 1988. Project invest-ment concentrates on seven fruit species (apples, plums, pears, peaches,apricots, and sweet and sour cherries) which accounted for about 36 kg p.c. or77% of domestic fruit consumption in 1976-78. The primary objective of theproject is to support an increase in domestic consumption of these species toabout 71 kg p.c. by 1988. While oriented primarily toward the domesticmarket, the project would also permit increases in fruit export where exportopportunities exist. The project would support application in Romania ofmodern, intensive orchard technologies proven commercially elsewhere. Thesetechnologies will generate earlier commercial production and higher yieldsthan traditional lower density plantations. Modern methods will improve laborproductivity, and inclusion of irrigation in most orchards will reduce vulner-ability to water deficits experienced in most summers. Modern controlledatmosphere cold storage facilities are included to extend fresh fruit consump-tion into the late winter and early spring. Technical assistance for handling,storing and processing fruit will help to increase fruit quality and marketing.

B. Project Content

5.02 The project consists of (i) a 2-1/2-year tranche of Romanian invest-ment commitments for 29,820 ha of new orchards, (ii) 19 modern fruit packingand controlled atmosphere cold storage facilities, and (iii) technical assis-tance to help improve fruit handling, storage, and processing, and for appliedresearch in mechanization of fruit production and harvesting. These invest-ments would be undertaken between mid-1980 and the end of 1982. A moredetailed description of the project and its phasing is given in Annex 1.

5.03 The orchard components of the project comprise 89% of the proposedinvestment and would be made under new, higher density planting systems,reflecting commercial application in Romania of technologies already appliedcommercially elsewhere in the world. The table below summarizes orchardinvestments included under the project:

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Orchard Components

Average Area to be PlantedSpecies Density Under Cooperatives Under State Farms Total

trees/ha ----------------- ha------------------------

Apples 1/ 1,667 3,290 3,080 6,370Apples 1/ 1,000 1,410 1,320 2,730Plums 500 3,030 1,250 4,280Pears 1,250 415 455 870Peaches 740 2,200 2,880 5,080Apricots 700 2,390 1,410 3,800Sweet Cherries 500 1,810 900 2,710Sour Cherries 834 2,870 1,110 3,980

Total 17,415 12,405 29,820

The average size of apple and pear orchards would be about 60-70 ha, andthe remaining species planted at lower densities would have an average orchardsize of about 100-120 ha. The typical subproject would contain more than onesuch orchard farm unit, with about 120 subprojects averaging about 250 ha eachexpected to be financed under the project. Items under each subproject wouldgenerally include land preparation, farm fencing, planting stock, farm irriga-tion systems where required, fertilizer and pesticide storage, fruit storageand packing sheds, water supply, farm equipment, farm headquarters yard andoffices, and fertilizer and pesticides needed during the investment period.Rainfall in most areas is inadequate (with water deficits generally experi-enced in Jvly, August and September) and most subprojects would include on-farm irrigation. Where technically feasible, species and varieties would becombined within a single orchard to spread labor requirements over a longerseason. Apples, pears, plums and cherries would be planted on sloping lands,generally in the Carpathian foothills, replacing existing substandard orchards,hay pasture or low producing cereals (see Map). Peaches and apricots would beplanted in the plains area of the southern and western parts of the countryreplacing older substandard orchards or field crops (see Map). Land previouslyunder old orchards would be rotated to cereal or other field crops for 2 to 3years before replanting in order to permit decay of old tree roots, thusreducing the risk of disease carry over.

5.04 The project would include 19 modern fruit packing and controlledatmosphere cold storage facilities (see Map). Each facility would havecapacity to sort and pack 15,000 tons of extra and first quality applesannually, 5,000 tons of which would be retained in the controlled atmospherecold store and 10,000 tons of which would be shipped to fresh markets orconventional stores elsewhere in the country. Construction of eight of thesefacilities would begin in 1981 and 11 in 1982; all would be in operation by

1/ Apple planting densities depend upon the rootstock and scion combinationsto be used as discussed in Annex 1.

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1984. They would be located with convenient access from orchards in fruitproducing areas and would, in combination with 5 such facilities already underconstruction, bring total controlled atmosphere storage to 120,000 tons ofstatic storage capacity. They have been designed primarily for apples as thespecies with the best long-term storage characteristics and emphasized in theabsence of citrus as the main fruit for fresh consumption in late winter andearly spring. They would, however, also be used for sorting,.packing, pre-cooling and short-term storage for the other fruits harvested earlier in theseason.

5.05 The technical assistance component would consist of equipment andtraining needed to improve the quality of fruit handling, packing, transport,storage and processing and orchard mechanization in Romania. Included inthe component would be (i) equipment for central research laboratories andregional quality control laboratories for the Research Institute for Market-ing of Fruit and Vegetables, (ii) pilot plant processing and packaging facili-ties for the same Institute, (iii) specialized equipment to develop andevaluate precooling handling and storage methods for fresh fruits, (iv) equip-ment for applied research in mechanization of fruit production and harvest,and (v) training of professional and technical staff in new quality controland laboratory techniques. The technical assistance component to be imple-mented under the project will include US$1.8 million to improve the quality offinal product delivered to the market through improved handling, storage andprocessing; the remaining US$0.2 million of the component will be directed toapplied research in orchard mechanization aimed at improving labor productivity.

C. Project Costs

5.06 The estimated total cost of the project is US$323.9 million includingan estimated US$87.0 million or 27% in foreign costs. Project cost estimatesare based upon nine investment models (eight for orchards and one for storage)using prices prevailing in mid-1980, and include US$1.6 million in taxes andimport duties on items expected to be imported directly under the project.Physical contingencies for these investments have been taken at 4% of basecosts. Local price contingencies have been taken at 1% p.a., reflectingRomania's controlled prices and low internal rate of price increases. Foreignprice contingencies have been taken at 5.25% for the second half of 1980, 9%for 1981, 8% for 1982, 7% for 1983-85 and 6% thereafter. Project costs aresummarized in the table below:

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Local Foreign Total Local Foreign Total F.E.------Lei million-------- -----US$ million

Apples 1,220.6 320.9 1,541.5 67.8 17.8 85.6 21Plums 495.6 145.0 640.6 27.5 8.1 35.6 23Pears 114.8 31.2 146.1 6.4 1.7 8.1 21Peach 554.0 164.1 718.1 30.8 9.1 39.9 23Apricot 429.6 116.8 546.3 23.9 6.5 30.4 21Sweet Cherry 291.8 87.9 379.6 16.2 4.9 21.1 23Sour Cherry 469.1 127.7 596.8 26.1 7.1 33.2 21Storage 404.1 152.2 556.2 22.4 8.5 30.9 28Technical

Assistance - 36.0 36.0 - 2.0 2.0 100

Base Cost 3,979.6 1,181.6 5,161.2 221.1 65.7 286.8 23Physical

Contingency 159.2 45.8 205.0 8.8 2.5 11.4 22Price

Contingency 125.5 337.8 463.4 7.0 18.8 25.7 73

Total Cost 4,264.3 1,565.3 5,829.6 236.9 87.0 323.9 27

D. Financing Plan

5.07 The financing plan for the project is summarized in the table below:

Source US$ Million Total

Cooperatives 50.0 15BAFI and cofinanciers 223.9 70IBRD 50.0 15

Total 323.9 100

The proposed Bank loan of US$50 million equivalent would cover 15% of theestimated total costs, and 57% of the estimated foreign costs, of the project.The subborrowers contributions would be 11% of total costs, and the remaining74% would be financed by the Government (BAFI) and possible cofinanciers. 1/

1/ With assistance from the Bank, BAFI will be sounding out commercial bankson cofinancing possibilities under the project. Similar procedures forthree recent agricultural projects has resulted in US$300 million in co-financing.

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As in the recent Third Livestock Project (Ln 1764-RO), State farms and enter-

prises would not be required to contribute to the financing of their sub-

projects. Cooperatives would continue to finance about 30% of subproject

costs.

5.08 The Bank loan would be for 15 years including 3 years grace. Terms

of any cofinancing are not yet determined but are likely to be more stringent

than those of the Bank.

VI. MARKETS AND MARKETING

6.01 Consumption of fresh and processed fruit in Romania to date has been

restrained by Government policies emphasizing investment in other areas and

limiting imports of items for consumption. This has been consistent with

the overall development plan, high savings and investment rates, and limita-

tions on consumption generally. Fruit production has shown only moderate

increases in the past decade,-and imports have been limited to small amounts

of citrus and tropical fruits (about 2-3 kg p.c. p.a.) which cannot be produced

locally. Consumption has thus been constrained by available supply to levels

well below those which would otherwise have prevailed. The market for fruits

in Romania is characterised by shortages (especially in the off season wintermonths), rationing by line when fruit is in short supply, and sale of poor

quality fruit in the absence of adequate supplies. Consumption of domestically

produced fruit (including table grapes) for 1976-78 averaged 44.2 kg p.c.,

with overall consumption including imported citrus and tropical fruits of

about 47 kg p.c. for the same period. Detailed allocations of the uses of

domestic fruit production for these years are presented in Annex 2, Table 1.

6.02 The project, together with parallel investments planned for other

fruits and table grapes through the end of the project investment period

(end 1982), would permit a doubling of the consumption level to about 95 kg

p.c. by 1988. The main elements of this increase are presented in the table

below:

Fruit Consumption

1976-78 1988 WithActual Project Increase---…----kg. p.c.-------

Project Species 35.8 71.1 99

Other Fruits 3.2 4.9 53

Table Grapes 5.3 15.6 194

Subtotal 44.2 91.6 107

Imported Citrus 3.0 3.0 -

Total 47.2 94.6 100

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These consumption allocations are based upon the peak production forecast forall fruit and table grape investments through the project investment period, 1/but exclude production from later investments as described in para 4.18 above.A summary of the production forecast for project species is given in Annex 2,Table 2. More detail of the consumption allocation for 1988 is given in Annex2, Table 3.

Domestic Market Size

6.03 The current supressed level of fruit consumption in Romania is nota reliable basis on which to assess the potential size of the Romania marketfor fruit in the long term, and appraisal has relied primarily on internationalcomparisons for this purpose. The best data available for such comparisonswas prepared by FAO in 1977 2/. This data for 1972-74 average fruit and tablegrape consumption in a number of countries with similarities to Romania issummarized in the table below:

1972-74 Fruit Consumption

Including ExcludingMelons Melons-----------kg p.c .---------

Greece 156.8 106.4Turkey 141.0 100.4Spain 124.4 98.3Bulgaria 120.4 101.1Italy 134.2 118.9Portugal 77.2 75.7Hungary 75.8 67.2Yugoslavia 65.6 50.9

Melons are to some extent substitutes for other fruits and are included inmost fruit consumption statistics. Their inclusion in appraisal comparisonscould, however, distort the analysis, particularly as Romania produced only58,000 tons (or 2.7 kg p.c) of melon in 1978. The market analysis has there-fore been based on comparisons of fruit consumption excluding melons. The

1/ Maximum production from project investments is expected in 1991, whenthe slower maturing plums and cherries reach full production; however,the moderate increases in project production from 1988 to 1991 wouldbe more than offset by anticipated declines in older orchards. Peakproduction for all investments (old and new) through the end of 1982is forecast for 1988, and this benchmark year has been selected forthe market analysis.

2/ FAO, Provisional Food Balance Sheets for 1972-74, Rome 1977.

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1972-74 series is the latest available which permits such a distinction and isfor this reason considered (despite its age) the best basis for appraisal.This approach may lead to some understatement of potential Romanian consumption.

6.04 Country to country comparisons show little correlation between fruitconsumption and income levels. In fact, some of the higher income countrieshave lower consumption, and vice versa. For example, in 1972-74 the Beneluxcountries had a consumption level of 69.9 kg p.c., Denmark, 54.4 kg p.c.;France, 72.9 kg p.c.; West Germany, 94.3 kg p.c.; the United Kingdom, 45.3 kgp.c., and the United States 100.1 kg p.c. These levels are in marked contrastwith most of the southern European countries. Differences in consumptionlevels are heavily influenced by local factors such as the seasonal avail-ability; fruit prices; consumer preferences, habits and customs; and avail-ability of possible substitutes for fruit and fruit products. Against thisbackground, the southern European fruit producing countries are the best groupof comparators in considering the level of fruit consumption which may reason-ably be expected in Romania.

6.05 A straightforward comparison of consumption levels already achievedin a number of the fruit producing countries of southern Europe leads to thejudgement that consumption in the range of 95 to 105 kg p.c. can reasonably beexpected for Romania by 1990, but that the Romanian consumption target of 129kg p.c. (para 4.16) is high by international standards. In this context, the95 kg p.c. level anticipated for 1988 in paragraph 6.02 appears reasonable.

6.06 As a supplement to this straightforward country-to-country compari-son, demand projections have also been prepared using a composite of historicconsumption levels in Yugoslavia and Hungary as the base. The lack of incomeand consumption correlations among countries does not imply the absence ofsuch correlation within any given country, and income elasticities of demandfor fruit have been developed for a number of countries in the Region. 1/Application of these in Romania, however, requires assessing what historicRomanian consumption levels would have been in the absence of the supplyconstraint. For this purpose, Yugoslavia and Hungary have been taken ascomparators, although both countries may also suffer from some unmet demand.Both countries are temperate zone producers and have a distribution of speciessomewhat similar to that in Romania. Yugoslavia provides a market-determinedlevel of consumption for a country with similar income level and emphasis onsavings and investment; Hungary provides the case of a similar, centrallyplanned country which has placed greater emphasis on fruit production andconsumption. The average consumption level in these two countries for 1972-74was 59 kg p.c. (excluding melons), ranging between 51 kg p.c. for Yugoslaviaand 67 kg p.c. for Hungary. Using real growth rates of personal income inRomania of 5% for 1974-79 and 4.4% from 1980 onwards, 2/ and an incomeelasticity of demand for fruits of 0.7, the expected consumption level pro-jected from this composite base would be 101 kg p.c. in 1990. Using the

1/ World Bank Staff Working Paper No. 321, March 1979.

2/ Estimates by Country Economic Staff.

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Hungarian base of 67.2 kg p.c. alone, projected consumption of all fruitswould be 115 kg p.c. in 1990; using the Yugoslav base alone, 87 kg p.c.Although this analysis is of necessity rather approximate, it reinforces thejudgement that Romanian consumption of the order of 95-105 kg p.c. is reason-able for 1990. The same analytical approach including melon consumptionresults in expected consumption of 121 kg p.c. in 1990. The overall level offruit production from the project, and that from concurrent investmentsplanned for other fruits and table grapes, can be marketed successfully.

6.07 As a matter of national policy deriving from foreign exchangeconstraints, Romania limits fruit consumption almost entirely to specieswhich it can produce domestically. Fruit imports are planned to remain aboutconstant at 3 kg p.c. through 1990. The share of fruit consumption from localproduction is expected to increase from 94% in 1976-78 to 97% by 1988. Inthe absence of significant imports of citrus and tropical fruits, this policyresults in heavy emphasis on the project species and especially on apples.Apples are the primary fruit relied upon to meet winter and early springfresh consumption needs, more typically met in other countries by a muchwider range of fruits including substantial amounts of citrus and tropicalfruits. Superior storing characteristics make the apple the best availablespecies to meet fresh consumption needs in these seasons. In 1976-78, theproject species accounted for 76% (35.8 kg.p.c.) of all fruit consumption,including 39% (18.4 kg p.c.) for apples. These proportions would remainessentially unchanged under the project, with project species accounting for75% (71 kg p.c.) of consumption including 41% (39 kg p.c.) for apples in1988. By international standards these proportions are high, but they areacceptable given the special context and policy constraints in Romania. The1988 consumption levels expected for the project species (especially forapples) are higher than the corresponding 1972-74 consumption levels in othercountries with wider availability of citrus and tropical fruits. This patternof consumption is determined by Romanian policy restrictions on fruit importsand the related substitution of apples for such fruit. In this context, thespecies distribution under the project is judged to be acceptable.

The Marketing System

6.08 Increased consumption of fresh and processed fruits will requirecomplementary investment in packing, storage and processing facilities. Thetable below summarizes the extent to which facilities will be required tosupport increased consumption of fresh fruits in 1984 (the year in which proj-ect packing and storage investments will first be fully utilized) and in 1988(the year of peak production under the project):

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1976-78 1984 1988Actual Forecast Forecast

Project All Project All Project AllSpecies Fruit Species Fruit Species Fruit-----------------------000 tons ---------------------

Total Fresh Consumption 496 659 854 1,264 1,200 1,675Less: Self-Consumption 277 325 293 347 313 364

Marketed Fresh 219 334 561 918 887 1,311

Storage Required 111 306 437

After allowance for the direct consumption by producers, the requirements forcold storage (both conventional and controlled atmosphere) have been taken atone-third of annual fresh consumption of all fruits. In Romania's temperateclimate, non-refrigerated storage meets the storage needs for consumption inNovember and December, and cold stores are geared to meeting the demand forfresh fruit from January to May. Conventional cold stores would be used forthe winter consumption; the controlled atmosphere stores would be used largelyto meet early spring consumption needs. As noted above, apples would be themajor species stored for winter and early spring consumption. When the newcontrolled atmosphere cold stores financed under the project are all in usein 1984, there will be 307,000 tons of fruit storage capacity as follows:

Conventional Stores in 1979 141,000 tonsNew Conventional Stores 46,000Controlled Atmosphere Stores 120,000

Total 307,000 tons

This capacity will be adequate to handle the expected market volume. Aspart of the controlled atmosphere facilities, 360,000 tons of sorting andpacking capacity would be added to the national system. This will meet theincreased requirements for project species but complementary facilitieswill be required for other fruits and table grapes. Current processingcapacity covering both vegetables and fruits is adequate through the early1980's and the Romanians plan to construct 10 new processing plants in the1981-85 plan period. Increases in storage and processing capacities through-out the 1980's are essential to achieving the consumption objectives of theproject, and during negotiations, it was agreed that Romania will invest inhandling, storage, and processing facilities adequate to market productionfrom the project.

Fruit Exports

6.09 While the project is geared predominantly to the domestic market,the Romanians can be expected to seek export markets where available inorder to earn foreign exchange. Exports of project species for 1976-78

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averaged 88,000 tons annually or about 7% of total production. About 54,000tons of this amount was exported fresh, with roughly 45% going to WesternEurope, 40% to Eastern Europe and 15% to other countries--including about6% to those of the Middle East. Processed exports for this period were34,000 tons, for which country of destination data are not available.Preliminary estimates for 1979 show 137,000 tons (10% of estimated production)of exports, of which 92,000 tons were fresh and 45,000 tons processed. Thisrepresented 10% of estimated production of project species. Romanian fruitexports to date have suffered from poor quality and reputation in exportmarkets, but the quality of fruit exports is expected to improve with Romanianefforts to this end supported by sorting and packing investments and technicalassistance under the project. Growth in Romanian fruit exports in the 1980'sis expected to shift away from Western Europe toward Eastern Europe and (ifpolitically stable) the Middle East. As a result of agricultural policies ofthe Common Market, most fruits are expected to be in plentiful supply there,with market opportunities limited to special niches for off season and earlyseason fruits, and for selected varieties such as certain red apples which arenot grown extensively in the Common Market. Romania will have some oppor-tunities in this market, and there is also some growth potential in theScandinavian markets. As a general assessment, however, Romania enjoys nospecial seasonal advantages in serving this market, and its entry is likely tobe limited to selected varieties not widely available within the market. Inaddition, Romania's competitive position in the Common Market would be weakenedby the likely accession of Greece, Spain and Portugal.

6.10 Romania is well placed along with Bulgaria and Hungary to serve theEastern European market, and of the three has the smallest market share andhas taken least advantage of this potential. Unfortunately, data on overallconsumption and production in these markets were not available to the appraisalmission, and the Romanian authorities have no studies of these markets. Othersources indicate that fresh fruit imports of project species by Eastern Europefor 1972-74 (latest data available) were 542,000 tons. A rough analysisindicates that this level is likely to increase by at least 50 to 70% by1990. The growth potential of the Eastern European fresh fruit market isthus of the order of 270,000 to 380,000 tons in this period. The MiddleEastern market is more difficult to assess both because of political uncer-tainties and because of the shortage of reliable data. Fresh fruit imports ofproject species by Middle Eastern countries in 1972-74 were about 100,000tons, and this level could easily double by 1990. Demand for processed fruitsin these markets is expected to behave similarly. While precise specificationof final markets in the late 1980s would be unrealistic, the Romanians canreasonably expect some export increases. Appraisal has been based upon theassumption that exports of project fruits could reach 268,000 tons (11% offorecast production) by 1988, or an increase of 131,000 tons above the esti-mated 1979 level. Such an increase can reasonably be expected to be achievedover nine years, although the actual species distribution of exports may varysomewhat from those shown in Annex 2, Table 3. There may well be greaterpotential for Romanian participation in these markets; however, these prospectsneed to be assessed much more thoroughly by the Romanian authorities beforecommitting further investments oriented toward export markets. While Romaniamay be expected to seek to exploit export markets to earn foreign exchange,the project has not been oriented toward export markets.

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VII. TECHNOLOGY AND RESEARCH

A. Production Technology and Research

7.01 The intensive orchard investments under the project have been

patterned on technologies already in commercial use in some of the moreadvanced fruit producing countries of Europe. The main advantages of thesehigher density orchards over lower density classical orchards are (i) muchmore rapid achievement of full production (5 years for apples instead of about10) and (ii) improved labor productivity in pruning and harvesting smallertrees. In some cases, modest increases in peak yields over those in a mature

classical orchard can also be expected, but there are physical limitationson the maximum size of fruit bearing canopy and hence yields in either typeof orchard. Planting densities under the project are compared with thoseof typical classical orchards in the table below:

Typical AverageClassical ProjectOrchards Orchards----------trees/ha----------

Apples 180-250 1,000-1,667Pears 180-250 1,250Peaches 200-250 740Apricots 180-200 700Plums 180-200 500Sweet Cherries 180-200 500Sour Cherries 200-300 834

Apples would be planted at the highest densities. Dwarfing rootstocksdeveloped at the East Mailing Research Station in the U.K. and now in widecommercial use would be used in all of the apple orchards. The plantingdensity of any individual orchard will depend upon the specific rootstock/scion combinations to be used and upon local growing conditions. Dwarfingrootstocks for other species are either much less effective in limitingtree size and not widely in use (pears and peaches), or not available (plums,apricots and cherries). This accounts for the generally lower averagedensities at which these species would be planted. The project would supportcommercial application in Romania of technologies which are establishedelsewhere, and Romania would become one of the leading countries in use ofhigh density orchards.

7.02 Following the international trend in orchard technology, Romania hasbeen conducting production research on high density plantings for over a decade.It has a well organized and comprehensive fruit production research programdirected by the Orchards Trust at its headquarers in Pitesti. Field trials

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are conducted at Pitesti and at 21 field stations which are distributedwidely in well defined fruit production zones throughout the country. Theresearch program has tackled a wide range of technical issues confronting thefruit industry, including variety trials, pruning methods, irrigation systems,and alternative systems of planting orchards. All of these areas of researchare important in relation to modern orchard management systems, althoughissues concerned with planting systems and the intensity of planting havecreated the greatest interest because of the sweeping changes now being intro-duced in Romania and in other fruit producing countries. While the technicalside of orchard research has been quite good, research on commercial andeconomic applications has been neglected. Technical research findings havedominated Romanian decision making on applications of high density orchardswith a tendency toward wholesale adoption of very high density plantingswithout adequate documentation of commercial and economic experience with anyparticular planting system. There is a major opportunity for Romania tobroaden its good technical research to include thorough investigations ofthe commercial and economic aspects of its application. Included in thetechnical assistance component of the project is US$200,000 for appliedresearch in mechanization of fruit production and harvesting.

7.03 Most project orchards would be provided with irrigation, withoutwhich yields would be both lower and more erratic. Romania's fruit producingzones have water deficits in most years during July, August and September.The need for and the feasibility of irrigation for each new orchard would bereviewed by the Romanians as part of normal subproject evaluation.

B. Storage Technology

7.04 The controlled atmosphere cold stores to be financed under theproject would be modern facilities designed to internationally acceptedstandards, and would be located in rural areas near orchards in the fruitproducing zones (see Map). They would increase fruit storage life by reduc-ing oxygen content within each store from about 20% to 3%, while controllingnitrogen at 94% and carbon dioxide to 3%; temperature would be held in therange of 0-4 0C. These facilities have been designed primarily to extendapple storage life through the early spring, in order to extend the period offresh fruit consumption. Apples will generally be stored in these facilitiesfrom September and October through April and May; other species, pickedearlier in the season, will also be precooled or stored temporarily untilthe facilities are needed for apple storage. Each of the storage units willalso have complementary sorting and packing facilities, also financed underthe project.

C. Fruit Marketing Technology

7.05 The quality of final fresh and processed fruit products offeredto both domestic and export markets suffers from poor quality facilities and

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inadequate expertise in the post-harvest handling, storage and processing

chain. The technical assistance component of the project includes US$1.8million for equipment and staff training needed to improve applied researchand pilot fruit processing plants. GEDH and its Research Institute forMarketing of Fruit and Vegetables would be provided with scientific equipment

for its central research laboratory, its regional quality control laboratories

and for pilot plants. The objectives in providing this equipment would be toimprove studies concerned with controlled atmosphere storage, vitamin, mineral

and pesticide residues, packaging film sealing and permeability, and researchon proteins and amino acids. Specialised equipment would also support quality

control studies concerning fruit texture, color, flavor, nutritional proper-ties and storage stability. Equipment would also be made available to assistwith development of pilot plants concerned with improved packing and packag-

ing, processes for improving yields and quality of dried, frozen, canned andbottled fruits, development of new processed products, and production of fruitjuices. Specialised equipment provided under the project would also be usedto develop and evaluate pre-cooling, handling, and storage practices for thefruit industry. Training of professional and technical staff would improvetheir knowledge of new quality control and laboratory techniques.

VIII. PROJECT IMPLEMENTATION

A. Organization and Management

8.01 BAFI would be the Borrower under guarantee of the Socialist Republic

of Romania and about 140 individual subprojects would be implemented by State

enterprises and cooperatives after thorough appraisal by MAFI and BAFI. Aswith previous Bank financed projects in agriculture in Romania, this projectwould be administered by BAFI through its 39 district branches. BAFI would

be responsible for overall project supervision and monitoring. Earlier Bankfinanced projects which are similar in approach to the proposed project are

being implemented smoothly under BAFI.

8.02 Several agencies of MAFI would be responsible for implementation of

individual subprojects. An estimated 70 cooperatives and 50 State farms wouldcarry out the orchard subprojects. The Orchards Trust would have overalltechnical responsibility for these subprojects, and would provide technicalassistance and advice to staff of the subproject farms. The 19 controlledatmosphere cold stores would be implemented by Judet-level Fruit and VegetableEnterprises of the Commercial Directorate of GEDH. The post-harvest portion

of the technical assistance component of the project (US$1.8 million of thetotal) would be implemented by GEDH and its Research Institute for Marketingof Fruit and Vegetables. The production and harvest mechanization portion ofthe technical assistance component (US$200,000 of the total) would be carried

out by the Orchards Trust. Although these arrangements may appear complex,similar arrangements used for earlier Bank-financed projects in Romania haveproved satisfactory.

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B. Lending Policies and Procedures

8.03 BAFI would examine all proposals for subprojects to be financedunder the project to determine their technical feasibility and financialviability. Detailed subproject investment proposals would be submitted to thebranches or to BAFI's head office, depending upon the size of investment, inaccordance with normal BAFI procedures and delegation of subloan approvalauthority. All subproject investment proposals would have to be cleared bythe responsible MAFI agency before review by BAFI. BAFI would prepare anindividual summary analysis for each investment subproject, including keyoperating and investment indicators. Prior to disbursement under the proposedloan, BAFI would submit to the Bank for its approval (i) individual summariesof representative investment subprojects for the first three orchards of eachof the project fruit species and for the first three controlled atmospherestorage facilities, (ii) a summary for any subproject for which the estimatedtotal cost is greater than Lei 70 million (US$3.9 million), and (iii) acommercial justification for larger orchard plantations (60 ha and larger forapples, peaches and pears, and 100 ha and larger for other species) to beplanted at densities greater than the average for the project. It was agreedduring negotiations that evaluation of these subprojects would be undertakenas outlined above and according to a format acceptable to the Bank.

C. On-lending Terms

&.04 Under existing regulations, BAFI would lend to cooperatives up to70% of investment costs at terms of up to 20 years including up to 10 yearsgrace. BAFI would lend up to 100% of investment costs for orchard and storageinvestments by state enterprises with terms up to 17 years including 7 yearsgrace. Repayment terms for the controlled atmosphere cold storage facilitieswould be 12 years including two years grace. As under previous projects, BAFIwould have the flexibility to make automatic roll over adjustments requiredfor subproject implementation. Funds for the technical assistance componentwould be the responsibility of MAFI and would be transferred to MAFI and laterrepaid directly to BAFI from the State budget.

8.05 Interest rates would be the same as those charged by BAFI for similarinvestments and those adopted for onlending under pievious Bank financedprojects. Loans extended to State enterprises would be at 4%, except forinterest during construction which would be at 2% p.a. Interest on investmentsubloans to cooperatives would be at a uniform 3% p.a. The weighted averageinterest rate on BAFI loans made under the project would be about 3.6% p.a.BAFI's financial and administrative costs of providing these loans would beabout 3.5% p.a., and BAFI would cover its costs under the project.

8.06 As a result of centralized controls over domestic prices, Romaniamaintains the domestic inflation rate on retail prices of about 1% per yearand it is expected to continue through the end of the 1981-85 Five-Year Plan.This 1% annual rate of increase takes into account the past increases in

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building and equipment costs since 1963. No significant further increase isanticipated during project implementation. The total project cost estimateincludes a price contingency on local costs calculated at 1% p.a. In view ofthe above, BAFI lending operations under the project would be undertaken atreal interest rates that are positive. Interest rates play no role in alloca-tion of resources and little role in influencing individual investment deci-sions in Romania's socialist sector. Lastly, the level of interest ratesdoes not influence the level of capital intensity employed in investments,since project design and technology choices are standardized by MAFI on thebasis of Romanian technical and economic evaluation, and applied in allinvestment projects nationwide. It was agreed during negotiations that BAFIwould implement the project under the lending policies, procedures and termsdescribed above.

D. Procurement

8.07 Equipment and materials equivalent in cost to the proposed Bank loanof US$50.0 million would be procured under the proposed loan. It was agreedduring negotiations that items listed in Annex 2, Table 4 and costing US$50.0million including contingencies would be procured in accordance with the"Guidelines for Procurement under World Bank Loans and IDA Credits - March1977." US$48 million of the items noted in the list would be procured throughinternational competitive bidding (ICB), and US$2.0 million of equipment andtraining for the technical assistance component would be procured throughlimited international tendering after soliciting bids from suppliers in atleast three member countries including Switzerland. Romanian manufacturerswould be allowed a perference of 15% or the applicable customs duty, whicheveris lower. The application of preference is not expected to significantlyaffect the result of bidding on the proposed project. It is expected thatforeign suppliers would win contracts for about US$16.4 million (US$14.9million under ICB and US$1.5 million through limited international tendering)of chemicals, cold storage equipment, pilot plant equipment and laboratoryequipment not manufactured in Romania. Other items to be procured throughinternational competitive bidding (about US$33.1 million) are availabledomestically and, based on experience with previous Bank-financed agriculturalprojects, it is expected that the Romanian manufacturers would be successfulin bidding for these items. An estimated US$0.5 million of items procuredthrough limited international tendering is expected to be of Romanian origin.The Bank would not finance construction works under the project; these wouldbe carried out by the Romanian Construction Trusts, which are experienced andfamiliar with local conditions, methods and regulations. This practice hasbeen acceptable to the Bank for the previous Bank-financed projects becausedue to the regulated wages and prices of materials, the Romanian constructioncosts are likely to be less than those which might be bid by internationalcontractors.

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E. Disbursements

8.08 Bank disbursements would extend over an estimated 5-year period.The loan is expected to be committed in 2 1/2 years by the end of 1982. Theforecast of quarterly disbursements is shown in Annex 2, Table 5. Disburse-ment of the proposed Bank loan would be made against 20% of BAFI disbursementsfor approved subprojects and 100% of the costs of the technical assistancecomponent. The disbursement percentage for orchard investments has beenestablished to disburse the Bank loan in 5 years, even though 12% of subloanamounts on the slower maturing species would actually be disbursed only inyears 6-8. Disbursement for an estimated 140 subprojects will be made againstcertificates of expenditure, the documentation for which will not be submittedfor review but will be retained by the Borrower and made available for inspec-tion during the course of Bank supervision missions. This procedure has beenused for credit components of six earlier loans to Romania. BAFI is expe-rienced with this type of disbursement application and its accounting andadministrative procedures are satisfactory. BAFI keeps separate accountsfor all project expenditures including those related to goods and servicesfinanced out of the proceeds of Bank loans. These accounts have been auditedaccording to procedures acceptable to the Bank. Supervision missions makespot checks of the documentation retained.by BAFI and this would continue forthe orchard project.

F. Accounts and Audit

8.09 The existing accounting and auditing procedures in Romania arequite strict and satisfactory. BAFI's accounts are subject to audit byinternal inspectors and an annual audit by inspectors from the Ministry ofFinance and the Court of Superior Control. The Court, which reports directlyto the President of the country, conducts an independent audit of BAFI'saccounts and of results of audits by inspectors from the Ministry of Finance.BAFI's submissions of audited accounts have been received promptly and havebeen satisfactory. During negotiations, it was agreed that BAFI will submitto the Bank an annual audit report satisfactory to the Bank within 6 months ofthe close of the fiscal year.

8.10 BAFI would keep separate accounts for all project expenditures,including those related to goods and services financed out of the proceeds ofthe proposed Bank loan. These accounts would be audited according to exist-ing procedures. During negotiations, it was agreed (i) that BAFI would causeits subborrowers under the project to maintain separate project expenditureaccounts satisfactory to the Bank, (ii) that BAFI would maintain summaryaccounts of all project expenditures and would make these available to Banksupervision missions, and (iii) that a report on the project accounts, includ-ing reimbursements requested against certificate of expenditure, audited bythe Ministry of Finance, would be submitted to the Bank annually within 6months of the close of the fiscal year.

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G. Monitoring

8.11 BAFI maintains detailed records for each subborrower of financialand production results relative to subproject appraisal expectations which ituses in its subproject supervision. In order to measure overall progress ofproject implementation in relation to objectives, goals, and schedules estab-lished for each component, BAFI would submit quarterly reports to the Bankwithin 45 days of the close of each quarter. These reports would includedata on progress of construction of all physical facilities, progress in theprocurement of equipment and materials, and data on project expenditures andfruit production. Information would be collected on each component andconsolidated into an annual report, for which coverage would include data onthe number of enterprises and farms financed; the type, size and ownership ofeach; and incremental fruit production. Since its own procedures require BAFIto assemble such material and data, the incremental cost of monitoring theproject would be negligible. BAFI would also furnish to the Bank a projectcompletion report not later than 12 months after the expected completion datefor the project. BAFI would prepare its report in accordance with guidelinesand format agreed during negotiations. Assurances regarding these matterswere obtained during negotiations.

H. Environmental Impact

8.12 The project will not increase the area under orchards, and a marginaldecrease in this area is even expected as a consequence of orchard intensifica-tion. There will therefore be no displacement of other farmland. Adoption ofmodern practices for the lands remaining under orchards will have a beneficialenvironmental impact through measures such as terracing and improved waterutilization which will reduce erosion. Pesticide and fertilizer use wouldincrease under the project and could increase the levels of pesticides,nutrients and salts in ground water and surface streams. The impact ofincreased use of chemicals is expected to be minimized through modern orchardmanagement practices in their selection and application. Modern irrigationmanagement would similarly be expected to control the level of salts insurface and groundwater. During negotiations it was agreed that the projectwould be implemented with due regard to the environmental impact of theselection and use of insecticides, fungicides, herbicides and fertilizers.

I. Role of Women

8.13 Romanian policy establishes the principle of equal employment oppor-tunity for women in the work force. Application of this policy has resultedin women comprising an estimated 30; of the orchard farm managers, 70% of farmeconomists and 60% of the work force. The project has no specific componentdesigned according to differentials based on sex of intended beneficiaries,but it is expected that women will benefit as much as men.

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IX. PROJECT BENEFITS AND JUSTIFICATION

A. Production and Prices

9.01 The main quantifiable benefit of the project would be increasedfruit production above the levels which would have prevailed without theproject. Incremental production under the project would reach a maximumof 528,000 tons in Year 13 (1992) (Annex 2, Table 6). This would include235,000 tons of apples, 25,000 tons of pears, 62,000 tons of plums, 26,000tons of sweet cherries, 38,000 tons of sour cherries, 98,000 tons of peachesand 44,000 tons of apricots. The most important fruit produced under theproject would therefore be apples, with 45% of the total, peaches with 18% andplums with 12%.

9.02 Incremental production would build up relatively quickly especiallyfor apples and pears because of the adoption of intensive planting systems.The build up in yield per hectare for each species is shown below:

Yield in tons/ha

4 5 6 7 8 9 10…-----------------------…Years--------------------------

Apples with 1667trees/ha and pears 10 20 30 30 30 30 30

Apples with 1000trees/ha - 8 15 20 20 20 20Peaches - 7 14 16 20 20 20Sour cherries - - 4 6 8 10 10Apricots - - 8 9 10 12 12Plums - - - 6 10 12 15Sweet cherries - - - 4 5 7 10

For each species Year 1 covers the calendar year during which initial prepara-tory work would be done with planting taking place in the autumn. Year 2covers the first full growing season. Trees would be replanted beforeyields dropped substantially towards the end of their productive life. Ithas been assumed that the total productive life of the different specieswould range from 19 years for peaches, 20 years for sour cherries and apricotsand 25 years for apples, pears, plums and sweet cherries. In the short termthe project would have some negative impact on production for old orchardswould be uprooted to make way for new ones. However, this initial declinewould not be important for these old orchards are estimated to yield onlyabout two tons per hectare at present. For the "without project" situation ithas been assumed that these old orchards would have continued in productionwith declining yields for 10 years. They would then have reverted to naturalgrazing.

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9.03 All fruit produced under the project would be sold at Governmentcontrolled prices. These prices are uniform throughout the country, althoughthere are several grade differentials and premiums are paid for fruit whichis exported. As the administered Romanian prices bear little relation tofruit prices in international markets, and as fruit is a widely traded commod-ity, economic prices were estimated for each type of fruit. These priceswere established in relation to prices received for fruit exported by majorfruit producers in Europe to member countries of the European Community duringthe four years 1975-1978. In this analysis Italy was the most importantcountry used as a reference point, for Italy is a major exporting country forall of the fruit to be grown under the project. However, price data fromother European countries, including Yugoslavia, Greece, Spain and Hungary wasalso taken into account in the analysis. Data from European markets was usedboth because these are the nearest major fruit markets to Romania and becausegood statistics were available for these markets. In calculating economicprices for fruit some reduction below the average price received during the1975-1978 period has been taken into account where it was felt that priceswere likely to decline in future. The following percentage declines in pricewere used--apples 5%, plums 5% and apricots 8%. The prices for the otherspecies of fruit were not expected to decline.

9.04 The financial and economic prices used for the appraisal are shownin the table below.

Economic PricesFinancial At Export At ImportPrices Parity Parity

-------------Lei/ton Ex-Farm------------

Apples 2,660 3,331 6,915Pears 2,660 4,293 7,814Plums 2,700 4,912 8,882Sweet cherries 3,431 18,160 23,010Sour cherries 4,162 13,394 18,153Peaches 3,300 4,961 10,209Apricots 2,880 7,120 11,895

The proportion of incremental production which would be used for consumptionin Romania has been valued on the basis of economic prices estimated at importparity, for imported fruit could be regarded as a substitute for locallyproduced fruit. Incremental production destined for export has been valuedat export parity. All of these prices have been estimated ex-farm, i.e. theexport parity prices are the prices for fruit in international markets lessall of the costs incurred for packing, transport and marketing between thefarm and the international market. The import parity prices ex-farm areequivalent to the cost of fruit in international markets plus the cost oftransport to the principal Romanian markets less the costs which would beincurred for farm to market transport and marketing costs if similar fruitwere produced in Romania.

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9.05 For all species of fruit to be produced under the project theeconomic prices were higher than the administered Romanian prices. In thecase of apples, pears, plums and peaches the economic prices at export parityranged from 25% above the Romanian price to 82% higher. All of the remainingeconomic prices were more than double the Romanian prices. It is difficultto understand the rationale behind the Romanian price structure for fruitwhich apparently was based originally on a cost plus accounting formula. Forall of the fruit species production models indicate that the investment andoperating costs are similar. The main differences between the models are onthe revenue side, especially the age of the trees when they start production,the yield at maturity and the price of fruit. In these circumstances pricesdetermined on the basis of a cost plus formula for slow maturing low yieldingspecies of fruit such as cherries and apricots should be much higher thanthose for fast maturing high yielding species such as apples and pears. Thesecharacteristics are evident in international markets for fruit but not inRomania. For example, in Romania apricots produce about half the yield ofapples and take almost twice as long to come into production yet the priceof apricots is only 8 percent higher than that for apples. But in Europeanmarkets apricot prices approach twice the level of apple prices. For cherriesprices in Europe are between two and three times the price of apples while inRomania the price of sweet cherries is only about 30% higher than the price ofapples. There are of course other factors affecting prices in Europeanmarkets such as the degree of perishability of different fruits.

B. Financial Analysis

9.06 The financial analysis of the project deals primarily with thecapacity of sub-borrowers to service debt on their loans from BAFI, and onlysecondarily with the rates of return of the various types of subprojectsunder Romania's administered pricing system. Romanian investment planning isoriented heavily toward meeting physical production targets, while analysisof individual projects and technologies relies primarily on a benefit costratio at full production. There is no provision in the methodology or inthe pricing system to take account of the time value of money. Against thisbackground, the financial rates of return (using the prices noted in para.9.04 above) for the various type of project investment are as follows:

Financial Rateof Return

Fruit storage 17%Pears 16%Apples 14%Peaches 9%Plums 2%Sour Cherries 1%Sweet Cherries -3%Apricots -15%

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Given the nature of the pricing system in Romania, the low or negative returnsfor plums, apricots, and sweet and sour cherries do not draw into question thedesirability of the investments; in fact, these show quite good returns in theeconomic analysis below.

9.07 The low and negative financial returns do, however, indicate thatsubborrowers would have difficulty or would be unable to service their 3%(cooperative) and 4% (State farm) BAFI subloans from cash flow derived fromproject investments. This is fundamentally a problem of the administeredprices for the four species. Combinations of species in the same orchard (forexample, apples and pears, peaches and apricots, or sweet and sour cherries)would also result in marginal returns for all typical combinations exceptapples and pears. In many cases, other operations of a farm could probablycarry the debt service on the orchard investment, and BAFI would not lendwithout reasonable assurance of repayment. For the four species in question,however, current average farm-gate prices would provide insufficient cash flowto service BAFI debt on the related investment. In order to achieve a 5%financial return, the price of plums would have to be increased by about 12%,that of sour cherries by about 18%, that of sweet cherries by about 35% andthat of apricots by about 53%. Such price increases would permit subborrowersto service BAFI debt from orchard revenues. During negotiations it was agreedthat the' prices for these species would, by the time of their initial produc-tion under the project, be established at levels adequate to enable loanbeneficiaries to service their subloans out of the net cash flow generatedfrom the orchards.

C. Economic Analysis

9.08 The overall economic rate of return for the whole project, including29,820 ha of orchards and 19 fruit packing and storage depots is estimated tobe 27%. Project costs and benefits are summarized in Annex 2, Table 7. Therate of return from the fruit production component would be 27% while the muchsmaller component for fruit packing and storage would have a return of 17%.

9.09 In the economic analysis costs and benefits have been discountedover a period of 25 years except for investments in production of peaches,apricots and sour cherries whose productive lives would be 19, 20 and 20 yearsrespectively. Appropriate adjustments have been made in order to estimateeconomic prices for tradeable commodities. The most important of these adjust-ments was concerned with the estimation of economic prices for fruit, as des-cribed in para. 9.03. Eighty-five percent of incremental fruit productionhas been allocated to the domestic market with distribution by species, asfollows: apples, 81%; pears, 85%; plums, 90%; cherries, 69%; peaches, 97%;and apricots, 91%. Economic prices have also been estimated for fertilizersusing World Bank Commodity Price Forecasts (May 1979). Costs and benefitsassociated with the small technical assistance component have not been includedin the economic analysis primarily because it was not possible to quantify thelikely benefits from this component. In addition to the benefits which have

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been quantified in the economic analysis, the project would provide otherbenefits including some reduction of the total area under orchards and releaseof land for other uses, a large amount of employment and more varied andbetter quality diets for very many consumers in Romania. At full developmentit is estimated that the new orchards to be established under the projectwould provide employment to about 19,500 people. About 20% of these would beemployed full time while the remainder would be hired on a daily basis toundertake seasonal tasks, especially picking fruit. The project would there-fore provide a large amount of employment to people living in nearby villages.At present the old orchards which would be uprooted to make way for the neworchards are very unproductive and provide little employment.

9.10 Economic rates of return were also estimated for investments ineach species of fruit, as indicated below:

Economic Rateof Return

Pears 39%Peaches 32%Apples 30%Sweet cherries 26%Sour cherries 24%Apricots 22%

and Plums 18%

These are the average rates of return assuming that the proportion of fruitdestined for the local market would be the same as shown in para. 9.09.The rates of return would be somewhat higher if all fruit were used in thedomestic market and were valued at import parity. In this case the rates ofreturn would vary from a low of 19% for plums to a high of 40% for pears.Conversely, rates of return would be lower in the least favourable situationwith all fruit valued at export parity. The economic rates of return based onexport parity prices would vary from 12% for plums to 26% for pears.

D. Project Risks and Sensitivity Analysis

9.11 Sensitivity analysis was undertaken to see how the rate of returnwould be affected should circumstances be less favourable than expected. Thisanalysis showed that the project would still have an adequate rate of returneven if large adverse changes occurred in the major parameters involved.Switching values were calculated which indicated that the overall rate ofreturn for the whole project would fall to 9% if:

Overall benefits were decreased by 44%Total costs increased by 86%Investment costs increased by 313%

or Operating costs increased by 118%

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It is considered extremely unlikely that any adverse changes of this magnitudewould occur. The switching values indicate that the rate of return is notsensitive to changes in project costs. Total costs would have to be increasedby 86% before the rate of return fell to 9%. An even greater increase wouldbe required before any individual component of costs caused similar reductionin the rate of return. Thus, even though a lack of data precludes the use ofconversion factors or shadow prices for most items of project-cost, such aslabor, their inclusion would not have materially reduced the rate of return.The project is subject to certain risks but these are small. The level ofaverage fruit yields expected is realistic, although in certain years yieldscould suffer from factors such as spring frost, hail damage or excessiveatmospheric moisture. There is also a small risk that fruit yields andquality would be somewhat below expectations if new intensive orchards werenot managed, especially pruned, as well as expected, or if these orchards werenot provided with adequate quantities of fertilizers, insecticides or fungi-cides (para. 2.08). During negotiations, it was agreed that the Governmentwill provide sufficient quantities of fertilizers, insecticides and fungicidesto assure the application of sound agronomic and commercial practices inproject orchards. In certain years yields might also be depressed in someplaces if conditions were exceptionally dry and irrigation water supplies werelimited. However, none of these factors is likely to depress yields seriously.Sensitivity analysis indicated that if fruit yields (or prices) were 20% lowerthan expected the rate of return from the fruit production component wouldfall to 22%. The risk that project investment or operating costs would besignificantly different from appraisal estimates is considered small. How-ever, if all costs for the fruit production component were 20% higher thanexpected the rate of return from this component would still be 24%. The rateof return from the project would be lower if prices for fruit fell in inter-national markets. This would affect the rate of return both because pricesreceived for fruit exports would be lower and because lower economic priceswould be justified when valuing locally consumed fruit. However, likelydeclines in international fruit prices have already been taken into accountwhen economic prices for fruit were estimated and, as mentioned above, even iffruit prices did decline by 20% the fruit production component of the projectwould still show a return of 22%.

X. RECOMMENDATIONS

10.01 During negotiations, it was agreed that:

(a) The Government will carry out detailed domestic andexport market studies, and submit these to the Bankfor review before June 30, 1982 (para 4.19);

(b) The Government will invest in fruit handling, storageand processing facilities adequate to market the productionfrom the project (para 6.08);

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(c) BAFI would evaluate subprojects under the procedures specifiedin para 8.03 and according to a format acceptable to BAFIand the Bank (para 8.03);

(d) BAFI would implement the project under lending policies,procedures and terms agreed with the Bank (paras 8.04-8.06);

(e) Procurement of items specified in the list of goods wouldbe in accordance with Bank guidelines (para 8.07);

(f) BAFI will submit an annual audit report satisfactory to theBank within 6 months of the end of each of its fiscal years(para 8.09);

(g) BAFI and subborrowers will maintain project expenditureaccounts satisfactory to the Bank, will make these accountsavailable to Bank supervision missions, and will submit anaudited report on these accounts within 6 months of the endof its fiscal year (para 8.10);

(h) BAFI will provide quarterly project progress reports and aproject completion report (para 8.11);

(i) The project will be implemented with due regard to itsenvironmental impact (para 8.12);

(j) The Government will review its prices for apricots, plums,and sweet and sour cherries, and will establish revisedprices at levels which permit subprojects for these speciesto service BAFI loans (para 9.07); and

(k) The Government will provide to subproject orchards sufficientquantities of fertilizers, insecticides and fungicides toensure the application of sound agronomic and commercialpractices in these orchards (para 9.11).

10.02 With the agreements summarized above, the project is suitable for aBank loan of US$50 million equivalent for a term of 15 years including 3years grace.

EMENA Projects DepartmentMay 28, 1980

ANNEX IPage

APPRAISAL OF

AN ORCHARDS PROJECT

ROMANIA

Detailed Project Description and Phasing

Orchard Components

1. The planting densities and phasing of investments of orchardinvestments to be financed under the project are summarized in the fol-lowing table:

AveragePlanting

Species Density 1980 1981 1982 Totaltrees/ha -----------------ha------------------

Apples /1 1,667 520 2,980 2,870 6,370Apples 75 1,000 220 1,280 1,230 2,730Plums 500 280 1,500 2,500 4,280Pears 1,250 70 300 500 870Peach 740 80 2,500 2,500 5,080Apricot 715 550 1,500 1,750 3,800Sweet Cherries 500 210 1,000 1,500 2,710Sour Cherries 834 780 1,200 2,000 3,980

Total 2,710 12,260 14,850 29,820

/1 See para. 2.75 See para. 3.

2. New apple plantations would be established at two principal levelsof intensity on orchard farm units averaging 60-70 ha each. The more intensivesystem would be planted with 1667 trees per ha and this would account forabout 70% of all new plantings. This system would be established in the mostfavorable areas where, for example, soils were of high potential and irrigationwater was available. About 30% of new apple plantings would be less intensivewith 1,000 trees per ha. In general these less intensive orchards would beestablished in areas of lower potential than those allocated to the mostintensive orchards. In many cases, however, the two planting systems would beused on different types of terrain and soils in the same orchard. Appleorchards at an average density of 1,667 trees per hectare would be plantedwith 4 meters between rows and 1.5 meters between trees in each row. Theywould be grown on M-106 rootstocks with spur type scions (about 40% of the areaplanted) and on M-9 and M-26 rootstock with standard type scions (about 30% ofarea planted). Rows would be trellised using cement posts and galvanized steel

- 40 - ANNEX 1Page 2

wire. Steeper slopes would be terraced to facilitate mechanization. Invest-ment would be phased over 3 years. Commercial yields would be obtained inyear 4, full production in year 6. The main advantage of the high densityplanting (1,667 trees/ha) over a lower density is the much higher level ofproduction during years 4 to 6. There also are significant labor savings inthe high density plantings as trees are kept short and compact, and thus,ladders are not needed in pruning and harvesting operations. Such highdensity plantings are possible in apples by using Malling rootstocks whichdwarf the tree and by managing growth through skillful pruning.

3. Apples orchards at an average density of 1,000 trees per hectarewould be planted with 4 meters between rows and 2.5 meters between trees onrow. They would be grown on M-106 rootstock with standard type scions, andthe relatively more vigorous growth for this rootstock/scion combinationaccounts for the lower density of planting. In other respects these orchardswould be quite similar to those at an average density of 1667 trees/ha. Theless intensive orchard would take longer to reach full production and producea lower yield at maturity. The 1,000 trees/ha orchard would start to come intoproduction in the fifth year (fourth growing season) and reach full productionin Year 7. Production from the 1,667 trees/ha orchard would build up ina similar way but would be one year ahead of the 1,000 trees/ha orchard ateach stage. Although the yield at maturity from the 1,000 trees/ha is only 20tons/ha compared with 30 tons for the 1,667 trees/ha, this difference is dueprimarily to the fact that the less intensive orchards will be established onpoorer soils, not to the difference in intensity.

4. Pear orchards planted at an average density of 1,250 trees/hawould be planted with 4 meters between rows and 2 meters between trees on row.Dwarfing rootstocks available for pears (primarily Quince A and Quince C)are less effective than those for apples and hence the relatively lowerplanting densities. The average size of pear orchard subproject would be60-70 ha. Rows would be trellised using cement post and galvanized steelwire. Steeper slopes would be terraced to facilitate mechanization. Invest-ment would be phased over 3 years. Commercial yields would be obtained in thethird growing season and full production in the fifth. The advantage of thehigh density planting (1,250 trees/ha) over the more traditional plantings isabout 25% more yield in the third through fifth growing seasons. However,once the surface is fully covered with tree growth, the sixth or seventhgrowing season yields should be quite comparable and remain so for the produc-tive life of the orchard.

5. Peach orchards at a density of 740 trees/ha would be planted with4.5 meters between rows and 3 meters between trees on row. There are noeffective drawfing rootstocks for peaches. The relatively wider row width(considered the minimum commercially acceptable distance) would reduce therisk of shading out. The average peach orchard size would be 100-120 ha.Investment would be phased over 4 years. Commercial yields would be obtainedin the fourth growing season, full production in the seventh. The advantageof high density planting (740 trees/ha) over the more traditional 400 trees/hais about 3 times more yield in the fourth and fifth growing season and twicethe yield in the sixth season. Once the surface is fully covered by trees, in

- 41 - ANNEX IPage 3

about the seventh growing season, yields should be quite comparable and remainso for the productive life of the orchard. Another purpose of high densityplanting in peach is to crowd the trees so they will remain smaller and morecompact, thus reducing labor costs by minimizing the use of ladders in pruning,thinning and harvesting. Maintaining compact trees by skillful pruning inhigh density plantings is absolutely essential to prevent over, crowding and"shading out" of fruit producing wood.

6. Plum orchards at a density of 500 trees/ha would be planted with4 meters between trees and 5 meters between trees on row. The average sizeof subproject orchard would be 100-120 ha. Investment would be phased over6 years. Commercial yields would be obtained in year 7, full production inyear 10 (the sixth and ninth growing season). The advantage of a higherdensity planting (500 trees/ha) over the more traditional planting of 200trees/ha is about 2.5 times more production in the sixth through eighthgrowing season. Once tree growth has essentially covered the surface, inabout the eighth or ninth growing season about 20% higher yield may beexpected from the higher density planting since the surface area will be morefully covered with trees. This continues for the remaining productive life ofthe orchard. There are no suitable dwarfing rootstocks for plums, and thehigher density plantings must be carefully managed, particularly in pruning,to avoid "shading-out" of fruit bearing wood.

7. Apricot orchards at an average density of 715 trees/ha would beplanted with 4 meters between rows and 3.5 meters between trees on row.Average orchard subproject size is expected to be 100-120 ha. Investmentwould be phased over 5 years. Commercial yields would be obtained in the fifthgrowing season and full production in the eighth. The advantage of the highdensity plantings (715 trees/ha) over the more traditional 200 trees/ha isabout 3.5 times more yield in the fifth and sixth growing seasons and 50% morein the sixth. Once the surface is fully covered, yields should approximate20% higher for the remaining productive life than in a 200 trees/ha plantingproviding skillful pruning is used to prevent over crowding and subsequent"shading out" of fruit bearing wood.

8. Sweet cherry orchards at an average density of 500 trees/ha would beplanted with 4 meters between rows and 5 meters between trees on row.Average orchard subproject size would be about 100-120 ha. Investment wouldbe phased over 6 years. Commercial yields would be obtained in the sixthgrowing season and maximum production in the tenth. The advantage of higherdensity planting (500 trees/ha) over the more traditional planting of 180trees/ha is about 2.7 times higher production during the sixth through tenthgrowing seasons. Once the surface is essentially fully covered with treegrowth in about the ninth growing season, yields should approximate 10 percentmore in the higher density plantings and remain so for the remaining produc-tive life of the orchard. The higher density plantings require carefulmanagement particularly in pruning, to avoid "shading out" of fruit bearingwood.

9. Sour cherry orchards at an average density fo 834 trees/ha would beplanted with 4 meters between rows and 3 meters between trees on row.

- 42 - ANNEX IPage 4

Average orchard subproject size would be 100-120 ha. Investment wouldbe phased over 5 years. Commercial yields would be obtained in the fifthgrowing season and full production in the eighth. The advantage of higherdensity planting (834 trees/ha over the more traditional planting of 250trees/ha) is 3 times higher production in the fifth through seventh growingseasons. However, once the surface is essentially covered with tree growth,yields should be about the same, or even up to 20% higher in well managedorchards and remain so for the remaining productive life of the orchard. Thehigher density plantings require careful management, particularly in pruning,to avoid "shading out" of fruit bearing wood.

10. Further details on orchard investments under the project and relatedproduction models appear in Annex 1 of the Project Implementation File.

Fruit Packing and Controlled Atmosphere Cold Storage Component

11. The project includes nineteen modern fruit packing and controlledatmosphere cold storage facilities, each with an annual throughput capacityof 15,000 tons of extra and first quality fresh apples, and a static storagecapacity of 5,000 tons. Construction of eight of these facilities wouldbegin in 1981, and 11 in 1982. Each would be completed in two years, withinitial operations of the first group in 1983 and the second in 1984, wouldinclude the construction of a new industrial, cold storage facility completewith receiving, sorting and packing equipment and a controlled atmospheresystem in the storage rooms. Apples will be hand picked at the degree ofripeness established for each variety, field sorted, and packed into box-pallets for transport to cold storage plants. The facilities would bedesigned for efficient product flow and ease of cleaning. The area adjacentto the fruit sorting and packing (processing) room would be hard surfacedto allow for parking of trucks and trailers loaded with box-pallets of fruit(apples) prior to off-loading. This area would also be of sufficient sizeto accommodate storage of empty box-pallets (1.2 m x 1.0 m x 0.74 m). Forklifts would be utilized for off-loading and moving the box-pallets of fruit(about 300 kg) within the processing room and the cold storage plant. Theprocessing room (648 m2) would be of masonry-steel construction with a con-crete floor and would be built at one end of the cold storage plant. Theprocessing room would not be air conditioned. Sorting equipment would beinstalled to size the fruit prior to packing. Inspection tables would beincluded to allow for visual grading. Tables would also be provided forpacking fruit for export into wood and corrugated boxes. Packaging equipmentwould be included for packing consumer size individual bags of fresh fruit.

12. The cold storage plant would be single-story except for a smalltwo-story section which would house the employee locker rooms and the admin-istrative offices. The plant would be a relatively new technical design whichwould utilize prefabricated panels made of galvanized corrugated steel sheetsfor the interior and exterior walls and would be filled with mineral cottontype insulation. The panels would be secured to steel columns and girdersand sealed to retain the controlled gas atmosphere inside each chamber.The interior walls in the cold chambers would first be covered with expandedpolyurethane for insulation and then plastered for moisture protection. The

- 43 - ANNEX 1Page 5

floors would first have a layer of insulation and then covered with reinforced

concrete sufficient to support about 1.7 tons per square meter. The ceiling

in the chambers would be about 7.5 meters above the floor, high enough to

stack 9 box-pallets of fruit. The box-pallets wold be stacked in such a way

to allow free air circulation (20-30 cm from the wall and about 5 cm between

rows) within the chamber.

13. There would be 12 chambers (12 x 24 m = 288 m2) each with a single

door facing a corridor which runs from the processing room to the rear of the

plant. Eleven of these chambers would be equipped with controlled atmosphere

equipment to reduce the normal air environment of oxygen from about 20% to 3%.

The controlled atmosphere environment would be obtained through the use of the

hydrocarbon fuel burner system in which a gas burner serves as an oxygen remover

mechanism and producer of C02 and water vapor. Since water vapor aids in

retarding dehydration of the fresh produce, it is desirable to have as much

water vapor as possible to enter the atmosphere. The resultant excess C02

which is not desirable in the storage area is continuously scrubbed from the

atmosphere with activated charcoal absorbers. The burner, C02 scrubber and

the refrigeration equipment would occupy about half the area in the 12th,

12 x 24 m, chamber. The refrigeration system would utilize ammonia gas as the

refrigerant. The system would use the indirect cooling method to cool each

chamber thus minimizing the possibility of contaminating the stored fruit with

ammonia gas. Ethylene glycol would be chilled by the evaporator in the engine

room and then be circulated for cooling, in the storage chambers. Each chamber

would be equipged with separate automatic devices to control the temperature

(0°C to plus 4 C) and the gas atmosphere (oxygen 3%, carbon dioxide 3%, andnitrogen 94%).

14. Electric power would be supplied from high voltage lines from munici-

pal sources. Water would be supplied from the same sources or when necessary

from wells provided at the site. Steam and hot water would be supplied from

coal fired boilers located on site. Sewage water would be treated when neces-

sary and would be discharged into municipal systems or if necessary into a

septic tank located on-site. A tank would be provided on-site for storage of

butane gas which would be used in the controlled atmosphere hydrocarbon burner.

Conventional reciprocating ammonia refrigeration compressors would be installed

to provide cooling for the cold storage plant. The ventilation system would

be installed in the corridor with automatically controlled vents for cooling

each chamber. Automatic recording devices would be located in the corridor

outside each chamber. Complementary facilities would include offices, store-

rooms, gatehouse, employee locker room, sanitary facilities. weighbridge,

lunch room and coal and ash storage. Additional discussion of this component

and related investment model appears in Annex 2 of the Project Implementation

File.

Technical Assistance Component

15. The project would include quality control, applied research and

training programs to support improvement in handling, storage and processing

of fruit. Items to be financed would include:

- 44 - ANNEX 1Page 6

(a) Equipment for a central research laboratory, regional qualitycontrol laboratories for the Research Institute for Marketingof Fruit and Vegetables. These would be strengthened toservice packing, processing, storage and packaging facilitieslocated throughout the country. Provisions would be includedto purchase new and improved scientific equipment to supportcontrolled atmosphere, vitamin, mineral, pesticide residue,packaging film sealing and gas permeability properties,protein and amino acid studies. Specialized equipment necessaryto support quality control effort in texture, color, flavor,nutritional properties, storage stability, non-destructivetesting, and bacteriological determinations.

(b) Pilot plant processing and packaging equipment to develop(i) packing and packaging for fresh and preserved fruit andvegetables, (ii) processes for improving yields and qualityof dried, frozen, canned and bottled fruit and vegetableproducts, (iii) new product lines including infant foods,(iv) new processing methods including use of alternativeenergy sources, (v) processing for producing a large varietyof quality fruit juices and (vi) cost effective alternativematerials for packaging and storing fresh and processed fruit.

(c) Specialized equipment used to develop and evaluate precooling,handling and storage methods on the shelf life of fresh fruitfrom the farm through the packing station, cold storage facilityto the domestic retail market and/or to the importer of exportedproducts.

(d) Specialized equipment for applied research in mechanizationof fruit production and harvesting.

(e) Training of professional and technical staff in new qualitycontrol and laboratory techniques.

EMENA Projects DepartmentMay 28, 1980

APPRAISAL OF

ORCHARDS PROJECT

ROMANIA

Allocation of Productions: 1976-78 Average 1 /

Subtotal Other Subtotal Table Total

Apples Plums Pears Peaches Apricots Cherries Proj.Speeiks Fruit Fruit Grapes… - - - - - - - - - - - - - - - - - - - - - - - - - - 000 t - - - - - - - - - - - - - - - - - - - - - - - -

Total Production 476 560 81 64 42 55 1,278 98 1,376 174 1,550

Less Losses 2/ 19 28 4 4 4 2 61 9 70 16 86

Net Production, 47 33-2 7 08 -;3j* 1,217 89 1, 30 6 -158 1,464of which

Domestic ConsumptionFresh auto 157 33 34 8 16 29 277 44 321 4 325

Fresh mktd 175 14 7 18 1 4 219 5 224 110 334

Subtotal Fresh 332 47 -wi 26 17 33 496 49 545 114 659

Processed 64 140 27 10 16 18 275 19 294 - 294

Subtotal Domestic 6 187 68 36 33 51 771 68 839 114 954

ExportFresh 20 10 3 17 3 1 54 7 61 44 105

Processed 23 3 2 4 1 1 34 4 38 - -38

Subtotal 43 13 5 21 4 2 88 11 99 44 143

Distilled 18 332 4 3 1 - 358 10 368 - 368

…k-g-p-.-c- - - - - - - - - - - - - - - - - - - - - -kg p,c - - - - - - - - - - - - - - - - - - - - - - _

Consumption per capitae3/Fresh 15.4 2.2 1.9 1.2 0.8 1.5 23.0 2.3 25.3 5.3 30.6

Processed 3.0 6,5 1.3 0.5 0.7 0.8 12.8 0.9 13.6 - 13.6

Total 18.4 8 7 3. 2 1.7 1.5 23 35.8 3.2 38 j9 53 44.2

% of total 39 18 7 4 3 5 76 7 82 11 94

Footnotes:

1/ Source: MAFI2/ Losses: Apples - 41; Plums - 5%; Pears - 5Z; Peaches - 6Z; Apricot - 9%; Sweet Cherry - 81; Sour Cherry - 01; Other fruits - 9Z;

and Table Grapes - 9%.3/ 1977 Population: 21,559,0004/ Including 3 kg p.c. of imported citrus and tropical fruits.

Note: Errors due to rounding

EMENA Projects DepartmentFebruary 1980

APPRAISAL OF

ORCHARDS PROJECT

ROHANIA

Production Forecasts with ProJect -

Production from -2 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991Investments through -- …-… -…------------ - ---------- ----------- °000 t------------------------------------------------the end of 1982Apples 507 523 591 706 874 1041 1126 1161 1167 1079 1052 1008Plums 560 548 554 580 602 641 685 717 723 729 717 721Pears 90 91 95 102 113 127 134 135 130 129 129 127Peaches 84 90 104 115 130 145 174 189 192 190 179 168Apricots 47 47 54 64 83 105 123 142 148 154 157 157Cherry 61 63 70 75 92 125 150 184 211 222 232 234

Subtotal Project 1349 1362 1468 1642 1894 2184 2392 2528 2571 2503 2466 2415Species

3/ _ __ _ _ __ _Other Fruits 3 125 137 151 164 178 178 178 178 178 178 178 178

Subtotal withProject 1474 1499 1619 1806 2072 2362 2570 2706 2749 2681 2644 2593

Production from In-vestmentAfer 1982

Apples - 25 86 174 263 333 389Plums - - - - 19 32 39Pears - 5 12 21 29 37 46Peaches - - 7 30 66 100 131Apricots - - - 14 19 26 36Cherries _ - - 11 25 34 38

Subtotal Project - 30 105 220 421 552 679Species

Other Fruits 7 32 58 75 97 118 130

Subtotal LaterProduction na na na na na 7 62 163 295 518 670 809

Total Production

Project Species 1349 1362 1468 1642 1894 2184 2422 2633 2791 2924 3018 3094Other Fruits 125 137 151 164 178 185 210 236 253 275 296 308Total 1474 1499 1619 1806 2072 2369 2632 2869 3044 3199 3314 3402

Footnotes

1/ Excludes table grapes and melons.

2/ Production attributed to plantings through end 1982.

3/ 1980 based upon 1975-78 actual and 1979 estimated experience. Later years discounted from plan targets in the same proportionsthat other species forecasts are below targets.

EMENA Projects DepartmentFebruary 1980

r

APPRAISAL OF

AN ORCHARDS PROJECT

ROKANIA

Allocation of Production with Project: 1988

Subtotal other Subtotal Table TotalApples Plums Pears Peaches 'Apricots Cherries Proj itpccies Fruits Fruit Grapes

…OOO -------- ----- 00 t…-- ----- ------ Total Production 1161 717 135 189 142 184 2528 180 2708 515 3223Less Losses I/ 46 36 7 11 1.3 5 3.8 16 134 46 180Net Production 115 6218 &1'T 164 2574 469 3043

of which

Domestic ConsumptionFresh auto 180 40 33 11 16 33 313 45 358 6 364Fresh mktd 627 78 26 63 43 50 887 44 931 375 1306Subtotal fresh 80-7 W 391 747 391 83 11- -9 ifI 8 i9i:- 1670Processed 147 158 50 74 56 51 536 30 566 - 566Subtotal Domestic 954T ~771 109 14-8 I115 1374 7361179 185-5 381 2236

ExportFresh 88 11 7 23 6 20 155 23 178 58 266Processed 53 18 6 4 7 25 113 11 124 - 124Subtotal Expert 141 11 T TY 33 57- 4 35-2 88 390

Distilled 2/20 376 6 3 1 - 406 11 417 - 417-… … … ……-----… ----- ----- kg p.c - ----

ConsumptlQn per capitacapita 3/Fresh 33.0 4.8 2.4 3.0 2.4 3.4 49.1 3.6 52.8 15.6 68.4Processed 6.0 6.5 2.0 3.0 2.3 2,1 21,9 1.2 23.2 - 23.2Total 39.1 11.3 4.5 6.1. 4.7 5,5 71.1 -4.9 76.0 15-.6 91. 6%of total 4/ 41 12 5 6 5 6 75 5. 80 16 97Footnotes: 1988 Production Allocation

1/ Losses: Apples - 4%;'1'lwum - 52; Pears - 52; Peach~es - 62; Apricot- 92; Sweet Cherry 82; Sour Cherry- 02; Other Fruits- 92;and Table Grape. - 92.

21Distillation kept at 1976-78 level per capita: 17.1 kg p.c.3/ Population: 24.420.000

4j/ Including 3 kg p.c. of imported citrus and tropical fruits.

Note: Errors due to rounding C

EMEN Projects DepartmentFebruary 1980

Annex 2

- 48- Table 4

APPRAISAL OF

AN ORCHARD PROJECT

ROMANIA

Project Procurement Estimates

1. List of construction materials to be procured under InternationalCompetitive Bidding Procedures (Romanian bidders are expected towin these contracts). 4

Estimation ValueItem Unit Quantity US$ million

Asbestos pipe Meter 2,155,000 13.04Construction steel Ton 16,280 4.75Concrete reinforcing steel Ton 13,900 3.04Wire, steel Ton 8,200 2.94

Subtotal 23.77

2. Vehicles to be procured under International CompetitiveBidding Procedures (Romanian bidders are expected to winthese contracts).

Item

Tractors, trucks, loaders 6.56

3. Chemicals to be procured under International CompetitiveBidding Procedures (Romanian bidders are not expectedto win these contracts).

Item

Pesticides 9.60Fertilizers 3.60

Subtotal 13.20

4. Equipment to be procured under International CompetitiveBidding.

(a) Cold storage equipment not produced in Romania:Control systems, electric protection devices, thermo-stat, refrigeration valves 1.65

(b) Orchard Equivment produced in Romania - pumps, sprink-lers, wpighbridge, hydrants, water storage tar'ks 2.82

Subtotal 4.47

5. Equipment to be procured by limited international tenderingafter obtaining at least one bid from three Bank membercountries.

(a) Laboratory equipment, quality control equipment, pilotplant processing equipment, and equipment for appliedresearch in mechanization of fruit production andharvesting 2.00

Grand Total 50.00

EMENA Projects DepartmentMay 1980

- 49 - ANNEX 2Table 5

APPRAISAL OF

AN ORCHARDS PROJECT

ROMANIA

Estimated Schedule of Bank Disbursements(US$'000)

CumulativeBank Fiscal Year Disbursements Disbursements at Outstanding Balance atand Quarter During Quarter End of Quarter End of Quarter

1981

I - - 50,000II 100 100 49,900III 800 1,900 49,100IV 300 2,200 48,800

1982

I 2,200 3,400 46,600II 3,100 6,500 43,500III 1,700 8,200 41,800IV 1,600 9,800 40,200

1983

I 5,000 14,800 35,200II 6,900 21,700 28,300

III 4,000 25,700 24,300IV 3,900 29,600 20,400

1984

I 3,500 33,100 16,900II 5,000 38,100 11,900III 2,800 40,900 9,100IV 2,700 43,600 6,400

1985

I 1,700 45,300 4,700II 2,200 47,500 2,500III 1,300 48,800 1,200IV 1,200 50,000

EMENA Projects DepartmentMay 1980

ROKNI1A ORCIIARDS PROJECT

INCREMENTAL FRUIT PRODUTION

'000 Notric Tons

- - - - - - - - - - - - - - - - - - - - - & YEARtS - - - - - - - - - - - - - - --------

1 2 3 4 5 6 7 8 9 10 11 12 13

ApplesB - - - 5 41 113 188 230 235 235 235 235 235

Pears - - - 1 4 13 20 25 25 25 25 25 25

Pluilas - - - - - - 2 11 32 45 54 62 62

!wcet (:herries - - - - - - 1 5 12 16 22 26 26

'.our CherrIes - - - - - 3 9 21 28 34 3B 38 38

Peaches - - - - 1 i8 52 74 88 98 98 98 98

AprJ< ct .i - - - - - 4 16 32 36 40 44 44 44

rotal - - - 6 45 150 288 397 457 494 517 528 528 1LA

Less Fruit Pro- 0

'duction without 57 57 S7 56 50 39 27 16 6 _tho' Project 5 29 57

Inrrermrntal1'roduct Ion (5) (29) (57) (52) (12) 93 231 347 418 467 500 522 528

I")t

APPRAISAL OF AN ORCHARD PROJECT

ROMANIA

SUNMARY OF ECONOMIC COSTS & BENEFITS---------------Lei '000…-----------_

-------------Fruit Production Component ----------------- ------------------------Storage---------------Net

Benefits OverallInvestment Operating Without Net Investment Operating Net Net

Year Benefits _ Costs__ C_oste___ ?tQltCt- Bouefit8s Benefits __.Costs- -_CQsta-S Benefits Benefits

I - 128730 - 28097 -156828 - - - -1568282 - 78961- 15520G -944826 - 30349 - -30349 -9751753 - 1684579 309174 -1993752 - 249106 - -249106 -22428584 6016 1344406 15--- 309174. -1633340 396696 285141 359544 -247989 -1881330S 87296 389758 i!1316 309174 -522952 986233 - 890501 95732 -427220

1072527- 252569 335854 309l74 174926 1046843 - 940804 106039 2809652207942 114047 534601 303554 1295754 1046843 - 940804 106039 1361779 V

8 3?n2203 35014 708040 272 .J3 224?637 1046843 940804 106039 2352676f 394 '889 2962 821704 210678 2912545 1046843 - 940804 1060:49 30185841.0 4397138 12627 853329 14884. 3382339 1046843 - 940804 106039 348837811 4700964 36614 882234 8752L 3694¶M88 1046843 - 940804 106039 3800627i2 4854964 66582 692433 33667 3832212 1046843 - 940804 106039 393B25113 4854964 12850: 892433 S725 3828304 1046843 - 940804 106039 393434314 4854964 5157 89258; 5725 3905092 1046843 7972 940804 98067 40031591S 4854964 60257 892829 5725 3896153 1046843 10962 940804 95078 399123016 4854192 4071 893179 5725 3951217 1046843 - 940804 106039 405725617 4829296 22102 890478 5725 3910990 1046843 - 940804 106039 401702918 4779505 35657 884162 5725 3853960 1046843 - 940804 106039 395999919 4;7S678 15458 877231 5725 3780?h3 1046843 - 940804 106039 38863022 --- 4430546 - 867229 5710 3557607 1046843 - 940804 106039 3663646^1 378391 0 11177 746956 4975 3020803 1046843 - 940804 106039 312684222 ;1i4921 60790 595051 3976 2455J04 1046843 - 940804 106039 256114323 2403427 74163 493212 3256 1832796 t046843 - 940804 106039 193883524 2041003 - 486592 3256 1551155 1046843 - 940804 106039 165719425 1963457 - 482072 3256 147812Q 1046843 - 940804 106039 1584168

-J IQEconomic Rate of Return 27%

1/ Assumptions underlying the economic analysis including details of crop yields and economic prices for fruit are explainedin Chapter IX. A more detailed account of the procedures used in the economic analysis is given in the ProjectImplementation File, Annex 4.

EMENA Projects DepartmentMay 1980

ROMANIAAPPRAISAL OF AN ORCHARDS PROJECT

GENERAL ECONOMIC DIRECTORATE FOR HORTICULTURE (GEDH)

|GENERALEOOI | rc naifutoOIRECTORT fO or MwkerltinS of

HORTICULTLtE Fruit and Vaptofs

Prrlion~~~~~~~~~~~~~~~~~~il Technical o fd Fruit *n wozl

EMNgrjcstirnOt Jd 21437ionrnd Plannin

EMENA Projricts DrlpwtmrntFeb'u rv 19aD Wrorkld Bank-21437

- 53 -

Annex 3

APPRAISAL OF

AN ORCHARDS PROJECT

ROMANIA

Project Implementation File

Table of Contents

Annex 1 - Deciduous Fruit Tree Production and Production Models

Annex 2 - Fruit Handling, Storage and Processing and ControlledAtmosphere Cold Storage Model

Annex 3 - Detail and Phasing of Project Cost Estimates

Annex 4 - Economic Analysis

Annex 5 - Fruit Production Forecasts

Annex 6 - Fruit Consumption Statistics

Annex 7 - Subsector Data

Annex 8 - The Bank for Agriculture and Food Industry

EMENA Projects Department

May 1980

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