Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 9737

PROJECT PERFORMANCE AUDIT REPORT

URUGUAY

AGRICULTURAL DEVELOPMENT PROJECT(LOAN 1831-UR)

JUNE 28, 1991

Operations Evaluation Department

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CURRENCY EQUIVALENTS

Name of Currency: New Peso (NU$)

Rate of Exchange: at December 31st

1978 US$ - NU$ 6.971979 - 8.411980 - 9.921981 - 11.501982 - 28.211983 - 42.501984 - 71.931985 - 124.701986 - 177.381987 - 274.591988 - 443.95

FISCAL YEAR OF BORROWER

GOU: January 1 - December 31

WEIGHTS AND MEASURES

Metric System

ABBREVIATIONS AND ACRONYMS

BROU Bank of the Republic of UruguayCONAPROLE National Milk Producers CooperativeEEC European Economic CommunityERR nconomic Rate of ReturnFRR Financial Rate of ReturnINC National Settlement InstituteM&E Monitoring and EvaluationMGAP Ministry of Livestock, Agriculture and FisheriesOED Operations Evaluation DepartmentPCR Project Completion ReportPLAN Plan Agropecuario (Honorary Commission of the Livestock Plan)PPAR Project Performarce Audit ReportSAR Staff Appraisal ReportSERPA Office of Economic Analysis and Farm Registers (PLAN)SUL Uruguayan Wool Secretariat

FOR OFFICIAL WE ONLYTHE WORLD BANK

Washingon, D.C. 20433U.S.A.

Oilr* Cf MIcMoG4talOperats Ivaluatim

June 28, 1991

TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Performance Audit Report on UruguayAaricultural Develoment Proiect (Loan 1831-UR))

Attached, for information, is a copy of a report entitled "ProjectPerformance Audit Report on Uruguay - Agricultural Development Project(Loan 1831-UR)" prepared by the Operations Evaluation Department.

Attachment

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

FOR OFFICIAL USE ONLY

PROJECT PERFORMANCE AUDIT REPORT

URUGUAYAGRICULTURAL DEVELOPMENT PROJECT

(LOAN 1831-UR)

TABLE OF CONTENTS

Page No.

Pref ace . . . . . . . . . . . . . . . . . . . . . . . . . .iBasic Data Sheet . . . . ........ . . . . . . . . . iiiEvaluation Summary . . . . ................ vii

I. BACKGROUND . . . . . . . . . . . . . . . . . . 1II. IMPLEMENTATION EXPERIENCE . . . . . . . . . . . 3III. PROJECT OUTCOME . . . . . . . . . . . . . . . . 5IV. FINDINGS AND ISSUES . . . . . . . . . . . . . . 7

Inappropriate Technical Packages . . . . . . . 8Credit Subsidies and Financial Intermediation . 13An Enfeebled PLAN . . . . . . . . ...... . 15The Failure of INC .............. 16Diversification and Small Farmers . . . . . . . 17Monitoring and Evaluation . . . . . . . . . . . 18Milk Pricing Policy . . ............ 19Dedicated Credit Projects . . . . . . . . . . . 19Final Comments . ..... .. .. .. .. . . 20

Annex 1 - Bank Related Loans for Agriculture 1960-1986 . . 23Annex 2 - Comments from Goverment . . ........ . . 25

Maps 1449311210(PCR)

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

PROJECT PERFORMANCE AUDIT REPORT

URUGUAYAGRICULTURAL DEVELOPMENT PROJECT

(LOAN 1831-UR)

PREVACE

This is a Project Perfarmance Audit Report (PPAR) on the UruguayAgricultural Development nroject, involving an IBRD loan io the amount of US$24.0million to the Government of Uruguay. The primary objctive was to continueassistance to livestock and dairy development, while encouraging diversificationof the livestock farms and a few settlement areas. In all, 3,020 farmers were tobe assisted. The loan was approved on April 15, 1980. The final disbursement wasmade on August 25, 1988 and an outstanding balance of US$ 1.45 million wascancelled in November, 1989.

The PPAR is based on the Project Completion Report (PCR) which wassubmitted to the Board on November 15, 1990, the Staff Appraisal Report (SAR),the President's Report, the loan documents, the transcripts of the ExecutiveDirectors' meeting at which the project was considered, a study of project files,and discussion with Bank staff. An OD mission visited Uruguay in November, 1990and discussed the effectiveness of the Bank's assistance and project executionwith relevant Government agencies. Their kind cooperation and valuableassistance in the preparation of this report is gratefully acknowledged.

The PCR provides a thorough account and assessment of the projectexperience, and discusses the performance of the Bank and the project executingauthority. The PPAR elaborates on particular aspects such as pasture technology,credit subsidies and field work of the executing agency.

Following standard OED procedures, copies of the draft PPAR were sent tothe Government. Comments received from the executing agency in June 1991 havebeen incorporated in the text and are attached as Annex 2.

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U2~JECT PERYORKANCE AUDIT EPORT

URUGUATAGRICULTURAL DEVELOPMET PROJECT

(LOAN 1831-U)

BASIC DATA SHEET

Appraisal At FullEstimate Development 2

Economic Rate of Return (Z) 26 naFinancial iates of Return (1) 21 - 25 23 - 37 1/Number of Farmers Participating 3,020 4,000 132Number of Farm Plans Approved na 8,510

PROJECT TIMETABLEDate Date

Item Planned ActualIdentification April 1977 March 1978Preparation July 1978 g/ June 1979 3/Appraisal Mission April 1978 October 1979 !/Loan Negotiation. February 5, 1980 March 3, 1980Board Approval April 15, 1980Loan Signature April 22, 1980Loan Effectiveness July 22, 1980 August 21, 1980Loan Completion March 31, 1986 December 31, 1988Loan Closing September 30, 1986 December 31, 1988

1/ From the SAR of the follow-on project, Loan 3131-UR2/ First preparation mission3/ Last preparation mission4/ Post appraisal

APPRAISAL AND ACTUAL DISBURSEMENTS

FY81 FY82 FY83 FY84 FY85 FY86 Y87 FY88 FY89----------------------- US$million------------------

Appraisal Estimate 2.6 6.2 7.8 5.2 2.2Cumulative 2.6 8.8 16.6 21.8 24.0

Actual 1.2 2.7 1.6 1.2 0.7 2.6 4.5 5.9 2.2Cumulative 1.2 3.9 5.5 .7 7.4 10.0 14.5 20.4 22.6

Date of Final Disbursements August 25, 1988

TAF JIKPT (Staff Weeko)

supg of

Through Appralaal 0.55 0 , R7 23.72 24.84

Appraiai 13.75 62.06 75.81

Noma tlong 8.31 9.31

Supervision 2.73 5.24 14.57 5.32 10.00 11.40 8.13 7.25 5.92 5.22 75.78

TOTAL 184,74

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MISSION DTA

Date x*. of Daya Specaligation Performance Type of

1. Identification a/ 03-04/77 1 15 ()

2. Identlfication/ 07-08/77 3 10b-Praparation

3. Identificatton/ 10/78 1 v ---Preparation

4. Identlfication/ 03/78 2 1 (b)

Preparation

5. Preparation 07/78 1 3 ---

6. Preparation 08/78 l 5

7. Preparation 09/78 1 3 ---

8. Preparation 11/78 1 5

9. Preparation d/ 02/79 3 9 c/ ---

10. Preparation 03/79 2 5

11. Preparation 05/79 3 10 ./ ---

12. Appraisal f/ 06-07/79 6 15 g/ ---

13. Post Appraisal h/il 09/79 2 7 j/

14. Supervision/ 05/80 2 5 k/ ---

Operation

15. Operations 05/80 1 M (f)

16. Operations 07/80 1 4 (8)

17. Supervision 1 12/80 1 4 (d) (2) (PIM)

18. Supervision 2 1/ 04-05/81 1 9 (d) (2) (OPP) o/

19. Supervislon 3 m/ 12/81 2 12 (d) (b) (2) (OPM) o/

20. Supervision 4 n/ 07/82 1 5 (d) (2) (OPP) o/

21. Supervision 5 12/82 1 5 (a) (2) (OPP) p/

22. Supervision 6 05/83 1 5 (d)

23. Supervision 7 12/83 2 10 (d) (o) (2) (0) q/

24. Supervision 8 10-11/84 1 7 (a) <2> (PMP)

25. Supervision 9 04/85 2 9 (a) (c) (2) <HP)

26. Supervision 10 01/86 2 8 (a) (c) (2) (BO) q/

27. Supervision 11 10/86 2 10 (a) (2) (M)

28. Supervision 12 12/87 2 10 (e) (d) -

29. Supervision 13 03/88 1 12 (e) -

30. Supervision 14 07/88 2 5 (e) (1) - -

31. Supervision 15 10/88 1 7 (b) (2) (MT)

a/ Also an operation miesion, May 15-19, 1977; (f)6/ One person, 5 dayso1 Cae person, 6 daysd/ Also an operation mission, Feb 18-20, 79; (f)el One persOn, 5 daysf/ Also an operation mission, July 23-30, 79, (&N August 20-24, 701 (f)g/ One person, 3 daysh/ Also an operation mission, Sept. 13-21; (M)I1 Operation mission, Oct. 28, 79, (g); Yeb. 8, 80S; ()ji One person, 3 dayski One person, 2 days11 Also operation mission, July 28-Aug. 3, 81; (d)m/ Also operation mission. Hay 31, 82; (f)n/ Also operation mission, Aut. 30, 82; (h); Nov. 30, 82; (t)o/ Indexing problempl Government sector-I policyq/ Normal conditions

Key to Specialiastions(a) * financial analysti (b) a economists (c) * agriculturalists (d) * livestock specialist(b) agricultural ecoiomisti (f) * Loan Officerl (S) * Division Chief; (h) * Lawyer; (j) project

adviser

Key to Performance:1 - problem-frce or minor problems; 2 * moderate problems; 3 * major problems;4 * major problems, objectives vill not be met

Key to Type of Probl;m:F = financial; M * Managerial; T * technical; P a political; 0 - Other

OTHER PROJECT DATA

Borrower: Government of UruguayExecuting Agency: Plan AgropecuarioFollow-up Project: Second Agricultural. Development Project (Loan 3131-UR)

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PROJECT PERFORMANCE AUDIT REPORT

URUGUAYAGRICULTURAL DEVELOPMENT PROJECT

(LOAN 1831-UR)

EVALUATION SUMMARY

1. Introduction 2. Objectves and Setting

The project provided investment The objectives of the projectcredit for ranchers, dairymen and rere to:other livestock producers, continuinga lending line the Bank had helped 0 continue assistance made underestablish in 1959. The loan of five earlier projects to

US$24.0 million became effective in promote livestock and dairyAugust, 1980, but unfavorable production, mainly for export,macroeconomic trends depressed for which the country has a

disbursement rates for the next five comparative advantage. The

years. Lending accelerated in 1986 project targeted 2,800 farms;and the project was completed in 1989with cancellation of US$1.45 million. promote diversification,

through cultivation of crops inThis was the sixth in a series association with livestock; and

of livestock credit projects (thoughit was given a new name), and was assist 223 smallholder settlers

executed by a planning/extension to improve their crop-based

agency - the Plan Agropecuario (PLAN) farming systems, through- created in the 1950s for that introduction of pastures and

purpose, and by the Bank of the dairy.

Republic (BROU), which managed thesubloan accounts. The livestock The earlier projects haddevelopment program has been based on provided substantial subsidies tothe introduction of an improved borrowers through negative interest

pasture technology, intended to rates and faulty indexing formulas.

replace the low input/low output This project was designed to

ranching system that had dominated eliminate those subsidies: thethe Uruguayan economy. Recently, profitable pasture technologydoubts have been raised about the supposedly needed no such support.suitability of that technology, as However, given the closing of thewell as about the opetAtional European Economic Community (EEC)

efficiency of PLAN. A follow-on market to Uruguayan beef exports andproject, effective in 1990, departs the preponderance of years with

from the narrow livestock b;.e of the unattractive prices in the beefpredecessor projects by op-ning the cycle, the Bank and Government

credits to other agricultural intended to encourage the gradualenterprises, other extension services diversification away from beef andand other banks. wool.

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3. Implementation .xperience couditions permit field crop.Improvements are noted also in the

The Staff Appraisal Report sheep (wool) subsector. However that(SAR) anticipated that extensive is not the case for the majority ofbreeding ranches would continue to Urwuay's ranchlands. Tho process ofdominate the portfolio. It was diffusion of improved pasture onwrong. The resources of the PLAN those ranchlands was reverse4 in thewere already shifting toward dairy last half of the 1970s, though it hasand more intensive mixed enterprises, reccvered somewhat since 1986.and this trend continued in the1980s. The share of lending invested Finally, the direct resultsin farm machinery increased, and the for the smallholder settler componentshare invested in pastures fell. of the project were unimpressive:Salaries of the PLAN's field staff only 69 farmers participated and thefell as well, by over half in real "pilot" project was terminated invalue, forcing them to continue to 1985 without replication in otherseek and hold second jobs and settlements. Nevertheless, in thecompromising in part the agency's few articipating settlements theeffectiveness. Overall loan trend toward mixed farming systemsdelinquency rates remained very low - has accelerated and that can bethe best performing program in BROU's related to the demonstration effectsportfolio - partly because the =Z the project.dairymen had their repaymentsdeducted by the marketing The PCR did not attempt to re-cooperatives and partly because estimate an economic rate of returninflation overtook interest rates - (ERR), and does not say whether theand the indexes - and subsidies shorter life of the improved pasturereappeared in several years of the has reduced the benefit stream, or1980s (though modest when compared increased replacement costs, to thewith the 1970s). PLAN technicians point of depressing the ERR belowwere aware that the pastures levels calculated in earlierestablished on the rancher were not evaluation documents.holding up as long as had beenprojected. The shorter life helps 5. 3ustainabilitlexplain the relatively faster growthof the dairy component, where In terms of the durability ofpastures are often rotated with crops assumptions about costs and benefitsanyway every 4 or 5 years and their to borrowers, the degradation oflack of persistence is not so planted pastures on much of theimportant. ranchlands and the indifference of

some of those borrowers to invest in4. Results the recovery of their pastures

implies that on those farms theThe expansion of Uruguay's project investments cannot be

dairy sector is a recognized success, sustained. But whether that will bedue in part to the promotional work the majority of borrowers is as yetof PLAN agents in the dairy areas and incertain. To the extent that theto BROU's credits. The rotation of follow-on project encourages well-pastures with several years of grain directed research on the technicaland/or fodder crops is becoming more deficiencies in perennial pastures,popular inside and outside the dairy and a stronger performance by theareas wherever climatic and soil PLAN and BROU, one can expect

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colbinued Iaprovements on most farms ttie Plan technical field forcethat participated in the sixth - at least the dedicated

project and the gradual spread of component - retains much ofbetter practices for pasture its competitiveness. The fact

management, forage conservation and that moat agents are forced torotational crop/pasture systems - ley take second jobs is afarming. Disappointment with consequence of Government'sprogress on the ranchland* - compared failure to act on civilwith the original objective of 30 service salary scales or to

years ago - should not hide the fact provide autonomy for the PLAN.that the modernixation of Uruguay's But it need not be seen as alivestock sector is both a necessary crippling disadvantage;.and inevitable process where Banklending can continue to offer the negligible delinquencyimportant support. rate, together with general

acceptance now that the6. Findings and -Isgues interest rates and indexing

ayatem should keep up withThe audit concludes that the inflation, means that the

project coincided wi.th a period financial integrity of BROU,during which the Bank shifted its the intermediary, has beenattention to economic constraints and preserved;away from increasingly obvioustechnical defects. Also, the Uruguay haz neither theGovernment did not adequately support croppable land resources northe PLAN, and the PLAN lost much of the markets to permitits vigor. Nevertheless the project, substantial diversification

the executing agency, PLAN, and this away from livestock andlivestock lending line warrant livestock/crop rotations.

continued close-in support. In Improvements on the majority

particulart of the country's medium andlarge scale farms must be

* the technical problems with pursued in the direction this

pasture persistence are not series of projects has alwaysyet fully identified but headed: making the cattle andpresumably are solvables i.he sheop production systems morenew project's research efficient; neverthelesscomponent is overdue and mustbe vigorously promoted to there are worrisome signs ofovercome these technical continuing drift in the

deficiencies; livestock component of thefollow-on diversification

* the management problem with project. The concerns of thethe pastures, a reflection f component have been diluted.lifestyles of absentee owners The PLAN should be vigorouslyand unsophisticated foremen, attacking tbc technical andis more pervasive than management constraints at theoriginally anticipated but it fam level. And the Bank andtoo can be corrected. Again, Government must not relaxresearch has a role. The supervision of and support fordairy subsector has already the PLAN's progress,surged ahead and improved especially on the ranchlands.practices with rotations andforage are spreading;

PROJECT PERFORMANCE AUDIT REPORT

URUGUAYAGRICULTURAL DEVELOPMENT PROJECT

(LOAN 1831-UR)

1. BACKGROUND

1.01 This is the sixth project in a series starting in 1959 and supportedby eight Bank loans'. They aimed at the improvement of Uruguay's livestocksector, principally by providing credit to ranchers and dairy farmers tofacilitate the uptake of technology. The 30 year period ending with the closingof Loan 1831-UR in 1989 covers the oldest continvtng agricultural credit programin the Bank's portfolio. The Loan was for $24.0 million, bringing the totalapproved for eight loans to $95.7 million. The project name - AgriculturalDevelopment Project - derives from the intention at appraisal in 1979 toemphasize a small opening provided for diversification of the credit line intocrops, mostly in rotation with pasture. Nevertheless the project is referredto in Uruguay as the sixth livestock project. The follow-on project - the SecondAgricultural Development Project for $65.0 million, approved in October 1989 -makes a more decisive step toward that goal by allowing for onlending to allagricultural and agro-industrial subsectors.

1.02 The Uruguay livestock credit program is distinguished by its closeassociation with specific technical packages for pasture improvement. packagesadapted from the practices in New Zealand (and certain regions of Australia)familiar to the Bank and FAO experts who first promoted the program in Uruguayin the early 1950s. The executing agency, the Plan Agropecuario (PLAN), a semi-autonomous extension agency under the Ministry of Livestock, Agriculture andFisheries (MGAP), has been wholly committed to the implementation of the program.At least through 1989 this is as good an example of a "dedicated" credit line ascan be found in the Bank's portfolio. It is of interest when reviewing therecord of advantages and disadvantages of that type of operation. It comparesfor example with the Bank-supported livestock credit program in neighboringfaraguay - the second oldest in the Bank's portfolio - which although dedicatedto livestock emphasized no particular technical package. The argument over therelative merits of dedicated credit lines is excited in the Uruguay case by therecent claim that the pasture package may have been ill-advised from itsinception.

1.03 The six projects have been pursued by a set of four PCRs and PPARs,up through the PCR on the sixth project sent to the Board in November 19902.Also relevant is the PPAR dated June 1990 on the Uruguay Agriculture Sector Loan

ISee Annex 1. The Third and Fourth Projects were each supported by two loans.

PPAR of Third Livestock Development Project (2 loans) and Fourth LivestockDevelopment Project (First Loan) (Report 1321, October 1976).PPAR of Fourth Livestock Development Project (Second Loan) (Report 2572,June 1979).PCR of Fifth Livestock Development Project (Report 4271, December 1982).PCR of the AgrJetiltural Development Project (Report 9134, November 1990).

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for $60.0 million (Report No. 8806, Loan 2468-UR), which was disbursed inseventeen months starting December 1984 with conditionality on macroeconomic andothor policies intended in part to support the livestock program. The pastureissue is discussed in these two 1990 documents. Earlier evaluation reportsfocused on questions about the world beef price cycle, macroeconomic policies fora small open economy, subloan indexing and rates of diffusion of the pasturetechnologies, with only passing reference to possible deficiencies in pasturetechnology and pasture management. The PCR on the fifth project, dated December1982 (there was no Audit), is mostly descriptive, with no reference to technicalissues. In fact there is a hiatus - in the technical contribution of these expost evaluation documents - that lasts from the previous PPAR (1979) to the newPCR (1990). The eleven year interval is discussed below (pares. 4.04ff).However the new PCR is a comprehensive statement of the implementation record andall the main issues.

1.04 Shallow soils, climatic factors and low population pressure on ruralland prices have led Uruguay to exploit its strong comparative advantage inextensive cattle and sheep ranching over an area covering three-quarters of thecountry north and northeast of Montevideo (see maps). The area is furthersubdivided into crystalline, basaltic, and sedimentary zones, the last offeringpossibilities for limited cropping. Generally, however, the area is devoted tothe breeding of cattle and sheep in low cost operations with low technicalcoefficients and low output. These ranches were the original target of thelivestock program. It was expected to finance the establishment of improvedpasture on over 50% of the total grazed area (the target of the 1950s, now downto 20%), to increase the availability of dry matter and nutrients and achievesubstantial improvements in the coefficients and herd offtake. The pastureswould be legume/grass mixes that would fix their own nitrogen and be supportedby applied phosphatic fertilizer. The improvements in forage would beaccompanied by improved practices for stocking of herds and flocks and managingthe pastures. The ranchers would be able to expand their fattening as well astheir breeding activity.

1.05 The western and southern quarter of the country has better potentialfor cropping, though the dominant occupation is also livestock albeit in moreintensive enterprise. Two zones are defined: a strip ("litoral") along theUruguay and Plata rivers where grain crops prevail, and the hinterland ofMontevideo where land prices are higher and most dairy and truck farms arelocated. One characteristic of the more recent projects in the livestock serieshas been the effort to diversify those cropping systems by promoting pasture/croprotationss encouraging crop farmers to plant pasture and ranchers and dairymento plant crops. That was not the principal objective of the first project in theseries, but it is of the last two.

1.06 The Bank of the Republic (BROU) is a state-owned, multi-purpose bankwith a network of 100 field offices, a network that is larger than that of anyother private or public financial intermediary. Since the first project, BROUhas managed the livestock program credit accounts as one of its developmentbanking operations. It has been criticized through the years as being tooconservative with respect to loan approval and collateral requirements toproperly support a supervised credit development program. The 1984 Sector Loanconditionality encouraged some loosening of those constraints (para. 1.03).

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1I. IMPLEMENTATION EXPERIENCE

2.01 The loan became effective on August 21, 1980, with a Closing Date ofSeptember 30, 1986. The farm plans prepared in 1980 by the PLAN, and sub-loansapproved and disbursed by BROU, are considered the output of project year 1,which roughly matched the output anticipated in the SAR's schedule. Nineteeneighty was a good year for livestock producers in Uruguay, combining stronginternational meat prices with the favorable effects of a group of policy reformsundertaken in 1978. Thereafter the indicators began to deteriorate, a change ineconomic conditions partly prompted by the Government's misconceived regulateddevaluation scheme (the "tablita"), culminating in its abandonment, a majordevaluation in late 1982, and a recession in 1983 described in the PCR andelsewhere as the worst in Uruguay's history. The reform package of 1978 provedin retrospect to have been on balance injurious to the interests of the ranchers.And the reversal in late 1982 was especially damaging for many of these livestockproducers; those who had taken large dollar-denominated loans from private banksin the favorable years of 1979-1981 were devastated by the devaluation in 1982.By 1983 they faced the triple threat of unmanageable debt, low international beefprices and falling values of land and, hence, collateral for additional loans.The devaluation helped to restore the peso price of beef, but this improvementwas to be partly offset when Government restored also the export tax, to helpalleviate a growing fiscal crises. The action broke agreements with the Bankreached during loan negotiations in 1979 to maintain the macroeconomic reformpackage intact. The action triggered the discussion with the Bank that led tothe Agriculture Sector Loan approved in 1984.

2.02 The dollar value of BROU disbursements for on-farm investments underthe project in 1981 and 1982 was maintained at the 1980 level, though that wasbelow the SAR's rising targets. In 1983, however, the level of lendingcollapsed, and was not to recover until 1936. For these and other reasons,including delays in BROU's submission of subloan withdrawals to the Bank, Loandisbursements were well below the SAR's disbursement schedule throughout the sixyear period 1980-85. This was a constant concern for supervision missions andBank management, which were trying in concert with Government to take measuresto relieve the situation. In March 1982 the Bank issued an Economic Memorandumon Uruguay which highlighted the difficulties of the livestock sector and thefailure of the 1978 reforms to expand livestock production.

2.03 A civilian government replaced a military government in June 1985.Its program was more supportive of the livestock sector and this, combined withfavorable elements of the post-1982 reforms and improving world prices, createdconditions for an upsurge in investor interest, PLAN activity and Loandisbursements. The Closing Date was extended twice, finally to December 31,1988, to allow nearly full disbursement of the $24 million loan in the last threeyears. Government requested a $4 million bridging finance to start in December1988 until the Second Agricultural Development Project - then in appraisal status- could become effective. The Bank refused, and the government financed the gapthrough BROU by other means.

2.04 A significant implementation feature of the period 1981-1986, coveringthe long stretch of depressed years for Uruguay's livestock industry, was the

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repeated modification of lending criteria applying to BROU and Bankdisbursements, and of the Loan Agreement, with the intent of restoring investorconfidence and loosening subloan eligibility requirements, while alsocompensating for the fiscal deficit. In this process the Government usually tookthe initiative to suggest changes, though the Bank was supportive of the overallobjective and took the lead on some of the more substantial adjustments. Thusthe Bank's reimbursement share of total costs was increased from the 22Z agreedat negotiations (BROU felt then that it did not need more foreign exchangesupport) to 65% by early 1986. Similarly the upper limit for subloans wasdoubled to $300,000, steer-fattening loans were added to the eligibility list,etc. The toughest discussions revolved around Government's proposals formodifications of the indexing formulas, especially to add alternative indices andto allow BROU each year to select and apply the formula most favorable to theborrowers. Government saw these changes as essential to offset the lossesattributable to low beef prices, export taxes, etc. The Bank was a reluctantnegotiator over these indexing adjustments, concerned about the implied regativeinterest rates and potential substitution effects, but in the end agreed.

2.05 The identification of a basket ("canasta") of product prices to buildthe main indices, and a choice of indices, have carried over to the SecondAgricultural Development Project. The indexing exercise has been a dominantfeature of the Uruguay livestock lending series since the third project and isdiscussed in earlier PCRs and PPARs.

2.06 Another important aspect of implementation was the continuing slidein autonomy, salaries and spirits of the PLAN staff, which lived its golden yearsin the late 1960s and early 1970s and suffered a steady decline thereafter. Thisis discussed in paras 4.22ff below. During the preparation of the SecondAgricultural Development Project the Bank sought ways to resolve the majorinstitutional problems of the PLAN, e.g. by extracting the PLAN from MGAP'sadministrative control and civil service salary scales - and thereby re-establishing autonomy, authority and incentives. It was unsuccessful in thislast effort, and the structure of the project was accordingly modified.

2.07 Fourteen percent ($2.8 million) of the loan funds allocated to farmcredit were earmarked for a special program executed not by the PLAN but by theNational Settlement Institute (INC), to finance 220 farmers in two settlementareas in the litoral. The economy of the settlers who moved onto the subdividedestates in the 1950s had been largely committed to continuous cropping of grain.The credit was intended to serve several purposes. It would support thediversification of that farming system by introducing pasture and dairy, in orderto reduce the alarming rate of soil erosion occasioned by the existing croppingpractices. It would increase the settlers' cash incomes. And it would createa category in the project for "small" farmers, a target group which some Bankobservers felt had been left out of the Bank's livestock activities in Uruguay.The quote hints at the fact that, at an average farm size of 200 ha, these INCclients were not the typical target of Bank poverty alleviation, though byUruguayan farm standards they were indeed considerably smaller than the averageholding. The INC component was considered a pilot, for INC to develop a systemthat could be extended to other INC settlements in future projects. INC

contracted with 8 technicians to form a special team to be headquartered in the

larger of the two areas (Quebracho, composed of four non-contiguous colonies)

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which would execute the credit project. These were additional to regular INCfield staff, who were mostly dedicated to supervising settlements to ensureexisting farm assets were maintained until settlers had paid off the originalland and equipment loans and taken title.

2.08 The INC component is generally considered a failure. Only 69 settlersreceived credit, mostly in the first two years of project implementation (1980-81). An effort was made in 1984 by INC and the Bank to open the credit line toother settlements - the Loan Agreement was amended to that effect - but theinitiative was abandoned. The special unit was disbanded in 1985 by a newpresident at INC, who felt the pilot was not replicable. The shortfall inparticipation has been attributed by all observers to the existing debt carriedby the settlers at the time of project start-up. BROU was the banking agency forINC's component of the project, and also held the u.ites for the originalsettlement debt. Many of the 460 settlers in the two selected areas (of whichthe SAR estimated about half would participate) had borrowed from other banksas well in the 1970s. The main burden of indebtedness was born by BROU, however,and BROU was concerned about the precarious economy on the settlementsirrespective of the project, and believed that the majority of the fatmers wouldbe unable to service the original debt as well as the pilot. It insisted on aguarantee by INC for the total debt. INC was willing to underwrite only 69farms, on which there was little or no existing debt. Pilot team members blameBROU for taking too conservative a position with respect to repayment capacity:refusing to separate, for purpose of the guarantee, the original debt accountfrom a new project account. In most cases the current value of the unpaidprincipal plus interest had reached irrecoverable levels - mostly because ofBROU's previous tolerance of delinquency. INC argued that the original debt wasunmanageable, but that with close supervision under the pilot project the newcredit would be self-financing and offered good prospects for many of theseindebted farmers to get ahead. 'BROU did not then agree, although in the late1980s it finally started writing off the old debt. It ultimately resumed lending(non-project funds) to about 30% of the settlers who had been excluded from thepilot as credit risks. The PCR calls this unhappy experience an error ofappraisal, repeating the opinion expressed in INC's draft PCR that the total debtburden had been badly underestimated. The audit considers it possible that theappraisal team had received an indication of a willingness by BROU to soften itsconditionality, a signal that later was not followed-up.

III. PROJECT OUTCOME

3.01 The PLAN's computerized monitoring system reports the number of loansrather than the number of borrowers. Multiple loans are a common feature withinthe cycle of a single project, partly because BROU refuses to approve loans withstaged investments requiring disbursements in more than one year. Thus thefigures published routinely by PLAN are not instructive about the number offarmers assisted. The PCR does not make the distinction either. The PCR tablesshow 11,867 plans made and 8,510 loans granted during the project. Not all of

the latter were disbursed (PLAN estimates an 80% rate of uptake). Discussionwith the PLAN suggests that these figures imply at least 5,000 individualsubborrowers, which compares favorably with the SAR target of 3,020. It can be

compared also with two figures quoted in the 1976 PPAR referring to 26,000

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subloans for on-farm investments on 14,000 ranches in the period 1961 through1974 under the first, second, third (2 loans) and fourth (f irst of 2 loans)projects. The 14,000 ranches were reckoned in 1976 to be about half of thepotential users "of the improved pastures being introduced" (PPAR, page ii). ThePLAN cannot easily determine the percentage of the 5,000 subborrowers under thesixth project who are repeaters from previous projects. But there are annualfigures for 1980-89 identifying loans to borrowers who had never had a loanbefore (or at least not since 1968 when the file system was decentralized).These show that for 1988 and 1989, of a total of 4,620 loans made, 1,798, orabout 402, were for first-timers. Thus the capacity of PLAN to penetrate thedwindling group of non-participants with at least one loan is impressive, atlest in the last few years (and assuming these statistics and estimates arecorrect).

3.02 PLAN technicians also prepare farm plans, on request, for farmers whodo not seek loans but want help for planning investment of their own funds(including borrowings from other sources). These "Technical Assistance" planswere about one-quarter the number of "Credit Assistance" plans in the projectperiod (specifically 21% in 1988 and 1989). Since they almost always arerequested by farmers who have borrowed project funds in earlier years, they donot represent a significant number of farmers to add to the estimated 5,000 totalquoted above.

3.03 Of the total number of loans approved under the project, 64Z were fordairy farms, 24% for ranches and 13% for "mixed" farms. The latter category isimprecise, since it lumps mixed livestock/crop enterprises together with cattleranches that have dairy facilities. Thus the breakdown is not the same as to saythat nearly two-thirds of all borrowers were dairy farmers, but it is close. Itrepresents a reversal of SAR estimates, which allocated 67Z of the number ofsubloans and 50% of loan amounts to ranching, and 11% and 15%, respectively, todairy (all excluding INC farms). The SAR had ignored a major shift of thelending program to dairy that was already underway.

3.04 PLAN data shows a related shift in the categories of investment itemsfinanced. Comparing 1980 and 1988, 472 of the total credit estimated in the 1980farm plans was allocated to pasture improvement, and 182 to machinery: in 1988the figures are 122 and 632, respectively. The PCR discusses this significantshift away from pasture and into tractors, milking equipment, etc. For the nineyear period 1980-1988 the ratio is 262 pasture to 402 machinery, which compareswith the SAR allocation of 502 to 202. However the shift of the loans away fromexpenditures specifically on pasture improvement, while real, is distorted bythese comparisons because the figures do not include the farmers' other funds,they include only the use of BROU and Bank funds. There has been a growingpreference demonstrated by the subborrowers to cover most of the pastureinvestments with their "own" funds, including other borrowings. This was not thecase in the 1960s and 1970s, when project credit was cheap. For the dairyfarmers, their cooperatives have been extending increasing amounts of short-termfinance for fertilizer and seed for pasture ectablishment, allowing the farmersto assign BROU project finance to investment items of medium-long life. Theranchers also are tending now to cover the fertilizer costs actually out of theirown pocket. Thus the alleged shift to machinery is exaggerated by the PLANtables and charts, though a reallocation toward machinery is definite and

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predictable given the decisive shift in participation to dairy and mixed farming(of all types).

3.05 The SAR, dated March 1980, estimated FRRs for the main farm models inthe range 21-252, and ERRs in the range 22-37%, averaging 26%. These were higherthan the ex post ERR estimates in the PPARs for the fourth (second stage) andfifth livestock projects, the first giving a figure in 1979 of 16% and the seconda figure in 1982 of 17%. The high SAR estimates reflect the generally optimisticviews on the progress of the program characteristic of that appraisal exercise,which turned aside warnings about low pasture adoption rates and coefficients ofimpact. This issue is addressed again in paras 4.04ff. The new PCR issued in1990 does not update the ERR, claiming that available farm level data does notpermit it and that in turn is attributable to a decline in the performance of thePLAN. As mentioned in para. 4.29, the quality and comprehensiveness of thePLAN's monitoring system has indeed declined since the late 1970s, so that theextensive analysis performed, for example, during the 1979 audit could not berepeated in 1990. Nevertheless registers of a volunteer group of approximately250 cooperating farmers who record all transactions and submit annual data sheetsare still received by the PLAN and, in the view of the audit, updated ERRs werewithin reach.

3.06 Several months before the last PCRwas initiated the Region finalizedthe SAR on the follow-on project, with FRRs (no ERRs) for four livestock modelsranging from 23% to 372. That is higher than the range 212 to 252 in the 1980SAR for the first Agricultural Development Project and suggests an improvementin the Region's expectations about the economics of the Uruguay livestock program(the PLAN was not involved in computing the new FRR's). An opportunity wasmissed in the PCR to explain why the higher 1989 SAR estimates pointed in adifferent direction from the doubts expressed at the same time about thepersistence of the pastures. If the pastures do not persist, either yieldsdecline or maintenance costs rise and in both cases FRR. (and ERRs) decline.That is the core of the argument over the importance of non-persistence of thepastures. The audit suspects that the range 232 to 37% is inconsistent with thelivestock producers' revealed investment behavior and much too high.

IV. FINDINGS AND ISSUES

4.01 The livestock program and its main executing agency - the PLAN - havebeen criticized in recent years for ineffectiveness and declining competence.This comes in response to evidence that the area of improved pasture - theprimary target of the program - has been falling in the last decade rather thangrowing. One Bank report has reckoned that of approximately 4 million ha plantedsince 1960 only 0.6 million ha remained improved in 1988. Other observers putthe last figure higher - up to 1.0 million. And since the trend has been awayfrom oversowing, sod seeding and other low cost pasture improvement techniquesand towards the establishment of "conventional" ploughed pastures, which have

higher productivity, the decline in area exceeds the decline in nutritionalproductivity. Nonetheless, in either case the losses are much higher thananticipated. Some degeneration is normal, but not three-quarters of the planted(and replanted) areas.

4.02 Total Bank lending ($95 million) works out at about $30 per capita for

Uruguay's 3 million-plus human population, not much more than the Bank's largeMexican credit program ($2,160 million) at $23 per capita. Investment at that

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level for the purpose of modernizing the dominant sector of Uruguay's economy ("3million people, 10 million cattle, 24 million sheep") is justified according toits results. The Bank ought to have more impressive statements to make about theimpact of the Uruguay livestock program after 30 years.

4.03 The strongest criticism is found in the green cover UruguayAgricultural Sector Review Report dated November 1988, where the pasturepersistence issue is exposed and the erosion of the PLAN's field services ishighlighted. Criticism by the mission in mid-1987 was so outspoken as to provokeresistance by the PLAN, and the Government of the time never fully embraced thereport's conclusions. The PCR which followed it a year later is better balanced,retreating from the apparently uncompromising position of the Sector Review.Nevertheless the PCR's final section on "lessons learnt" calls up a harsher viewof the livestock program than earlier evaluations. Three of those "lessons" areexamined below - the first three among the eight issues discussed in thissection. Overall, the audit finds that the sixth livestock project hadsatisfactory results. However, the conclusion of the audit with respect to thepasture issue is similar to these earlier two reports by the Region: that aserious technical issue demanding attention had been largely ignored, that theSector Review usefully brought it forward in dramatic style, and that if thesedefects are not corrected the justification for continuing the program will beseriously compromised. The Bank should also be concerned why warnings from thefield and from the audits of the late 1970s were brushed aside.

4.04 Inappropriate Technical Packages. The PCR cautions the Bank to becareful with projects designed around "controversial" packages. That lessonshould be rephrased. There was hardly a hint of controversy over the technicalpackage when the sixth project was appraised in 1979, either in the Region'sproject files or in the negotiations and Board review. But in the same year thePPAR on the fourth project (second loan) was issued. It discussed pastureslargely in terms of a general theory of diffusion of innovation based onexperience elsewhere. It predicted an exhaustion of the adoption process andthat the total area comitted to improvements would top out at about 1.6 millionhectares, or 11.5% of total pasture land. This was inconsistent with theestimates behind the fifth and sixth appraisals, but it was phrased in the PPARin a way to persuade readers that under certain conditions, including (1)improvements in international prices, (2) reforms in the macroeconomic policyarena and (3) a better technical package, the way would be clear for furtherincreases. Actually the PPAR author did not intend to imply that an easy escapeexisted. The PPAR listed the constraints peculiar to the Uruguay case, andidentified one of them as "the principal reason" for non-adoption: "that thetechnology does not work well in some regions because of soil conditions" (PPARpage 11). That statement is not developed further in the PPAR, but it wassupported by a much larger background document that was circulated at the sametime and discussed with the appraisal team.

4.05 It was not, however, reflected in any of the files leading to approvalof Loan 1831. The SAR and the appraisal files referred to the macroeconomicconstraints and asserted that the Government's reform package of 1978 and otherpolicy adjustments satisfied the criticism of the PPAR and permitted optimisticforecasts of continued expansion of the pasture technology. The Bank projectteam in fact was enthusiastic: "the rate of future pasture improvement will be

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much faster than during the past years" (Preparation, BTOR, 4/9/79). Not onlywas the technical pasture issue not raised again in the countdown to approval:the 1982 PCR on the fifth project and the livestock subsector report that formedpart of the 1982 Economic Memorandum were also silent on the pasture issue. Theonly mention in the files of a problem with pasture persistence is in the May1981 supervision report, which said that special emphasis should be given by PLANtechnicians to pasture management, to prolong pasture life. Taken in itsbroadest sense, the reference to "pasture management" could imply management ofthe full array of Interacting factors which affect persistence and productivity.The supervision report did not elaborate, however, nor was its warning repeatedin subsequent supervision reports. As narrowly defined, however, and despiteconsiderable overlap, the "management" problem is different than the "technical"problem mentioned in the 1979 PPAR and raised boldly in the 1988 Sector Review.

4.06 The main difference is as follows. The improved pastures introducedin Uruguay will persist provided two strictly technical conditions are satisfied.First, the consortium of species of legumes and grasses must be internallycompatible and stable and appropriate to the soil and climatic conditions, sothat the soil-bank of phosphates built up by the producer in the initial andsuccessive applications of phosphatic fertilizer can maintain the presence of thelegumes (usually clover), which will in turn provide the nitrogen also requiredto maintain the mix. Second, not only must there be balance between the species,but the rhizobium fixation agents, the macro and micro elements available in thesoil and other physical factors have to be appropriate. If so, the pasture canindeed persist for 20 years or more (provided two conditions on the managementside are also respected: that the pasture receives periodic phosphate fertilizer,with occasional supplementary reseeding, and provided proper stocking rates arefollowed). If not the pasture will degenerate - the clover will disappear andthe undesirable grasses and weeds will take over - and that will happen despitegood management of the phosphate bank and stocking rates. Good management canprolong the life of the imperiled pasture, but it will have to be replacedeventually.

4.07 There are related technical factors to consider, among them:

a) in the basaltic areas the pasture package has had particularly poorsuccess, suggesting a nutrient deficiency, perhaps related to thelow sulfur content of these soils, that has not yet been fullyidentified;

b) the Latin American sub-tropical legume species that were carried toNew Zealand and Australia for further improvement appear to havereturned with disease susceptibilities that were not apparent inthose countries but which have emerged in the areas of Uruguay wherethese species were suited;

c) the pasture mixes that have fared relatively well in Uruguay are notdefined in terms of individual species that meet specificrequirements, but rather as a "cocktail" of species which have acollective positive effect. The cocktail approach is evidence thatthe specific advantages of each member of the mix is undetermined,an uncertainty that is not entertained in the New Zealand model;

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d) improved varieties are not yet available to adequately confront themost serious drawback in Uruguay's situation - the long cool winterwhen most of Uruguay's grasses stop growing; and

a) there has been vigorous intrusion into the improved pastures bybemuda grass (Cynodon), a weed in Uruguay that is increasinglyirvasive in dairylands and other areas where pastures are preparedby conventional tillage. This was unexpected and almost unknown inthe 1960s, and remains virtually out of control.

The last factor (e) was the technical problem that most alarmed the Sector Reviewmission in 1987.

4.08 The management issue as narrowly defined refers to another set ofconcerns. (Actually one can consider all of these factors as the "technical"dimension of the project, via a via finance and administration. Thus the"technical" dimension could be split into two groups of biological and managementfactores the components of the pasture package that were known (or not known),and whether they were properly applied). At the farm level, the managementdeficiencies include lapses or mistakes by the owner and his staffs in the

resupply of the fertilizer bank, in the timing the grazing of the herds andflocks on the individual paddocks, in confronting bermuda grass and other pests,etc. Among them, the failure of project participants to maintain the phosphatetreatment can be decisive (especially in the non-basaltic areas): without it the

legume component of the pasture mix could not be expected to persist, so that thepasture would lose the nitrogen fixation benefits of this component withconsequent degeneration of the pasture's composition and productivity.

Dominating all the factors explaining poor management is a social phenomenon:

the Uruguayan rancher's life-style - with his principal home in Montevideo. TheNew Zealand package is incompatible with absentee ownership where it issubstituted by untrained foreman. But there are also good economic reasons to

help explain "poor" behavior. The removal of the phosphate subsidy in 1973

jeopardized the schedule of periodic refertilization. Also, the beef price cycledictated short-term responses to highs and lows of prices, which promptedranchers to overstock the pasture to fatten before sales, precluding its use as

a nursery for feeding the breeding herd in order to raise weaning rates.

An behind all of these is the continuing ambivalence of Government policy toward

its ranch - especially beef - sector, taxing and otherwise reducing the earningsfrom domestic and foreign sale of beef to the point where the ranchers saw little

incentive in shifting out of low-cost practices.

4.09. In addressing the problem of persistence of the perennial pastures

the Sector Review highlighted the negligence of biological research, thedeficiencies in day-to-day management and, especially, the reduced profitabilityof the investment package. The Review recommended a complete program of

investigation of pasture species, rhyzobium symbiosis, soil nutrient status, etc.to identify a more appropriate package. It gave strong hints that for much of

the ranchlands the search might be futile: that the rancher with or without

government support may be better advised to do what he has always done - run a

hands-off, low input/low output operation and let the beef price cycle determine

his stocking and marketing policies.

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4.10 The Sector Review may have been too pessimistic. A small group ofenterprising Uruguayan ranchers is emerging, willing to try through on-farmadaptation to overcome the deficiencies. They are as yet a minority. But, whilethe-* are no examples of 20 year pastures in Uruguay, a few extend to 8 - 10years under this enlightened management without exorbitant maintenance costs.The PCR reflects that better balance, saying that there is a combination oftechnical ard management constraints which need to be removed, but withoutimplying that the present package per so is a failure, or that there may not evenbe a suitable package for an improved pasture to offer the Uruguayan owner of anextensive ranching operation. The ex;atriates who started the program possiblywere too optimistic about the immediate applicability of the transplantedlegume/grass technology and about the management commitment of the ranchers. Butthey were correct in insisting that important progress could and should be madenevertheless.

4.11 The situation of the dairy farmers is different. First, fewer areabsentee. A dairy enterprise depends on hands-on management. Second, improvedpastures were a substitute for a more expensive input - concentrates. Third,dairy pastures in a lay system are replaced by crops anyway every 4 or 5 years,so persistence is less of an issue. The Sector Review treats the dramatic growthof the dairy sector as exceptional and neither the main business of the PLAN northe result of its work. That is not fair. It is true the PLAN strategycontinued to emphasize the ranchlands. But, rather than incidental, the shiftin support to dairy and, more recently, to cropping/pasture rotations and forage,has been of central concern to a large minority of its field officers. Fully 40%of them (31 out of 75 technicians and their supervisors) are now assigned to thedairy and mixed farm areas and that has been the pattern since the mid 1970s.And, as shown above, two-thirds of all loans under the project were taken by thedairymen. What is also true, however, is that the initial advances in dairyingmust be attributed as well to enterprising farmers, with PLAN technicians in thedairy areas leading the way or in full support and the PLAN management making anoccasional, if not massive, contribution (importation of milking machines fordairy producers in 1968/69 and of forage conservation machines in 1978/79; aconsultancy report on the "Uruguay-Dairy Sector in 1975). The support isnonetheless impressive, and the PLAN is recognized in Uruguay to have made adecisive contribution to modernizing the dairy industry, a recognition that theSector Review reserves for the major milk cooperative (CONAPROLE). The shift inthe farmer's allocation of credit funds to machinery described in para. 3.04 isa result partly of the PLAN technicians' campaign in the areas where machinerymakes sense.

4.12 The dairy revolution dates from the 1970s, when the PLAN dominatedtechnical assistance and CONAPROLE was only starting to expand its extension andcredit services. In the 1980s, the relative importance has been reversed. Butthe PLAN is still responsible for planning and financing the main investments innew and growing dairy enterprises while the coop has financed fertilizer andseeds (and some milking equipment). Collaboration between the two field staffsis good. The breakthrough came in dairy, and now is spreading to rotations ofcrop and pasture wherever "ley farming" is appropriate. The PLAN deserves creditfor promoting if not triggering these transformations.

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4.13 Another subsector where progress is visible is sheep, especiallyfor wool. Sheep in general and the wool crop in particular resist the winterdrought in Uruguay better than beef cattle. Here, the recent spread of electricfencing - light, transportable and cheap compared with conventional barbed wire -

is encouraging more intensive stocking of the flocks. As with dairy, aspecialized agency is spearheading this advance (SUL, the Uruguayan WoolSecretariat),though the PLAN once again has played an important role in pushingit along.

4.14 Still, results are admittedly unimpressive in the extenslve ranchingareas committed to beef cattle or beef and sheep running together. There hasbeen little innovation or follow through. Since that was the original targetgroup, and since beef ranching dominates the livestock economy, an overallevaluation must reflect disappointment regardless of success elsewhere.

4.15 The PLAN and the Bank share responsibility for not facing up to thepersistence problem on the ranches. The PLAN technicians have been aware of theshort average life of the pastures since the mid 1970s. Many of them inside andoutside the ranching area now say that for the great majority of ranchers -including many who were early adopters of the technology - the prospects forgetting a continuing commitment to the pasture technology is bleak. The PLANused loan funds to finance an Australian consultant firm in 1984 to study theconditions for development of the "non-arable natural pastures". Attention wasdrawn in particular to the fact that "introduced legumes were disappearing fromthe award after about three years". The consultant's recommendations forimproved extension, training and, particularly, research, were to be echoed lateron by the Bank's 1987 Sector Review. But neither the PLAN nor the researchservice reacted to the seriousness of the problems identified by the consultancy,and the PLAN made no further attempt to explain the persistence phenomenon. ThePLAN has no judgment on whether the technical factors dominate the managementfactors, or whether and which ranchers are best advised to continue traditionalpractices. That is a significant change from the golden years, when the moraleand enthusiasm of both headquarter and field staff were high and they had a senseof a contribution to make to the ranching community. Losses in real salaries,in the effectiveness of the M&E unit, which otherwise might have been able toidentify the causes of poor progress (para. 42), and in the linkage withresearch, all contributed to the ineffective response to a recognized problem.The blame must ultimately be taken by PLAN management and, behind it, theHonorary Commission, which directs the PLAN, and the parent ministry. They wereaware the pasture program was not spreading as expected in the ranching areas anddid very little to rearm the PLAN to find out why and correct the defects.

4.16 A judgement on the Bank arrives at the same point. That the 1980 SARfocused on the extensive breeding ranches, when lack of pasture persistence onthose rances was already well-known and when PLAN resources had already startedshifting away from them, is difficult to understand. "Pressure to lend"presumably was a contributing cause, but it does not seem enough. The Bankshould have been reexamining: (1) the viability of the FRRs and ERR9 in the lightof adjustments to the benefit and cost schedules to reflect short-lived pastures;and (2) the technical foundation of the package then in use. The audit concludesthat the Bank was preoccupied with other issues, equally absorbing, such as theprice cycle, macroeconomic policy management and interest rates. A livestock

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expert led the supervision missions from 1980 to 1983 and a livestock expert oran agriculturalist were on most subsequent missions. But their reportscencentrate on non-technical factors. The 1979 PPAR had set three conditions forany substantial increase in the area devoted to improved pasture: betterinternational prices, supporting macroeconomic policies, and improvements intechnical ani management inputs. The prices were not subject to control. TheBank fixed its sights on the policies. The technical and management factors wereignored, at least for most of the 1970s and 1980s. The direction for the Bankchanges in 1987, with the Sector Review mission, and with several consultanciesrecommended by the Bank and financed by the loan to investigate the pastureissues, sheep stocking rates and other technical matters.

4.17 The audit does not question the importance of the economic and policyissues. Supervision which concentrated on diffusion of pastures and ignoredworld beef prices would have been equally lop-sided. But the balance should havebeen preserved. For a dedicated credit project with such a narrow .echnicalagenda, and investments dating back to 1960, the apparent indifference totechnology in recent decades is astonishing. This may be a good example of theBank's gradual loss of in-house technical competence, the same criticism we aremaking about the PLAN.

4.18 In any case the Bank recovered in 1987 by sending a strong sectorstudy team. And two years later, for thi first time since 1970, a researchcomponent w&s added to the seriee of livestock loans. That is the direction thatnow has to be maintained. Whether and how the package can be put right is a jobfor research and a rededicated, science-based, PLAN. During the 1960s - thefirst decade of the livestock program - the PLAN collaborated with the national

research service based at the Estanzuela station to improve the initialtechnology associated with the early New Zealand influence. But in the 1970s and1980s the PLAN neither sought nor received the support it needed to confirm theviability of the technology, and this despite mounting evidence that pasture lifewas closer to 4 than to 20 years. The failure to respond to the 1984 consultantreport is a case in point. The ad hoc adaptive research that some ranchers have

been carrying out informally has reached its limits. The investigation oftechnical and management variables must be assumed by professional scientists.

The new project not only provides funds to the PLAN to administer for pastureresearch, but also funds for study abroad and for developing 16 demonstrationfarms.

4.19 Credit Subsidies and Financial Intermediation. The PCR draws a

lesson that is not obvious to the audit: "the fundamental issues of negativeinterest rates and related ineffectiveness of the financed intermediary needed

to be solved through long-term solutions" (PCR para. 67). The PCR does notdescribe the relationship between negative rates and BROU's ineffectiveness. The"lesson" appears to have been extrapolated from experience with credit programselsewhere, which show that credit subsidies can undermine the integrity ofintermediaries that must absorb the cost of the subsidies. That is not the casewith the livestock program. First, because by the 1980s the negative rate that

had been built into the interest and indexing formulas in earlier years had beenby mutual agreement replaced in formulas designed to maintain positive rates in

relation to at least one acceptable pricing schedule (and did so with mixedsuccess). Second, because the two subsidies that typically exist even with

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positive rates -losses to the intermediary due to the fact that the costs of (1)default and (2) administration are not fully covered - would be minor in the caseof BROU. On the one hand, the delinquency rate is small and default practicallyzero. On the other hand, administration costs of the program are submergedwithin the budgets of each of the 100 branchen, and since the livestock portfoliois a minor part of BROU's total business, since BROU's administrative costs areacknowledged to be relatively low, since it is not responsible for nor incurscosts of technical assistance, since it has few small farmer clients in theprogram, and since its deficits if any are covered by a government transfer, theproject is not reckoned to be a financial burden. In fact, BROU has neverbothered to measure that burden. The PCR mentions some inefficiencies in BROU'sperformance, but linking these to negative interest rates as a lesson "learnt"in Uruguay is not justified.

4.20 In two other respects the Bank appears to have exaggerated theundesirable consequences in Uruguay of systemic weaknesses in agricultural creditprograms studied in other parts of the world. First, in its preoccupation withthe substitution of project credit for the farmer's own-funds in financing farminvestments. This was not an issue at appraisal nor is it treated in the PCR.But it was important during supervision in the period when the indexing failedto maintain positive rates and short-term windfall advantages to borrowingappeared for the PLAN participants. This had been a major concern in the 1970swhen the subsidies related to the interest rate structure were enormous. Itshould have been less of a concern during implementation of the sixth project.Nevertheless the reference to substitution (actually the files refer mistakenlyto "diversion") of funds was prominent when the Region was presenting to seniorBank management a case for accepting Government's proposals for easing theconditions on credit, especially by adjusting the indexing system. The Regionasserted that the vast majority of PLAN customers were not the large richranchers who could have used own funds or credit from private banks. That istrue, but the endless discussion of interest rates and indexing continued to beshadowed by the suspicion that the Uruguay livestock program's credit system wassubject to potentially high substitution rates and had to be protected from thatabuse. The audit is convinced that was not a major problem in the 1980s, and asmentioned above it helped draw attention away from important technical and farmmanagement issues.

4.21 Secondly, the inefficiencies in BROU have been attributed in part toits monopoly position in that part of the livestock sector supported by theBank's loans. Monopoly supposedly precluded the healthy effect of competitionwith other intermediaries. To correct this problem, the follow-on project allowsaccess by other banks to project funds for on-lending. Those other banks are notgetting involved, however. One reason is the shortage of those banks' own long-term funds to commit to livestock loans. Another reason is that the minimumspread allowed by the project, and charged by BROU, is too small to justifycommitment of those funds. The other banks have always shied away from mediumto long term credit to this sector. The third ar.d fourth projects also allowedsuch an opening, without success. BROU guesses it will not work in the follow-onproject either. The main job is to address directly the inefficiencies at BROU.That the Bank did to a limited extent with the Sector Loan (para. 1.03) andcontinues to do in the follow-on project.

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4.22 An Enfeebled PLAN. A third lesson reported by the PCR refers to the* deteriorating condition of the Plan as an executing agency and to the opportunity

that was missed in 1979 in the design of the project to engage other extensionservices. The follow-on project does that: allows for private consulting firms

* and individual technicians to compete with the PLAN in preparing and supervisingthe farm plans. The audit was witness to some of the alarming signs ofdiminished performance, especially absenteeism at PLAN headquarters and theunembarrassed claim by field technicians to second daytime jobs. Turnover ratesof senior field staff are probably higher than desirable, though notunacceptable. But the PCR mentions also the loss of motivation and a bluntingof the technical skill for which the PLAN was once renowned.

4.23 Field visits during the audl-t, including lengthy discussion withtechnical staff in PLAN offices in three major regions, suggests that thecriticism is valid for some attributes but not all, and in certain respects thecomparative advantage of the PLAN's technical cadre - the dedicated members - isintact. Indeed the PLAN has kept its field team together remarkably well in theface of its diminished authority, budget and salaries. Opening the program tocompeting sources of extension services may help keep the PLAN staff sharp. Butin the rural areas technicians inside and outside the PLAN know and work witheach other anyway and the opening is not going to improve significantly theavailability of good professional advice to the farmer. In three functions thegood PLAN technicians maintain their competitive edge - preparing the farm plansaccording to the detailed protocol now established, guiding the proposal throughthe BROU, and supervising the investment program according to planspecifications. In the few instances where non-PLAN technicians have beenemployed under the new project, they go to their comrades in the PLAN for advice.In a fourth function the PLAN staff has no lasting advantage - know-how onsolving day-to-day technical problems (cropping rotations, disease control, etc.)- although the overall superiority of the majority of PLAN staff based on longexperience in most of those fields in widely recognized. An unexpected reversalof this scenario was encountered in one field visit, where two popular privatetechnicians -ad joined the PLAN four years ago, while maintaining their otherjobs, to establish a line of income that would secure at least a minimalhousehold bu6,et, a security that private consulting in the cyclical Uruguayaneconomy cannot guarantee.

4.24 The qudit would have preferred that the salary problem of the PLANhad been approac%h%d in a different way. Uruguayan lifestyles for these types oftechnicians in rural areas are said to cost about $800 a month. That is also theaverage family income for the Uruguayan middle class (Uruguay's per capita GNPis roughly $2,500). And it is a little less than CONAPROLE pays its techniciansfor full-time work. PLAN pays $300-350, so the technicians are compelled to findsupplementary sources. Most of them maintain their own farms, or manage someoneelse's farm. Many also have regular consultant arrangements with private orpublic groups or associations of farmers. Together these sources provide moreincome - often much more income - than the PLAN salary. Given that the dedicated

- 16 -

PLAN technicians are normally assigning more than 50%3 of their work hours toPLAN clients, and given that their other jobs are related to agriculture and ofa sort that reinforces their utility to the PLAN clients (and vice-versa), onehas to wonder who is taking advantage of whom. The best way to normalize thesituation, assuming the Government is not prepared to raise salaries throughoutthe civil service, is to persuade gove.-nment to establish PLAN as a fully self-governing body with competitive salary scales. As mentioned above, the Bank withPLAN support tried to accomplish this during preparation of the new project; thegovernment finally said no. We must accept the Bank's judgement that the proposednew project did not give it the leverage it needed to insist on this point. Asa basis for seeking a second-best solution one could have accepted the fact ofmultiple jobs and tried to optimize its impact on PLAN performance. This wouldmean de facto recognition of the shorter effective work week, controls on thetime and motion of field technicians during a minimum share of hours assigned tothe program, and support where necessary in terms of equipment and budgetprovision for critical operational costs, in recognition of Government'sdifficult fiscal position. Instead, the prevailing attitude is that thetechnicians are delinquent and that multiple jobs are necessarily injurious anda sign of organizational enfeeblement. The new project gives a role to theextensionists from the private sector and autonomous public agencies who areexpected to enter the program and compete with the PLAN. Virtually no supportis provided the PLAN field staff in the new project - as it was in previousprojects - as if in punishment. The Bank has to get better at dealing withsecond-best solutions, especially where political factors undermine appraisalassumptions about competitive salaries in the civil service. This isparticularly true for agricultural extension services, which are almost alwaysbadly paid.

4.25 Having softened the criticism of the PLAN, the audit does not denythat in important ways the technical team has lost its cutting edge. That is acommon phenomenon among extension agencies after the first phase of a diffusionprocess when the agents run out of new technologies to demonstrate. The factthat the technicians recognized the problem of pasture persistence but the PLANas an agency did not set forth with or without Bank support to investigate andsolve it is an especially telling example of institutional paralysis. Obviously,these criticisms have to be aimed more at Plan management than the field force.

4.26 The Failure of INC. The pilot failed in the sense that it enrolledonly one third of the expected participants and then closed without replication.But the pilot team was in a nearly hopeless situation given BROU's refusal toopen new accounts for the ",..zraditworthy" participants without a totalguarantee. What was accomplished within that constraint seems to the auditcommendable, though of course in retrospect the team was bigger than needed forthe reduced assignment. INC claims that of the 69 participants, 66 are fully

'Some observers say that a significant minority of PLAN technicians are notin any "dedicated" mood and hence the average time given to PLAN clientsby all field staff is much less than 502. PLAN management rejects thisassertion. It says that the technician's contract with the PLAN calls fora 40 hour week, and he is permitted to count the full 12 hours usuallydevoted to a day's field work.

- 17 -

paid up and the farm plans executed. Moreover the main technical innovations -dairy, pasture rotations - are widely accepted now throughout the two settlementsand are not limited to the pilot participants. Praise is directed at them, INCand supporting technicians from the PLAN for the demonstration. The fact thatthe majority ol the others still live under the shadow of default of the originalsettlement debt does not detract from the general sense of a reasonable lifestyle in this "small" holder community. These are not rich farmers, butstandards of farming and living are superior to 15 years ago and INC'scontribution is better than its reputation. The audit mission was advised notto bother visiting the pilot area because there was nothing to see, but that wasnot the case.

4.27 Diversification and Small Farmers. The project was originallyprepared in 1976 as an Agricultural Diversification Project, based on anexcellent study with that name made in 1975 by a foreign consultant firm. Theobjective was to expand the country's production options by shifting resourcesinto cropping, in part as a response to the closure of EEC's market for Uruguayanbeef in 1973 due to foot-and-mouth disease. The consultants gave priority to theexpansion of wheat and soya production, always in association with pasture wherethe crops could take advantage of the nitrogen fixed by the pasture. Integrationof cropping and livestock was, in fact, the dominant theme, so that whenaddressing the constraints on cropping, in the areas where mono-cropping wasdominant, the report recommends the system be moved in the opposite direction:to incorporate pasture, in particular for dairy. Government in 1977 rejected theproposed project - the so-called PLAN AGRICOLA - and the Bank began again witha modified design of the traditional livestock series based on the PLANAGROPECUARIO. The Bank claimed diversification was still important, but that theshift would be more gradual than the aborted project intended. Duringimplementation the PLAN promoted the crop/livestock associations that were thetarget of the aborted project in the litoral and other areas where mixed farmingmade sense, with modest but increasing success. An important step was taken in1986 when the eligibility list was expanded to include machinery exclusivelyassociated with the cropping component. The Bank made several attempts topersuade the PLAN and BROU to open the list further, to include in the on-lendingprogram a wider range of cropping enterprises. The efforts were unsuccessful,and the sixth project retained its image as a dedicated livestock program withan option for a cropping rotation. With the follow-on project the breakout fromlivestock was finally achieved and the lending line opened to crops and otherenterprises with no relation to livestock.

4.28 A similar tentative move was taken to incorporate small farmers.Some of the participants in the appraisal review argued that the ranchers anddairymen were not representative of the Bank's priority clientele and that theUruguay program should be opened to smaller-scale enterprises. This opinion raninto the problems in Uruguay of defining small farms and finding many of them.Also, the Region argued successfully that the Uruguayan public welfare system wassuccessful and poverty targets should not be imposed on the livestock program.Nevertheless the INC settlement component was included to show a step in thatdirection, and funds were included also to finance studies anticipating a laterproject oriented to small holders. At least that was the proposal that satisfiedthe demands during appraisal of the sixth project. As shown above, the INCcomponent fared poorly. It was intended to include 220 out of the 3,020 farm

- 18 -

targeted at appraisal (7%), and ultimately financed 69 of the 5,069 farmsactually participating (1M). Further, the small farm study was never carriedout, though supervision missions made repeated efforts to see that it was.

4.29 The audit is not concerned by the lack of substantial progress towardeither of these expanded objectives. They were not important to the centralobjective of the sixth livestock project. The attempt to use that project -which the audit feels could be fully justified in its own right - to address aswell the priorities of diversification and rural poverty was mistaken.

4.30 Monitoring and Evaluation. In 1970 the PLAN established an MEsystem considered by the Bank over the next seven years as one of the strongestanywhere. The core of the system was the farm registers, recorded continuouslyby a large sample of about 250 borrowers with PLAN assistance, giving financial,production and stocking data that was submitted to headquarters once a year foranalysis. When OED carried out in 1973/74 its five-country study of agriculturalcredit, these registers provided an unbroken series of observations on acontinuing set of participating farms. The M&E Unit, SERPA, included a group of5 officers stationed in the field and dedicated to helping the volunteer farmersmaintain the registers and to other monitoring and data collection efforts. Theaudits performed by OED in 1976 and 1979 were of course themselves strengthenedby availability of this data base. The system began to lose ground in 1977, whenthe expatriate senior evaluation officer left. The next year the field staff of5 was abolished and responsibility for maintaining the registers was transferredto PLAN's regular technical field staff. The size of SERPA's headquarter staffwas also reduced. By the time of the present audit the analytical group consistsof only two professionals, supported by 2 statisticians and one computer expert(the three of whom serve the whole of PLAN). PLAN's basement - whichincorporates the library - is lined with completed and active files on eachproject, including Credit Assistance and Technical Assistance, plus theregisters. The latter are less useful than formerly because the sample is notso stable and farmers enter and leave the list in an arbitrary way. Neverthelessthe body of available information continues to offer a rich resource for researchon project impact, especially as it can be supplemented quickly by specialstudies of small or large samples outside the register format, carried out byPLAN's regular field staff spread throughout the country. Given the small sizeof the entire livestock community, these technicians are familiar with allproducers in their areas of activity and can therefore easily handle with-and-without analysis.

4.31 The Bank does not appear to have made much of an effort during theproject period to support or use these M&E resources. The operational files ofLoan 1831 carry practically no reference to the unit, its work or the library.The dismantling of SERPA's field unit is not mentioned, either in the Loan 1831

files or in the 1982 PCR on the fifth project. As mentioned above, an ERR wasnot reestimated for the PCR. The PLAN told the audit mission that it could havedone so and claimed to have been prepared to do just that when it was informed

by the Bank that the PCR process had been changed and the PLAN was no longerresponsible for preparing the first draft. Since the files on project borrowersare not segregated, and given SERPA's lack of staff, PLAN's confidence may bemisplaced. The Region says the PLAN's long delay in starting the PCR does not

support its claims. INC never received the message about the change in the PCR

- 19 -

process and did in fact prepare and submit in 1989 a PCR on the pilot. Thistwenty year M&E story for Uruguay (1970-1990) is an example of an alarmingprocess in the Bank of losing either capacity or interest in helping maintainmomentum of the M&E initiatives which the Bank promoted in the 1970s. As impliedabove, SERPA was in a position to study the pasture persistence issue, forexample by comparing farms with long and short-lived pastures to detect thebiological bases for that distinction and other significant differences. ButSZRPA was never called upon, or took its own initiative, to do so. Thatsituation continues in the new projects SERPA could offer the audit no freshanalyses other than the weekly statements of PLAN activity, broken down by fieldoffice, and some other routine tables. It does no ad hoc studies and has not thestaff to do so. Meanwhile the PLAN library gathers dust.

4.32 Milk Pricing Policy. This is a place to mention one interestingstudy that could be carried out based on experience under the sixth project. Anice contrast exists between the limited progress of the PLAN with the ranchers,on the one hand, and the sustained advance in dairy, on the other. One obviousexplanation is the difference in markets, in particular between the erratic beefprice cycle, which translated through to unpredictable producer prices, and thesteady helm maintained by CONAPROLE in guaranteeing relatively steady milk pricesaround a secular downward trend (an increasing percentage of its products wasaimed at exports and thus exposed to international prices). Othe. relatedfactors influence the dairy story, especially the growing capacity of CONAPROLEto support the membership with credit and extension as well as to find the exportmarkets. But the simple relationship between guaranteed sales and producerinvestments appears to dominate. The indexing system for the dairy "canasta"works predictably and effortlessly. A charge is deducted automatically at sourcefrom CONAPROLE's payment for milk delivery and transferred directly to BROUagainst each member's account. Delinquency is zero.

4.33 Dedicated Credit Projects. Bank policy for rural credit has begunto shift away from dedicated credit lines. The follow-on project also moves inthis directions opening the line to diverse investments and introducing otherexecuting agencies, banks and extension services. As mentioned above, theproject allocates funds for livestock research, training and demonstrations, allto be administered by the PLAN. But the attention of both MGAP and the Bank hasbeen diluted, and there is danger of losing the useful concentration on aspecific developmental priority that is the chief advantage of a dedicatedproject. Widening the scope of the program serves the interests of building abetter national framework for rural credit, but at the expense of an all-outassault on an important technical problem specific to one subsector. Thedominant issue arising from the experience of the sixth livestock project was thefailure of diffusion of the ranchland perennial pasture package. Dedicatedprojects do not guarantee the successful implementation of a new technology -that is obvious from the sixth project experience. But dedication of resourcesis essential now to rebuilding the technical foundations of the package, and it

will be more difficult to achieve within the broader boundaries and distractionsof the follow-on project and this despite the fact that the new project is the

first in the series to recognize the problem and do something - provide funds forresearch - about it.

- 20 -

4.34 The slippage was evident to the audit mission in the attitudes andactions of the PLAN during the visits eighteen months after appraisal and sixmonths after project effectiveness. There was no sense of renewed effort tosolve this overhanging technical problem. As mentioned above, many staff doubtthere is a solution, and see the ranchlands lost to the pasture program, at leastuntil prices improve or another generation of farmers with progressive ideastakes over. But recognition that lifestyles and economic forces have beeninimical to pasture improvement should not be the end of their work but thebeginning: to adapt the package to those constraints, meeting the farmers halfway. PLAN has started no studies of pasture failure, when it has the data baseand field survey capability to do that better than any other organization. Theaudit mission requested SERPA to do a small job among others that it should havebeen doing anyway - to look at a sample of ranchers who planted pastures in thepast to get a more accurate assessment of the rate of degeneration of thosepastures and clues as to why some pastures have held up longer than others.SERPA quickly agreed, but found later that the files do not permit such a sampleto be easily drawn and withdrew the offer. The PLAN should have needed noprompting for this work. If it took seriously the criticism of the 1988 SectorReview it should have been swarming all over the farms and files to understandthe degradation phenomenon. If not the impact of the Sector Review will recedeand the follow-on project will end up no further ahead in the ranchlands than thesixth project. The PLAN, Government and the Bank all have to take thisassignment seriously. The loosening of project boundaries must not be allowedto erode that purpose. Among other objectives, a dedicated new project couldhave restored to strength that M&E capability in the PLAN. In the actualproject, SERPA's role is subordinated to the Office of Planning and Budget underthe President, and neither resources nor technical assistance is provided for it- nor moral support.

4.35 Were there no core technology of major importance to the economy,or that did not need close institutional support, then the advantages of thisdedicated line would be less persuasive. The promotion of a singular technicalstrategy could then give way to the farmers' own choices among known investmentalternatives. That is now the case in the dairylands. It is not the case in theranchlands.

4.36 Final Comments. The 30-year Uruguayan livestock improvement programwas a hi-tech concept that in the last 15 years lost an important part of itstechnical orientation. Despite progress in the dairy, mixed-farming and woolsubsectors, the key objective of improving and maintaining perennial pasture onthe extensive breeding ranchlands is still distant. The sixth project would havebeen the appropriate instrument to recover technical momentum. However the Bankconcentrated on prices, indexes, disbursements and other important non-technicalissues. A sector study team in 1987/88 finally gave the technical dimension theattention it deserved in the Bank. Unfortunately the criticism was overstatedand it lost credibility in Government. Another opportunity appeared at appraisalof the follow-on project in 1989. But this coincided with the shift in policyaway from dedicated credit lines. The technical features of the livestockcomponent of the expanded project are in danger of losing the close-in attentionthey need. That is not a necessary result. The Region certainly does not intendto relax. But early signs of business as usual at the PLAN are not encouraging.

- 21 -

4.37 That last remark must be kept in perspective. The PLAN has made and ismaking lasting contributions to improving the economy of several importantlivestock subsectors. Talks with PLAN headquarters and field staff reveal highlevels of competence and dedication that survived the losses in authority andbudget. But, considering that this long development program will not be fullyjustified until solutions are found to the problems limiting diffusion to theranchlands - the heart of Uruguay's livestock industry - those signs ofinstitutional strength are not enough. The Government and the Bank also come outbruised from the audit. The Government for having failed to strengthen the PLAN,the Bank for having lost sight of overriding technical goals. All three - thePLAN, Government and the Bank - must take advantage of the resources of the newproject to get that key component back on track. Otherwise the program willdrift, and questions about the lasting value of the 30 year investments will beembarrassing.

Relsted Bank &*am for Agricuatuere0 3960-1**)

TotalLeon Project Coments

sel Clesng Aeant CostEff*sie so"ef (US) (U)

Project Date SeAte (slite (Mllies) Typos of Prodecere Componens Fleaced

FIRST LIVESTOCK PROJECT(Lose 241-41) 32/29/59 0/80/4 0S 7.9 13.3 Sbeep and Boot Cattlie Improved Posture So" Deosratod seth

It/a/on Livastock/Croppla9l sod FortIllsor. Fostiog of postersDairy Far". M6 total. Water Poiate, Wulding lopr*vommLt onof eb 5W would be Materill (shode$ yards) Jorge number offi acd. Machiery for Farsers successful fares

1102hlsery f or C*NtroctorsToc%alcoI LAssistane

SECOND LIVESTOCK PROJECT(Lean 481-UR) 8/28/65 6/89/1978 112.7 35.9 Sheep and Beef Cattle Fares. A above, plus Livestock As above.

12/10/1985 IM total, of which Purchases.

TellD LIVESTOCK PROJECT(Loe 60-4) 6/80fl S /io1a 6.3 33.1 Sheep and Beef Cattle Farm.. 3A above. A *bow*. Also(First Treach) 2/11/1971 p t &* a icl supported

aIt 1,:3 say, already have C;v;rmwnL tprogramearlier Pose lawelveet *odor of livest*ckthe First or Second Projects. developent for 10911

(Loa 778-UR) 3M/7 32/81/1972 4.0 0.8 shI Gov*rnm(Sceed Trenche) 30f30/20SH attended the sector

FOURTN LIVESTOCK PROJECTo(Lea 3143) 04125/72 8/18/1974 11.2 5.7 Sheep and 1e Cattle Dairy. 4 above. ples Dairy. Financed Government(First trenche) 6/18/1972 f ad Pork Production Unito. abet ad, Pork Livestock Program of

Up to a total of seo 71509 Production. 1012 sod 3131. Ac(Lean 040-1) 30/23/78 5/28/3977 138.6 oubles ("my expected to See Production end *bove hut for 1914 A(Second Trache) 1/112/174 be repeater subloome take out Processing. 1075.

under the PLAN).

FIFT LIVESTOCK PROJECT*(Loss HOOe-WR) 10/97/75 8/33/31s 17.e 89.4 Shoop end Boot Cattlei and As sho (With the

2/38/2978 Dmiry Pors. Up te 6,200 gcoptl9o of Porkeublem** Including roduction).repeators.

ACRICULTIRA. SECTOR LOAN(Les 240-U) I/23/94 9/3/39 69.0 n.* I0dIrectly through policy Ceneral Imports.

L2/v7/c4 chCsere.

Total 331.7 233.6

* The Fourth Project took loeger them espocl;ed because of successive devaluation of Pao which reduced the required Dan& $hare In Peso terse.Before bg Control Rsh Is 44ai0in9 ro"uroemeot from tse ftanmie reduced the ollar disbroes sr because of Pee a devaluation.

The Project won two years bhld of schedule beces of the reson@ unadr the fourth project Fd rmenrsoation of beet p sficec.

oros Uruguay Agricu al 4er Reviws Oc er 3 pe 6 eend OStatmnt of Loans . October 10 page. 476-7A

-25- ANNEX2Page 1 of 2

COMMENTS FROM GOVERNMENT

SNMIIO DB GAMADUIA ARICOrURA I PWAC

CoMisi6n Hon1oraria delPlan Agroperario

BrAutgm u02 CPIw Moaftoo URUm lA 89W-25992

TO: EDWARD RICEOEDDIROOM NO T-9059WORLD SANKFAX # 001 - 202 676 0555

FROM: ALFONSO GRARAPLAN AGROPECUARIOFAX # 598-2 23 5992

1 - Sorry for the delay of sending You the comments relatedto the draft of the PPAR, but I was unable to do thisbefore, becuse I'm working with a New Zealan consultant.

2 - Paragraph 1.04 - The description of soil types is not *

correct. The cristalline zone does not have sandy soils,and the sedimentary zone is the one where the -crop/livestock farms and dairy farms are. I -advise you tosee the "DESCRIPCION DE LAS ZONAS AGROECOLOICAS", areview done by Ing. Luis CARRAU, related to thedemostration forms, and is at the Bank in the filesanexed to the Second Agricultural Development Project.

3 - Paragraph 2.04 - Borrowers did not have the posibilityto select between indices. The indices were fixed at thetime the loan was taken, and remain constant for the life

of the loan. The product basket index, was relatet to.thepurposes of the investment, and the alternative index,was the evolution of the U.S. dollar, for loans that were

taken between 1983 - 1985, and the evolution of the

C.P.I. for the loans that were taken between 1986 -1988.

4 - Paragraph 3.05 - In the preparation of the Second

Agricultural Development Project, the PLAN participation

ANNEX 2Page 2 of 2

- 26 -

was only in the first stages. After that, a team ofprivate consultants, Ings. D.Paysse and L.Romero took thejob, and as far as, I know, nobody ask the PLAN for datato update the EER.

5 - Pargraph 4.15 - The PLAN as an agency recognize theproblem of pasture persistence problems. In the PCR is amention of three consultancies related to this theme,that staited in 1988, but there is not mention in the PCRnor in the PPAR of a 1983 consultancy about "POSSIBLEDEVELOPMENT OF NON-ARABLE NATURAL PASTURES IN URUGUAY",that was done by A.A.C.M., and the results were broadlydiscussed with research managememt people, C.I.A.A.B., atthat time, and no one of the research lines recomendedwas implemented. A copy of the INTRODUCTION and theSUMMARY OF RECOMMENDATIOS is included for yourinformation. This consultancy was founded by the 1831-URloan.

6 - Paragraph 4.16 - The consultancy job mentioned in 5 - wasdone before the Agricultural Sector Review, thereforethere is not fair to said that "The direction changes in1987, with the Sector Review mission...".

7 - There is no mention that the PLAN was unable to havefarmers holding more than 1000 hectares from 1980 to 1983

and 2000 hectares thereafter. This restriction limitedthe impact of the PLAN in the livestock area. For the

Second Agricultural Development Project this restrictionwas lifted.

8 - This comments are in addition the ones we have been

talking by phone, and we have agreed on them. The only

thing I like to add, refers to paragraph 4.11, and is

that the PLAN as an agency yes was involved in the

development of the dairy area:1 - in 1968'69, the PLAN did an importation of milking

machines for and sold to dairy producers (Loan 407-UR ?)

2 - in 1975. the PLAN called for a consultancy job about

the dairy sector, and the job was taken by ANZDEC, and

they produce a report titled "URUCUAY - DAIRY SECTOR",

(it was founded by Loan 1166 -UR).3- In 1978-79, the PLAN imported machinary for forrageconservation, for dairy and crop/livestock farms, and

were sold to them. The importation was done using founds

from the LOan 1166 -UR.

Best regards,

Alfonso GRARA

U R U G U Ayg 4AGRICULTURAL DCELOPMENT PROJECT

Major Project Areas and INC Colonies imluded in the Project

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