Report No. 964-EC

Appraisal of FILE COPYa Seeds Project RETURNOTO

Ecuador REPORTS En- 7

WITHINMarch 5, 1976 O EE

Regional Projects Department ONE WEEI'A,Latin America and Caribbean Regional Office

FOR OFFICIAL USE ONLY

International Bank for Reconstruction and DevelopmentInternational Development Association

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.

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RETUtjP p 'To F2.-FP S TXESKCURRENCY EQUIVALENTS ROOAI, A ,jY:

SUCRE 5 3/US$1 - S/ 25S/ 1 - US$0.0 4S/ 1,000 a US$40S/ 1,000,000 - US$40,000

WEIGHTS AND MEASURES

1 quintal (qq) - 45.5 kg 100 lb1 ton * 22qq a 1,000 kg 2 2,200 lb1 hectare (ha) - 10,000 m 2.47 ac.

GLOSSARY OF ABBREVIATIONS

MAG - Ministry of Agriculture and LivestockINIAP - National Agricultural Research InstituteDCS - Department of Seed CertificationEMS - Seeds CorporationCB - Central BankBNF - National Development BankNSC - National Seeds Council

SEED TERMINOLOGY(As Used Under the Project)

Breeder's seed - Seed of high genetic purity produced by the plant breeders atINIAP research stations.

Basic seed - Progeny of breeder seed produced at INIAP research stations. Thisseed mast keep the genetic identity and the varietal purity.

ReRistered seed - Progeny of basic seed also obtained at INIAP research stations.It should reasonably maintain the same qualities of the variety.

Certified seed - Progeny of registered seed produced by selected farmers undercontract. It must satisfactorily maintain the genetic identity and varietalpurity and its production must be supervised and approved by the Department ofSeed Certification (DCS). Field production of certified seed must be processedbefore sale to farmers. The processing consists basically of diying, cleaning,selecting, disinfecting, and packing.

Dockage - Portion of seed lots classified at field production level as certifiedseed and later discarded during screening selection at the processing plants,because of under size or impurity.

GOVERNMENT FISCAL YEAR

January 1 to December 31

FM OFFICIL USE ONLY

ECUADOR

SEEDS PROJECT

Table of Content.

page No.

SUMMARY AND CONCLUSIONS ................................ i-ili

I. ITrMODUCTION ................................. ....... 1

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

A. General ........................................ 1

B. The Agricultural Sector .0.. ... . ..... . .. .............. 2

C. The Existing Seeds Industry .................... 4

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

A. Objectives and Brief Description ............... 6B. Detailed Features .............................. 7

C. Cost Estisates ......................................... 9D. Financing ............................ 11

E. Procurement and Disbursement .................. o. 12

TV. ORGANIZATION AND MANAGEMENT . ....... . . . . . . ......... ..... 13

A. Project Coordination and Administration .... o.. 13B. National Donelop eont Bank ............ o ........ 13C. Executing Participating Entities ....... o.. oo... 14D. Accounts and Audits ... o..o ...... oo ............ 14E. Monitoring and Key Indicators ....... .o. 15

V. SEEDS PRICING AND FINANCIAL PROJECTIONS ..* .......... 15

A. Seeds Pricing ....... o ...... ..... ... ...-.... .-.. 15

B. Financial Projections ... o ...... . ............... 16

VI. BENEFITS AND JUSTIFICATION .............. a-*.......... 17

VII. AGREEMENTS REACHED AND RECOMMENDATIONS ............... 18

This-report Is based on pl,eparation work done by an FAO/IBRD CooperativeProgram mission that visited Ecuador in March 1975 and on the findings ofan appraisal mission, consisting of Messrs. J. Bazo and J.A.N. Wallis (IBRD);P.P. Maleki (PAO); and B. Bullock (consultant), that visited Ecuador inAugust 1975.

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

Table of Contents (Continued)

ANNEXES

1. THE AGRICULTURAL SECTOR

Table 1 - Crop Areas, Yields and Production; 1966-74Table 2 - Farm Size Distribution; 1968Table 3 - Value and Percentage Distribution by Activities of Loans

Provided by Banco Nacional de Fomento (BNF) to theAgricultural Sector; 1970-74

Table 4 - Agricultural Credit Provided by Banco Nacional de Fomento(BNF); 1973-74

Chart - (IBRD-15182) Ministry of Agriculture and Livestock (MAG)Organization Chart

2. THE SEEDS INDUSTRY

Table 1 - Varieties Eligible for Seed Certification in 1975Table 2 - National Institute of Agricultural Research (INIAP)

Experiment Stations for Basic Seed ProductionTable 3 - Production Goals for Registered Seed of Selected Crops;

1975-77Table 4 - Certified Seed Distributed by the Seeds Corporation (EMS)

in 1974Table 5 - Existing Seeds Distribution CentersTable 6 - Technical Coefficients Used in ProjectionsTable 7 - Projections of National Total Areas Under Project Crops -

Years 0-5Table 8 - Project Targets for Certified Seed - Years 0-5

a. Percentage of National Total Seed Requirementsb. Area to be Sown with Certified Seedc. Certified Seed Requirements

Table 9 - Projections of Foundation Seed RequirementsTable 10 - Projections of Registered Seed Requirements

a. Requirements for Clean and Bagged Seedb. Requirements for Field Productionc. Requirements for Area of Production

Table 11 - Projections of Field Requirements for Certified Seeda. Requirements for Field Productionb. Requirements for Area of Production

Chart 1 - (IBRD-15184) National Institute of Agricultural Research(INIAP) Organization Chart

Chart 2 - (IBRD-15185) "EmLsemillas" Seeds Corporation (EMS)Organization Chart

Chart 3 - (IBRD-15183) Seeds Certification Department (DCS)Organization and Staff Chart

Chart 4 - (IBRD-15179) Project Organization and Operational Flow Chart

Table of Contents (Continued)

ANNEXES (Continued)

Chart 5 - (IBRD-15181) Seed Processing Flow ChartChart 6 - (IBRD-15180) Crop Sowing, Harvesting and Seed Processing

Chart

3. TERMS OF REFERENCE, GUIDELINES AND FELLOWSHIPS

4. ESTIMATED PROJECT AND FOREIGN EXCHANGE COSTS

Table 1 - Investment and Operating Costs of the National SeedsCouncil

Table 2 - Incremental Project Investment and Operating Costs ofthe Seeds Certification Department

Table 3 - Incremental Project Investment and Training Costs ofthe National Institute of Agricultural Research

Table 4 - Summarized Incremental Project Investment and TrainingCosts of the Seeds Corporation (EMS)

Table 5 - Detailed Investment Costs for Three Seed Processing andStorage Plants for the Seeds Corporation (EMS)

Table 6 - International Technical Assistance CostsTable 7 - Annual and Total Project Capital Cost for Participating

EntitiesTable 8 - Annual and Total Incremental Recurrent Costs for

Participating Entities

5. ESTIMATED SCHEDULE OF DISBURSEMENTS

6. INITIAL PROJECT IMPLEMENTATION SCHEDULE

7. SEED PRICES

Table 1 - Seed Prices (July 1975)a. Commercial Grain Pricesb. Price to Seed Growersc. Seeds Corporation (EMS) Sales Price for Certified Seed

Table 2 - Projected Prices for Seeds Corporation (EMS) Sales Pricefor Certified Seed

Table 3 - Incremental Benefit to Farmers as a Result of Using CertifiedSeed

8. ANALYSIS OF FINANCIAL RETURNS TO CONTRACT GROWERS OF CERTIFIED SEED

Table 1 - Rate of Return for Certified Wheat Seed ProductionTable 2 - Rate of Return for Certified Hard Corn Seed ProductionTable 3 - Rate of Return for Certified Soybean Seed ProductionTable 4 - Rate of Return for Certified Rice Seed Production

ANNEXES (Continued)

9. ANALYSIS AND FINANCIAL PROJECTIONS FOR THE SEEDS CORPORATION (EMS)

Table 1 - Projected Purchases of Field Production by the SeedsCorporation (EMS); Years 1-5

Table 2 - Projected Sales of Clean and Bagged Certified Seed bythe Seeds Corporation (EMS); Years 1-5

Table 3 - Projected Sales of Dockage by the Seeds Corporation (EMS);Years 1-5

Table 4 - Projected Annual Operating Costs of the Seeds Corporation(EMS); Years 1-5

Table 5 - Streams of Costs and Revenue to the Seeds Corporation atAlternative Levels of Sales Prices for Clean, CertifiedSeed; Years 1-20

Table 6A - Projected Cash Flow for the Seeds Corporation (EMS);Years 1-12, assuming 12% Increase for Certified Seed Prices

Table 6B - Projected Cash Flow for the Seed Corporation (EMS); Years1-12, assuming 15% Increase for Certified Seed Prices

Table 7 - Balance Sheet of EMS, 1974

10. ECONOMIC EVALUATION

Table 1 - Incremental Quantity of Production Generated by the ProjectTable 2 - Incremental Expenditure by Farmers for Seed Under the

ProjectTable 3 - Incremental Net Financial Benefits Generated by ProjectTable 4 - Streams of Costs and Benefits of the Project; Years 1-20Table 5 - Project Cash Flow

MAPS

IBRD - 11860 Production AIeas for Certified SeedIBRD - 11861 Seed Processing and Distribution Centers

ECUADOR

SEEDS PROJECT

SUMMARY AND CONCLUSIONS

i. Agriculture remains the most important sector of Ecuador's economyin terms of output, employment, and foreign exchange earning, even though itsrelative contribution to GDP has been overshadowed by recent developments inthe oil sector. Agriculture employs 55% of the country's labor force and,despite the surge in oil exports, still provided 39% of export earnings in1974. Because of the nature of the economy, moreover, and the uncertaintiesin the oil sector, agriculture remains at the heart of Ecuador's economicgrowth. Consequently, serious problems confront Ecuador in that agriculturalproduction has been unable to expand fast enough to meet the needs of thegrowing population (7.1 million in 1975), rising at a rate of 3.4% annually,or to satisfy the increased food demand resulting from the recent improvementin incomes. Government policy is now focused intensively on promoting in-creased agricultural production and reducing the impact of rural poverty.Organized schemes to produce and distribute the main agriculture inputs suchas high quality seeds and fertilizer would enhance substantially the Govern-ment's chances of pursuing this policy to a successful conclusion as well asincrease the benefits to be derived from technical assistance and creditservices.

ii. The existing seeds industry in Ecuador has the framework necessaryto support an operation that would make a substantial impact on the agri-cultural productivity of the country. What is needed mainly is proper co-ordination of efforts and a strengthening of the institutions involved inperforming the different tasks required by the seeds industry. The NationalInstitute of Agricultural Research (INIAP) does some work on production ofnew varieties and basic seed, the Department of Seeds Certification (DCS)is charged with seed certification and quality control, and a newly estab-lished Government-private sector Seeds Corporation (EMS) has the respons-ibility for processing, storing and distributing certified seed that isproduced by selected farmers under contract.

iii. Previous Bank/IDA-financed operations in Ecuador include a nationallivestock development program financed through a loan (501-EC) and two credits(173-EC and 222-EC); an irrigation and small farmers' settlement project atMilagro in the coastal area (Credit 425-EC); and a fisheries project (Loan555-EC). The execution of these projects has generally been satisfactory,although the objectives of the fisheries project will not be fully achieved.Future Bank lending is aimed at strengthening the institutional framework fordevelopment policy and resource allocation in agriculture and, with consider-ably new emphasis, in rural development. The latter has become a main focusfor Government efforts, principally in terms of increased public expendituresand improved coordination of economic policies. In addition, the Governmenthas started to prepare several integrated rural development projects, some of

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which figure significantly in the plans for future Bank lending. These shouldserve as a useful forum for consideration of important overall economic aswell as sector policy changes required to overcome the recent unsatisfactoryagricultural performance.

iv. The main objective of t:he proposed project is to develop a modernseeds industry, capable of producing and delivering to the bulk of farmerssubstantial quantities of high quiality seeds for most of the country's basicfood crops and pastures. The specific target would be to make available byyear 5 some 8,800 tons of certified seed to meet about 30% of total seedrequirements (for project crops), compared to the 14% that is presentlycovered. The project would increase the availability of certified seedfor wheat, rice, hard corn and barley and would produce for the first timecertified seed for soft corn, soybeans, other oilseeds, beans and pastures.

v. To attain its objective, the project would finance technical serv-ices, and physical facilities to strengthen the three existing institutions--INIAP, DCS, and EMS--and the establishment of a coordinating National SeedsCouncil (NSC). The bulk of project investments would be for the installa-tion of three large-scale seed processing plants to be operated by EMS, butan important component would be the provision of a two-man team of experts--for three years--and 24 man-months of short-term consultants to assist inspecialized fields. Staff trainirng within the country and overseas would alsobe provided.

vi. The Bank loan of US$3 million would finance the foreign exchangecost of the project (60%), while the local cost, amounting to US$2 million,would be financed by the Government and EMS (23% and 17%, respectively).The Bank loan would be at the prevailing interest rate at the time of loanapproval, for a term of 15 years, including four years of grace.

vii. The borrower would be the Government. Loan proceeds would bechanneled to participating entities through the National Development Bank(BNF), which would act as the borrower's financial agent. About 50% of theloan proceeds would be relent by the Government to EMS over about a 12-yearperiod, including four years of grace, and at a 9% annual interest rate.Project costs of the other participating Government agencies would be absorbedby the Government in the form of non-reimbursable contributions. The foreignexchange risk of the Bank loan would be borne by the Government.

viii. The Ministry of Agriculture and Livestock, on behalf of the Gov-ernment, would hold overall responsibility for the project, but it would del-egate this to the NSC, which would act as the project administrative committee.A Project Executive Director would be in charge of the day-to-day tasks ofproject implementation and serve as the liaison executive between the NSC andparticipating institutions. He wouLd also handle all project transactionswith BNF and the Bank related to the management of the Bank loan proceeds.

ix. Procurement of civil works, machinery, equipment and installationfor the processing and storage of seeds would be carried out by internationalcompetitive bidding, in accordance rith Bank guidelines. Contracts for goods

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and services not exceeding US$100,000 equivalent would be procured underlocally advertised competitive bidding in accordance with local procedures,satisfactory to the Bank. The Project Executive Director would bulk itemsunder US$100,000 in value whenever possible.

x. The main benefits from the proposed project would be the highercrop yield and net returns that a substantial number of farmers would ob-tain from the use of certified seed. The incremental production of commer-cial grain, attributable solely to the use of the additional certified seedto be marketed by EMS as of Year 5 of the project, and annually thereafter,would be estimated to amount to 25,000 tons, valued at about US$4.3 million.The project would benefit the majority of farmers, of whom the main users ofsoft corn, bean and barley seed would be the small farmers of the highlands.It is expected that the economic rate of return of the project would be about48%. If yield increases estimated under the project were to be reduced byhalf, the rate of return would still be 16.5%.

xi. During negotiations assurances were obtained, which provide a suit-able basis for a Bank loan of US$3 million, for a term of 15 years, includinga grace period of four years.

ECUADOR

SEEDS PROJECT

I. INTRODUCTION

1.01 The Government of Ecuador has requested a Bank loan to help financethe establishment of a modern seeds industry. The project, the first of itskind in Ecuador, would provide technical and financial assistance mainly tostrengthen existing institutions that are already working on seed developmentand handling, although on a limited scale. It would also make an importantcontribution to the achievement of the Government's plans to increase produc-tion and productivity of priority crops, such as wheat, rice, corn, barley,beans and oilseeds, as well as cultivated pastures to increase the outputof beef and milk.

1.02 Previous Bank and IDA activities in the agriculture sector inEcuador consist of a nationwide livestock development program, includingpasture research (Loan 501-EC and Credits 173-EC and 222-EC); the Milagroirrigation project in the Coast near Boliche (Credit 425-EC); and a fish-eries project (Loan 555-EC). Execution of these projects has generally beensatisfactory, although the objectives of the fisheries project will not befully achieved.

1.03 This report is based on the preparatory work of an FAO/IBRDCooperative Program mission that visited Ecuador in March 1975 and on thefindings of an appraisal mission, consisting of Messrs. J. Bazo and J.A.N.Wallis (IBRD); P.P. Maleki (FAO); and B. Bullock (consultant), that visitedEcuador in August 1975.

II. BACKGROUND

A. General

2.01 Ecuador's overall economic position has improved substantiallysince the export of petroleum began in 1972. From then to 1974, grossdomestic product (GDP), which had been increasing, in constant terms, byabout 5% annually from 1969 to 1971, rose by an average of 10% annually.Ecuador, however, continues to be one of the poorest countries in LatinAmerica with a per capita income equivalent to about US$415 in 1974 anda large proportion of the people living under conditions of absolutepoverty. Population, at 7.1 million in 1975, rose at a rate of 3.4% ayear from 1960 to 1973.

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B. The Agricultural Sector

2.02 Agriculture, including forestry and fisheries, remains the mostimportant sector of the economy in terms of output, even though its contri-bution to GDP at factor cost declined from 33% in 1965 to 22% in 1974. Thesector employs over 55% of the labor force and, up to 1971, provided over 85%of export earnings. It contintues to be the prime source of employment forthe bulk of the labor force and. the source of subsistence for thousands more.Moreover, the prospects of the oil sector are unclear, even as early as 1980.Because of Ecuador's fundamental reliance on agriculture, there is a basicproblem in that the sector has been unable to expand its production fastenough to meet rising demand, especially for wheat, rice, and edible oils,from the growing population or to satisfy the increased demand by the seg-ment of the community that has benefitted from the higher real income re-sulting from the rapid development of the petroleum industry. In 1974imports totalled some 155,000 tons of wheat (US$35.5 million), 20,000 tonsof rice (US$9.1 million) and 15,000 tons of edible oil, of which 11,300 tonsof soybean oil was valued at US$8.6 million. Rice has been exported during1975, and provided that water control and grain handling and storage facil-ities are improved, rice exports could be considerably expanded in the future.

2.03 According to the 1968 agricultural survey, there were 633,000 farmholdings in the country, some 74% being less than 5 ha in size and occupyingno more than 10% of the total farm land. Most farmers produce only for familysubsistence and so remain outsidle the market economy. By Bank definition, 1/in 1974 between 50% and 66% of the rural population were "absolutely poor"and 75%, "relatively poor." A special program of land tenure reform andsettlement was started in 1964 but so far only some 60,000 families havebenefitted.

2.04 The rural population :Ls divided almost equally between the Pacificcoastal region -- Costa-- and the central Andean highlands -- Sierra-- withvery few people living in the lowlands of the Amazon basin -- Oriente. Tem-perate climate crop and dairy production is concentrated in the Sierra wherethere are both medium and small sized farms. Tropical crops, including themain export items --bananas, cacao and coffee-- and beef, are raised mainlyin the Costa and, to a limited extent, also in the Oriente. The area withthe most potential for increasing cropland is in the Costa, and it is prob-able that an extensive portion of the Oriente, close to the Andes, could bedeveloped as grassland; there are only limited opportunities for incorporatingadditional land in the Sierra for crops and livestock production. Currentnational average yields are generally low in comparison with adjoining coun-tries, although improved varieties and management systems have been developedfor the main crops (para 1.01). Factors such as shortages and poor distribu-tion of seed of the improved varieties, insufficient fertilizer supplies,inadequate water control practices, and deficient pricing policies have de-layed improvements in productivity, but Government policy is now focussingon promoting increased agricultural production and reducing rural poverty.

1/ Report No. 588 Rural Development and Bank Policies; A Progress ReportDecember 2, 1974.

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Organized schemes to produce and distribute the main agriculture inputssuch as high quality seeds and fertilizer would enhance substantially theGovernment's chances of pursuing this policy to a successful conclusion aswell as increase the benefits to be derived from technical assistance andcredit services. To make large amounts and varieties of improved seedsavailable to farmers by means of large scale imports is not a viable solu-tion. In economic terms it would be impracticable to import the necessaryseeds in advantageous conditions. For successful and nationwide crop pro-duction the basic solution is the local production and well organized dis-tribution of certified seeds that would match the different micro-climatesexisting in Ecuador and that would be resistant to the plant diseases thatalso exist in Ecuador. The proposed seeds project would be one part of thiseffort. Other measures would be required to overcome the unsatisfactoryperformance of the agricultural sector. The Bank is assisting Ecuador toprepare projects for the increased domestic production of other commodities.In that connection, the proposed project enhances the prospect for a fruitfuldialogue with the Government on important overall economic as well as sectorpolicy changes needed to bring about more positive results.

2.05 Several corrective steps have already been taken to encouragegreater production efforts. The flow of credit has been increased, risingfrom S/ 579 million (US$23 million) in 1972 to S/ 2,621 million (US$105million) in 1974, and the National Development Bank (BNF) has recently madeconsiderable progress in extending its credit and agricultural supply serv-ices to more remote and small-scale farmers. Additionally, import duties onagricultural inputs were entirely removed in April 1974 and farm productionreference prices have been raised substantially. Although the performanceof the sector in 1974 was still disappointing in spite of these incentives,it appears that the downward trend was halted. Some encouraging increasesin production were registered for cassava, cotton, and sugarcane. Otherfactors besides those mentioned in the previous paragraph that are believedto have restrained expansion include the higher cost of inputs; uncertaintiesconcerning the implementation of the 1973 Agrarian Reform Law; problems ofwater control; dissatisfaction with farm-gate prices actually received; andthe greater attraction of investment in urban properties and commercial en-terprises than in rural operations. Other weaknesses in the sector havebeen inadequate marketing and storage facilities for the main products andinsufficient integration of the various farm advisory services of theMinistry of Agriculture and Livestock (MAG), and limited transference ofthe technical information available from the National Agricultural ResearchInstitute (INIAP) to the farmers.

2.06 The proposed project would seek to accelerate the transference ofthe results of crop and pasture breeding work from INIAP to the farming com-munity at large by strengthening the system for the production, certificationand distribution of improved seed. The crops selected for inclusion in theproject are those which are of national importance to improve the food supply(corn and beans), reduce imports (wheat, barley, edible oil crops, and pastureseed), and provide larger exportable surpluses of rice. Further informationon the agricultural sector is contained in Annex 1. Meanwhile, the Governmenthas stepped up its past efforts to address the problem of widespread rural

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poverty in Ecuador. It announced its intention of allocating a greater shareof public expenditures to rural development activities, notably the improve-ment of social services and infrastructure in disadvantaged areas. This newemphasis also has made possible some progress towards a more effective co-ordination of policies and government operations affecting the rural popula-tion. At the same time, the Government has started to prepare several in-tegrated rural development projects, especially in the Sierra. In an attemptto expand these initiatives, in late 1974, the Government asked for theBank's counsel in applying its irnternational experience in rural developmentto the alleviation of Ecuador's problem. In addition to providing a reportto the Government on this subject, the Bank has defined a program which wouldextend substantial support in this field. This entails plans for an initialtechnical assistance project and integrated rural development projects inTungurahua Province, the Quevedo area, the Lower Guayas-Naranjal zone andpossibly the Esmeraldas River Basin.

C. The Existing Seeds Industry

2.07 The existing institutions concerned with seeds production in Ecuadorprovide the elements essential to a sizable seeds industry (Annex 2). Thereis a lack, however, of overall coordination and direction of these institu-tions, and there are inadequate facilities for processing and distributingimproved seed in the quantities necessary for a significant impact on theproductivity of the agricultural sector. In 1974, about 3,400 tons of im-proved seed of rice, hard corn, wheat and barley were distributed--sufficientto plant about 14% of the national area under project crops.

2.08 INIAP has developed and tested improved varieties of all the cropsof major importance in Ecuador and has the technical capacity and facilitiesto maintain a regular flow of breeder's seeds of new improved varieties. INIAPkeeps a permanent relationship on technical matters with three important inter-national agricultural research centers: CIMMYT in Mexico for wheat and cornprograms; CIAT in Colombia for activities related to programs for beans andrice production, and swine and cattle raising; and CIP in Peru in connectionwith potatoes production. However, INIAP does not have enough suitably locatedland to produce all the registered seed which would be required under theproposed project. Some registered seed is now being grown by farmers undercontract with INIAP, but this procedure is not advisable because of the amountof technical control and supervision required.

2.09 Legislation was enacted in 1972 establishing a Department of SeedsCertification (DCS) within MAG, and establishing seeds rules and standards.DCS has made a modest but satisfactory start and has sufficient personneland facilities for the current level of activity. In some cases, however,it has lacked sufficient support to carry out fully its responsibilities,and the lack of a high level coordinating body for the entire seeds industry,plus some gaps and other defects in the legislation have reduced its effec-tiveness as a quality control agency.

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2.10 A Seeds Corporation (EMS), the first in Ecuador, was establishedin April 1973 as a joint Government-private sector enterprise. Its main ob-jectives are to acquire and operate plants to process certified seeds, sellthe processed certified seed to farmers, and promote the use of certifiedseed among all farmers. Initial capital was S/ 7 million (US$280,000), butin August 1975 it was raised to S/ 27 million (US$1.1 million) in sharesworth S/ 100 each, held by BNF, 48%; MAG, 26%; Comision de Valores (GovernmentFinance Company), 22%; and about 20 private persons, 4%. Even though EMS isregistered as a private company in the Public Registry, it enjoys a number ofprivileges granted by the Government, including importation of machinery andequipment duty free and use of BNF short-term credit at a preferential in-terest rate of only 1% per annum. The corporation is controlled by a Boardof Directors appointed by the shareholders, a General Manager with a staffof 10 agronomists, four professionals in administrative positions, and 18other personnel working on a permanent basis at Quito headquarters and atoffices in Guayaquil, Cayambe, Riobamba, Guarandas, and Cuenca. Its firstyear of operations (1974) was successful in terms of recruiting contract seedgrowers and setting up certified seed distribution and sale centers ( Annex 2).During that period, EMS had contracts with 40 seed growers, selected on thebasis of their know-how and creditworthiness, who, with BNF and private bankfinancing for their farm operations, produced enough certified seed to permitEMS to process and sell the 3,400 tons mentioned in paragraph 2.07. Someseed was processed in the old rudimentary plants handed over by MAG as itscapital contribution to EMS and some was processed by INIAP under contractat the small modern facilities it maintains to handle the registered seedproduced at its research stations.

2.11 In recognition of the key importance of the production of improvedseeds and their further use by farmers to its strategy to raise agriculturalproductivity, the Government has given such production and use of improvedseeds the highest priority for agricultural credit from BNF. As a promotionalmeasure to get farmers to use improved seed, Government payments to wheatproducers have been partly in cash and partly in vouchers exchangeable onlyfor certified seed and fertilizers. This system has been used only for wheatso far, but it has worked fairly well and may eventually be extended to coverother important crops as well. As another important promotional measure forthe use of improved seeds by farmers, BNF would also play a major role bymaking the purchase of certified seed a condition of production loans to farmers,as well as make adequate provision for their credit requirements.

2.12 The Government now wishes to extend the scope of the seeds industryto include all major food crops and to increase substantially the proportionof the national areas of the crops sown with improved, certified seed. Suchan expansion will, however, require strong coordination at the center, addi-tional investment in processing facilities, technical assistance and training,and a considerable promotional campaign. The proposed project is designedto meet these needs.

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III. THE PROJECT

A. Objective and Brief Description

3.01 The proposed project would aim at developing a modern seeds industry,capable of producing and deliver:Lng to farmers substantial quantities of highquality seeds for most of the cotntry's priority crops. Production and dis-tribution targets for such crops to be attained by year 5 of the projectwould total some 8,800 tons of certified seed, broken down as follows: about2,400 tons of wheat, 1,000 tons of barley, 400 tons of soft corn, 500 tonsof hard corn, 3,000 tons of rice, 700 tons of soybeans, 200 tons of otheroilseeds, 450 tons of beans, and 120 tons of pasture seeds. This volumewould permit the sowing of about 160,000 ha of crops, or about 33% of thetotal area devoted to the kinds of crops included under the project. Theproject would operate on a commercial scale in two of the three geo-ecological regions of the country (IBRD Map 11860)--the Costa and the Sierra.Operations in the Oriente would be limited since the area is not extensivelycultivated.

3.02 The project would finance the necessary technical services, physicalfacilities and initial incremental operating costs to:

(a) establish a National Seeds Council;

(b) develop a seed variety release system;

(c) produce registered and certified seed;

(d) establish three large-scale certified seed processing andstorage plants (two in the Sierra and one in the Costa);

(e) strengthen the existing seeds certification department andrelated regulatory works for seed quality control;

(f) construct and improve some 25 seed distribution centers; and

(g) train personnel in different aspects of the seeds industry.

3.03 The Ministry of Agriculture and Livestock (MAG) would have overallresponsibility for the project. Funds would be channeled to the participatingentities--the National Agricultural Research Institute (INIAP), the SeedsCorporation (EMS), and the Department of Seeds Certification (DCS)--througha special account to be administered by the National Development Bank (BNF).Actual implementation of the project would be in the hands of the NationalSeeds Council (NSC) through a project unit with an Executive Director, assistedby a Project Technical Adviser (Arnex 2, Chart 4). Technical assistance wouldalso be provided.

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B. Detailed Features

Project Administration

3.04 A National Seeds Council would be set up by the government under theproject to exercise overall direction of the seeds industry and policy matters.It would operate under the jurisdiction of MAG and be chaired by the Ministerof Agriculture and Livestock or by the Director General of Agricultural Devel-opment. The Council would otherwise consist of the Director General of INIAP,Technical Manager of BNF, one representative of the seed processing enterprisesand one representative of the seed growers. The Director of DCS would performthe functions of Secretary of the Council. The Council would monitor andadvise the Government among other points on (a) the prices paid to farmersfor producing certified seed; (b) the prices paid by farmers for purchasingcertified seed; (c) the needs for seed supplies of various crops, to be usedin defining national targets for seed production; (d) seed varieties eligiblefor certified seed production; and (e) coordination of the activities of thevarious Government agencies involved in the seeds industry. (Details of NSCfunctions are contained in Annex 3.) The establishment of the Council wouldserve to provide the improved central coordination required and a better basisfor greater flexibility and responsiveness in dealing with all matters affect-ing the seeds industry than now exists. The NSC would also serve as theadministrative entity responsible for the direction of the project (para. 4.01).Establishment of the NSC in accordance with the guidelines as shown in Annex 3would be a condition of effectiveness of the loan.

Seed Certification (DCS)

3.05 Since farmers' demand for certified seed would depend on theirprevious experience with such higher priced seed, efficient quality controlwould be fundamental to the success of the seeds industry. To enable theDCS to perform a more effective job in this respect, the project would financethe purchase of vehicles, testing equipment, label printer, and promotionequipment, as well as training, local and foreign (para 3.12), but the hiringof additional personnel would be financed separately by the Government (para4.05).

Basic Seed Production (INIAP)

3.06 Under the project, INIAP plant breeders would continue to be respon-sible for the provision of breeder's seed and for the production of basic andregistered seed at its experimental stations (Annex 2). INIAP has the neces-sary technical staff for the task but more land would be required for theSanta Catalina (Sierra) station for production of all the registered wheatseed called for under the project. Financing would therefore be providedfor purchase of 150 ha to provide the area required to meet project demands.During negotiations assurances were obtained from the Government that, withinone year of effectiveness the said land acquisition would be completed. Addi-tionally, the project would finance enlarging INIAP's storage facilities at

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Santa Catalina (by 400 tons), Boliche (by 50 tons), Pichilingue (by 50 tons)and Portoviejo (by 100 tons). All four plants would also be provided with basictesting equipment, and the seed processing plant at Santa Catalina would getan additional cleaner, scale and bagging machine.

Seed Processing, Storage and Distribution (EMS)

3.07 Production of certified seed for project crops would be undertakenby selected farmers (para 2.10) under contract with EMS. It is anticipatedthat, to fulfill project targets, about 100 farmers, with an average area of50 ha devoted to seed growing, would be engaged in this activity by the fifthyear of the project. Certified seed production for oilcrops and pastureswould be carried out by EMS and INIAP jointly in the initial years of theproject because of the lack of experienced seed growers for these crops. TheGovernment has given MAG about 400 ha in the Coastal region (Portoviejo), some150 ha of which would be transferred to INIAP for the expanded production.

3.08 Three large-scale processing and storage centers would be constructedand equipped under the project to handle the increased certified seeds produc-tion. These centers would be owned and operated by EMS and they would handlethe seed produced by the contract seed growers. Two of the plants, locatedat Sierra (Quito area) and Costa (Guayaquil area), would turn out 4 to 5 tonsof processed seeds per hour and each site would have facilities capable ofstoring 500 tons of seeds in bags and 1,000 tons in bulk. The third plant,to be installed in Austral Region, would be smaller, with a rated output of2 to 3 tons per hour and storage facilities for 250 tons of seeds in bags and500 tons in bulk. It is estimated that the Sierra and Costa plants could eachprocess up to 5,000 tons of seed during a five-month processing period, work-ing eight hours a day, while the third plant would process about 3,000 tonsover the same period. The plants would be fully equipped for the processingoperations, which call mainly for facilities for weighing and receiving,drying and conditioning, cleaning and grading, treating, bagging and labeling,quality control testing and storing. Processing and storage operations wouldtake place between harvest and sowing in the respective plants' areas of in-fluence. Plants would be designed to permit processing of different typesof seeds. The rated capacity of the plants would be about 50% above therequirements projected for year 5 of the project, to allow for subsequentincrease in demand for certified seed.

3.09 Construction and installation works for the Sierra and Costa plantswould be started as soon as possible after the project effectiveness date, and,depending on procurement speed, should be operating in 16 to 20 months. Con-struction on the third plant would be started in the second year of the project;operations would begin in the third year. EMS, during the first 18 months ofthe project, would continue processing seeds using the facilities at INIAP'sresearch stations under contract. Soybean seeds would be processed by contractfor at least the next four years at: a new INIAP processing plant now underconstruction at the Portoviejo Research Station. Details regarding all aspectsof the seed processing and storage component of the project are given in Annex 2.

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3.10 Stocks of certified seed processed by EMS would be delivered tofarmers at 25 different locations--12 in the Sierra and 13 in the Costa(IBRD Map 11861). Distribution centers would be the EMS processing plantsand the INIAP plant at Portoviejo (for soybean seeds), and some 25 warehousesbelonging to EMS, MAG, and BNF (Annex 2). The project would finance constructionof 10 of these warehouses for EMS, each capable of storing about 100 tons ofbagged seeds. Finance would also be provided for the purchase of three trucksto move seed stocks.

Technical Assistance

3.11 Two technical experts, internationally recruited, would be financedunder the project. They would be contracted for three years, one to serveas Technical Adviser of the project and as specialist in seed processing andstorage, and the other in seed production, certification and quality controlmatters. In addition, a total of 24 man-months of short-term consultantservices would be provided to take care of specific problems, such as pastureseeds work. Annex 3 gives details on their terms of reference.

Training

3.12 Organized training in all technical aspects of the seeds industrywould be an important component of the project. In-country training, to beprovided by the consultants and senior local staff of the participating in-stitutions, would be made available to some 50 participants (including seedproducers) per year. Advanced and specialized training would be provided tothe staff of the participating entities through overseas fellowships. Atotal of about 200 man-months of these fellowships would be financed underthe project (para 4.05 and Annex 3).

C. Cost Estimates

3.13 The total cost of the project is estimated at S/ 126.3 million(US$5 million equivalent), of which about S/ 75.3 million (US$3 million)would be the foreign exchange component. The project costs include incrementaloperating costs amounting to about US$0.5 million, to be financed by the Gov-ernment during the three-year period of project implementation. The Governmentwill continue to finance recurrent costs thereafter. Details of project costsare given in Annex 4 and summarized below:

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SuriTarx of Project Costs

ForeignLocal Foreign Total Local Forei -n Total Exchanr?eT_ Sucres S000--) - 'oooXT

1. ProLect Administration (NSC)Administration 4,278 - 4,278 171.1 - 171.1 -Office equip. and vehicles 151 193 344 6.o 7.7 13.7 56Operation & maint. of vehicles 80 34 1114 3.2 1.4 4.6 30Travel 720 - 720 28.8 - 28.6 -Consultants _956 5,h7o 6.426 38.2 218.8 257.0 85

Sub-total 6,185 5,697 11,882 27. 227.9 475.2 7

2. Seed Certification (DCS)Technical Personnel 1,920 - 1,920 76.8 - 76.8 oEquipment and vehicles 390 3,010 3,400 15.6 - 120.4 136.0 89Operation & maint. ofvehicles 1,051 450 1,501 42.0 18.0 60.0 30

Training 1 700 1 800 3,500 68.o 72.0 140.0 51Sub-total ,'T 5 ,260 10,321 202.1 210.14 7 412.8

3. Basic Seed Production (INIAP)Land 6,000 - 6,ooo 240o0 - 240o0 0Buildings 540 360 900 21.6 14.4 36.0 40Machinery and equipment 365 3,285 3,650 14.6 131.4 146.0 90Training 150 1 350 1 500 6.o 54.0 60.0 90

Sub-total 7,055 t2,95 105o 2 12990. 19,8 20

4. Seed ProcessinR. Storageand Distribution (S-Land 1,200 - 1,200 48.o - 48.o 0Buildings 8,0148 5,365 13,413 321.9 214.6 536.5 40Processing equip. (installed)3,506 26,617 30,123 140.1 1,064.8 1,204.9 88Vehicles 165 1,485 1,650 6.6 59.4 66.o 90Pasture seeds combines 75 675 750 3.0 27.0 30.0 90Training 90 810 900 3.6 - 32.4 36.o 90Consultant 928 5,259 6,187 37.1 210.4 247.5 85

Sub-total 114012 02 531 2,168.3 77

Base Total Cost Estinate 32,313 56,163 88,476 1,292.2 2,246.7 3,538.9 63

5. ContingenciesPhysical 10,% 3,231 5,616 8,847 129.2 224.6 353.8 63Price - Local 15,4714 - 15,474 618.9 - 618.9 -

- Foreign - 13,519 13,519 - 514.8 540.8 100Sub-total l7F 19.135 37.810 718.1 765.4 1,513.5 _

TOTAL PROJECT COST 51.C18 75,298 126,316 2,040.3 3,012.1 5,052-14 60

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3.14 The cost estimates are based on July-August 1975 prices includingquotations cif Ecuadorian ports for equipment expected to be imported.Physical contingencies of 10% have been added to the baseline costs, andprice contingencies of 30% have been added to the baseline costs plus thephysical contingencies. Price contingencies are based on assumed interna-tional inflation rates of 10.8% in 1975, 8.8% in 1976, 8% in 1977 and 7.5%in 1978 for the foreign exchange costs, and inflation rates for local costsof 19% in 1975, 17% in 1976, and 16% during 1977 and 1978. The price con-tingencies have been calculated from July 1975 to the mid-point of the dis-bursement periods, i.e. January 1977, 1978 and 1979.

D. Financing

3.15 The Bank loan of US$3 million would finance the foreign exchangecost of the project (60%) over a three-year investment period. The localcosts, amounting to about US$2 million equivalent, would be covered by theGovernment (23%) and EMS (17%). Proposed financing arrangements would be asfollows: 1/

Bank Government EMS Total---- _US$'000 (rounded)-------

Administration - NSC 10 210 - 220Seed Certification - DCS 135 135 - 270Registered Seed Production - INIAP 145 275 - 420Certified Processing, Storage

and Distribution - EMS 1,370 - 520 1,890Technical Assistance and Training 590 110 40 740

Sub-total 2,250 730 560 3,540

Contingencies 750 420 290 1,460

Total 3,000 1,150 850 5,000

3.16 Government would be the borrower and would bear the foreign exchangerisk. The Bank loan would be made at the current Bank lending rate at thetime of loan approval, for a term of 15 years, including four years of grace.NSC, DCS and INIAP depend entirely on Government budgetary support to financetheir operations, while EMS has the status of a commercial institution andoperates with its own capital and commercial credit. The Government, there-fore, would contribute, as a grant, the foreign and local project costs of

1/ Same figures as table in para. 3.13 with "technical assistance andtraining" identified separately.

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the NSC (including the cost of the Project Unit and its Executive Director),DCS, INIAP and the overall technical assistance and training component. Theapproximately US$2 million equivalent for EMS foreign exchange project invest-ment costs including contingencies would be made available by a subloan fromthe Government to EMS, repayable over 12 years; including four years of grace,with an annual interest of 9%. EMS project local costs would be financedwith EMS' own resources and short-term credit from local banks.

E. Procurement and Disbursement

Procurement

3.17 International competitive bidding in accordance with Bank Guide-lines on Procurement would be required for the civil works, machinery,equipment and installations for the three proposed EMS plants (estimatedat about US$1.7 million, exclusive of contingencies). Bids would include(a) detailed designs for the seed processing flow, for the buildings neededto house the processing equipment, for the storage building, and for thelayout of the storage bins; (b) dletailed list of machinery and equipmentcalled for in seed flow design; (c) direct supervision of assembly and in-stallations of machinery and equLpment; and (d) test runs to insure satis-factory operations. Bids would be called for supplies and civil works forone, two or all three plants on a single contract or alternatively for separatecontracts for the civil works component alone. Machinery and equipment otherthan that mentioned above and vehicles would be procured under internationalbidding whenever the size of individual contracts exceeded US$100,000. Pro-curement of items in amounts less than US$100,000 equivalent and civil workcontracts under a similar value would be carried out on the basis of competi-tive bidding advertised locally in accordance with local procedures, satis-factory to the Bank. However, the Project Executive Director would bulk suchitems together into larger contracts whenever possible. Assurances wereobtained from the Government that all contracts in excess of US$100,000,technical specifications, draft tender documents, bidding invitation documents,and bid evaluations would be approved by the Project Technical Adviser priorto submitting them to the NSC for its approval. The two consultants chosen wouldwould be satisfactory to the Bank.

Disbursement

3.18 The proposed loan of US$3 million would cover the foreign exchangecomponent (60%) of the project. The Bank loan would be disbursed over aperiod of about four years against: (a) 100% of the total c.i.f. cost of theprocessing and storage equipment f'or the EMS plants; (b) 40% of the local costsof transport, assembly, installation and test operations of the items financedunder (a) (equivalent to the foreign exchange component); (c) 100% of the cifcost of imported project machinery other than that in item (a), equipment,vehicles and imported items; (d) 40% of the total costs of civil works (equiv-alent to the foreign exchange component); and (e) 100Z of the foreign expendi-tures for technical assistance and overseas training. Because short-term

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consultants may be required to initiate certain project actions immediately,retroactive financing, not to exceed US$100,000, is recommended to cover theircosts and those for other technical services provided after January 30, 1976.Disbursements would not be made against costs of land, administration, opera-tions and maintenance and local costs for the consultants and training.Any balance left in the loan account after completion of the project wouldbe cancelled. The Schedule of Disbursements is in Annex 5.

IV. ORGANIZATION AND MANAGEMENT

A. Project Coordination and Administration

National Seeds Council

4.01 MAG would be the official representative of the Government andtherefore responsible for the overall aspects of the Seeds Project; it would,however, delegate responsibility for implementation of the project to the NSC.The Council would meet at least once a month to review progress of the projectand take necessary actions and decisions (para 3.04).

Project Executive Director

4.02 The Project Executive Director would be responsible to the NationalSeeds Council for the day-to-day implementation of the Seeds Project. Hewould be assisted by the Technical Adviser (consultant, para 3.11) and wouldhave a Project Unit with a small staff (about seven), consisting of an account-ant, an administrative assistant, secretaries and clerks. The ExecutiveDirector would be particularly concerned with administrative, technical,financial and economic aspects of the Seeds Project. He would be the regularchannel of all project financial transactions between NSC, the executingparticipating entities, BNF, and the Bank. He would see that the necessaryapprovals were obtained and that project funds were properly disbursed. Hisduties and responsibilities are further detailed in Annex 3, and the InitialImplementation Schedule is in Annex 6.

4.03 A Project Unit would be established and its Executive Director wouldbe appointed by the Government (MAG), on the recommendation of the NSC, whowould select a qualified candidate in consultation with the Bank. Assuranceswere obtained at negotiations to this effect. The appointment of the ExecutiveDirector would be a condition of effectiveness.

B. National Development Bank

4.04 BNF would participate in the project by serving as fiduciary agent onbehalf of the borrower for channeling the loan funds to participating enti-ties. The Government would enter into an agreement with BNF, under terms and

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conditions satisfactory to the Bank, in which procedures and regulationsgoverning BNF disbursements for project investment costs and withdrawals forreimbursements from the Bank loan would be set out. The signing of the agree-ment, satisfactory to the Bank, between the Government and BNF would be acondition of effectiveness.

C. Executing Participating Entities

4.05 The entities executing operations financed under the project wouldbe INIAP, EMS and DCS. BNF and private banks would not be provided withproject funds, but would participate indirectly by financing out of their ownresources short-term credit to EMS and the credit needs of seed and crop pro-ducers (para 3.07). Assurances were obtained at negotiations that BNF wouldmake adequate provisions for the credit requirements of such producers, ofseed growers and EMS, as well as make the purchase of certified seed a condi-tion of production loans to farners (para 2.11). INIAP's present organizationis capable of absorbing project activities in breeder's seed research and seedmultiplication development with minimum additional assistance, which wouldbe provided under the project by short-term consultants (para 3.11). INIAPwould also be allotted fellowships for specialized staff training overseas.Local training of technicians and seed growers would be conducted at INIAPresearch stations. Chart 1 of Annex 2 shows the INIAP organization. EMSwould manage the three new certified seed processing plants to be financedunder the project. The present staff, assisted by the consultants to be con-tracted with project funds (para 3.11), would be sufficient for the initial year.Besides additional local trainirng, the project provides for foreign fellowshipsfor the EMS staff in the fields of seed production, processing and storage,and quality control. Chart 2 of Annex 2 shows the EMS organization. The DCSis also well staffed for the initial year, but additional personnel wouldbe provided for Year 2 of the project, and also fellowships would be financedfor overseas training in field inspection techniques, seed testing, seedpathology, and seed certification works. Chart 3 of Annex 2 shows the DCSorganization.

D. Accounts and Audits

4.06 Separate project accounts would be established by BNF and by theparticipating entities receiving project funds. BNF accounts are subject tointernal audits, and the Superintendence of Banks does the external auditing,which would be acceptable to the Bank. EMS, however, operates under privatecommercial legislation. An independent firm, acceptable to the Bank, wouldtherefore be required to audit accounts. Project contributions as Governmentgrants to NSC, INIAP and DCS would be reflected in BNF's project accounts inthe case of foreign exchange payments, and local cost contributions would bepart of the MAG annual budget auelited by the General Controller of the Govern-ment. EMS accounts would be mairntained so as to reflect, in accordance with

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sound commercial accounting practices, its entire operations and financialcondition. Aesurances were obtained during negotiations that these institu-tions would: (a) establish and maintain such accounts, (b) have the aboveaccounts audited annually by independent auditors acceptable to the Bank,and (c) send audited BNF project accounts and EMS accounts and their auditreports to the Bank within four months after the close of each fiscal year.

E. Monitoring and Key Indicators

4.07 The NSC would be responsible for establishing and maintaining asystem, acceptable to the Bank, for monitoring the impact of the proposedproject and the adequacy of certified seed supplies to meet the farmers'needs for such certified seeds. Under this system, it is envisaged that DCSwould be required to assemble information each season from a sample of repre-sentative farms and from other sections of MAG relating to the area sown withcertified seed and the yields obtained using certified seed. Projectedtechnical coefficients are given in Annex 2. Assurances were obtained atnegotiations that a monitoring system acceptable to the Bank would be establishedby the NSC, and submitted to the Bank within a period of 12 months.

V. SEEDS PRICING AND FINANCIAL PROJECTIONS

A. Seeds Pricing

5.01 Under the project there would continue to be three sets of pricesfor seed, one for registered seed produced and processed by INIAP, one forcertified seed produced by contract seed growers for EMS, and one for theprocessed certified seed sold by EMS to farmers (Annex 7 Tables 1 and 2).

INIAP-Registered Seed and Contract Growers

5.02 The price for registered seed, as set by INIAP, taking into accountthe production and processing, would be 5% to 30% higher than prices projectedfor certified seed. However, registered seed is planted only by the certi-fied seed growers, and, as shown in Annex 8, Tables 1 to 4, its cost haslittle effect on total certified seed production costs. Certified seedproduced by contract growers would be priced at the commercial grain levelat the time of harvest, plus premiums ranging from a minimum of 15% to amaximum of 30%. The Annex 8 tables also show that a 15% premium for certifiedseed produced by contract growers would permit returns of at least 30% on themarginal investments that have to be made by farmers to produce certifiedseed, which would make seed production sufficiently profitable to be attract-ive. Rice seed now brings a premium of 30% over the commercial price, whichseems unnecessarily high, but it is in line with the present price policy.

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EM'S Certified Seed

5.03 EMS prices for some certified seed (after dockage, 1/ processing,treatment and packaging) would have to be increased by about 12% over currentprices to cover all costs and still allow EMS a satisfactory rate of returnon its investments without any sort of subsidy. Current prices have beendetermined on the basis of subsidized short-term credit for seed stocks andother operating costs. They do not include a return on investments consist-ing of the old processing facilities transferred to EMS from MAG. Projectedprices for EMS cerSified seed (Annex 7) would represent differences of about65% to 75% over the prevailing grain market prices for wheat, soybeans andbeans; 90% to 100% over barley, soft corn, sesame, and peanuts; and 210% to230% for rice and hard corn. T'he wide range is due partly to the differentamounts of dockage, which range from 15% to 20% for wheat and rice seed to60% for hard corn seed. The prices for pasture seeds are based on currentprices for imported seeds. All prices are established at distribution centersand include transportation costs to these points (Annex 9, Tables 1 and 2).

5.04 The yield increases per hectare that a farmer could expect toobtain by switching to certifie,l seed (Annex 2, Table 6) while making noother change in his traditional production practices indicate that, exceptin the case of barley, certifiedl seed prices could be increased substantiallyand still remain a very attract:Lve investment to farmers (Annex 7, Table 3).Assurances were obtained at negotiations that an annual price review wouldbe made by the National Seed Cotncil (NSC) in connection with its functionof monitoring the impact of the project, which report would be assessed bythe Minister of Agriculture. Assurances were obtained also that, in thelight of the said price reviews the Government would effect the necessaryadjustments in the prices paid by farmers for certified seeds supplied byEMS and adopt other measures necessary to: (a) enable EMS to have an annualrate of return of not less than 10% on its net assets, and (b) ensure thatfarmers would have the necessary incentive to utilize certified seeds.

B. Financial Projections

Contract Seed Growers

5.05 Contract seed growers would require no long-term investments beyondthose they have already made for the production of commercial grain. Theywould, however, have higher production costs per hectare for certified seedgrowing due to intensive land preparation, more agro-chemicals, higher costof basic seed and more labor than for commercial grain production, but reve-nues would be higher as a result of higher yields and higher prices paid forcertified seed, including dockage. Annex 8 shows that, for all crops under

1/ Discarded seeds not acceptable undertified seed standards.

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the project, the revenues obtained by contract growers from the sale of seedsexceed the costs by amounts sufficient to make seed growing under contract anattractive business.

Seed Corporation (EMS)

5.06 EMS (para. 2.10) would account for over 60% of total project costs,mainly for investments related to the construction of its three processingplants, and it would be the only entity that would receive project funds onloan. Its repayment capacity would be related to its revenues from the saleof processed certified seed and from the sale of dockage resulting from theseed purchased from contract growers. Revenues from the sale of seeds havebeen estimated assuming a 12% increase over existing sale prices. Based onthese assumptions and the projected volume of certified seed sales, thefinancial rate of return on EMS investments would be about 12% (Annex 9).Since the intention is that EMS' operations be on a commercial basis, seedprice projections and financial forecasts would be prepared and updatedannually. Not less than two months before the start of each financial year,the forecasts would be reviewed by its directors in conjunction with thelatest available accounts. In making its review, EMS would take note ofthe rate of return on capital employed. Assurances were obtained at negotia-tions that EMS would make these financial reviews.

5.07 The projected cash flow for EMS, given in Annex 9, shows that theCorporation would be financially viable to receive the proceeds from theBank loan channeled to it through the Government, to be repaid in 12 years,including four years of grace. Interest has been set at 9% per annum, whichis the prevailing rate in Ecuador for this type of loan. Short-term creditfor the seed stocks and operating costs, which would be provided by BNF, isset at 9% interest. This is the interest rate applied to all agriculturalloans in Ecuador, except that, in the case of Bank Loan 222-EC, sub-loans inexcess of US$25,000 equivalent carry a 12% interest rate. The 9% althoughnegative in the light of last year's rate of inflation, constitutes asubstantial increase over the 1% rate charged to EMS by the BNF until now.The Government favors the 9% rate so as to make seeds available at moderateprices.

VI. BENEFITS AND JUSTIFICATION

6.01 The main benefits from the proposed Seed Project would be thehigher crop yields that a substantial number of farmers would obtain fromthe use of certified seed. Annex 2, Table 6, details selected technical co-efficients under the project and shows estimated yield increases for projectcrops attributable to the use of certified seed alone, assuming that thefarmer does not change his cultural practices. These increases range from12% in the case of soybeans, to 20% in the cases of wheat, barley, and corn,and 25% in the case of rice. The use of fertilizers, which the Governmentintends to promote among farmers benefitting from certified seed, would addsubstantially to these projected increased yields.

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6.02 The incremental production attributable only to the use of theadditional 5,400 tons of certified seed to be marketed by EMS in Year 5 ofthe project, would be of the order of 25,000 tons annually, valued at US$4.3million (S/ 108 million). The total amount of certified seed to be marketedby Year 5, amounting to some 8,l300 tons (para 3.01), would be sufficient tosow about 152,000 ha (31% of the about 490,000 ha expected to be under proj-ect crops in that year). This woould compare to 68,000 ha (14%) sown withcertified seed produced without the project. The incremental productionwould be directly responsible for helping to reduce imports of wheat andoilseeds and indirectly respons:Lble for lowering imports of corn. Itwould also increase the exportable surplus of rice.

6.03 So far, only progressive farmers and cooperatives of rice producershave profited from the use of certified seed produced in the country (hardcorn, rice, wheat and barley). Under the project, however, seed would bemade available for the first time, through 25 seeds outlets, for crops grownmainly by small farmers, such as soft corn and beans. Certified seeds foroil crops would also be produced for the first time. Furthermore, it is ex-pected that the availability of seeds for typical small farmers' crops andthe experience already gained would make it possible to introduce the use ofcertified seed to a great number of small farmers quickly so that they couldreap the benefits in a relatively short time. Planting this seed would jus-tify the use of fertilizer and would maximize the effect of extension andcredit.

6.04 It is unlikely that th,e project would adversely alter the ecologyof the areas in any way. The use of organo-mercurial seed dressing in seedprocessing has been prohibited in Ecuador, due to its possible harmfuleffects, so it would not be used under the project.

6.C5 Using the cost and benefit assumptions of this report the economicrate of return of the project would be of about 48%, but if benefits wereto be reduced by 50% the economic rate of return would still be satisfactoryat 16.5%, and it would also remain high when various other alternativesassumptions are tested, as shown in Annex 10. The project benefit streamwas obtained by subtracting the increased seed expenditures generated bythe project from the gross value of the increased production. The projectcost streams include the investments (exclusive of price contingencies) andthe operating costs of the entities financed under the project (also seeAnnex 10).

VII. AGREEMENTS REACHED AND RECOMMENDATIONS

7.01 During negotiations, assurances were obtained from the Governmentthat:

(a) Within a year of effectiveness the additional 150 ha of landneeded by INIAP would be acquired (para 3.06);

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(b) all contracts in excess of US$100,000, technical specifica-tions, draft tender documents, bidding invitation documents,and bid evaluations would be approved by the Project TechnicalAdviser prior to submitting them to the NSC for its approval(para 3.17);

(c) the ProJect Unit would be established and the Executive Directorwould be appointed on the recommendation of NSC, who wouldselect a qualified candidate in consultation with the Bank(para 4.03);

(d) BNF would make adequate provisions for the credit requirementsof crop producers, seed growers and EMS as well as make thepurchase of certified seed a condition of production loans tofarmers (para 4.05);

(e) BNF and participating institutions would: (i) establish andmaintain separate project accounts, (ii) have such accountsaudited annually by independent auditors acceptable to theBank, and (iii) send audited BNF project accounts and EMSaccounts and their audit reports to the Bank within fourmonths after the close of each fiscal year (para 4.06);

(f) NSC would establish a monitoring system, acceptable to the Bank,to measure project impact and the adequacy of certified seedssupplies to meet the farmers' needs, and submit it to the Bankwithin a period of 12 months after effectiveness (para 4.07); and

(g) unless the Bank otherwise agrees, the Borrower would, from timeto time, adjust the prices paid by farmers for certified seedsupplied by EMS and adopt other measures necessary in order to:(a) enable EMS to achieve in Fiscal Year 1977 and thereaftera rate of return of not less than 10% on its net assets, and(b) ensure that the farmers will have the necessary incentiveto utilize certified seeds. To these effects it was also agreed:(A) that EMS would review on a yearly basis its financial resultsfor the previous fiscal year as well as make financial forecastsfor the following fiscal year, and (B) that NSC would review theprices paid by farmers for certified seed, at least once a year,obtaining MAG's assessment of such review (paras 5.04 and 5.06).

7.02 Conditions of effectiveness of the loan would be that:

(a) the NSC has been set up in accordance with the guidelinesshown in Annex 3 (para 3.04);

(b) the Executive Director had been appointed (para 4.03); and

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(c) BNF and the Government has signed an agreement, satisfactoryto the Bank, setting out disbursement and reimbursementprocedures and regulations (para 4.04).

7.03 It is recommended that retroactive financing not to exceedUS$100,000 be allowed to cover costs of consultants and other technicalservices incurred after January 30, 1976 (para 3.18).

7.04 With the indicated assurances obtained, the project is suitablefor a Bank loan of US$3 million, for a term of 15 years, including four yearsof grace.

ANNEX 1Page 1

ECUADOR

SEEDS PROJECT

The Agricultural Sector

Introduction

1. Ecuador's economic position has changed substantially since 1972,due to the recent development of petroleum production and exports, which hashad a dramatic effect on the country's internal and external financial positionand has accelerated the rate of economic growth. A basic question now is howfully will the country be able to utilize its considerably increased financialresources to strengthen its economic structure. Only by expanding, diversify-ing and raising the productivity of the non-petroleum sector can Ecuadorcreate the necessary opportunities for employment of its rapidly growing laborforce and raise the living standards of th2 broad mass of the population. Inconstant terms, the Gross Domestic Product (GDP) at factor cost increased onaverage by 5% annually from 1969 to 1971, by 7% in 1972, by 13% in 1973 andby about 10% in 1974. The rapid rate of economic growth in recent years hasbeen accompanied by price inflation, particularly in 1974; however, the rateof inflation declined from 28% (12 months ending March 1974) to 14% (12 monthsending June 1975).

Agriculture's Role in the Economy

2. Agriculture, including forestry and fisheries, remains the mostimportant sector of the Ecuadorian economy, although its contribution to theGDP declined from 33% in 1965 to 22% (preliminary) in 1974. The sectoremploys over 55% of the labor force and, up to 1971, provided over 85% ofexport earning; relative participation in the total export value then declinedrapidly as the value of petroleum exports increased. Preliminary figures for1974, based on export permits totalling US$1,050 million - 93% more than1973 - show that petroleum exports amounted to US$615 million (59% of total),products of agricultural origin, US$414 million (39% of total), and manu-factured goods, not of agricultural origin, US$21 million (2% of total).Import permits issued in 1974 totalled US$958 million - 80% higher than for1973. There remains considerable uncertainty as to the total value of im-ports of food items and inputs for the agricultural sector, but, thesecategories probably amounted to between 20 and 25% of the total value ofimports in 1974.

3. A recent study by the Center for Demographic Analysis has shown thatof the total population of 6.5 million (1974), 5.4 million fall within thecategory "low economic status and social prestige" and, of these, 3.4 millionlive in rural areas. According to Bank standards 1/ in 1974, between 50 and66% of the rural population (1.5 to 2.5 million) could be described as"absolutely poor" and 75% (2.8 million) were, by Bank standards, "relativelypoor."

1/ Report No. 588 Rural Development and Bank Policies: A Progress Report(December 2, 1974)

ANNEX 1Page 2

4. Agricultural production in Ecuador has neither kept up with the3.4% increase (1960-73) in population nor has it been able to satisfy theincreased demand from the sector which has benefitted from the higher realincome resulting from the rapid development of the petroleum industry. Inrecognition of the importance of increasing the food supply for urban areasand checking the spread of poverty in rural areas, the Government designated1974 as the "Year of Agriculture." The Government has devoted particularattention to encouraging production through raising minimum prices, removingimport duties on agricultural inputs and increasing the flow of credit to theagricultural sector. In spite of these incentives, the performance of thesector in 1974 was disappointing, although it appears that the previous down-ward trend was halted (Table 1). Factors which are believed to have limitedthe expansion of agricultural production during 1974 include the high costand shortages of inputs, particularly fertilizers; uncertainties concerningthe implementation of the 1973 Agrarian Reform Law; dissatisfaction withfarm-gate prices; the greater attraction of investment in urban propertiesand commercial enterprises and inadequate marketing and storage facilities.

Natural Resources

5. Ecuador covers about 27 million ha, of which the eastern 49% liesin the lowlands of the Amazon basin --the Oriente-- and the remainder isequally divided between the mountainous highlands of the Andes --the Sierra--and the Pacific coastal lowlands --the Costa. The rural population of some4 million is almost evenly divided between the Sierra and the Costa, but fewpeople live in the Oriente.

6. As shown below, the riain potential for increasing the area undercrops lies in the Costa while an extensive area of the Oriente could probablyeventually be developed under grassland. In the Sierra, there is a much morelimited potential for incorporating additional land for crop or livestock pro-duction.

Costa Sierra Oriente Total----------- million ha -----------------

GrasslandActual 1.2 1.6 0.4 3.2Potential 1.2 2.0 3.8 7.0

Arable landActual 0.8 0.7 Negligible 1.5Potential 1.8 1.1 0.8 3.7

TotalActual 2.0 2.3 0.4 4.7Potential 3.0 3.1 4.6 10.7

ANNEX 1Page 3

7. High rainfall areas, receiving over 5,000 mm a year, are located in

the northern part of the Costa and in the piedmont section of the Orientebetween Puyo and Tena. Most of the farming areas receive between 1,000 and2,000 mm of 7iin annually (Map, IBRD 11860), which is generally concentrated

in the early part of the year. In the Costa and parts of the Sierra, second

crops are grown often with irrigation during the mid-year sumer season.

The wide range of altitudes and broken terrain of the Sierra produce a multi-

tude of climatic conditions throughout the farming areas. Soil fertility and

physical conditions also vary widely, from young volcanic ash to deep well-

developed soils of high agricultural potential. The diversity of micro-

climatic and soil conditions in Ecuador make it necessary to develop a range

for varieties of the principal crops and pasture plants to suit the various

ecological micro-regions within the main areas of production.

Farm Sizes and Rural Population Density

8. The National Agricultural Survey of 1968 included 633,000 holdings

on some 7 million ha out of the 11 million ha in the country believed to be

suitable for crop or livestock production. At the time of the survey, 74%

of the holdings were less than 5 ha and occupied 10% of the area, while farms

over 100 ha accounted for 2% of the total number and 47X of the total area(Table 2). During the 10 years in which there has been a Government program

on agrarian reform (1964-74), the form of land tenure has been changed on

about 0.2 million ha, and 0.8 million ha of previously unexploited land hasbeen colonized under official schemes. These two types of agrarian reformhave affected nearly 60,000 families, or rather less than 10% of the numberof holdings covered by the 1968 survey.

9. It is probable that some improvement in agricultural productivitycould be achieved through the more rational allocation of land, but thisalone could not raise production sufficiently to meet the national require-ments for food and other products of the land. In 1974 the rural populationdensity averaged up to eight persons per ha of cultivated land (TungurahuaProvince); in the Sierra, it averaged three persons and in the Costa twopersons per ha. Even if all suitable land were to be incorporated into farms,

these man-land ratios might be reduced to two persons per ha in the Sierraand one person per ha in the Costa assuming the rural population remained at

the 1974 level. It is evident therefore that the productivity per unit ofland must be raised substantially if total agricultural production is to beraised significantly.

Intensification of Production

10. The Government has recently promoted an ambitious mechanizationprogram, and, by abolishing import duties on agricultural inputs, hasencouraged the importation of tractors and farm machinery, fertilizers and

plant protection chemicals. This has lead to a proliferation of tractorbrands and the accumulation of fertilizer imported at 1974 prices, which were

considerably higher than prevailing a year later; however, these difficultieswere in the course of being resolved in July 1975.

ANNEX 1Page 4

Agricultural Credit - Banco Nacional de Fomento

11. The main channel for credit to the agricultural sector has beenthrough the Banco Nacional de Fomento (BNF), which has very substantiallyincreased its lending to the sector from SI 579 million (US$23 million) in1972 to S/ 1,129 million (US$45 million) in 1973 and then S1 2,621 million(US$105 million) in 1974 (Table 3). The number of loans made has alsoincreased sharply, from 26,000 (1973) to 41,000 (1974) (Table 4), althoughthe latter is only about 6X of the number of farm holdings enumerated inthe 1968 survey. The average loan size and loan amount per ha increasedconsiderably between 1973 and 1974, as shown below:

Average Loan Size Loan per haYear S/ US$ S/ US$S

Crops included in the 1973 39,003 1,560 2,465 99proposed project 1974 61,517 2,461 4,831 193

All crops 1973 36,586 1,463 2,853 1141974 56,095 2,244 5,292 212

Pasture 1973 40,196 1,608 - -1974 65,995 2,640 - -

Agricultural Credit - "Fondos Financieros"

12. On July 14, 1975, the Monetary Council (Junta Monetaria) issuedRegulation 781, which consolidates and amends all previous Regulations govern-ing Development Funds scheme (Fondos Financieros) established as part ofCentral Bank (CB) in 1973 to promote the development of crops, livestock,artisans, small industries, fisheries and tourism. The Development Funds areformed by the resources of private Banks; credit lines of the CB; a SpecialFund of the Government for the development of certain semi-permanent andpermanent crops, the purchase of breeding cattle and fixed investments neces-sary for beef and dairy production; and revenue from the sale of DevelopmentBonds by the Central Bank to private banks, which, with effect from August 31,1975. The Development Funds have also received disbursements from externalloans and credits from the US Agency for International Development.

13. Regulation 781 fixes 9% as the maximum interest rate for all opera-tions of the Development Funds, with the exception of the livestock develop-ment program, which is partially financed by Credit 222-EC. In only thiscase, 12% may be charged for loans of over US$25,000 equivalent, unless thesub-borrowers are members of cooperative societies established and approvedby the Land Reform and Colonization Institute (IERAC). The maximum terms ofloans which may be financed under the provisions of Regulation 781 are asfollows:

ANNEX 1Page 5

(a) seasonal, short-term crops, 360 days;

(b) the purchase of inputs and young stock for livestockproduction, working capital for artisans, small in-dustries, fisheries and tourism, two years;

(c) semi-permanent crops, five years;

(d) the formation and acquisition of fixed assets, sevenyears; and

(e) long-term crops, 10 years.

The Central Bank will re-discount at 3% interest up to 100% of the loans, butfor loans over two years, it will provide re-discount facilities for only thefinal two years of their terms.

14. Additional details on the provisions of the Development Funds forthe agricultural sector are given by Regulation 781. An annex lists cropsfor which loans may be rediscounted at the Central Bank and includes all thecereal and grain legume crops that are proposed for seed production under theproject, and in another annex for the livestock sub-sector, there is provisionfor financing the sowing and improvement of pastures. The limit for redis-counting was set at S/ 1,000 million (US$40 million) for crop production andS/ 180 million (US$7.2 million) for livestock production.

Agricultural Research

15. All official agricultural research in Ecuador is the responsibilityof the Instituto Nacional de Investigaciones Agropecuarias (INIAP), which wascreated in 1959 although it did not commence functioning until January 1962.The main station, "Santa Catalina," was established in 1962, 14 km south ofQuito, and, in the same year, a sub-station was opened 12 km south of Porto-viejo. In the following year, INIAP took over from the Inter-AmericanCooperative Service the station located 14 km south-east of Pichilingueestablished in the early 60ts and it also set up a sub-station 38 km west ofSanto Domingo. Work started in 1969 on the Boliche sub-station 26 km east ofGuayaquil and it was opened in 1971. INIAP has evolved as an institution ofmajor importance in Ecuador and has attracted the support of the RockefellerFoundation and bilateral and international agencies. In 1974 the professionalstaff totalled 190 engaged in plant breeding, agronomic and plant protectionresearch, studying the feeding and management of livestock and research intoagricultural economies. Thirteen years of research have provided a good tech-nical basis for practical advice on increasing agricultural productivity, and,during this period, INIAP has developed and tested improved varieties of mDstof the major crops which should be included in the project, although intensifiedresearch should be devoted to produce improved varieties of soft corn, beansand pasture species.

ANNEX 1Page 6

Extension Services

16. The Ministry of Agriculture and Livestock (MAG) includes Bureaus(Direcciones) for Crop Development, Livestock Development, Forestry, Market-ing and Rural Development (see Chart). Coordination of the various types ofadvice given is not yet satisfactory and many small-scale farmers and farmersdistant from provincial capitals still do not have access to technical adviceon farm management. However, for the proposed seed project, the followingexisting development "Programs" should be capable of ensuring that the limitedobjectives of the project are achieved within five years.

Programs of the Bureau for Crop Development Crops Promoted

Rice and hard corn Rice and hard corn

Temperate grains and forage crops Wheat, barley, soft corn andhighland pastures

Agricultural diversificatLon Peanuts, soybeans and sesame

Pulses Beans

Programs of the Bureau of Livestock Development Pastures Promoted

Agricultural Development Funds Highland and lowland pastures(Credit 222-EC)

Animal nutrition service Highland and lowland pastures

In addition, INIAP runs regular courses for farm managers and all types ofagricultural agents. These courses will play an important part in disseminat-ing information on the advantages of using certified seed of improved varietiesof crops and pasture species.

Agricultural Prices

17. The lack of a consistent price policy for the main agriculturalproducts has been an important constraint to agricultural development. TheGovernment recognizes this fact and has taken steps to improve the situationby forming two entities with special responsibilities in this field. A PriceSupervision Agency (Superintendencia de Precios-SP) has been established toset minimum reference prices and to regulate price margins in the marketingchannels for all important products. A National Agricultural Storage andMarketing Corporation (Empresa Nacional de Almacenamiento y ComercializacionAgropecuaria-ENAC) has been created to stabilize the price of the main agri-cultural products by intervening in the market, however so far it has notbeen very effective as it lacks sufficient storage facilities and experience

ANNEX 1Page 7

in marketing. These new agencies provide a framework for the implementationof price policies, but further improvement is necessary in the determinationof the policLes and in particular the relationship of domestic to inter-national prices. For example, the current domestic reference minimum pricefor soybeans in S/ 520 per quintal (US$457 per ton) while the internationalindicator price for Jan-June 1975 was US$225. 1/ Since oilseed crushers canimport soybeans freely, the actual farm-gate price is considerably below theofficial minimum price. Considerable improvements have been made recentlyto the wheat price structure and, in this case, the farm-gate price is prob-ably close to the official reference price. For the 1974/75 season, thewheat price to producers was S/ 250/quintal (US$220/ton); S/ 200 were payablein cash, S/ 30 in a voucher valid for the purchase of fertilizer and S/ 20in a voucher valid for the purchase of certified seed. The Ecuadorianauthorities are considering whether or not this type of payment might be usedfor other crops to promote increased production through the more wide-spreaduse of fertilizers and improved seed.

Export Crops

18. Bananas continue to be the most important export crops earningUS$113.5 million from 1,357,000 tons exported during 1974 (US$126.1 millionfrom 1,370,000 tons in 1973). The main production area has moved progressivelyfrom the northern and central parts of the Costa to the eastern parts of theProvinces of Guayas and Los Rios as the Gros Michel variety has been replacedby the Panama-disease resistant Cavendish variety. Other farming activitiesare required in the former main areas of production. Cocoa exports in 1974brought in a record US$102.9 million (US$27.1 million in 1973) since anunusually large crop of about 90,000 tons coincided with exceptionally highworld market prices. More intensive attention is required to rehabilitateand replant cocoa trees in the best areas of the Costa and to improve on-farmprocessing and the internal marketing system. Coffee export value in 1974was US$67.4 million (US$66.7 million in 1973). This crop is grown in partsof most Provinces, but principally in the Costa. As in the case of cocoa,attention is required to improve the productivity of coffee, which is a cropof importance to many small-scale farmers. Sugar cane production is estimatedto total 5 to 6 million tons a year, but much of this is used for the produc-tion of panela 2/ and alcohol. For the May 1974 to April 1975 season, centri-fugal sugar production from the seven main mills totalled about 305,000 tons(270,000 tons in 1973/74). The value of exports during 1973 was US$12.1million but this rose to US$39.5 million in 1974, despite the fact thatEcuador was able to fill only about two-thirds of the import quota assignedby the United States (about 60,000 tons out of 96,754 tons). Castor beansare produced almost exclusively in Manabi Province of the Costa in associationwith corn, peanuts, cotton, cassava and coffee. In 1974, exports totalled19,331 tons valued at US$5.8 million, while production was about 39,000

1/ US cif Rotterdam.

2/ Non-centrifugal sugar.

ANNEX 1Page 8

tons. Abaca (Manila hemp) production rose from 6,557 tons in 1973 to about9,500 tons in 1974. Exports of vegetable fibers, principally 7,000 tons ofabaca, brought in US$5.7 million in 1974. Pyrethrum production in the Sierrahas declined from 612 tons of dry flowers in 1973 to only 338 tons in 1974.Production in 1968 amounted tc about 4,000 tons of dry flowers but since thenproduction has fallen rapidly, although world demand for pyrethrins hasrecently recovered. Other export items from the agricultural sector includeannatto seed (US$0.3 million in 1974), vegetable ivory (US$0.3 million in1974), hides and skins (US$0.1 in 1974) and also smaller values of tea, honey-dew melons, mushrooms, sun flowers, and woven "toquilla" straw (Panama hats),which, together, in 1974, brought in an additional US$4.3 million. Forestryproducts such as balsa bamboo and other woods, earned less than US$0.2million in 1974, but the value of exports from the fisheries sub-sectortotalled US$17.1 million (US$30.0 million in 1973). With the exception oftea and bananas, and possibly Panama hats, the prospects are favorable forincreasing exports of all items mentioned above.

Domestic Consumption Products

19. The domestic requirements for wheat in 1974 were considered by MAGto have totalled about 225,000 tons; however, the supply amounted to no morethan 205,000 tons made up of 55,000 tons of national production and about155,000 tons imported at a total cost of US$35.5 million (US$229/ton). Inthe national development plan published in December 1972, 1/ it was projectedthat domestic production would rise to 129,000 tons by 1977. In the proposedseed project, it has been assumed that the area under wheat will not increasein the immediate future because production costs are high and, at currentprices and yields, the profit margin is not sufficiently attractive to bringnew areas into production. Existing wheat farmers are expected to benefitthrough using improved seed; and, over the five-years of the project, it isexpected that the national average yield will increase from 936 kg/ha to nearly1,100 kg/ha. The area under barley has steadily declined, from an average of136,000 ha (1962-70) to 98,000 ha (1971-74). The area harvested in 1974totalled 61,000 ha producing about 56,000 tons (918 kg/ha). In addition,imports of 6,300 tons of malting barley a year were required by the brewingindustry. Approximately two-thirds of the total supply of barley is usedfor human consumption and the balance goes for stock feed (3,000 tons),brewing, seeds and waste.

20. INIAP has ready for release a new variety of two-row barley itconsiders suitable for brewing; however, the local beer industry maintainsthat it would prefer to continue to import barley from Chile and Colombia.

1/ Plan Integral de Transformacion y de Desarrollo 1973-77.Junta Nacional de Planificacion y Coordinacion Economica.

ANNEX 1Page 9

About half the area of wheat and of barley is grown on farms of less than10 ha and only 22% to 26% of these crops are grown on farms of over 100 ha,which constitute only 1% of the number of growers (see below):

Less than 10 ha 10 to 99.9 ha 100 ha and Over% of X of % of % of X of % of

Harvested Number of Harvested Number of Harvested Number ofFarm Size Area Growers Areas Growers Areas Growers

Wheat 46.2 84.6 32.3 14.3 21.5 1.1

Barley 54.1 90.4 20.0 8.6 25.9 1.0

21. Rice production has fluctuated considerably from year to year inresponse to changes in prices, land tenure policies and climatic variations.The 1974 crop totalled 152,000 tons of milled rice, which was the highestquantity recorded for one year, but a record amount of about 21,000 tons ofall forms of rice was imported during 1974 at a cost of US$9.1 million.Assuming that there was no significant change in stocks, the apparent con-sumption in 1974 was 172,000 tons. There can be no doubt that this quantitycould be produced in Ecuador, which should also be able in the future toregularly export significant quantities of rice. The main areas for develop-ment are in the Guayas River Basin. Grain handling and storage facilitiesrequire considerable expansion and improvement.

22. According to the 1968 survey, 41% of the rice area was on holdingsof over 100 ha and only 24% was on small farms - under 10 ha. Since thattime, the relative importance of small-scale farmers has increased, but sincethe 1974 Agricultural Census results are not yet published, no more recentinformation is available.

23. During 1974, about 62,000 tons of edible fats and oils were consumedin Ecuador. In addition, about 24,000 tons of soap were produced in the sameyear. Approximately 97,600 tons of edible vegetable oilseeds were processedin 1974 (71,400 tons in 1973). The production of oil was as follows:

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1973 1974 Preliminary 1975 EstimateField Crude Field Crude Field Crude

Production Oil Production Oil Production Oil

Palm fruit bunches 51.0 - 68.0 - 88.0 -Palm oil - 7.8 - 11.0 - 14.0Palm kernals 5.0 - 2.7 - 3.7 -Palm kernal oil - 2.2 - 1.3 - 1.8Cottonseed 8.2 - 14.5 - 18.0 -Cottonseed oil - 1.4 - 2.5 - 3.0Sesame 1.5 - 1.7 - 1.7 -Sesame oil - 0.7 - 0.8 - 0.8Peanuts 0.5 - 1.5 - 1.5 -Peanut oil - 0.2 - 0.6 - 0.6Soybean 3.7 - 8.2 - 13.7 -Soybean oil - 0.5 - 1.5 - 2.5Fish oil - 0.7 - 2.2 - 2.5Other oilseeds 1.5 - 1.0 - 1.0 -Other oils - 0.7 - 0.5 - 0.5

Totals 71.4 14.5 97.6 3.4 127.6 25.7

Imports of edible oils in 1974 amounted to about 15,000 tons, of which 11,300tons was soybean oil costing US$8.6 million. Other imports of vegetable oilsand greases included 7,500 tons of choice white grease, 1,000 tons ofParaguayan palm oil and 3,000 tons of inedible tallow for the manufacture ofsoap. The balance of the requirements for domestic consumption and themanufacture of soap are presumed to have been derived from the livestock sec-tor, mainly in the form of butter and lard. There has been a rapid increasein the production of oil from African palms and recently the production ofsoybeans has begun to increase and contribute significantly to the localsupply of edible oil.

24. Cotton has been an important import crop but, in contrast, the1974 production was equal, and, in the case of long staple cotton, in excessof domestic requirements. The 1974 harvest totalled almost 42,000 tons ofseed cotton compared with under 20,000 tons in 1973. This sharp increasewas also of importance in increasing the local production of edible oils.

25. Tobacco production in 1974 recovered somewhat from the depressedlevels of 1972 and 1973 and amounted to about 2,000 tons. This was mainlythe black native variety, but also included some flue-cured, burley and cigarleaf tobacco. Imports of manufacturing tobacco increased to 635 tons in 1974(481 tons in 1973) and, in addition, 97 million packs of cigarettes were im-ported (78.5 million packs in 1973) and approximately 80.5 million packs weremanufactured in Ecuador during the year.

ANNEX IPage 11

Crop and Livestock Products for Domestic Consumption

26. There are major discrepancies between various estimates of cornproduction in Ecuador. The data in Table 1 are from the Bureau of Planningof MAG, but they differ considerably from production estimates of the appro-priate programs of MAG, as shown below:

Bureau of Planning Corn Program

Ha Tons Ha Tons

Soft Corn 109,615 76,252 61,960 36,935

Hard corn 161,640 185,628 78,826 78,769

All corn 271,255 261,880 138,786 115,705

For the purposes of the proposed project, it has been assumed that the esti-mates of the specialized programs are more accurate than those of the Bureauof Planning of MAG. Seed requirements have been calculated with referenceto a total 75,000 ha a year of soft corn and two sowings of hard corn a yeartotalling 85,000 ha. Soft corn is grown exclusively in the highlands ofthe Sierra, mostly (85%) on farms of less than 10 ha although in 1974 about7% of the crop was grown on farms of over 100 ha. Hard corn is grown mainlyin the Costa and the lower slopes of the Sierra. According to the MAG program,7,323 large farms, 8,868 individual small farms and members of 88 cooperativesocieties produced hard corn in 1974.

27. Pulses play an important part in the farming system and the dietof the inhabitants of the Sierra (see bleow):

1973 1974Ha Production Ha Production

tons tons

Beans 66,335 31,961 66,181 28,001Broad beans 17,447 12,352 14,850 11,652Peas 15,506 8,961 14,460 9,384Lentils 3,580 1,541 3,700 2,275Edible lupins 2,260 685 2,041 723

Total 105,128 55,500 101,232 52,035

28. According to the MAG figures given above, the total production ofpulses in 1974 was about 3,500 tons (6.2%) less than in 1973. The 1968 surveyshowed that 40% of the area of beans was grown on farms of less than 5 ha and22% was on farms of over 100 ha, the balance of 38% being on farms of between5 and 100 ha.

ANNEX 1Page 12

29. Tubers and roots provide a major source of carbohydrates for domesticconsumption; potatoes in particular play an important part in the farming sys-tem of the Sierra.

1973 1974

Ha Production, tons Ha Production, tons

Cassava 54,111 741,265 48,895 837,666

Potatoes 43,573 539,198 39,138 503,340

Sweet potatoes 2,187 8,371 2,110 10,617

Total 99,871 1,288,834 90,143 1,351,623

30. The production of potatoes dropped by 6.7% between 1973 and 1974as a consequence of adverse weather conditions and restrictions in the use offertilizers by the commercial farms because of shortages and higher prices.Potato prices fluctuate sharply each year and until a proper system of storagehas been developed, it is unlikely that production will expand sufficientlyto assure the market of a regular supply throughout the year. The Inter-national Potato Center (Lima,-Peru) is cooperating with INIAP in a potatostorage research project and has also provided funds for specialized train-ing in potato production and potato seed technology. The total budget for1975 and 1976 is US$25,400. It is hoped that this work will lay the basisfor the inclusion of "certified" potato seed production in the national seedproject at a later date.

Pastures and Livestock

31. According to the 1968 survey, there were 1.2 million ha sown orplanted pastures in Ecuador at that time - 0.3 million ha in the Sierra 0.8million in the Costa, and 0.1 million ha in the Oriente. In the Sierra, themost common species sown have been Italian and perennial rye grass (Loliummultiflorum) and (L. perenne) and white or red clovers (Trifolium repens Land T. pratense). Alfalfa (Medicago sativa) is usually grown in a pure stand.All upland pastures tend to be invaded by Kikuyu grass (Pennisetum clandestinum).In the lowlands of the Costa, Guinea grass (Panicum maximum Jacq.) is the mostcommon type in. improved pastures, although elephant grass (Pennisetum purpureum)is also important. There has been only limited success with mixtures of grassesand legumes, but the perennial soybean (Glycine wightii) has been found to bea legume suitable for inclusion with Guinea grass.

32. Livestock statistics are not reliable but it is to be hoped that,when published, the 1974 agricultural census will provide a better basis forherd analysis and planning. The following information is derived from areport of the USDA-FAS, which accepts the projection made in 1973 by theJUNAPLA that the national herd of cattle is increasing annually by 2.5%.

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1973 1974

Total number of cattle ('000) 2,580 2,645Gross annual increase % 15.39 15.64Annual slaughter % 12.89 13.14Net annual increase % 2.50 2.50

Per capita consumptionof meat and offal kg 9.96 9.85

33. The above projections would imply that in 1974 meat and offal pro-duction totalled about 69,000 tons. During the same year, milk production isestimated to have been 279 million liters--equivalent to 43 liters per capita.Assuming the population growth rate for sheep at 26.2% and annual slaughterat 24.2%, the 1974 sheep population would have been about 2.06 million head,and, if the per capita consumption of mutton and lamb and offal continued at1.2 kg, their total consumption would have been about 8,475 tons in 1974.The 1974 production estimate for clean wool was about 800 tons. The pig pop-ulation is reported by JUNAPLA to be increasing at 7.5% a year, which wouldindicate a total of 2.35 million head in 1974, of which approximately 42%would have been slaughtered.

34. The dairy industry, sheep and pigs are concentrated mainly in theSierra while the main beef production areas lie in the Costa and the Oriente.

December 23, 1975

ECUADOR

SEEDS PROJECT

Crop Areas, Yields and Production

Average AveragePRODUCTS UNITS 1966 1967 1968 1969 1970 1966-70 1971 1972 1973 1974 1971-1974

CEREALS

1. Barley Area/'OOO ha 143 144 135 126 134 136 120 119 93 61 98Yield kg/ha - - - - - 618 - - - - 707Production '000 t. 77 81 76 78 110 84 69 73 79 56 69

2a. Corn (soft) Area/'OOO ha - - - 215 211 213 241 250 124 110 181Yield kg/ha - - - - - 728 - - - - 673Production '000 t. - - - 141 168 155 140 171 100 76 122

2b. Corn (hard) Area/OOO ha - - - 77 80 79 111 102 141 162 129Yield kg/ha - - - - - 1,165 - - - - 1,088

Production 'OOO t. - - - 81 102 92 121 101 153 186 14u

2. Corn (total) Area/'000 ha 267 364 255 292 291 294 352 352 265 272 310Yield kg/ha - - - - - 697 - - - - 844

Production '000 t. 175 228 129 222 270 205 261 272 253 262 262

3. Rice (milled) Area/'OOO ha 1ll 114 112 92 87 103 57 91 85 103 84Yield kg/ha - - - - 942 - - - 1,409

Production '000 t. Ill 111 65 83 117 97 82 105 134 152 118

4. Wheat Area/'000 ha 65 80 79 100 76 80 76 56 47 56 59Yield kg/ha - - - - - 1,000 - - - - 936

Production '000 t. 63 79 83 94 81 80 68 51 45 55 55

FIBRES

5. Abaca Area/'OOO ha - - 2 2 2 2 3 7 7 5 >FYield kg/ha - - - - - 2,000 - - - - 1,200 O F

Production '000 t. - - 4 4 4 5 4 7 9 6

6. Cotton (seed Area/'000 ha 24 24 21 22 9 20 8 14 23 46 23cotton) Yield kg/ha - - - - - 800 - - - - 934 4

Production '000 t. 18 16 14 24 8 16 11 12 20 42 21

Source: Ministry of Agriculture and Livestock, Quito: Estimacion de la superficie cosechada y de la produccion agricola del Ecuador 1962-19731974

September 8, 1975

ECUADOR

SEEDS PROJECT

Crop Areas, Yields and Production

Average AveragePRODUCT TNITS 1966 1967 1968 1969 1970 1966-70 1971 1972 1973 1974 1971-1974

TUBERS AND ROOTS

7. Cassava Area/'000 ha 28 27 27 35 35 30 37 41 54 49 45Yield kg/ha - - - - - 10,633 - - - - 12.370

Production '000 t. 276 323 234 390 371 319 383 277 741 838 560

8. Potatoes Area/'000 ha 44 48 49 41 47 46 53 38 44 39 44Yield kg/ha - - - - - 9,804 - - - - 12,620

Production '000 t. 347 399 511 457 542 451 681 473 539 503 549

0, Sweet Fotatoes Area/'000 ha 3 2 2 3 3 3 2 3 2 2 2Yield kg/ha - - - - - 2,900 - - - - 3,900

Production '000 t. 8 8 7 11 10 9 7 9 8 11 9

PULSES

10. Beans Area/'000 ha 82 79 86 85 82 83 67 62 66 66 65Yield kg/ha - - - - - 458 - - - - 444

Production '000 t. 36 38 35 38 41 38 30 26 32 28 29

11. Broad Beans Area/'000 ha 35 34 34 21 24 29 23 13 17 15 17Yield kg/ha - - - - - 586 - - - - 706

Production '000 t. 21 20 20 11 15 17 15 9 12 12 12

12. Lentils Area/'000 ha 3 3 2 2 2 2 3 2 4 4 3Yield kg/ha - - - - - 383 - - - - 390

Production '000 t. 1 1 1 1 1 1 1 1 2 .2 1

13. Lupins (edible) Area/'000 ha 3 3 3 3 4 3 3 3 2 2 2Yield - - - - - 845 - - - - 553

Production '000 t. 3 2 3 1 3 3 2 2 1 1 1

14. Peas Area/'000 ha 31 31 41 23 30 31 23 17 16 14 18 m aYield kg/ha - - - - - 581 - - - - 586 XProduction '000 t. 18 18 22 11 21 18 14 9 9 9 10

0

Source: Ministry of Agriculture and Livestock, Quito: Estimacion de la superficie cosechada y de la produccion agricola del Ecuador 1962-19n

September 8, 1975

ECULADC)R

SEEDS PROJECTI

Crop Areas, Yields and Production

Average AveragePRODUCT UNITS 1966 1967 1968 1969 1970 1966-70 1971 1972 1973 1974 1971- 1974

OIL SEEDS

15. African Palmi Area/'000 ha - _- - - 7 8 9 11 9Yield kg/ha - - - - 1,629Production '000 t. - - - - - - 12 15 13 17 14

16. Castor Beans Area/'000 ha 24 22 16 23 16 20 31 26 46 44 37Yield kg/ha - - - - - 1,000 - - - - 1,014Production '000 t. 25 23 9 24 17 20 35 23 52 39 37

17. Peanuits Area/'000 ha 15 12 14 6 6 11 10 12 15 19 14Yield kg/ha - - - - - 711 - - - - 886Production '000 t 12 0 6 5 7 10 11 13 17 13

18. Sesame Area/'000 ha 2 2 3 2 3 2 2 3 1 2 2Yield kg/ha - - - - - 771 - - - - 830Production '000 C. 2 1 2 2 2 2 2 2 1 2 2

19. Soybeans Area/'000 hi - - 1 1 1 1 1 1 1 3 1Yield kg/ha - - - - - 948 - - - - 1,318Production '000 t. - - 1 1 1 1 1 1 2 4 2

MISCELLANEOUS

20. Pyrethrum Area/'000 ha 8 9 9 4 3 7 3 2 1 1 2Yield kg/ha - - - - - 394 - - - - 420Production '000 t. 3 4 4 2 1 3 1 1 1 1 1

21. Tea Area/'000 ha - - - 1 1 1 2 2 2 2 2Yield kg/ha - - - - - 684 - - - - 4,125Production '000 t. - - - 1 1 1 4 8 9 12 8

22. Tobacco Area/'000 ha 1 2 3 2 2 2 2 1 1 2 2Yield - - - - - 818 - - - - 907 D 1-Production '0(0 t. 2 1 1 1 2 2 2 1 1 2 1 a ><

- 0

Source: Ministry of Agriculture and Livestock, Quito: Estimacion de la superficie cosechada y de la produccion agricola del Ecuador 1962-197"I

September 8, 1975

ECUADOR

SEEDS PROJECT

Crop Areas. Yields and Production

Average AveragePRODUCT UNITS 1966 1967 1968 1969 1970 1966-70 1971 1972 1973 1974 1971-1974

MAIN EXPORT CROPS

23a. Banana (Total) Area/'OOO ha 187 203 195 190 190 194 181 171 162 152 167Yield kg/ha -- - - 17,691 - - - - 20,132

Production '000 t. 2,744 2,937 3,920 3,870 3,688 3,432 3,512 3,296 3,203 3,397 3,352

23b. Banana Area/'O00 ha 164 160 157 148 124 151 111 101 93 92 99(Export type) Yield kg/ha -- -- -- - - 13,517 - - - - 21,636

Production '000 t. 1,965 1,812 2,068 2,260 2,098 2,041 2,093 2,088 2,070 2,315 2,142

24. Cacao Area/'O00 ha n.a. n.a. n.a. 228 228 228 219 218 213 222 218Yield kg/ha - - - - - 224 2/ - - - - 308

Production '000 t. n.a. n.a. n.a. 48 54 51 49 67 62 91 67

25. C-offee Area/'000 ha 218 208 191 215 215 209 215 221 227 232 224Yield kg/ha - - - - - 306 - - - - 275

Production '000 t. 74 66 63 56 60 64 59 58 52 77 62

26. Sugarcane Area/'O0O ha 113 108 122 n.a. n.a. 114 3/ n.a. 88 89 101 93 4/Yield kg/ha - - - - - 76,202 3/ - - - - 63,669 4/

Production '000 t. 9,004 7,528 9,529 n.a. n.a. 8,687 3/ - 5,576 5,477 -6,647 5,900 4/

1/ National Banana Program, Guayaquil.

2/ 1969-70.3/ 1966-68.4/ 1972-74.

Source: Ministry of Agriculture and Livestock, Quito, Estimacion de la superficie cosechada y de la produccion agricola del Ecuador 1962-19731974 e

September 8, 1975 M

-10

ANNEX 1Table 2

ECUADOR

SEEDS PROJECT

Farm SDize Distribution, 1968

Farm Size ha Number of Farms Area000 '000 ha %

Less than 4 470 74.3 709 10.2

5 to 9.9 69 10.8 466 6.7

10 to 99.9 84 13.3 2,480 35.8

100 and over 10 1.6 3,282 47.3

Total 3 100.0 6 937 100.0

Source: Agricultural 9urvey, 1968.

October 3, 1975

ECUADOR

SEEDS PROJECT

Value and Percentage Distribution by Activities of Loans Provided by Banco Nacional de Fomentoto the Agricultural Sector, 1970-74

1970 1971 1972 1973 1974Value _p Value Value , Valuie , Value e

S/'OOO1 S/'OOO- S/'OOO S/''OOO S/'OOO

Crops 224,293 46.o 253,816 44.1 221,775 38&3 593,391 52.6 1,405,282 53.6

Livestock and Pastures 195,529 40.0 242,934 42.1 278,421 48.1 412,015 36.5 856,621 32.7

Agricultural Machinery 46,996 9.6 46,226 8.0 44,589 7.7 82,100 7.3 259,850 9.9

Land Improvements 21.301 4.4 33.428 5.8 34.638 5.9 41.020 3.6 92.730 3.8

Total 438.119 100.0 576,40 4 100.0 579.423 100.0 1,128.526 100.0 2. 6 21. 4 83 100.0

Source: Banco Nacional de Fomento.

September 17, 1975

H1F

ECUADOR

SEEDS PROJECT

Agricultural Credit P)rovided by Banco Nacional de Fomento

1973 1974Number Average Total Average Number Average Total Averageof Total Value per Area Value of Total Value per Area ValueLoans Value Loan Financed per ha Lo ans lue Lodn Financed Per ha

S/'000 ha S/'OOO S/'OOO S/'ooO ha 8/1000

Wheat 923 23,227 25,165 9,770 2,377 1,249 30,814 24,671 10,171 3,030Barley 218 12,548 57,560 6,956 1,804 404 22,235 55,037 6,845 3,248Corn 2,436 66,889 27,459 29,158 2,294 5,159 181,934 35,265 53,030 3,431Rice 4,735 225,501 47,624 87,729 2,570 6,559 613,422 93,524 iO5,835 5,796Soybeans 42 2,293 54,595 506 4,532 85 14,260 167,765 2,652 5,377Pearuts 43 :1,541 '35,837 203 7,591 445 10,379 23,324 2,063 4,983Ses=ae 106 2,666 25,151 1,364 1,955 73 14,018 55,wo4J 720 5,581Beans _ ';1 2.L79 17.56J2 _ 34 9.270 21.359 2.1z L 338Sa-total os648,6 337,1=1. 39,003 )36,753 Z 1 8 6 r83s473 'All other crop loans 7j5 256.247 332828 71.256 3,596 10.644 518,950 48,755 82.095 6.321

1. Total for Crops 16,219 5930391 36,586 208,009 2,853 25,052 1,405,282 56,095 265,568 5,292

Pastures 1,593 64,033 40,196 1,888 124,598 65,995

All other livestock loans . 1 7.282 46.578 117 732.023 63.220

2. Total for Livestock andPastures - 9,064 412,015 45,456 13,4k07 856,621 63,609

3.. Total for AgriculturalM*,chinery 778 82,100 105,527 2,129 259,850 122,053

14. Total for Lan,;Development _ 2 409 41.020 100.293 479 99 730 208.205

OveraJj Total 26,470 1,128,526 42,634 41,127 2,621,483 63,741

So,urce: Bui3to Nacional de Foner.to, Quito.

September 17, 1975

ECUADORSEEDS PROJECT

Ministry of Agriculture and Livestock (MAG)Organization Chart

|Agricultural Council -iNISTER

Technicaf Committee Sub-Secretary

n Bureau of | | GeneralPlanning | Coordination ........ |. International Technical Assistance

- _ ~~~~~~~~~~~~~~~~~~~I E RAC ~Bureau of ___L* I_ Audit l !| Bareau of | |Legal AffairBeasuof Bureau of

Rural ~~Forest Bureau, ofIEH

- elations Adminitreato n Developmei t Developmen Marketin 1

tura Bu reau iLCRM r. f ................... . .. .. .. .... .of

Program for Rice, riculture LivestockHard Corn and ENPControl of Mills , D

|Sub-Director SbDrcorogram of Temperate - irectCimate Grains : _

and Pastures Technical Admn e

|Dvsfation & ................ Assistance aSeices [ v el en . Assistance Services

Cacao Developmentam~~~~~~~~~~~~~~~~~~~~~rmFr

Program of Ban a nsi rp D seaed Foontro an M h Livestock Animal and Tr aCertcation Cr D C . Management Breeding

Wvatiees~~~~~~~~~~~~~~~~~~Nee-iu

Program nf Cott aboratoryand Fibres : II Service * -

* ' ' I ~~~~~~~SoIls S Agricultural I ivestock L I Aia -F,ograrn of r u M achinery |Developmentr Nuito |

I Cane and *| Derivatives |j

| Crgrmof f ee| Plant | Animal PrCoffee o Health Health

Program for thePromotion of .

|Agricultural Companis Key: Direct control 0ZIndirect control .World Ban k-15182Statutory bodies ________ H8,

ANNEX 2Page 1

ECUADOR

SEEDS PROJECT

The Seeds Industry

A. Present Situation

1. The production of improved seed was started in Ecuador shortly afterthe creation of the National Agricultural Research Institute (INIAP) (Chart 1).Initial efforts were concentrated on the development and introduction of im-proved varieties of cereals and later other crops were included in the researchprogram. Basic and registered seed production of various crops was started byINIAP in the mid-1960s, followed by further stages of multiplication of INIAPseed by some of the specialized crop programs of the Ministry of Agricultureand Livestock (MAG), which were also responsible for seed distribution. Therewere three main programs involved: (a) the Grain Program, which was respon-sible for wheat, barley, oats and soft corn; (b) the Rice and Hard CornProgram; and (c) the Agricultural Diversification Program, which was respon-sible for oilseeds, including soybeans, peanuts, sesame and castor beans. In1966, the Seeds Certification Department (DCS) was created and given the re-sponsibility for regulating certified seed production and the administrationof seed quality control measures on a national scale. The DCS did not becomeoperational until 1969 when the first seed regulations and standards wereofficially prescribed. The introduction of new varieties and basic seed pro-duction by INIAP increased rapidly between 1962 and 1972 but the growth andeffectiveness of other components of seed programs lagged behind. The DCSwas unable to fulfill its responsibilities because it lacked sufficient auton-omy and resources. The specialized programs lacked the institutional andtechnical capabilities necessary for a well defined and organized system ofseed production and distribution. Furthermore, there was no coordination atthe national level to provide the guidance and direction essential for theprogressive development of a seed program.

2. A major breakthrough in organized seed production and distributiontook place when the Seed Corporation (EMS) -- a joint enterprise supported bythe Government and private capital -- was established (Chart 2). EMS, createdin 1973, became operational in 1974 as the first seed company in Ecuador. Thecompany's major activities are the production of certified seed (through con-tract seed growers), processing, storage, and the distribution of certifiedseed, wheat, barley, hard corn, rice and oats. It has been agreed that thespecialized crop programs of MAG will no longer be concerned with seed produc-tion activities, except those related to oilseeds, still to be handled by theAgricultural Diversification Program. The Government is, however, consideringwhether to transfer the production of seeds of oil crops to EMS or to createanother seed company specifically for this purpose.

ANNEX 2Page 2

Variety Development and Introduction

3. LIproved varieties for most of the main crops are available fromINIAP. However, the inflow of new ones has been slow. A number of existingwheat varieties are no longer suitable for seed production and need to bereplaced due to susceptibility to diseases (mainly stem rust) and varietalmixture. Furthermore, intensified research is needed for the development ofsuitable varieties of soft corn, pastures and beans. The current list ofvarieties eligible for seed certification and recommended by INIAP is givenin Table 1.

Basic and Registered Seed Production

4. Basic and registered seed for most of the mjaor crops are producedby INIAP at four major stations (Santa Catalina, Boliche, Pichilingue andPortoviejo) (Table 2) in quantities which exceed the present requirements.Registered seed supplies for wheat and barley are produced under contractwith INIAP by farmers in the Sierra because of the lack of sufficient land onINIAP stations to grow the range of varieties required for the widely differ-ing climatological conditions of the country. Contract growing of basic andregistered seed production is not a desirable practice under present circum-stances in Ecuador because of the technical supervision by trained specialistsneeded. Therefore, INIAP requires more land for raising its own basic andregistered seed at suitable altitudes (Table 2). Since seed production acti-vities by INIAP have not been subject to adequate quality control in the past,basic seed for wheat and barley is presently not up to the standard requiredand substantial improvements are needed. Current (1975) and projections byINIAP of production of registered seed for the next two years are given inTable 3.

Certified Seed Production

5. Organized production of certified seed was started in 1974 by EMSwhen limited quantities of certified seed of wheat, barley, hard corn, riceand oats were produced by a group of about 40 selected seed growers undercontract with EMS. The program could not cover other crops such as oilseeds,soft corn, pastures and beans, due mainly to lack of resources as well astechnical and institutional requirements. These growers are well establishedand progressive farmers who meet the following criteria, which EMS has set upas its main guidelines:

(a) Farm location: ecological zone, accessibility to main roads andgeneral relation to other farms for the same crops;

(b) Farmer's competence and reliability;

(c) Availability of farm machinery such as tractors, combines, andseeders,

(d) Farm size and credit rating of the farmer with agricultural creditentities (mainly BNF); and

ANNEX 2Page 3

(e) Availability of irrigation facilities (mainly for the Costa)and seed storage.

Processing and/!Storage

6. INIAP has three small seed processing plants in Santa Catalina,Boliche and Pichilingue and another plant is under construction at thePortoviejo station. Processing facilities of INIAP are capable of handlingall registered seed requirements, with the exception of Santa Catalina wheresome supplementary equipment is required. Storage facilities at INIAPstations are inadequate and should be increased. Processing and storage ofcertified seed is the responsibility of EMS. Available processing and stor-age facilities of EMS are all in the Sierra and are very inadequate. Theyconsist of five seed cleaners and treaters, located, respectively, in Quito,Cayambe, Riobamba, Guaranda and Cuenca, and very limited storage space. Atthe present, EMS utilizes INIAP processing and storage plants, under contract,in Boliche and Pichilingue for handling rice and corn. Quantities of certi-fied seed produced by EMS in 1974 are given in Table 4.

Distribution

7. Certified seed is distributed by EMS through warehouses locatedthroughout the major production areas. The main centers for Sierra are theseed plants in Quito, Cayambe, Riobamba, Guaranda and Cuenca. In addition,there are 24 stores belonging to Banco Nacional de Fomento (BNF) and MAG usedby EMS as seed distribution points for which it pays a charge of about 2% ofsales value. The distribution network in terms of national coverage is fairlysatisfactory and requires only minor improvements. The name and location ofthe distribution centers are given in Table 5 and indicated on the map (IBRD11861).

Prices

8. There are different sets of prices for each stage of seed produc-tion; registered seed (INIAP), certified seed produced by contract seedgrowers, and processed certified seed sold by EMS. The prices for registeredseed are determined by INIAP based on production costs and in relation toprices for certified seed. Seed growers' prices are usually commercial pricesat harvest time plus a predetermined premium which for wheat, barley and cornis 15% and for rice is 30% of the commercial prices. The prices for certifiedseed (processed, bagged and treated) is determined by a special commissionin the Ministry of Finance (Superintendencia de Precios). The seed priceshave been subject to frequent fluctuations in recent years. The prices forcommercial crops, registered and certified seeds for 1975/76 are given inAnnex 7, Table 1. The proposed National Seeds Council would make regular- at least annual - recommendations to the Superintendencia de Precios,through the Ministry of Agriculture and Livestock, on seed price structuresfor the following season.

ANNEX 2Page 4

Quality Control

9. The DCS is the agency responsible for quality control measures ofseed programs and its main act:ivities are field inspection and seed testing(Chart 3). Crop and seed standards for certified seed, as well as methodsand procedures for crop inspection, are officially prescribed in the GeneralRegulations that were established in 1969. The standards for certificationcover 12 major crops--wheat, barley, oats, rye, rice, maize, cotton, soybeans,potatoes, sesame, peanuts, and. beans. There are two seed testing laboratories,one in Quito and one in Guayaquil. Both are well equipped to meet presentand near future requirements, but the technical level of staff would requiresubstantial improvement. There are about 24 technical staff under DCS, ofwhom 17 are field inspectors. Proper training of field inspectors and seedanalysts and provision of seed promotion equipment as well as transportationare the major requirements for the improvement of DCS.

B. Seeds Industry Under the Project

Seed Crops

10. The project would cover mainly the following crops in the two mainagro-climatical regions, as listed below:

Sierra Costa

Wheat RiceBarley Hard cornSoft corn SoybeansRyegrass PeanutsAlfalfa SesameBeans Guinea grass

Perennial soybeansBeans

Consideration was given for the possibilities of including potatoes underthe project due to its importance as a major food crop and also its majorrole in the farming system of Sierra. However, it was not found feasible tocover potatoes, mainly because additional research is needed for the develop-ment of a proper system for seed storage. Until such a system is developed,increased and expanded production of potatoes would be unlikely (Annex 1).

Technical Coefficients

11. A series of technical coefficients has been used for seeding rates,yields with and without project, and seed processing dockages. Yield assump-tions under the project and for crops planted with project seed have been

ANNEX 2Page 5

made on a very conservative basis. The technical coefficients used through-out this report in calculating production estimates, seed processing outputsand the like are given in Table 6.

Reference Areas for Project Crops

12. Considerable efforts were made to determine the existing totalareas and possible trends for the next five years for the crops to becovered by the project. The mission's best estimates are given in Table 7.The data presented do not necessarily correspond in all cases with thestatistics published by the Government. The basis for mission estimates hasbeen a combination of sources which include statistics made available bydifferent crop programs, information supplied by different agriculturalmissions in Ecuador and mission's own investigations during visits to differ-ent production areas. As illustrated, only areas under rice and soybeansare expected to increase modestly. In the case of rice, the projected in-crease is due to the continuous increase in demand and profitability of itsproduction. Furthermore, the area under rice has shown steady increase forthe past several years. For soybeans, there has been a substantial priceincrease by the Government which is intended for expanded production in orderto substitute imports with local production. Production targets, as des-cribed below, are determined in direct relation to reference areas.

Project Targets for Certified Seed Production and Distribution

13. Project targets are determined on the basis of expected need forcertified seed supplies in relation to total seed requirements for cropsunder consideration on the national scale. Pasture seed production underthe project ts aimed at substituting current imports by local production byYear 5. The targets are expressed in terms of the estimated percentagesof total seed requirements (except for pasture seeds) as well as correspond-ing areas to be sown with certified seed (Table 8). The targets are basedon a number of factors, the combination of which results in different ex-pected targets for different crops. The factors which are considered includethe following:

(a) The economic importance of the crop;

(b) Total production in relation to national requirements;

(c) Farm size and distribution;

(d) Response to certified seed;

(e) Need for increase in productivity;

(f) Seed supply and demand;

ANNEX 2Page 6

(g) Availability of improved and adapted varieties; and

(h) Past experience.

The target estimates for wheat, hard corn, rice and soybeans are higher (inpercentage terms) than others. In the case of wheat, for example, possibili-ties for expansion of production areas are quite limited, while increasedproduction is needed to reduce imports. The most practical and effectiveincrease would therefore be higher productivity per unit area. Therefore,more areas are expected to be planted with certified seed in order to obtainincreased production. The provision of certified seed should lead to con-siderable yield increases. Initially it is expected that the main benefici-aries will be the larger scale farmer; however, as the credit system becomesmore accessible to small farmers and groups of small farmers, they shouldalso derive substantial benefit from the project. As is shown in Annex 1,46% of the wheat and 54% of the barley area harvested in 1974 was from plotsof less than 10 ha. Rice growers are predominantly medium to large sizefarmers and they have already experienced much higher production with certifiedseed; therefore, about 50% of the area is expected to be planted with certi-fied seed by Year 5. In the case of soybeans, the program is quite new andseeds have had to be imported or obtained from INIAP. The number of growerswould be limited and, since certified seed is highly essential for optimumproduction, 50% of the area is expected to be planted with it. Beans andsoft corn are usually planted by large numbers of small size farmers spreadover a wide area. These farmers do not have much access to credit or othermeans for improved production so it is expected that a smaller portion of theareas under these crops would be planted with certified seed. The acreagesthat can be sown with the target levels of certified seed production areshown in Table 8b.

National Seeds Council

14. The National Seed Cotncil (NSC) would be responsible for overallsupervision and coordination for the seed industry, including implementationof the Seeds Project (Chart 4). It would be created by the Minister of Agri-culture and be responsible, as the highest authority at the national level,for all policy matters and related activities concerning seed requirementsfor all major crops in the country. A Project Executive rirector under theNSC would be appointed for the administration and coordination of all projectactivities and he would be assisted during the course of the Project by theProject Technical Adviser. Details regarding NSC and the Executive Director'sfunctions are given in Annex 3.

pNational List of Varieties

15. General. Variety development and introduction is a continuousprocess through which superior new seed varieties are introduced. A welldefined system for the introduction of new varieties is an essential require-ment for efficient and sound seed programs. All varieties, whether locally

ANNEX 2Page 7

developed or introduced from outside, must undergo a number of well estab-lished trials and tests, prior to their release for commercial production.The internationally accepted system for the release of varieties is theirinclusion in a National List of Varieties which is published by the highestauthority within the public sector concerned with the policy matters ofnational seed programs.

16. Designated Authority. The NSC would be the only authorized sourcefor the release of new varieties for commercial crop production through aNational List of Varieties, which would be published annually. The list wouldcover all the seed varieties eligible for certified seed production and dis-tribution. Seed legislation would make it illegal for any agency to intro-duce, either through importation or local development, any seed variety whichis not submitted to INIAP for evaluation and thereafter to NSC for considera-tion before it is released. Likewise, it would be illegal for any person toproduce and market seed under the certified label from varieties which arenot included in the National List of Varieties.

17. Recommended Procedures for Variety Release. Procedures for varietyevaluation through field trials and other tests are well established withinINIAP and conform with the international standards. All seed varietiesand planting materials would be subject to the required evaluation work byINIAP prior to submission to the NSC for consideration. This includes allseed varieties which may be imported into the country. After the completionof the evaluation work and upon availability of satisfactory results, byINIAP, the new variety would be submitted to the NSC with the following in-formation for every recommended variety:

(a) Variety name and species;

(b) Variety characteristics (height, tillering, and such);

(c) Origin;

(d) Number of years (or seasons) tested and locations;

(e) Detailed data on agronomic performance (yield, disease resistance,and such);

(f) Comparative data on the performance. of the newly recommended varietywith the existing ones for the same species;

(g) The agrc-climatical and soil requirements; and

(h) Any other relevant infermation.

ANNEX 2Page 8

18. The NSC would reviewr the detailed data and recommendations submittedby the INIAP and would consequently determine the eligibility of the submittedvarieties for inclusion in the National List of Varieties. For a new varietyto be included in the List, it must be superior in one or more characteristicsto the existing varieties of the same species for the same agro-climaticalconditions. The National List of Varieties would be reviewed on an annualbasis and the necessary amendments, if any, would be incorporated.

Registered Seed Production

19. General. The project requirements for all classes of seed prior tocsrtified seed class would be produced directly by the INIAP. This would in-clude breeder seed, basic seed and registered seed according to the estab-lished classification in EcuadDr. Plant breeders in different experimentstations would provide the breeder seed for different crops to the seed pro-ductioi. departments of INIAP, which, in turn, would multiply them for theproduction of basic seed in qu.intities according to project requirements.The basic seed would be furthe:r multiplied to produce the required registeredseed supplies for the production of certified seed. Field production ofbasic and registered seed would be carried out in the five INIAP experimentstations which are distributed' in various ecological zones of the country.The relevant data for the INIAP experiment stations which would be associatedwith the project are given in l'able 2.

20. Production and Seed Supply Targets. Registered seed production forall project crops would be available from Year 1 except for beans, whichwould be started in Year 2. Additional work on variety development is beingcarried out, and production of basic seed is expected for 1976. Projectionsfor registered seed requirements of the project are given in Tables 9 and lOa,respectively. Provision would be made for the purchase of 150 ha of suitableland in the Sierra for project production needs. In addition, three tractors,one combine, and two trucks would be provided as supplementary machinery toINIAP for production of registered seed of wheat and barley under its directmanagement.

21. Registered Seed Processing and Storage. The INIAP plant in SantaCatalina would be provided with an additional cleaner, scale and baggingmachine, and the existing seed processing and drying plants would receivetechnical improvements prior to the commencement of the project. Financingwould also be provided for 400 t:ons of storage in Santa Catalina, 100 tonsfor Portoviejo and 50 tons for ]Boliche and Pichilingue by the project.Additional financing would be provided for basic and registered seed testingequipment in the four major stat:ions.

Certified Seed Production (Contract Growing)

22. The production of certified seed for most of the major crops wouldcontinue to be undertaken by EMS through selected seed growers in different

ANNEX 2Page 9

regions of the country. Selection of the growers would be in accordance withcriteria EMS has been following (para 5). Seed growers would be registeredwith BNF and EMS and the latter would encourage and promote the formation ofa seed growers' association which would facilitate representation of seedgrowers in NSC, more favorable credit lines from BNF, a better quality controlsystem for production and many other advantages which could be derived fromorganized ventures.

23. Production, Quality Control and Seed Procurement. EMS would enterin contracts with the selected growers for the needed certified seedproduction of different crops according to the targets established under theproject. Total areas and expected production for each crop and for eachyear of the project are given in Table 11. The registered seed stocks neededfor the planting requirements of the given areas would be produced by INIAP(Table 10) and sold to EMS at cost prices. EMS would, in turn, sell theregistered seed supplies to the growers at cost. Details of crop productionconditions, quality control and the purchase of the seed crops by EMS wouldbe covered under the terms of contract between EMS and growers. Major pro-visions of a contract between the EMS and a selected seed grower would callfor the following:

(a) Name, address of the grower and location of the farm;

(b) Name of the crop species and variety(ies) to be grown by thegrower;

(c) Exact area(s) to be planted with the registered seed stocks for theproduction of certified seed;

(d) Sale of the needed registered seed supplies by EMS to the growerat INIAP prices (transportation costs would be extra);

(e) Agreement by the grower to follow the recommended cultural practiceswith regard to seeding rate and method, isolation, fertilization,insect and disease control, irrigation (if applicable), rogueing,and other operations needed for optimum production;

(f) Agreement by the grower to have his crop inspected at three differ-ent stages by an official field inspector, who would advise himof the needed measures for crop purity and maintenance in conform-ity with crop certification standards;

(g) Agreement by EMS to provide the grower with technical assistancewith regard to cultural practices outlined under (e);

(h) Agreemsnt by the grower to inform the DCS when the crop was readyfor final field inspection prior to harvest;

ANNEX 2Page 10

(i) A final field inspection by DCS, which would issue an officialcertification report, with copies to the grower and EMS. Com-pliance with crop certification standards would be the basis forthe purchase of growers' seed crop by EMS;

(j) Supervision of the harvest by EMS, which would provide the bagsfor the collection of seed and stocks; and

(k) Purchase of the seed crop by EMS at an agreed premium over andabove the existing commercial prices at the time of harvest. Suchpremium at present is 15% for wheat, hard corn, barley, oats and30% for rice.

24. Credit for Certified Seed Production. The BNF would be the mainsource of credit for seed growers. The seed grower must be registered withEMS to be eligible for credit. Present arrangements include credit by BNFup to 80% of the total investment and operating costs at an interest rate of9%, with up to seven years of amortization. No provisions would thereforebe made by the project for investment or operating credit for seed growers.

Certified Seed Processing and Storage (EMS)

25. General. The production of seed with a high degree of physicalpurity and quality would be a major objective of the project. All quanti-ties of certified seed, produced by contract seed growers, would be properlyprocessed and stored in three large-scale seed processing and storage centersthat would be established under the project. These centers would be con-structed for EMS and would consist of processing plants, storage facilitiesfor seed in bag and bulk, seed testing laboratories and offices. They wouldbe centrally located in relation to the areas where the bulk of certifiedseed would be grown. In addition to processing and storage operations, thethree centers would also function as the main distribution points for EMSand would be utilized for training purposes in their respective areas.

26. Geographical Distribution and Locations. The geographical distri-bution of seed processing and storage centers would be based on four majorcategories of crops and their respective production regions, as shown on themaps. Two centers would be established for the Sierra region, one which wouldserve mainly the provinces of Pichincha, Imbabura, Carchi, Cotopaxi andTungurahua where seed growers for wheat, barley and highland pastures wouldbe located, and one to serve mainly the provinces of Bolivar, Chimborazo,Canar, Azuay and Loja where contract seed growers for wheat, soft corn andhighland beans would be located. The third center would be established in theCosta where seed growers for rice, hard corn, beans and oilcrops are located.Major provinces involved would be Guayas, Los Rios and Manabi. A fourth seedprocessing center may be required in the future for oilseed crops, mainlysoybeans, in the province of Manabi. The inclusion of such facilities underthe project was not considered necessary since INIAP has under constructiona seed processing plant at its P'ortoviejo Station with adequate facilitiesand capacity to handle the initial project requirements. Furthermore, USAID

ANNEX 2Page 11

would finance cold storage facilities for oilseeds; therefore, no suchfacilities would be financed by the project.

27. Major Requirements and Specifications. The establishment of the

three seed centers would involve three distinct and inter-related phases:

(a) designing and construction of the needed buildings; (b) procurement ofmachinery and equipment; and (c) installation of equipment and test runs.

Specifications would call for:

(a) One plant of 4 to 5 tons per hour output capacity to be erectedin the Sierra Region for the processing of wheat, barley, alfalfa

and rye grass, with a total of 1,500 tons of storage facilities

(500 tons in bags and 1,000 tons in bulk);

(b) One plant of 2 to 3 tons per hour output capacity to be erected inthe Austral Region for the processing of wheat, soft corn and beans,

with a total storage capacity of 750 tons (250 tons in bags and500 tons in bulk); and

(c) One plant of 4 to 5 tons per hour capacity to be erected in theCosta Region for the processing of rice, corn, soybeans, beans,guinea grass and perennial soybeans, with a total storage capacityof 1,500 tons (500 tons in bags and 1,000 tons in bulk).

All plants would be of one-story design, with all equipment supported from

the floor area. A detailed list of equipment and corresponding specificationsare given in Annex 4, Table 5. A seed flow chart is shown on Chart 5. Total

seed quantities that could be processed would be about 4,000 to 5,000 tons for

the Sierra and Costa plants and 2,000 to 3,000 tons for the Austral plant.

28. Processing and Storage Criteria. Processing and storage operations

(Chart 5) would be conducted between harvest and sowing. Periods availablefor processing and storage are given in Chart 6. The design criteria of the

plants would facilitate processing of different types of seeds simultaneously.Major operations would involve the following:

(a) Weighing and Receiving. Harvested seed stocks would be brought tothe seed processing plants in bags. Trucks would be weighed on a

platform scale and the information recorded for payment to growersand dockage (mainly discards from cleaning and grading) calculations.On delivery, the seed may be transferred to storage bins for temporary

storage or immediately put through the processing lines.

ANNEX 2Page 12

(b) Drying and Conditioning. Most of the harvested seed supplies wouldrequire drying in order to reduce their moisture content to thedesired level for safe storage, which is usually 12 to 14% for mostseeds. The seed plants would be equipped with the needed seeddriers. In case of certain seeds such as barley, corn and alfalfa,special conditioning of seed would be required before it could bedried and processed. Such operations involve de-awning barley,shelling corn and hulling alfalfa. In some cases, seed stockswould be pre-cleaned before drying in order to remove straws andother large size contaminants.

(c) Cleaning and Grading. Fine cleaning of all seeds would be by air-screen cleaners, which are the most widely used machines in seedplants. After cleaning, different kinds of seeds require special-ized machinery for grading such as length separators for cereals,corn grader for corn, and spiral separator for soybeans. The seedplants would be equipped with all the cleaning and grading machin-ery necessary for their respective crops.

(d) Treating, Bagging and Labeling. Seed treaters would be providedfor treatment of cleaned and graded seed stocks against diseasesand insects. Final seed would be bagged and labeled, the latterunder the supervision of DCS, through semi-automatic bagger-weighers.

(e) Seed Storage. Storage of seed would involve several stages:storage prior to processing (uncleaned) would usually be in storagebins. Storage bins would be of steel construction, each with 100tons capacity and equipped with aeration devices as well as a feed-ing and discharge system, operating with vertical steel elevators(bucket type) and horizontal belt conveyors. Clean seed would bestored mainly in bags in properly constructed and ventilated ware-houses. There would be two 500-ton warehouses, one at the Sierraplant and one at the Costa plant, and storage for 250 tons atthe Austral plant. Clean seed may also be stored in storage binsand bagged when needed.

(f) Quality Control. All seed centers would have testing laboratoriesto check the quality of seed at all stages of processing. Seedlaboratories would be equipped with devices for purity analysis andgermination and moisture tests. Details of the processing and stor-age flow as well as the machinery used for each operation are givenin Chart 6.

29. Criteria for International Tender. All major requirements for theestablishment of the project seed processing and storage centers wwould befulfilled by one or more well experienced firm, which would be selected throughinternational tender. The major items are as follows:

ANNEX 2Page 13

(a) Detailed design for seed processing flow at the three seed centers;

(b) Detailed list of machinery and equipment according to the agreedflow design - a suggested list is given in Annex 4, Table 5.

(c) Detailed design for the buildings needed to house the installationof machinery and equipment.

(d) Detailed design for the warehouses to be attached to the process-ing plants, as well as the layout design for the storage bins;

(e) Direct supervision of assembly and installation of all the machin-ery and equipment; and

(f) Conduct of the required test runs to ensure satisfactory operationof all machinery and the plants at completion.

The construction of the needed buildings would be undertaken by one or morelocal engineering firm, which would be selected through tenders. All tech-nical and operational aspects of international and local tenders for theestablishment of the seed centers would be under the supervision of the proj-ect management.

30. Administration and Staffing. The seed centers would be under themanagement and administration of EMS. Existing technical staff of EMS inseed processing would be further trained and assigned to the new facilities.Additional staff would be provided for the operation and maintenance of thecenters by EMS. All the technical staff would be provided with specializedtraining by the project. The following list of personnel would be assignedto each center:

Number of StaffPosition Sierra Austral Region Costa

Plant manager 1 1 1Processing technicians 2 1 2Processing assistants 3 2 3Seed analysts 2 -/1 2Clerks/accountants 2 1 2Laborers (seasonal) ----- as needed------------

/1 Seed testing for Austral Region would be conducted at the Sierra Center.

Workshop facilities as well as standby generators would be provided to theplants to ensure uninterrupted operation and maintenance of the plants. De-tails of procedures, operational manuals, stock keeping records and other

ANNEX 2Page 14

required operations features would be prepared and adopted under the supervi-sion of a seed processing and storage consultant who would be assigned toEMS for an initial period of two years. Schedules of construction and otherrelevant activities are given in Annex 5.

31. Operating Costs and Revenues. The entire administration and opera-tion of EMS is in direct relation to the scale of processing, storage andsales of certified seed. Ther-efore, operating costs of the seed processingcenter would include all other costs of EMS. Detailed analysis of EMS oper-ating costs, revenues and cash flow are given in Annex 7.

Seed Distribution and Promotion

32. General. Ten new warehouses would be constructed under the project.Nine would replace old buildings and an additional one would be constructedin Naranjal (in the Costa). Each warehouse would have a capacity of 100 tonsand estimated investment costs would be $10,000 (SI 250,000), with a foreignexchange component of 40% (Annex 4, Table 4). Warehouses would be locatedto provide an adequate network. for certified seed distribution throughout theSierra and Costa. Sites are listed below:

For Sierra For Costa

Cayambe BabahoyoRiobamba DauleLoja Machala

PortoviejoNaranjal (additional)EsmeraldasVinces

Farmers would purchase their seed requirements from the nearest warehousesat EMS wholesale prices, and EMS would pay commission of 1% to the agencieswhich own the warehouses (mainly BNF and MAC). Seed distribution warehousesalso distribute fertilizer under the auspices of BNF. Projected quantitiesof seed to be distributed by the project over the five-year period are givenin Table 8c. Three trucks would also be financed for EMS to be used for trans-porting seed stocks.

33. Seed Promotion. A promotion and publicity program would be under-taken by all agencies associated with the project, especially EMS and DCS,to popularize the use of certified seed. BNF would also play a major roleby making the purchase of certified seed a condition of production loans tofarmers. DCS would establish four promotion centers in cooperation with EMSin four major production regions (two in the Sierra and two in the Costa).Seed promotion equipment would be provided by the project and would mainlyconsist of mobile audio visual equipment for use in farming communities.Field days would be organized by EMS on contract seed growers' farms to

ANNEX 2Page 15

demonstrate the performance of certified seed to neighboring farmers. Variousmedia such as radio, TV, and agricultural publications would also be utilizedfor advertisement and publicity purposes. All distribution centers would beprovided with posters, illustrated pamphlets and other material for distri-bution to farmers in their respective areas.

Quality Control, Seed Certification and Legislation (DCS)

34. General. The overall seed quality control at the national levelwould be administered by the DCS through a seed certification scheme. Thelegal support for the regulatory work and institutional framework is providedby existing seed legislation which would be amended to be administered bythe NSC. The DCS would have full autonomy in exercising its regulatory func-tions over all agencies which would produce, process and distribute or sellseed, including all seed stocks for import and export.

35. Organization and Staffing. The present organizational and staffingsituation of the DCS is given in Chart 3. The status of DCS in relation tothe overall organization of MAG is illustrated in the Chart is Annex 1. Totaltechnical staff is 24, including 14 field insnectors and four seed analysts.Ten additional permanent technical staff would be recruited for the expandedactivities under the project. The project would finance the cost of the addi-tional staff for the project period, and the Government would continue theneeded financing thereafter. Additional staff would account for six new fieldinspectors and four new seed analysts (Annex 4, Table 3). The geographicaldistribution of DCS is quite satisfactory since most of the major seed produc-ing provinces are covered by a representative officer (field inspectors). Thegreatest need for the improvement of the DCS would be specialized training ofstaff at all levels, which would be provided by the project (Annex 3).

Criteria for Seed Quality Control

36. Field Inspection. All crops which are intended for production ofbasic, registered and certified seed would be subject to field inspection bythe official field inspectors of the DCS. All crops must pass the prescribedfield and crop standards in order to be considered as certified seed classes.Major factors which are considered during field inspection are the field andcrop history; the origin of the seed used at planting; the isolation of thefield; varietal purity; freedom from pests, diseases and mixtures with seedsof other crops and weeds. The agencies involved under the project would beINIAP for the production of basic and registered seed and contract seed grow-ers for production of certified seed. Total.areas to be field inspected indifferent years of the project are given in Tables 10c and llb. For the pro-duction of registered and certified seed, 20 field inspectors would be workingunder the DCS for field inspection of all seed growing areas, including thoseunder INIAP (about 6,500 ha for Year 5). The project would provide thevehicles needed for use by the field inspectors since availability of transportis of prime importance to the conduct of field inspection (Annex 4, Table 3).

ANNEX 2Page 16

Field and crop standards for certification purposes have been prescribedalready in General Regulation No. 673 issued by the MAG as authorized byDecree No. 1628. All standards, as well as field inspection techniques andprocedures for the issuance of necessary reports and certificates by DCS,would be reviewed and revised,, as necessary, by the seed production and certi-fication consultant of the project, who would advise the NSC accordingly.

37. Seed Testing. All seed stocks which are intended for distributionand/or sale as certified seed (in this case includes basic and registeredseed) would be subject to seed testing at the official laboratories of theDCS. No seed stock could be labeled as basic, registered or certified unlessit conformed to prescribed seed standards after the completion of seed test-ing. Seed testing activities would be conducted by the DCS through twoofficial seed testing laboratcries: one in Quito for the Sierra and one inGuayaquil for the Costa. The seed laboratories are well equipped for presentrequirements but would need additional equipment in order to meet the increasedtesting capacities under the project. The project would finance the supple-mentary equipment required in Years 2 and 3 of the project. Four additionalseed analysts would be recruited for the completion of staff needs at the twolaboratories in Years 2 and 3. All seed analysts (eight) would be providedwith specialized training through the project. Details of investment costsfor these requirements as well as others for the DCS are given in Annex 4,Table 3. Major activities under seed testing would include:

(a) Sampling, which woul,i be conducted by field inspectors, of allquantities of seeds of different classes throughout the countryaccording to prescribed methods and procedures. Seed sampleswould be sent to the seed laboratories in Quito and Guayaquilfor the tests;

(b) Moisture testing, which would determine the moisture content of dif-ferent seed lots;

(c) Purity analysis, for determination of seed purity in relation todifferent contaminations;

(d) Germination tests, which would determine the percentage of seedviability; and

(e) Others such as pathological test and greenhouse tests (for varietyverification) as may be needed.

Seed testing methods and procedures would be based on those established bythe International Seed Testing Association (ISTA). Seed standards for dif-ferent crops would be, however, reviewed, and amendments would be recommended,as necessary, by the seed production and certification consultant of theproject.

ANNEX 2Page 17

38. Seed Labeling. Labeling of seed is one of the most criticalmeasures for quality control. A well defined and organized system would benecessary to control the labeling of seed stocks of different classes of in-spected seed. No seed lot could be labeled as registered or certified unlessit had met all inspection requirements (mainly field inspection and seedtesting). Furthermore, labeling of different classes of certified seed couldbe authorized and administrated only by the DCS; therefore, no other agencywould be permitted to issue official seed labels.

39. There would be three types of labels which would be distinguishedby different colors, e.g., red for basic seed, green for registered seed,and blue for certified seed. All labels would be printed by the DCS and madeavailable to INIAP and EMS in quantities required for different classes ofseed. A breakable seal, after being applied to the container, should accompanyevery label on every container. An accurate recording of the number of labelsissued, used, and discarded would be kept by DCS and agencies which utilizethem in order to prevent disputes and misuse. All the labels would have thefollowing information clearly printed on them:

(a) Name of crop species and variety;

(b) Name of producer (INIAP or EMS);

(c) Year or season of production;

(d) Percentage of moisture and date of the test;

(e) Percentage of pure seed, other varieties, other crops and weeds;and

(f) Percentage of germination and date of the test.

All labeling operations by different agencies (INIAP and EMS) would be con-trolled by the DCS, which would also maintain the relevant records. Detailsof procedures to be followed would be worked out by the seed production andcertification consultant.

40. Seed Legislation. In 1972, Presidential Decree No. 1628 was issued,-officially authorizing (under Article 15) the formation of DCS and providinggeneral guidelines for the improvement of seed legislation, with major emphasison the responsibilities of INIAP for basic and registered seed production andof MAG for certified seed production and distribution. No further review andelaborations have been made; however, the rapid development of the seed industryhas necessitated more detailed and better defined legislation. One of the re-sponsibilities of the project through NSC would be the preparation of new de-tailed and suitable seed legislation and for Government consideration andenactment. The technical director of the project would be responsible forthe preparation of the needed draft. A general guideline for some of themajor categories is given below:

ANNEX 2Page 18

(a) Official designation of the NSC as the highest authority in theGovernment for the administration and coordination of seed programs(production, processing and storage, distribution, import and ex-port, etc.) at the national level;

(b) Official designation of DCS for the regulatory work concerning seedquality control over all concerned agencies at the national level;

(c) Official designation of different agencies for research, basic andregistered seed production, certified seed production, and distri-bution;

(d) Provision of legislative backing for different field crop and seedstandards and their application, which would be prescribed by theDCS;

(e) Prohibition of production, import and distribution of seed varietiesand planting material which was not be included in the NationalList of Varieties;

(f) Official designation of a price fixing agency for different seedclasses;

(g) Provision of penalty charges for the violation of any prescribedprovision; and

(h) Provision of any other relevant statements which would be considerednecessary to regulate seed production, distribution and trade.

December 23, 1975

ANNEX 2Table 1

ECUADOR

SMEDS PROJECT

Varieties Eligible for Seed Certification in 1975

Species Varieties

Wheat 1/ Atacazo, Crespo, Ruminahui, Bonza,Amazonas,Romero 73, Cayambe 73.

Barley ./ Dorada, Filberck Union

Soft corn a INIAP 176

Hard corn INIAP 515, INIAP 504, INIAP 513, VS 2

Rice INIAP2, INIAP 6, IR 8

Rye grass Pichincha

Peanuts Tarapoto 47-67 D, 48-115 D

Sesame Portoviejo 1, Aceitera

Oats Santa Catalina, INIAP 67

Potatoes Santa Catalina

Cotton Coker 41-04, Empire WR 61, Deltapine 16, Del Cerro

Castor beans Portoviejo 67

1/ Amazonas, Ruminahui and Crespo are to be phased outand replaced by Romero 73. A new variety of wheat isexpected to be released in 1976.

2/ A new barley variety is expected to be introduced in 1976.

3/ Intensive work is underway to develop new varieties. INIAP 176has not been very successful.

Source: INIAP and DCS.

October 3, 1975

ECUADOR

SEEDS n RJECT

National Institute of Agricultural Research (INIAP)Experiment Stations for Basic Seed Production

Area for AverageTotal Area for Seed Eleva- ADInual Relative

Crops under Area Research Production tion Rainfall HumidityStation Cultivation (HH) (Ha) a) (m) (mm? (%)

Santa Catalina Wheat, barleyoats, rye grass,potatoes, softcorn 950 840 U1 2650-3250 1706 79

Boliche Rice, soybeans,cotton, peanuts 151 91 60 17 741 82

Pichilingue Hard corn, pas-ture crops, coffeecocoa 1200 1138 62 75 2327 84

Portoviejo Cotton, soybeans,peanuts, sesame,hard corn, castor 1/beans 8 55 30 652 82

Santo Domingo African palm,pasture crops,hard corn 247 147 100 300 4242 88

1/ Does not include about 150 ha out of 400 ha recently allocated to the Ministry of Agriculture andLivestock (MAG).

September 9, 1575

ANNEX 2Table 3

ECUADOR

SEEDS PROJECT

Production Goals for Registered,Seed of Selected Crops

(1 975-1977 i/

Quantity ofCrop Registered Seed

1975 1976 1977-___-- tons --------

Wheat 364 454 545

Barley 45 68 91

Soft corn - 16 227-/

Rice 100 114 118

Soybeans 41 46 50

Hard corn 109 123 140

Sesame 1.40 1.80 2.30

Peanuts 27 37 45

Beans 1.32 1.34 1.36

1/ Production targets are considerably in excess of nationalrequirements for the production of certified seed but INIAPwill adjust its production targets to the requirements forcertified seed production.

2/ A major increase in introduction of new varieties is planned.

Source: INIAP

September 9, 1975

ANNEX 2

Table 4

ECUADOR

SEEDS PROJECT

Certified Seed Distributed by the Seeds Corporation (EMS) in 1974

Crop Quantity7ton)

Wheat 1,350

Barley 380

Rice 1,200

Hard corn 450

Total 3,380

Source: EMS.

September 9, 1975

ANNEX 2

Table 5

ECUADOR

SEED PROJECT

Existing Seeds Distribution Center i/

Sierra Costa

Tulcan - MAG Esmeraldas - BNF

San Gabriel- BNF Sto. Domingo - BNF

El Angel - EMS Quevedo - INIAP

Cayambe -EMS Balzar - BNF

Quito - EMS Vinces - BNF

Latacunga - EMS Babahoyo - BNF

Riobamba - EMS Guayaquil - EMS

Guaranda - EMS Daule - BNF

Canar - MAG Machala - BNF

Cuenca - MAG Portoviejo - BNF

Loja - EMS Yaguachi - EMS

Gozanama - MAG Puyo - BNF

1/ BN? centers also distribute fertilizers.-

Source: EMS

September 9, 1975

CCUADOR

Seeds Project

Selected Technical Coefficients Used in Economic Analysis

Contract Seed Growers Average Commercial Farmer1 2 3 4 5 6 7 a 9 lo

Assumed AverageYield on Yield of all Assumed Increased

Farms Yield of National Farmers using Assumed Average Yield due to using Partition of Yield IncreaseProducing Cleaned Average Certified Seed Yield of Farmers Certified Seed and Fertilizer and

SeedinI Certified Certified Yield and Recoesended not Using Recosmended Cultu- Certified Seed other CulturalRatel' Seed aockagei/ Seed 1971-74 Cultural Practices Certified Seed ral Practices Alone3/ Practices

kg/ha kg/ha % kg/ha kg/ha kg/ha kg/ha kg kg kg

Wheat 110 2,000 20 1,600 936 1,300 940 360 18C 180Barley 90 2,500 25 1,875 707 1.100 710 390 140 250Soft corn 35 4,00D 60 1 CCC c/ 1,000 670 330 130 200hard corn Its 4,000 60 1,600 1,088 1,500 1,090 410 210 200RLea 50 4,000 15 3,400 2,429 3,200 2,400 800 600 200Soybeans 70 1,600 30 1.120 1,318 1,400 1,200 200 140 60Peanuts 70 1,400 30 980 830 1,100 830 270 200 70Sesame 4.5 1,200 30 840 886 1,000 890 110 100 10Beans 50 1,200 30 840 444 500 400 100 60 40

It Same for both seed growers and copsrrciai producers.2/ Percentage of field prod-ction that is nout useable as certified seed. This is removed during seed processing. From I to 5% is lost during processing. The balance is sold as comeaercial grain.3/ This is the incremental yield increase attributable to the use of only certified seed. The farmer is assumed to use exactly the same cultural practices as reflected in the yields of column 7of this table. These estimates are based oil INIAP reports, discussion with INIAP and EMS personnel and prior experience and judgement of the appraisal team,

September 18, 1975

ANNJEX 2Table 7

EMADOR

SEEDS PROJECT

Projections of National Total Areas Under Project Cropsi!('000 ha)

- -- Project Year --------------Drop 0 1 2 3 4 5

Wheat 55 55 55 55 55 55Bsrley 60 60 60 60 60 60Soft Corn 75 75 75 75 75 75Hard Corn) 85 85 85 85 85 85Rice 32/ 95 99 103 1 07 111 115Soybeans ) 8 11 l1 17 19 20Peanuts 15 15 15 15 15 15Sesame 2 2 2 2 2 2Beans 60 60 60 60 60 60

Total 455 462 469 376 482 487

1/ 'xcluding pastures.7/ Based on two season planting each year.

September 18, 1975

ANNEX 2Table 8

ECUADORSEEDS PROJgCT

Project Targets for Certified Seed

_-----------------------Project Year--------------------------Crop 0 1 2 3 4

a. Percentage of National Total Seed Requirements (%)

Wheat 26 26 30 33 36 40Barley 8 10 13 16 18 20Soft corn - - 2 4 9 15Hard corn 33 35 37 39 40 40Rice 29 34 39 43 47 50Soybeans - 19 31 314 41 50Peanuts - 5 7 13 16 20Sesame - 5 10 15 18 20Beans - - - 7 10 15

b. Area to be Sown With Certified Seed (ha)

Wheat 14,500 14,500 16,400 18,200 20,000 22,000Earley 5,000 6,100 7,800 9,400 10,600 12,000Soft corn - - 1,400 2,900 7,100 11,250Hard corn 28,100 29,700 31,300 32,800 34,000 34,000Rice 28,000 34,000 40,000 46,000 52,000 57,500Soybeans - 2,100 4,300 5,700 7,900 10,000Peanuts - 700 1,000 2,000 2,1400 3,000Sesame - 100 200 300 350 400Beans - - - 4,000 6,000 9,000

Total 9 75,600 87,200 102,400 121,300 140,350 159,150

c. Certified Seed Requirements -/ (ton)

Wheat 1,600 1,600 1,800 2,000 2,200 2,400Barley 450 550 700 850 950 1,050Soft corn - - 50 100 250 400Hard corn 450 475 500 525 550 550Rice 1,400 1,700 2,000 2,300 2,600 2,900Soybeans - 150 300 400 550 700Peanuts - 50 70 140 170 200Sesame - 0.5 1.0 1.4 1.6 1.8Beans - - - 200 300 450Pastureseeds - - 20 50 80 120

Total 3,900 4,545.5 5,441 62466.4 7,651.6 8,771.8

I/ Excluding area for pasture seed production.2/ Final clean and bagged seed (field production less dockage for seed processing).

W/ Rye grass, alfalfa, guinea grass anl perennial soybeans.

.ept.ember 30, 1975

ANNEX 2Table 9

ECUADORSEEDS PROJECT

Projections for Registered Seed Requirements 1/

(Kg)

------------------Project Year-----------------------Crop 0 1 2 I-onward

Wheat 8,500 9,500 10,500 11,4O0Barley 1,700 2,000 2,300 2,400Soft corn 25 50 125 200Hard corn 50 55 55 55Rice 570 665 7h5 830Soybeans 1,200 1,600 2,200 2,800Peanuts 360 720 880 1,030Sesame 30 40 50 60Beans - 710 1,070 1,600Pasture seeds 390 628 947 1,328

Total 12,825 15,968 18,872 21,703

1/ Clean and bagged (field production less processing dockage)

September 18, 1975.

ANNEX 2Table 10

ECUADOR

SEEDS PROJECT

Projections of Registered Seed Requirements

-- Project Year---Crop 0 1 2 3 4-onward

a. Requirements for Clean and Bagged Seed (Ton)

Wheat 110 :23.0 138.0 152.0 165.0Barley 27 34.0 41.0 46.0 50.0Soft corn - 1.1 2.2 5.5 8.8Hard corn 4.7 5.0 5.3 5.5 5.5Rice 25 34.0 39.0 44.0 49.0Soybeans 9.4 19.0 25.0 35.0 44.0Peanuts 3.6 5.0 10.0 12.2 14.3Sesame 2.7 kg 5.4 kg 7.7 kg 8.1 kg 10.0 kgBeans - - 12.0 18.0 27.0Pasture seeds 1/ - 4.4 7.1 10.7 15.0

Total 179.7 225.5 279.6 328.9 378.6

b. Requirements for Field Production (Ton)

Wheat 137.0 154.0 172.0 190.0 206.0Barley 36.0 47.0 55.0 63.0 66.7Soft corn - 2.8 5.7 14.0 22.0Hard corn 11.8 L2.5 13.8 13.8 13.8Rice 29.4 40.0 46.0 52.0 58.0Soybeans 13.4 27.4 36.5 50.2 64.0Peanuts 5.2 7.2 14.3 17.5 20.5Sesame Trace 8.0 kg 10.6 kg 13.3 kg 16.0 kgBeans - - 17.0 25.6 38.5Pasture seeds - 6.8 10.9 16.5 23.1

Total 232.8 297.7 371.2 442.6 512.6

c. Requirements for Area of Production (ha)

Wheat 68.0 77.0 86.0 95.0 103.0Barley 14.4 19.0 22.0 25.0 27.0Soft corn - 0.7 1.4 3.5 5.5Hard corn 3.0 3.1 3.4 3.4 3.4Rice 7.5 11.4 13.3 14.9 16.6Soybeans 8.1 17.0 22.0 31.0 40.0Peanuts 3.6 ;.1 10.2 12.5 14.7Sesame ---------------------Negligible----------------------Beans - 14.2 21.4 32.0Pasture seeds - 2-7.2 43.6 66.0 92.4

Total 104.6 160.5 216.1 272.7 334.6

1/ G;uinea grass, rye grass, alfalfa and perennial soybeans.

September 18, 1975.

ANNEX 2Table 11

ECUADOR

SEEDS PROJECT

Projections of Field Recuirements for the nro&e-tion of Certified Seed-/

---- Project Year---------------------------

Crop 0 1 2 3 4 5

a. Requirements for Field Production (Ton)

Wheat 2,000 2,000 2,236 2,510 2,764 3,000Barley 600 750 945 1,140 1,278 1,418Soft corn - - 126 251 628 1,006Hard corn 750 1,200 1,250 1,325 1,375 1,375Rice 1,647 2,030 2,380 2,730 3,080 3,430Soybeans - 227 433 571 800 1 ,°04Peanuts - 71 100 200 243 286Sesame - 0.7 1.4 2.0 2.2 2.6Beans - - - 288 432 648Pasture seeds - - 31 77 123 185

Total 4997.0 6,278.7 7,502.4 9,094.0 10,725.2 12,354.6

b. Requirements for Area of Production (ha)

Wheat 1,000 1,000 1,118 1,255 1,382 1,500Barley 240 300 378 456 511 567Soft corn - - 32 63 157 251Hard corn 188 300 313 331 3h4 344Rice 412 58C 680 780 880 980Soybean - 142 271 357 500 628Peanuts - 51 71 143 174 204Sesame - 0.6 1.2 1.7 1.8 2.2Beans - - - 240 360 540Pasture seeds - - 124 308 492 740

Total 1,840.o 2,373.6 2,988.2 3,934.7 4,801.8 5,756.2

1/ Projected requirements for clean and bagged certified seedare given in Table 8c of this Annex.

September 30, 1975.

ANNEX 2Chart 1

ECUADORSEEDS PROJECT

National Institute of Agricultural Research (INIAP)Organization Chart

Coun:il ofAdministration

_____

Directo- General

Technical Committee Advisory Committee

Deputy Administrative

Director General Services

|Regional

Deputy Director

Department ofPiehilmng.e Santa Catal1 i PI-nOCg forExperiment Station Experiment Station Eperiment Stations

~~~~~~~~~~~~Experiment StationsCodara o

SantoIDomino Austral |Department ofE.eietS.to Experiment Station _ Coordin.tion to

(Projected) ,International Projects

Boliche Depai-rneme of

_ Experiment Station _ Communicatidns

0 PortoviejW aExpeiriment Station f

l ~~~~~~~~~~~~~~World Bank-15184

ECUADORSEEDS PROJECT

"EMsemillas"; SEEDS CORPORATION (EMS)ORGANIZATION CHART

Board ofDirectors

General Manager

I Drectol Prduction 0 Pan aUilOprtons

Seed Processing | |Field Production AdministrSative. . ~~~~~~~~~~~~~~ l 7 ~~~~~~~~~~~~~Services

Highland RegionHighland Seed

,. Region Analysts

"Seginr.SeaSorg Regiuirat Manage"-'Sierra" L d SdLowland RegionLowland Seed ."Costa"Region" Analysts Marketing

0* "Costa"

Lowland i Region ......................................................... ............ Seed Storage"Costa" !

Farmers .Marketing

Key:Organization Ac

Flow of * .- *Certified Seed

F inancing o_

World Bank-15185 N r)

ANNEX 2Chart 3

ECUADORSEEDS PROJECT

SEED CERTIFICATION DEPARTMENT (DCS)ORGANIZATION AND STAFF CHART

Director ofSeed CertificationDepartment

KL| Section Chief |Section Chief l

Technical | AdministrativeServices S ervce

__I Supervisor [ uperv sor Office in ChargeRegional Office Regional Office Seed Testing LaboratorGuayaqul [ (uito Quito .

____ __ I __,*_ . _

Provincial Provincial RegionalInspectors Inspectors Analysts

"C6sta" Region "Sierra" Region

Esmeraidas (1) Carchi (i) Chimborazo l1) "Costa"

Manabi (1) Imbabura () Bolivar (1) Guayaquil (1)

Guayas (1) Pichincha (1) Cariar (1)

Los Rios (1) Cotopaxi (1i Azuay (1)

Tungurahua (1) Loia (1) "Sierra"Quito (3)

World Bank - 15183

ANNEY. 2Chart4

ECUADORSEEDS PROJECT

PROJECT ORGANIZATION AND OPERATIONAL FLOW CHART

NATIONAL SEED COUNCIL

PROJECT EXECUTIVE DIRECTOR

IN IAP

VAIEY LIST

| BASIC SEED u -

| lREGISTERED SEED* -

BNF SEED GROWERS D i DCS

CTREDT SE IED _IICREDT l __n_ _ ._ _ + PRODUCTION I 1--___ ____ rQUALT Y CONTROL|

I * MI; s _ + S _ 1l | P RTO U C T I O N

PROMOTION:]~~~~IO

_ _ _ _ _ _ _ _ _ I I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~E I

i i | PROCESSING &

I I -I- - - - - PRO IO

| | | ~~~~~~~~~~~~ ~~DISTRIBUJTION |--

L~~~ -- --- --- FARMERS _ _ _ __

L_ ---- ---- ---------- -- - -- -

IIPROJECT INSTITUTIONS

-- SEED OPERATION FLOW

_ _I- _ _ SERVICE FLOV

VVo,Id Bank 15179

ANNEX 2Chart >

ECUADORSEEDS PROJECT

SEED PROCESSING FLOW CHART

-. A-Aernative Flotr-� - M,,m Flome _

s ~~~~~~~~~~~~~~~~~~~~~~~~~~Platf-rn Scale_ ~~~~~~~~~~~~~~~~Recewivig cnot.ake PitS

Temporary Storage * _

tbulk) __ t| _

l l l ~~~~~cdi. . . She~ller, tco n)| | | | _" Cr nditioning . ~~~~~~~~~~~~~~~Hulle talfalfalI I III 7

4---4m5 L--- .do/ug I I I_

I I II _ t PeCeaigpepnrilpnaao

- _... _- odngSreBn

Drying & Te-perg |

L___mmAi, Seen Cleaner_ m _ m mm _m _ _ _ _ m__ Fine Cleng Conveyo-s

r ~~~~~~~~~~~~~~~Holdfing/Surge 8ins

rC | ~~~~~~~~~~~Length Sep-rao,

Grdig Spiral SePaatorS4ing mi_Other Separators

_ l ~~~~~~~~~~~~~~~Holdlimg/Surge Bins

I_ mm_ T-eating _ I Seed Tre-ter

Holdig Bins

S-le-~~ ~i ml Ia loe

IN_e ghi,,g Convey or |

Holdmg 8,,rs

Labeliog &

Storage

shipr ing

- 0 ~~~~~~~~~~~~~~World B-1, -15181

ECUADORSEEDS PROJECT

CROP SOWING, HARVESTING AND SEED PROCESSING CHART

MONTHS J A S 0 N D J F M A M J

WHEAT,BARLEY AND - - UHIGH ALTITUDEPASTURESEEDS

SOFT CORN - -

RICE AND 1/HARD CORN - I -2

SOYBEANS,PEANUTS, EU ISESAME, ANDLOW ALTITUDE i LM kV kV ki PASTURE SEEDS

BEANS

HARVESTING

Winter Crop * -E EE SOWING2/ Summer Crop %kWWkWM% PROCESSING - STOR AGE

World Bank-15180

ANNEX 3Page I

ECUADOR

SEEDS PROJECT

Draft Terms of Reference, Guidelines and Fellowships

A. Draft Terms of Reference for Consultants

General

1. The Government of icuador (COF) is engaged in the establishment ofa modern seed industry, partially financed with a loan provided by the Inter-national Bank for Reconstruction and Development (the Bank). The projectinvolves the production, processing and distribution of basic and certifiedseeds of corn, rice, oilseeds, barley, beans and pasture seeds on a commer-cial scale.

2. The GOE is interested in emploving a team of two full-time con-sultants, specialized in the seed industry as follows: a team leader whowould hold the position of Technical Adviser of the Seeds Project to be fi-nanced by the Bank, and also to be the seed processing and storage expert;and one seed production and seed certification expert.

3. The consultant selected to serve as the Project's Technical Adviserwould be assigned to the Naticinal Seeds Council (NSC) in Quito to work forthree years in close cooperation with the project Executive Director. Theother consultant would be assigned to the Seed Corporation (EMS) for aninitial period of three years to work mainly with regional directors forSierra and Costa plants, respectively, but would also assist the NationalInstitute of Agricultural Research (INIAP) and the Seeds Certification Depart-ment (DCS) in project-related activities. Funds for transport, office facil-ities, secretarial assistance mnd other operational requirements would beprovided jointly by the Projeci: and the Government, the latter being respon-sible for the local costs of various administrative and operational aspects.

4. The Technical Adviser would be the main advisor to the ExecutiveDirector on overall project maragement and coordination, which would includethe work of all the participating agencies in the project as well as thoseof the other long-term and any short-term consultants. He would assist theFEecutive Director in preparing progress reports to the Government and theBank and would participate in meetings of the NSC. The Technical Adviser inhis role of seed processing and storage consultant and the seed productionand certification consultant woild provide specialized assistance in allaspects of the project related to their fields, while short-term consultantswould be brought in as needed to deal with special problems associated with

ANNEX 3Page 2

crops newly introduced for certified seed production such as pastures andoilcrops; this might include providing specialized training in relevanttopics outside the terms of reference of the long-term consultants.

Qualifications

5. The candidate for the position of Technical Adviser should be asenior technician with experience in all matters related to the managementof national seed programs. An overall knowledge of related technical com-ponents, with particular reference to policy matters and seed legislation,would be required. A post-graduate university degree in agronomy and seedtechnology as well as fluency in English and Spanish would be highly desirable.

He should also have had specialized training and practical experiencein the operation and management of seed processing and storage plants on acommercial scale. Knowledge of seed plant designs and installations would berequired. A university degree in agricultural engineering or agronomy, withemphasis on seed technology, as well as fluency in Spanish and English wouldbe highly desirable.

6. The seed production and certification consultant should be an ex-perienced specialist in seed production and quality control of cereals. Auniversity degree in agronomy and experience in seed production would be re-quired. Fluency in Spanish and English would be highly desirable.

Duties and Responsibilities

7. Technical Adviser. The Technical Adviser of the project would bedirectly responsible to the NSC through the Executive Director for the follow-ing:

(a) review of the existing regulations of activities related toseeds industry, with specific reference to seed legislation,and preparation of drafts for consideration by NSC;

(b) preparation of detailed specifications for all tender documentsfor seed processing and storage machinery and equipment; evalua-tion of bids; overall supervision and finalization of inter-national tenders for procurement of machinery and equipment,working in close cooperation with the Executive Director andwith all agencies concerned;

(c) review and finalization of building and plant installation andsupervision of construction and plant erection works in coop-eration with EMS, suppliers of designs and manufacturers;

(d) preparation of seed plant operation manuals;

(e) assisting INIAP in the improvement of its seed processing andstorage operation;

ANNEX 3Page 3

(f) coordination of the work of other technical assistanceconsultants;

(g) preparation and overall supervision of training programsunder the project, including the review and selection ofcandidates for project fellowships related to seed processingand storage;

(h) other advisory services as may be required by the NSC.

8. Seed Production and Certification Consultant. This consultantwould be responsible for:

(a) planning and coordinating registered seed and certified seed pro-duction in close cooperation with INIAP and EMS, and would partici-pate in field production activities;

(b) providing technical information to seed growers on water management,pest and disease control, rogueing and other cultural practices;

(c) supervising harvesting operations by seed growers and INIAP;

(d) reviewing seed certification procedures and standards and preparingthe relevant manual for use by DCS;

(e) training technicians :in crop inspection, seed testing and otherquality control activfties for which DCS is responsible;

(f) improving the organization of seed testing laboratories and pre-paring seed testing manuals in accordance with the rules prescribedby International Seed Testing Associations; and

(g) assisting in the selection of candidates for project fellowshipsin the field of seed production and certification.

B. Terms of Reference for the Project Executive Director

11. The Project Executive Director, who would be responsible to theNational Seeds Council (NSC), shall have the responsibility for implementa-tion and execution of the Seeds :'roject and shall have the following specificduties and powers:

(a) advising NSC on major policy decisions in respect of the project;

(b) executing the project iin accordance with policies and proceduresagreed to by NSC;

(c) cooperating with the management of participating entities towardsaccomplishing project cbjectives;

ANNEX 3Page 4

(d) approving or presenting for NSC approval investment plans preparedby the participating entities to be financed with project funds.

(e) followingup, supervising and providing technical assistance as hemay deem necessary to insure success of the investments financed toparticipating entities under the project;

(f) preparing the annual budget for the Project IJnit and submit it tothe NSC and the Government;

(g) preparing quarterly and annual progress reports for submission tothe NSC for transmittal to the Bank; and

(h) being the liaison between the NSC and the Government, Bank, theNational Development Bank, participating entities and other personsin relation to project negotiations and any other project sections.

C. Guidelines for the Functions of NSC

12. The National Seeds Council to be created as an autonomous body ofthe Ministry of Agriculture and Livestock would have the following main func-tions:

(a) advise the Minister of Agriculture and Livestock on seed industrypolicy of national significance, including prices policies;

(b) make, and change as necessary, the seed regulations;

(c) review the needs for seed supplies of the various crops in consul-tation with the pertinent offices of the Ministry of Agricultureand Livestock and establish the policies for national seed supplytargets for all crops;

(d) review and authorize release of seed varieties and plantingmaterial eligible for seed multiplication and production based onthe recommendation of INIAP and publish a national list ofvarieties eligible for certified seed production on an annual basis;

(e) by delegation of the Ministry of Agriculture and Livestock act asthe administrative committee responsible for the administrationand implementation of the Government-Bank Seeds Project; and

(f) coordination of the necessary interrelated activities of the dif-ferent entities involved in the seed industry.

ANNEX 3

Page 5

D. Project Fellowship Schedules

Subject Year 1 Year 2 Year 3 TotalNo. m/m No. m/m No. m/m No. m/r

INIAP

Seed multiplication 2 12 2 6 1 6 5 24

Seed Processing and storage 1 6 2 12 1 6 4 24

Seed quality control 1 6 1 6 1 12 3 24

TOTAL for INIAP 4 24 5 24 3 24 12 72

DOS

F'ield inspection 4 24 4 24 2 12 10 60

Seed testing 1 6 1 6 1 6 3 16

Seed pathology 1 6 1 6 - - 2 12

Seed certification management 1 - - - 1 6 2 6

TOTAL for DCS 7 36 6 36 4 24 17 96

EMS

Seed production - - 1 6 1 6 2 12

Seed processing and storage 2 12 - - - - 2 12

Seed testing - - 1 6 1 6 2 12

TOTAL for EMS 2 12 2 12 2 12 6 36

GRAND TOTAL 13 72 13 72 9 60 35 204

December 23, 1975

ANNEX 4Page 1

ECUADOR

SEEDS PROJECT

Estimated Project and Foreign Exchange Costs

1. This annex contains the estimated investment and incrementaloperating costs to be incurred by each of the agencies involved in the pro-ject. Investment cost estimates are shown for each of the three years ofthe project.

National Seeds Council (NSC) and Project Unit

2. The NSC is a new body to be created as part of the project. Projectadministration under the NSC would be handled by a Project Unit headed by theExecutive Director. The establishment and operation of the Project Unit wouldrequire the expenditure of approximately S/ 5.5 million (US$220,000) over thethree years of the project (Table 1). Only S/ 234,000 (about US$9,400) offoreign exchange would be required. The NSC would have annual recurringexpenditure of S/ 1.7 million to be financed by the Government.

Seed Certification Department (DCS)

3. Investment and incremental operating costs for the DCS are esti-mated to be S/ 10.3 million (US$412,000) over the period of the project(Table 2). The foreign exchange component is S/ 5.3 million (US$212,000)(51% of total). The major item of expenditure for DCS involves the purchaseof 15 vehicles for use by field inspectors and training fellowships for DCSpersonnel. DCS would incur annual operating costs of S/ 2.7 million exclud-ing contingencies after the project terminates to continue performing theservices initiated under the project. In addition it would be necessary toreplace the vehicles every six years.

National Institute for Agricultural Research (INIAP)

4. The major expenditure required by INIAP under the project would bethe purchase of additional land suitable for the production of basic and regis-tered seeds for pasture grasses and some low altitude wheat varieties. Theother items include three tractors, a combine and two trucks for haulingseed. Six man-years of training of INIAP personnel would also be included.INIAP is currently involved in registered seed production and has excellentseed processing equipment available. Thus, not all seed production equipmenthas to be provided for by the project. Only a small amount of supplementalequipment is included in the project. INIAP would require a total incrementalinvestment of S/ 12.1 million (US$484,000) during the project (Table 3). Onehalf of this would be for the purchase of additional land. The foreign exchangecomponent of the INIAP investment would be S/ 5.0 million (US$200,000) (41.5%

ANNEX 4Page 2

of the total). Continued operation of the equipment and machinery purchasedunder the project would require annual expenditures of S/ 702,000 after theproject terminates. In addition, the trucks and farm machinery would bereplaced every six years. It is assumed that the receipts of INIAP from thesales of registered seed to EMS would be offset by production and processingcosts of the seeds. The registeredi seed production component is thus assumedto operate at a level of zero net returns, during and after the project,except for the costs mentioned above.

Seeds Corporation (EMS)

5. Over fifty percent of total project expenditures would be for theconstruction of EMS processing facilities and the further development of EMS.The disbursement of the investment costs shown in Table 4 assumes that theSLerra and Costa plants would both be constructed during the first two yearsoiF the project. The Austral plant would be constructed during the secondand third year of the project. Detailed costing of the plants are in Table 5.A total investment of S1 48 million, exclusive of contingencies, (US$1.9miLllion) is planned for EMS over the three years of the project. Seventy-threepercent of the total is estimated to require foreign exchange since most of theequipment would have to be imported (Table 5). Recurrent costs, income projec-tions, and the rate of return to EMS investment are examined in Annex 9.

International Technical Assistance

6. The project includes S/ 12.7 million (US$506,000) for technicalservices, which include two consultant for three years, 24 man-months ofshLort-term consultants, bilingual secretaries, vehicles, office equipmentand operating costs (Table 6). The functions of the consultants and theirlocations are discussed in Annex 3.

Total Project Costs

7. Estimated total project cost and partial estimated costs for eachof the estimated three years of project investment are given in Table 7 and8, for capital costs and current cOSts, separately. Total baseline cost isS1 88.5 million (US$3.5 million). ?hysical contingencies of 10% have beenadded to the baseline costs, and price contingencies have been added to thebaseline costs plus the physical contingencies. On this basis, the totalproject cost, including both physical and price contingencies, would be S/126.6 million (US$5 million), with a foreign exchange component of 60%,which amounts to SI 75.6 million (U'3$3 million).

8. The price contingencies shown in Table 7 account for local andinternational price inflation. Relative prices of products purchased underthe project are assumed to remain constant over the period of the project.The! foreign exchange position of EctLador and the relative rates of inflationin foreign and local currency do not: require adjustments for shadow exchangerates.

ANNEX 4Page 3

9. The base cost estimates are derived from July 1975 prices. Theexpected date of effectiveness of the project is July 1976. Price contin-gencies are calculated therefore to adjust for inflation from July 1975 tothe mid-point of the disbursement periods (i.e., January 1977, 1978, and1979). The assumed rates of inflation for foreign currency are 10.8% in1975, 8.8% in 1976, 8.0% in 1977 and 7.5% in 1978. 1/ The annual inflationrates assumed for local currency are 19% in 1975, 17% in 1976, and 16% in1977 and 1978. The price contingency factors applied for each year are shownat the bottom of Table 7.

February 25, 1976

1/ Bank Report No. 814 (July 1975), p. 12.

ECUADOR

SEEDS PROJECT

Investment and Operating Costs of the National Seeds Council(Project Unit)

-'000 S/-Unit No. of Year Year Year Total %

Item Unit tlrice Units 1 2 3 F.E. Total F.E.

'000 3/ '000 SI 1000 U3$CAPITAL

Office furniture and Equipment - - - 200 - - 200 33 65 2.6

Vehicle - 150 1 150 - - 150 90 135 5.4

Sub-total Capital - - _ 350 - - 350 57 200 8.0

C'u'RRE iNT

Executive Director Mnz.-year 560 3 560 560 560 1,680 - - -

Administrative Assistant " 160 3 160 160 160 480 - - -

Accountant " 128 3 128 128 128 384 _ _ _Bi'i ngu&l JecrF 84 G 168 168 168 504 - -

3ecretary 80 3 80 80 80 240 - - -

Clerk 4O 3 4W 4b 4d 144 _ _Messenger " 24 3 24 24 24 72 - _ _Driver 4b 3 46 48 48 144 - - -

Operation and Maintenance ofvehicle (25% of purchase price) 38 38 38 114 30 34 1.4

Rent for office space Month 8 36 96 96 96 288 - - -Water and lights 1 36 12 12 12 36 - - -

Tel.phona " 6 36 36 108 - - -Communication (cables, etc.) " 1.5 36 18 18 18 54 - - -

Travel 20 36 240 240 240 720 - - -

Office supplies and operation - - - 48 48 48 144 - - -

Sub-total Current -- - - 1,704 1,704 1,704 5,112 1 34 1.4

TOTAL - - -, ~ 2,054 1,704 1,704 5,462 4 234 9.4 X

December 9, 1975

ECUADOR

SEEDS PROJECT

Incremental Project Investment and Operating Costs of the Seed Certification Department

-____- -'000 S/-Unit No. of Year Year Year Total %

Item Unit Price Units 1 2 3 F.E. Total F.E.1000 S/ '000 S/ '00j US$

CAPITAL

Seed Promotion Equipment - 50 10 150 150 200 500 do 400 16Fellowships (outside Ecuador) 1 year 250 8 750 750 500 2,000 90 1,800 72Local Trai ing 1/ 1 month 10 150 500 500 500 1,500 - - -Vehicles 2 - 150 15 1,500 750 - 2,2_0 90 2,015 81Seed Testing Eauipment - 250 2 - 250 250 500 90 450 18Seed Label Printer - 150 1 150 - - 150 90 135 5

Sub-total Capital - - - 3,050 2,400 1,450 6,900 70 4,000 192

CURRENT

Technical Personnel 31 man-year 192 10 - 960 960 1,920 - - -Operation and Maintenance ofVehicles (25% of purchase cost) - - - 375 563 563 1,501 30 450 18

Sub-total Current 375 1,523 1,523 3,421 13 450 18

TOTAL 3425 3,923 2,973 10,321 51 5,250 210

1/ For field inspectors and growers.2/ For exclusive use of field inspectors.3/ Six new field inspectors and four new seed analysts. Three seed inspectors and two seed analysts will be added

in year 2 and also in year 3. These will be permanent additions to DCS staff. E

Hm

December 9, 1975 ~s

ECUADOR

SEED PROJECT

Incremental Project Investment and Training Co0t8 of theNational Institute for Agricultural Research

- 000 S/ ----------Unit No. of Year Year Year Total %

Item Unit Price Units 1 2 3 F.E. Total F.E.1/ Wtrrf-/ *00o s/ '000 US

Additional Land -

for Seed Production ha 40 150 6,000 - - 6,000 - -

Seed Storage 2/ m2 2.5 360 600 300 - 900 40 360 14.4

Tractor -3/ - 350 3 350 350 350 19 g,o 8.0

CGimie 31 750 1 - - 750 750 90 675 27.0

SupplementarySeed ProcessingEquipment 500 1 - 250 250 500 90 450 18.0

Seed Testing Equipment 150 4 300 150 150 600 90 540 21.6

Trucks 6 375 2 375 375 750 90 675 27.0

Fellowships Man-year 250 6 500 500 500 1,500 90 1.350 54.o

Total - - 7,750 1,925 2,375 12,050 41 5,000 _ 200.0

1/ For basic seed production requirements of project.2/ 40O tons for Sta. Catalina, 50 tons for Boliche and Pichilingue and 100 tons for Fortoviejo. Costs

calcli ated on basis of 0,6 t for 1 m2 for area of storage at a cost of S/ 2,500 per m2 .3/ For use in new seed production farms for project.4, Additional equipment at Sta. Catalina for project requirementsei/ Consisting of 1 gerninator, 1 balance and 1 moisture tester to complete the seed laboratories at each station.5/ For transport of seed from field to processing plant at Sta. Catalina (6-ton trucks).

December 11, 1975

ECUADOR

SEEDS PROJECT

Summarized Incremental Project Investment and Training Costs of the Seeds Corporation (EMS)

-__________' ooo S/-IUnit No. of Year Year Year Total %

Item Unit Price UJnits 1 2 3 F.E. Total F.E.1/ ' '000 s/

Land - - - 900 300 - 1,200 - -_

Buildings 4- - - 4,190 5,459 1,276 10,925 So 4,365 174.6

Seed Processing ,Machinery and Equipment - - - 12,13015,o6l 3,684 30,875 88 27,292 1,091.8

Vehicles - 150 6 300 300 300 900 90 810 32.4

Trucks - 250 3 250 250 250 750 90 675 27.0

Fellowships 6 months 150 6 300 300 300 900 90 810 32.4

Additional Storage atDistribution Points - 250 10 1,000 750 750 2,500 40 1,000 40.0

Total - - - 19,070 22,420 6,560 48,050 35,000 1,1400.0

l/ Land costs are S/ 500,000 for Sierra, S/ 400,000 for Costa and S/ 300,000 for Austral. Land for theSierra and Costa plants would be purchased in year 1; Austral plant in year 2.Based on the assumption that one-half of the expenses for Sierra and Costa plants would be incurred inyear 1 and the other half in year 2. The expenses for the Austral plant would be split equally betweenyears 2 and 3.

3/ This is 88 instead of 90 because it includes installation costs.Y Includes two grass seed combines at S/ 375,000 each.

March 1, 1976

ECUADOK ANNEX 4Table 5

SEEDS PiOJECT

Detailed Inve.tent Costt Eor Three (ENS) S-d Procet..ing and Stor-9e Plats

STEKRA PLANT AUSTRAL PEANT COSTA PLANT

Cot$ CoSt Coat lost for 3 Pl.ot. 7. TotalN.. of Units $ us No. of Unit. u s No. of Unit. s us0 us F. E. F. E.

l LA7r 1,000 .2 20 000 700 = M 2 1,000 .2 16.000 48 000

TOTAL -FOR LAN

II. BUIL30044

A- A t Iood. rod rite 20,200 14,000 "20,000 54,000 40- hochi-ery tover (25312.15) 300 2 60,000 200 40,000 300 '

260,000 160,000

- .torarg boilding (25x16x5) 400 m2

40.000 200 .2 20,000 400 dm2

40,000 100,000- Otyfog tbed 3,000 3,000 3,000 9,000

- W-rk shop 5,000 - 5,000 - 3.000 13,000- Soed laborotory - 10,000 - - - 10,000 20,000- Slo trt, - 2.000 - 2,0OO - 2,000 6,000- Floor brae for ator-ge bi.. 10 15,000 5 7.500 10 20,000 1/ 42,500- Offices - 10,000 - 10,000 - 10,000 30.000

TOOAL FO/R OCiLOOINCO 160.101.5,00 170.000 436,500 40 174,600

ILL. MACH0ERY0 AND EQUIPMENT

A. 0t-JtOOr

-St-r,go bitt (100 toot) 10 50,000 5 25,000 10 5(1,000 125,000 95A-ratito equip ts:t 2 6,000 1 3,000 2 6,000 15,000

- Coiveying oqoip-ent 200 0 40,000 :20 m 24,000 60 12,000 2/ 76,000- Pork lift 1 5,000 1 5,000 1 5,000 15,000- Bit coo,'ty-c 2 2,000 1 1000 2 2,000 5,000

Vor,1 for Storage 103.000 50.000 75.000 236.000 95 224,200

3. Prororri or 3d

- Drior (complete with h-ettr0000g to an .,d accetories) I 10,000 1 6,000 2 20,000 36,000 95

- Corn rllor 1 3,000 1 3,000 2 6,000 12,000- Fre-clesner (.ith ryciotes) I 10,000 1 7,000 1 10,000 27,000- 00-amer 1 3,000 1 3,000 - - 6,000- AIr--croot cler,-o (with cycio-et) 2 20,000 1 10,000 - - 4/ 30,000- Letgch -rp-r-nor 2 12,000 1 6,000 2 12,000 30,000- Cor, g-rd-r 1 6,000 1 6,000 1 6,000 1.000- Huller-tcari fier Si 1 3,000 - _ - - 3,000- Soara 100 s2;aralor 1 10,000 - - 1 10,000 20,000. Spi-o

1-op-rator 6/ - - - - 1 800 800

- Pn -p..ttir sepoartor 7/ 1 1,000 - - I I,000 2,000- S-dol irtoer *2 5,000 1 2,500 2 5,000 12.500- p:Ior:r-trrbor (oith -caLe) 2 6,000 1 3,000 2 6,000 15,000

Tr..k -colr 1 10,000 1 10,000 1 10,000 30,000- hog .Ionsr 3 2,400 2 1,600 3 2,400 6,400- iqoipmerrO i.>. nre too dutt roOl]rtior 1 7,000 1 7 000 1 7,000 21 000- _ boa tort 8/ 200 9 9/ 40,000 150 m 30 000 200 o 40,000 110 000- Belt coryor (for -trogo bihin) 120 m 24,000 60 12,000 60 12,000 48,000* Holding ard r-g,, bin- 15 9,000 10 3,000 16 9,600 21,600- Rigid rod fl..ibl rpo.. r 200 4,000 1)3 m 3,000 200 m 4,000 11,000- VT,-rr, diriiblot-ot -nd rihovs 10,000 5,000 - 10,000 25,000- al-or- 1 600 1 400 1 600 1,600

-Tanpr--nar I 1,000 1 1,000 1 00 3 000Carrot rirorro I ~~~~~~~ ~ ~~~~~~~1,000 [I1000 1 1,:020 3,000

To f-or Eroo --rro fotipont 198,000 120.500 174040 492i900 95 468,255

C. Sed lesting- -1- 10.000 10 000 20.000 95 19.020

D. a7ne-ato- and I-rafor-t r 25.000 25,000 25.000 75.000 95 71.250

E. Sparo Parts 10i 16 800 10.175 14.220 41.195 95 38,660

IV. PACKING. FREIG0 T ALD INSlIRANCE IlL 70.560 42.735 59.724 173.019 100 173.019

TOTAL CIF COST FORMACHINERY AD EQUIPMNT (l 6 IV) 423,360 256.410 358,344 1,03_8114 96 994,384

' THLE COSTS

dnlo-birg -nd loca O--p-t 12 17.640 10.604 14.9304306311

A , rtIy -od int Olacn 13, - 55 400 30.525 42.660 123.585 50 61-792

IAN EIPNsALLT (ICOST F MACHINEY 401,400 V27,61° 415,935 1,204,954 80 1,064,827

( 0RA00 r,TA1 brolording Land aod B.ildingr) 676,400 411,119 601,935 1,689,454 71.5 1,239,427

Il HigI,-r -rol oo -- For "00060" d-, to, hightr 1 bor and -r-ooport costs.2, OnIy req-irdd f-r 6 working bios (2 10 met-r eath.3/ All proceting ,quipte-,t co-plrt. with motor and switch-s4/ 0775 hat 2 net rleaners Car Costa pia" t,5/ , F", alfaLfa and clovrsr.6/ For -oyb-ans.7/ For gr---rr8' Cr-pLot- with "easy d-tp" hopptr, belt and buck-tt0/ RoClt- It, t.rIo length on discharg, hight ht9ot(t-g 20 nito of 10 mtter dis-hsrge

lhigho f-or Sie-rr plar-).10, 5' af A 0 B + C + D.IL/ 202 ,f A trB 4 C + D I E.127' 3, of A I B I C + D.13/ 5Llof A + B + C + D + E.

0000" 1, 1971,

ECUADOR

SEEDS PROJECT

International Technical Assistance Costs

-------- 1000 S/ ----------

Unit No. of Year Year Year Total %Item Unit Yrice Units 1 2 3 F.E. Total F.E.

'000 S/ logo S/ toga US$Technical Adviser Month 125 36 1,5oo 1,500 1,500 4,500 90 4,050 162.0

Seed Production Expert *v 112.5 36 1,350 1,35o 1,35o 4,o5o 90 3,6i45 145.8

Short Term Consultants " 112.5 24 1,35o 675 675 2,700 90 2,430 97.2

Bilingual Secretary Year 84 3 84 84 84 252 - - -

Vehicles 1 150 3 450 - - 450 90 405 16.2

Operation and Maintenanceof Vehicles - - - 112 112 112 336 30 100 4.0

Office Equipment - - - 126 - - 126 40 50 2.0

Recurrent Costs of Office - - - 78 79 79 236 30 70 2.8

Total - - - 5,050 3,800 3,800 12,650 85 10,750 430.0

Februarv 13, 1976

ECUADOR

SEEDS PROJECT

Annual and Total Project Capital Costs for Participating Entities

('000 Sucres)

Year 1 Year 2 Year 3 Total PercentLocal Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total Foreign Exchange

National Seeds Council (NSC) 150 200 350 - - - - - - 150 200 350 57.1Seeds CertificationDepartment (DCS) 930 2,120 3,050 730 1,670 2,400 440 1,010 1,450 2,100 4,800 6,900 69.6

National Institute forAgricultural Research (INIAl 6,330 1,420 7,750 80 1,845 1,925 640 1,735 2,375 7,050 5,000 12,050 41.5

Seeds Corporation (EMS) 5,195 13,875 19,070 6,107 16,313 22,420 1,748 4,812 6,560 13,050 35,000 48,050 72.8International Technical

Assictance 755 5,050 532 3,268 3,800 722 3,078 3,800 10,641 12,650 84.1

Sub-total 13,360 21,910 35,270 7,449 23,096 30,545 3,550 10,635 14,185 24,359 55,641 80,000 69.5(Project Base Line Cost)

Physical Contingency (10%) 1,336 2,191 3,527 744 2,309 3,054 355 1,063 1,418 5,564 8000 69.6

Sub-total 14,696 24,101 38,797 8,193 25,405 33,599 3,905 11,698 15,603 26,794 61,205 88,000 69.5

Local Price Contingency -/ 4,114 - 4,114 4,015 - 4,015 2,773 - 2,773 10,902 - 10,902 0.0

Foraign Price Contingency -/ - 3,615 3,615 - 6,097 6,097 - 3,860 3,860 - 13,572 13,572 100.0

GRAND TOTAL 18,810 27,716 46,526 12,208 31, 711 6 678 737,696 77 112 474 66.5

1/ Year 1 28°/ of base line cost estimate plus physical contingency.Year 2 49% " " " " " " " "Year 3 71'!. " " " ""

2/ Year 1 15% a" ,Year 2 24% " " " " " " " "IYear 3 33% I I , , ,, ,, N P

February 25, 1976

ECUADOR

SEEDS PROJECT

Annual and Total Incremental Recurrent Costs for Participating Entities

('000 Sucres)

Year 1 Year 2 Year 3 Total Percent

Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total Foreign Exchange

CE.RRENT -_ __ _ _ _ _ _ _ _ _ _ _ __ _ _ _ __ _ _ _ _ _ _ _ _

National Seeds Council (NSC) 1,692 12 1,704 1,693 11 1,704 1,693 11 1,704 5,078 34 5,112 0.7

Seed CertificationDepartment (DCS) 325 50 375 1,323 200 1,523 1 323 200 1,523 2 971 450 3 421 13.2

Current Sub-total 2,017 62 2,079 3,016 211 32 3016 211 3,227 8,049 484 8,533 5.7

(Project Baseline Cost)

Physical Contingency (10%) 202 6 208 302 21 323 302 21 323 806 48 854 5.7

Sub-total 2,219 68 2,287 3,318 232 3J550 3,318 232 3,550 _8855 532 9,387 5.7

Local Price Contingency I/ 621 621 1,625 1,625 2,354 2,354 4,600 4,600 0.0

Foreign Price Contingency 2/ - 10 10 56 56 77 77 143 143 100.0

GRAND TOTAL 2,840 78 2.918 4 943 288 5 231 5_672 309 ~5981 13j455 675 14 30 4.8

1! Year 1 28% of base line cost plus physical contingencies,

Year 2 49"/c '' ''

Year 3 71'!. ii *1 %I

2/ Year 1 15% , ' ' '' II

Year 2 24'!. " " " " " "" zI

Year 3 33%T I ii I II Il (>

December 9, 1975

ANNEX 5

ECUAO)

SEEDS PROJECT

Estimated Schedule of Disbursements

CumulativeBank Fiscal Year Disbursement Disbursement atand Quarter End During the Quarterz End of Quarter

Us$1000 US$,000

1977

September 30, 1976 -December 31, 1976 100 100March 30, 1977 200 300June 30, 1977 200 500

1978

September 300 800December 300 1,100March 300 1,400June 400 1,800

1979

September 200 2,000December 200 2,200March 200 2,h00June 200 2,600

19b0

September 100 2,700December 100 2,800June 200 3,000

November 21, 1975

EQUJAOOR

SEEDS PROJECT

INITIAL PROJECT IMPLEMENTATION SCHEDULE

MONTHS AFTER SIGNATURE OF LOAN AGRtEEMENTACTIVITY

1 2 3 4 5 6 1 S 9 ~~~~~10 11 12 1 4 15 19 11 1A 9 2 1 2 23 24 25 2 2 26 7 28 3 j5 3 36

1 B PROJECT ADMINISTRATION iNSCI

Appon'ri-'t of E-ecut;- D-eciorAppus---ui ot Tect,ei-1 Ad-ree

Purchase of (aI Vehicles

(hi Off,"ce t,ugp-t ard uit,Short-teemCnuseat

2. B SEEDS CERTIFICATION IDCSIApponiM,-T oI ID Tech,,rcai personne,

Purchase of la) Veheecier

(br Seed testing equips,entri

ici S-ed w.,ortnenreuo, enLoca! Tian,IngFo,eigir Tean Irg Floee

3. B BASIC SEED PRODUCTION (INIAP)La,,d Acq-s ton

C-ns-mcor of Seed Stor",

Purchae, of ial T-k,~ 21101 Tracure 13, a,d Coenb-

(ci seed teeinog equip-etIdl Seed proces-9n eq- .So,-t

4. B SEED PIROCESSING AND DISTRIBUTION IENS)App"ointmet of Tecifh-ca Adut-rNels, Seed Pr,euessn Plants

lxi Prepa,at,ii at De,s g-e Sr d T,ridr,tbi Tender ixI 5 rd Ccc1 t-rat

Land ACqunistor

Eqeetme,,t nstallatin-

Test rn

Fell opeeati,ne

L-id Acqw,it e

cFul operpeur-

C-nsIruct oii,f,arhok e

F-tgn T-e,ning Fri,OucfthtP

Match 3, 1976 WorldI Ba-k 15268IR)

ANNEX 7Page 1

ECUADOR

SEEDS PROJECT

Seed Prices

1. There are different sets of prices for each stage of seed production;registered seed (INIAP), certified seed produced by contract seed growers, andfinally for certified seed sold by EMS. The prices for registered seed aredetermined by INIAP based on production costs and in relation to prices forcertified seed. Seed growers' prices are usually commercial prices at harvesttime plus a pre-determined premium. The premium for wheat, barley, and cornis 15% and for rice it is 30% over commercial prices. The prices for certifiedseed (processed, bagged and treated) are deter4ned by a special connission inthe Ministry of Finance (Superini:endencia de Precios). The prices for conmer-cial crops, registered and certified seeds for 1975 are given in Table 1.

2. Current certified seed prices (1975) do not provide sufficientmargins to support a modern seeds industry. Thus it would be necessary toraise seed prices from their current level if EMS revenues are to be adequateto cover the cost of planned investment. The analysis in Annex 9 indicatesthat seed prices would have to be raised by about 12% above current levels togenerate adequate revenue to EMS.

:3. Table 2 shows the projected prices for certified seed. These wouldbe the prices required to generate a rate of return of slightly above 12% onthe EMS investment. With the exception of barley prices, these would be 12%above current prices. Soybean prices are at forecasted levels. The pricesshown for pasture seeds are the current prices of imported seed in Ecuador.All prices for certified seed prices at EMS plant or other distribution point.ENS absorbs transportation cost from plants to the distribution points.

Value of Certified Seed to Farmers

4. Current prices of certifLed seed range from 161% of commercial grainprices for wheat to 231% for hard corn. This section estimates the value ofcertified seed to commercial farmers and thus provides an estimate of themaximum prices that could be charged for certified seed and still be anattractive investment to farmers.

5. Table 6 of Annex 2 provides a summary of technical coefficientsused in the economic analysis of the project. Column 9 of Table 6, Annex 2,provides an estimate of the yield increase per hectare that a farmer couldexpect to obtain if he made no changes in his traditional production prac-tices other than switch to certified seed. These increases assume the pro-ducer uses no fertilizer. The only increase in production cost comes fromthe higher price the producer would pay for certified seed relative to un-improved seed.

ANNEX 7Page 2

6. The benefits obtained by a producer as a result of using certifiedseed rather than unimproved seed are shown in Table 3. For example, a hectareof wheat planted with certified seed will produce 180 kg more wheat than ahectare planted with unimproved seed (Column 1). This additional grain has amarket value of S/ 870, net of additional harvest and transport costs (Column3). At a seeding rate of 110 kg per hectare (Column 4), certified wheat seedhas produced to the farmer an additional income of SI 7.9 per kg 1/ of cer-tified seed used, as compared to his income when using unimproved wheat seed.Column 6 shows that the price of certified wheat seed, at the proposed in-creased price would be S/ 3.37 per kg and Column 10 shows that after deductingthe incremental investment costs per hectare resulting from the use of cer-tified seed, the farmer would obtain a net incremental benefit of S/ 499 perhectare. Producers will have an incentive to purchase certified seed ratherthan unimproved seed as long as the price difference between certified seedand commercial grain 2/ is less than the value of the incremental productiongenerated by the seed. The analysis of Column 10 illustrates that, with theexception of barley, there is a wide range over which certified seed pricescan be increased and still remain an attractive investment to farmers. Theproposed price increases are well within the estimated incremental value ofseed to producers. No serious problems of acceptance of higher seed pricesare expected if adequate advertising about the merits of certified seed isprovided.

December 23, 1975

1/ Calculated by dividing Column 3 by Column 4.

2/ The price of unimproved seed is assumed to be the price of commercialgrain.

ANNEX 7Table 1

ECUADOR

SEEDS PROJECT

Seeds Prices Established(fo:r the 1975 Campaign)

a) Commercial Grain Prices

S/ quintal S/ ton US$/ton

Wheat 250 5,500 220Barley 150 3,300 132Soft corn 240 5,280 21Hard corn 160 3,520 141Rice 190 4,180 167Soybeans V 520 ll,440 458Sesame 610 13,420 537Peanuts 420 9,240 370Beans 800 17,600 704

b) Price to Seed Grovers

Wheat 288 6,336 253Barley 173 3,806 152Soft corn 276 6,072 243Hard corn 184 4,048 162Rice 247 5,434 218

-Soybeans 600 13,200 528Sesame 700 15,400 616Peanuts 480 10,560 422Beans 920 20,240 810

c) Seed Corporation (EMS) Sales Prices for Certified Seed

Wheat 360 7,920 317Barley 300 6,600 264Soft corn 400 8,800 352Hard corn 330 7,260 290Rice 360 7,920 317Soybeans 800 17,600 704Sesame 1,000 22,000 880Peanuts 720 15,840 634Beans 1,200 26,400 1,056

1/ Soybean prices are based on official price announcedbut actually not paid to farmers due to lower pricesof imported soybean grain.

September 2, 1975

ANNEX 7Table 2

ECUADOR

SEEDS PROJECT

Projected Prices for Seeds Corpora ion (EMS)Sales Price for Certified Seedi

Crops Price of Seed-s7q 3 s/ton u $/ton

Wheat 403 8,870 355Barley 300 6,600 264Soft Corn 448 9,860 394Hard Corn 370 8,140 326Rice 403 8,870 355Soybeans 2/ 485 10,670 427Sesame 1,120 24,640 986Peanuts 806 17,732 709Beans ,70 709Pasture Seeds§ 1,344 29,570 1,183

Alfalfa 4,000 88,000 3,520Rye Grass 2,895 63,690 2,548White Clover 4,500 99,000 3,960Guinea Grass 4,740 104,2b0 4,171Perennial Soybeans 4,725 103,950 4,158

1/ Sales prices necessary to generate sufficient revenue for EMS to coverits costs and have an acceptable rate of return on investment. Theseprices are current (1975) prices, plus 12% for all seeds except barley,soybeans and pasture seeds.

2/ Reflects expected price drop.

3/ Prevailing import prices.

December 9, 1975

ECUADOR

SEEDS PROJECT

Incremental Benefits to Farmers as a Result of Using Certified Seed

1 2 3 4 5 6 7 8 9 10Grain Yield Net Additional Cost of Certified Seed Incremental Investment Per Hectare Net Incremental Benefit ResultingIncrease Farmgate incremental Over Cost of Unimproved Seed For Certified Seed From the Use of Certified SeedAttributable to Price of Income Per Seeding At Current With 12% Price At Current With 12%/ Price With Seeds At With Jeeds With

Crops Certified Seed Grain Hectare Rate Price Increase Price Increase Current Prices 12% Price Increasekg/ha 1 SI Ton-/ S/ ha kg/ha S/ kg S/ kg S/ ha S/ ha S/ ha S/ ha

(lx2) (4x5) (4x6) (3-7) (3-8)

Wheat 180 4,840 870 110 2.42 3.37 266 371 604 499

Barley 140 2,640 369 90 3.30 4.09 297 368 72 14/

Soft orn 13u 4,620 600 35 3.52 4.58 123 160 477 440

Hard corn 210 2,860 600 16 3,74 4.61 60 74 540 526

Rice 600 3,520 2,112 50 3.74 4.69 180 235 1,932 1,877

Soybeans 140 6,340 887 70 2.29 3.94 160 276 727 611

Peanuts 200 8,580 1,716 70 6.60 8.50 462 595 1,254 1,121

Sesame 100 12,760 1,276 45 8.58 11.22 39 505 1,237 771

Beans 60 16,940 1,016 50 8.80 11.97 440 599 576 417

1/ Annex 2, Table 6, Column 9.2/ Commercial grain prices (Annex 7, Table 1) less S/ 660 per ton for harvest and transport cost.3/ Established grain price expected to be reduced to S/ 7,000 per ton (Annex 7, Table 2).4/ No price increase is proposed for certified barley seed.

December 10, 1975

Z19

ANNEX 8Page 1

ECUADOR

SEEDS PROJECT

Analysis of Financial Returns to Contract Growers of Certified Seed

1. The project does not involve any investment in seed growing farms.The farms selected for seed growing would be some of the best farms in thecountry as reflected both by level of management and mechanization. No newequipment would be required for seed growers. Production credit is readilyavailable to these growers at 9% interest. Certified seed production re-quires more land preparation, more fertilizer and chemicals, and more laborthan commercial grain production. Thus, production costs per hectare arehigher for seed production than for commercial grain production. But rev-enues are also higher. EMS pays 15% premium above market price to seedgrowers (30% for rice). Also, seed growers can expect about 10% yield in-crease from registered seed relative to the certified seed that would beused in commercial grain production.

2. The question facing a prospective contract seed grower is whetherthe added revenues exceed the added costs by an amount sufficient to make aseed growing contract attractive. The evaluation does not involve a long-term investment analysis since no long-term investment is required by theseed grower. The analysis examines the production cost budgets of a typicalseed grower for commercial grain production and for seed production. Thecontract seed growing alternative will be attractive to producers if thisrate of return exceeds the cost of capital plus an allowance for risk. Therisks associated with seed production are the same as for commercial grainproduction. However, since the investment in production costs is higher forseed production, the potential losses are greater from seed production thanfrom commercial grain production.

3. The budgets are constructed from data published by INIAP, and therespective programs of MAG and also from conversations with seed growers andtechnical personnel of EMS involved with providing technical assistance tocontract seed growers. The budgets are constructed on a per hectare basissince size of operation is not an important factor. The typical contractfor seed production is 50 ha. Budgets are constructed for wheat, hard corn,soybeans and rice. Budgets for other crops were not constructed since thesefour crops cover the major crops of the Sierra and the Coast. These budgetsare representative of other crops.

Wheat

4. Table 1 shows the comparison of costs and returns from certifiedseed production relative to commercial grain production for wheat. Certifiedseed production requires S/ 2,071 more per hectare in production costs thandoes commercial grain production. However, wheat seed production alsogenerates an additional S/ 2,672 of revenue. Thus, the seed producer receives

ANNEX 8Page 2

a return of 29% for the marginal investment in seed production. Thisshould be adequate to attract farmers into seed production. This rate ofreturn is consistent with the statements by wheat seed growers interviewedthat seed production is profitable and they would like to expand their acre-age under contract. The current 15% price premium for wheat seed appears tobe quite adequate.

Hard Corn

5. Contract seed growers also receive a 15% price premium above com-mercial grain prices for hard c:orn. Seed production requires an additionalinvestment of SI 2,469 per hectare (Table 2) relative to commercial grainproduction. However, seed production generates S/ 3,392 of additional rev-enue per hectare. Thus, the contract seed grower for hard corn receives areturn of 37.0% on his marginal investment cost. These returns are consistentwith the returns from wheat seed production. The 15% price premium also seemsto be adequate for hard corn.

Soybeans

6. The price premium for soybean seed producers is also 15% above thecommercial price. Seed production requires an addition of SI 2,385 perhectare to production costs (Table 3). Seed production yields S/ 2,917 perhectare in added revenue 1/. TLis is a 22.3% return on the marginal invest-ment. The 15% price premium to seed growers appears to be adequate for soy-beans.

Rice

7. Rice seed growers receive a 30% premium above comercial prices.The extra premium for rice appears to be largely a result of organizedfarmers' pressures. EMS representatives indicated that the extra premiumswere required to attract growers. However, the data in Table 4 indicatethat rice seed production is much more profitable to seed growers than isprobably necessary to attract them to seed production. The additional pro-duction cost of rice seed production is S/ 2,302 per hectare. Incrementalrevenue is S/ 6,536 per hectare. This is a 184% rate of return on theincremental production costs.

8. The price premium on rice could be reduced to 15%. Returns fromrice seed production would still be higher than for other crops. Moreover,substantial reductions in EMS operating costs would be realized. A 15%premium for rice seed would mean a seed grower price of S/ 219 per qq. Theincremental return per hectare from seed production would be S/ 4,072. Thiswould be a 76.9% return on the incremental investment. A 15% price premiumshould be adequate for rice growers as well as for all other crops.

December 23, 1975

1/ Bank Report 814 (July 1975), p. 29.

ANNEX 8Table 1

ECUADOR

SEEDS PROJECT

Rate of Return for Certified Wheat Seed Production1 2 3

Commercial CertifiedUnit Grain Production Seed Production Difference

Cost Item per ha Unit Price Units Cost Units Cost (h-3)(SI)S_F - T (SI)

No. ofLand Preparation plowings 160 2 320 4 640 320

InputsSeed

Certified qq 403 2.42 975 - -Registered qq 450 - - 2.42 1,089 11L

FertilizerUrea qq 359 1 359 2 718 35910-30-10 qq 318 4 1,272 7/2 1,226 954

ChemicalsFungicide (Diptrex) kg 300 1.0 300 2. 0./L2 600 300Herbicide (2-4-D) litre 80 2 160 2 160 -

LaborFertilizer application man-day 40 2 80 3 120 40Fungicide application 40 1.0 40 2 80 40Herbicide application 70 1 70 1 70 -Bird control 40 - - 2 80 80Rogueing 40 - - 2 80 80Planting 40 1 40 1 40 -

Harvest CostsMachine qq 20 40/

3800 44 880 80

Machne cleaningI 4 - - - 4 4

Bags5 bagJqq 8 40 320 - - -320Transport qq 5 40 200 44 220 20

Total of Production Costs/6 L,936 7,007 2,071

Revenue Comparisons

Yield qq 40 44Price Sucres/qq 250 288

Total Revenue 10,000 12,672 2,672

Net return to land and management 5,06h 5,665 601

Rate of return on ma ginal investmentin seed production - 29.0%

/I Reflects 12% price increase proposed in this report./2 Two applications./3 Assumed to be 90% of yield with registered seed./4 A cost of 200 sucres is charged for the extra cleaning of the combine required for harvesting certified seed.

Since the average seed grower have 50 ha under contract, a charge of 4 sucres per ha is used here.15 Bags are furnished by EMS to seed growers. A new jute bag costs 24 sucres. A bag is assumed to last three years./6 Exclusive of land, management and interest costs. These are the same for both alternatives./7 Calculated by dividing increased revenue by increased cost and subtracting 100. This understates the annual rate

of return since the crop season is only seven months.

December 10, 1975

ANNEX 8Table 2

ECUADOR

SEEDS PROJECT

Rate of Return for Certified Hard Corn Seed Production

Commercial CertifiedUnit Grain Production Seed Production Difference

Cost Item per ha Unit Price Units Cost Units Cost (4_3)(S/) (S/) (S/) (S/)

No. ofLand P'reparation plowings 160 2 320 4 640 320

InputsSeed

Certified qq 370L1 0.35 130 - -Registered qq 495 - - 0.35 174 4L

FertilizerUrea qq 359 2 718 3 1,077 35910-30-10 qq 318 - - 2/2 636 636

ChemicalsFungicide (Diptrex) kg 300 1 300 2 600 300Insecticide (Sevin) kg 160 8 1,280 12 1,920 640Herbicide (Gesaprim & Layo) kg 150 2.5 375 2.5 375 -

LaborPlanting man-day 70 1 70 1 70 -Fertilizer application " 70 1 70 2 140 70Fungicide application (Diptrex) 70 1 70 2 140 70Insecticide application 70 1 70 3 210 140Herbicide application 70 1 70 1 70 -Bird control 70 - - 4 280 280

Rogeuing 70 - - 2 140 140

Harvesting 70 8 560 9 630 70Bags/4 bag/qq 8 80L3 640 - - -640Transport qq 5 80 400 88 440 40

Total production costs/ 5,073 7,542 2,L69

Revenue Comparisons

Yield 80 88Price 160 184

Total revenue 12,800 16,192 3,392

Net returns to land and management 7,727 8,65C 923

Rate of return on marginal investmentin seed productioni/ 37.0%

/1 Reflects 12% price increase proposed in this report./2 Two applications./3 Assumed to be 90% of yield with registered seed./4 Bags are furnished by EMS to seed growers. A new jute bag costs 24 sucres. A bag is assumed to last three years./5 Exclusive of land, management and interest costs. These are the same for both alternatives./6 Calculated by dividing increased revenue by increased cost and subtracting 100. This understates the annual rate

of return since the crop season is only seven months.

December 10, 1975

ANNEX 8Table 3

ECUADOR

SEEDS PROJECT

Rate of Return for Certified Soybean Seed Production

Commercial Certified

Unit Grain Production Seed Production DifferenceCost Item per ha Unit Price Units Cost Units Cost (L-3)

(S/) (S/) (SI) (5/)No. of

Land Preparation plowings 160 2 320 4 640 320

InputsSeedCertified qq 896L1 1.54 1X380 - - _

Registered qq 980 - - 1.54 1,509 129Fertilizer

10-46-0 qq 318 1 318 2 636 318

Urea qq 359 0.5 179 1 359 180

ChemicalsFungicide (Diptrex) kg 300 1 300 2 600 300

Insecticide (Sevin) kg 160 4 640 912 1,440 800

Herbicide (Gesagard 50%) kg 350 2 700 2 700 -Inoculant (Quimico) onz. 30 15 450 15 450 -

LaborPlanting man-day 700 1 70 1 70 -

Fertilizer application " 70 1 70 2 140 70

Fungicide application 70 1 70 2 140 70

Insecticide application " 70 1 70 2 140 70

Herbicide application " 70 1 70 1 70 -

Bird control 70 - - 2 140 140

Rogueing 70 - - 2 140 140

Harvest CostsMachine qq 17 31 527 35 595 68

Machine leaning4 - 8 - - - 8 8

Bags-5 bag/qq 8 3112 248 - - 248

Transport qq 5 31 155 35 175 20

Total production costsL6 5,567 7,952 2,385

Revenue Comparisons

Yield qq 31 35Price sucre/qq 318 365

Total revenue 9,858 12,775 2,917

Net returns to land and management L,291 4,823 532

Rate of return on marWinal investmentin seed production 7

7 22.3%

/I Reflects 12% price increase proposed in this report./2 Two applications./3 Assumed to be 90% of yield with registered seed./4 A cost of 200 sucres is charged for the extra cleaning of the combine required for harvesting certified seed.

Since the average seed grower have 50 ha under contract, a charge of 4 sucres per ha is used here.

/5 Bags are furnished by EMS to seed growers. A new jute bag costs 24 sucres. A bag is assumed to last three years.

/6 Exclusive of land, management and interest costs. These are the same for both alternatives.

/7 Calculated by dividing increased revenue by increased cost and subtracting 100. This understates the annual rate

of return since the crop season is only seven months.

December 10, 1975

ANNEX 8Table 4

ECUADOR

SEEDS PROJECT

Rate of Return for Certified Rice Seed Production2 4~~~~~~~

Commercial CertifiedUnit Grain Production Seed Production Difference

Cost Item per ha Unit Price Units Cost Units Cost (-3)(S/) (-St) -(S/) (S/O

No. ofLand Plreparation plowings 160 2 320 4 640 320

InptltsSeed

Certified qq 14031 1.1 43 - - _Registered qq 55o02 - - 1.1 605 162

FertilizerUrea qq 359 3 1,077 4 1,436 35910-46-0 qq 318 - - 2 636 636

ChemicalsFungicide (Diptrex) kg 300 0.75 225 1.5/3 450 225Insecticide/

3(Sevin) kg 160 2 320 3 480 160

;'erbicide (Prepanil) litre 100 7 600 8 800 200Labor

Seeding and reseeding man-day 70 8 560 8 560 -Transplanting 70 15 105 15 105 -Fertilizer application " 70 1 70 2 140 70Fungicide application " 70 1 70 2 140 70Insecticide application " 70 2 140 3 210 70Herbicide application 70 1 70 1 70 70Blird control " 70 5 350 10 700 350Rogusing " 70 - - 2 140 140

Harvest CostCombine qq 17 80L4 1,360 88 1,496 136Machine cleaning/5 -4 - - - 4 4Bags/

6bag/qq 8 80 640 - - -640

Transport qq 5 80 400 88 440 40

Total production costs/7 6,750 9,052 2,302

Revenue ComparisonsYield qq 80 88Price sucre/qq 190 247

Total revenue 15,200 21,736 6,536

Net retuirns to land and management 8,150 12,684 L,23t

Rate of return on marginal investmentin seed production/1 6L%

/1 Reflects suggested 12% price increase./2 INIAP-6/3 Two applications.

/4 Assumed to be 90% of yield with registered seed./5 A cost of 200 sucres is charged for the extra cleaniing of the combine required for harvesting certified seed.

Since the average seed grower has 50 ha under contract a charge of 4 sucres per ha is used here./6 Bags are furnished by EMS to seed growers. A new jute bag costs 24 sucres and is expected to last three years.J7 Exclusive of land, management and interest costs. Also excludes irrigation costs that vary with weather but are

same for both crops./8 Calculated by dividing increased revenue by increased cost and subtracting 100. This understates the annual rate

of return since the crop season is only six months.

December 10, 1975

ANNEX 9Page 1

ECUADOR

SEEDS PROJECT

Analysis and Financial Projections for the Seeds Corporation (EMS)

1. The construction of three seed processing plants for EMS wouldaccount for about half of total project expenditures. Revenues from the saleof certified seed and from the sale of dockage would provide EMS with revenueto finance the required investment. EMS would be the only agency involved inthe project which would depend on its own revenues. The increased costs ofother agencies would represent increases in Government expenditures.

2. The project goals for certified seed sales by EMS are set out inAnnex 2, Table 8. These output projections and the current prices (1975/76)for grain and seed (Annex 7, Table 1) provide the initial basic revenue proj-ections for EMS. With the exception of soybeans, the commercial grain pricesare assumed to be reasonable projections of prices (constant dollars) overthe life of the project. Local markets should be able to absorb expanded pro-duction generated by the project without any severe downward pressure onprices. It is assumed that expanded barley production would be for new maltingvarieties to be released by INIAP, which would allow current prices to bemaintained. The Government is attempting to establish soybean referenceprices at levels well above world market prices, but there is no evidence thatsoybeans are actually moving at these prices. The price of soybeans used inestimating project cost and revenue flows is taken from Bank projections 1/of world prices. The analysis assumes that these prices would become effec-tive immediately, but this would lead to an underestimate of EMS revenues andcosts if the price in Ecuador remains above the level used. Thus, the EMScash flows are conservative estimates if the price does not fall to the pro-jected level since it has the effect of reducing revenues more than costs.

Projected Purchases of Seed from Contract Growers

3. Table 1 shows the quantities and value of purchases of seed fromcontract growers assumed in the analysis. Seed purchases are assumed toachieve the target by Year 5 and continue at that level thereafter.

Projected Sales of Certified Seed and Dockage by EMS

4. Sales of certified seed and dockage are the source of revenues forEMS. Project seed sales are shown in Table 2. From 15% to 60% (by weight)

1/ Report 814, July 1975, p. 29. The prices of S/ 318 per qq of commercialsoybeans, SI 365 per qq to contract growers, and S/ 485 per qq forcertified seed are used in calculating costs and returns for EMS andin calculating project costs and benefits.

ANNEX 9Page 2

of the grain purchased from seed growers is dockage not marketed as certifiedseed (Annex 2, Table 6), but sold at commercial grain prices. Also, from 1%to 5% (by weight) of the seed purchased from contract growers is foreignmaterial or is lost in processing. Projected revenues from sale of dockage(less waste) are shown in Table 3.

Projected Operating Expenses of EMS

5. Projected annual operating expenses of EMS, shown in Table 4, areassumed to remain at Year 5 levels for the remaining years of the analysis.The proposed loan to EMS is for capital investment only, with working capitalto be obtained in the local capital market at an interest rate of 9% (now at1% interest) in quantities sufficient to cover its needs. Interest on work-ing capital is thus included as an operating cost since working capital isa purchased input in the same way that labor is a purchased input and thesecosts must be covered before funds can be allocated for payment of long-termcredit.

Projected Return on Investment

6. Table 5 shows EMS's projected stream of income and costs. Itseems clear from this analysis that the planned long-term investment by EMSwould not be economically justified at current levels of certified seed prices.Thus, if the investment is to be made, there are at least two alternatives--the Government could subsidize EMS to compensate for the projected operatinglosses and also pay for the investment, or the price of certified seed couldbe raised. The value of certified seed to farmers is adequate to accommodatean immediate sizable price increase (Annex 7, Tables 1 and 2).

7. Net returns to capital under 10%, 12% and 15% increases in theprice of certified seed are analyzed in Table 5. Dockage sales remain thesame in each case since prices at which dockage is sold are not affected.A 10% price increase generates an 8.15% rate of return, a 12% price increaseproduces a rate of return of slightly above 12%, and a 15% price increaseproduces a 17.25% rate of return.

8. Annex 7, Table 3, shows the price excess of certified seed abovecommercial grains prices implied by the price increases. With the exceptionof barley, these spreads are less than the marginal value of certified seedestimated in Annex 7, Table 3. Thus, a price increase of 12% would mean thatcertified seed would still be priced well below its value to farmers (i.e.,their marginal value product). Barley will probably have to be excluded fromthe price increases.

Cash Flow

9. The projected cash flow for EMS, with a 12% increase in certifiedseed prices, is shown in Table 6A, and with a 15% increase in said prices isshown in Table 6B.

ANNEX 9Page 3

10. In the cash-flow projections for EMS (Tables 6-A and 6-B) it hasbeen assumed that all items would be equally affected by ihflation by using1975 prices throughout the projections. This assumption would not be validfor EMS' long-term loan repayment, which would be paid in current Sucres.Therefore, the cash position for EMS would be more favorable than shown inTables 6-A and 6-B.

Balance Sheet

11. Table 7 shows the condensed Balance Sheet of EMS as of December 31,1974.

February 23, 1976

ECUADOR

SEEDS PROJECT

Projected Purchases of Field Production by the Seeds Corporation (EMS)

Without Project Year 1 Year 2 Year 3 Year 4 Year 5

Price 2- Quantity Value Quantity Value Quantity Value Quantity Value Quantity Value Quantity Value

s/ton tons S/ '000 tons S/ '000 tons S/ '000 tons S/ '000 tons S/ '000 tons S/ 000

Wheat 6,336 2,000 12,672 2,000 12,672 2,236 14,167 2,510 15,903 2,764 17,513 3,000 19,008

Barley 3,806 600 2,284 750 2,855 945 3,597 1,140 4,339 1,278 4,864 1,418 5,397

Soft corn 6,072 - - - - 126 765 251 1,524 628 3.813 !,006 6,108

Hard corn 4.048 750 3,036 1,200 4,858 1,250 5,060 1,325 5,364 1,375 5,566 1,375 5,566

Rice 5,434 1,647 8,950 2,030 11,031 2,380 12,933 2,730 14,835 3,080 16,737 3,430 18,639

Soybeans 8,303 - - 227 1,885 433 3,595 571 4,741 800 6,642 1,004 8,336

Peanuts 10,560 - - 71 750 100 1,056 200 2,112 243 2,566 286 3,020

Sesame 15,400 - - 0.7 11 1.4 22 2 31 2.2 34 2.6 40

Beans 20,240 - - - - - - 288 5,829 432 8,744 648 13,116

Pasture seeds 46,200 - - - - 31 1,432 77 3,557 123 5,683 185 8,547

TOTAL 4,997 26,942 6,278.7 34,062 7,502.4 42,627 9,094 58,235 10,725.2 72,162 12,354.6 87,777

1/ Quantities from Annex 2, Tabie lla.

2/ Prices from Annex 7, Table 1, Section b.

December 10, 1975

ECUADOR

SEEDS PROJECT

Projected Sales of Clean and Bagged Certified Seed by the Seeds Corporation (EMS) 1/

2/ Without Project Year 1 Year 2 Year 3 Year 4 Year 5Price Quantity Value Quantity Value Quantity Value Quantity Value Quantity Value Quantity Values/ton tons S/ '000 tons S/ '000 tons S/ '000 tons S/ '000 tons S/ '000 tons S/ '000

Wheat 7,920 1,600 12,672 1,600 12,672 1,800 14,256 2,000 15,840 2,200 17,424 2,400 19,008

Barley 6,600 450 2,970 550 3,630 700 4,620 850 5,610 950 6,270 1,050 6,930

Soft corn 8,800 - - - - 50 440 100 880 250 2,200 400 3,520

Hard corn 7,260 450 3,267 475 3,449 500 3,630 525 3,812 550 3,993 550 3,993

Rice 7,920 1,400 11,088 1,700 13,464 2,000 15,840 2,300 18,216 2,600 20,592 2,900 22,968

Soybeans 10,670 - - 150 1,601 300 3,201 400 4,268 550 5,869 700 7,469

Peanuts 15,840 - - 50 792 70 1,109 140 2,218 170 2,693 200 3,168

Sesame 22,000 - - 0.5 11 1 22 1.4 31 1.6 35 1.8 40

Beans 26,400 - - - - - - 200 5,280 300 7,920 450 11,880

Pasture seeds 90,200 - - - - 20 1,804 50 4,510 80 7,216 120 10,824

TOTAL 3,900 29,997 4,525.5 35,619 5,441 44,922 6,566.4 60,665 7,561.6 74,213 8,771.8 89,800

1/ Quantities from Annex 2, Table 8c.

2/ Prices from Annex 7, Table 1, Section C.

- ta

December 10, 1975

ECllADOR

SEEDS PROJECT

Projected Sales of Dockage by the Seeds Corporationi (EMS) -

Without Project Year 1 Year 2 Year 3 Year 4 Year 5priceZ/ Quantity luti Valuean-t a Quantity Value Quxantiity Value Quant-ity .~. ~ i.L ZL. Q~i± ~ 2±~.

s/ton tons S/ '000 tons S/ '000 tons SV l000 tons SV '000 tons S/ '000 tons S/ 1000

Wheat 5,500 380 2,090 380 2,090 425 2,338 477 2,624 525 2,888 570 3,135

Barley 3,300 144 475 180 594 227 749 274 904 307 1,013 340 1,122

Soft corn 5,280 - - - - 74 391 148 781 5/1 1,959 594 3,136

Hard1 mmn 3,520 222 781 708 2,492 738 2,598 782 2,753 811 2,855 811 2,855

Rice 4,180 181 756 223 932 262 1,095 300 1,254 339 1,417 377 1,576

Soybeans 6,996 - - 57 399 108 756 143 1,000 200 1,399 251 1,755

Peanuts 9,240 - 18 166 25 231 50 462 61 564 72 665

Sesame 13,420 - - 0.2 3 0.4 5 0.5 7 0.6 8 0.7 9

Beans 17,600 _ - - - - - 72 127 108 190 162 285

TOTAL 927 4,102 1,566.2 6,676 1,859.4 8,163 2,246.5 9,912 2,722.6 12,293 3,l77.7

I/ The balarnce of the difference between quantities purchased by EMS and quantities sold by EMS is processing loss due to foreign material, etc. These losses are 11. ofpurchase weight for wheat, barley, soft corn, and hard corn; 4% for rice and 51. for soybeans, peanuts, sesame, and beans. Dockage from pasture seed has no marketvalue.

2/ Prices for dockage are the same prices for commercial grain, Annex 7, Table 1, Section a.

December 10, 1975 l

,.yzt

ANNEX 9

ECUADOR Table 4

SEEDS PROJECT

Projected Annual Operating Costs of the Seeds Corporation (EMS)(S/ '000)

Without ----------------- Year ------------------Project 1 2 3 4 5

Administrative personnel cost 3,900 3,900 3,900 3,900 3,900 3,900

Operating personnel and services 1/ 1,900 1,900 1,995 2,095 2,199 2,309

Operation and maintenan57 of

processing equipment - 150 150 465 1,082 1,232 1,232

Bags 3/ 1,030 1,195 1,431 1,720 2,000 2,284

Chemicals 4/ 1,030 1,195 1,431 1,720 2,000 2,284

Building Maintenance 5/ 50 50 50 50 335 335

Operation and maintenance of vehicles 6/ 35 165 305 445 445 445

Office supplies and utilities 7/ 580 580 590 600 610 620

Payment to IN V P for use of processingfacilities - 792 792 792 - - -

Sub-total 9,467 9,927 10,959 11,612 12,721 13,409

Purchase of grain from seed growers 2 34,062 42,627 58,235 72,162 87,777

Sub-total 36,409 43,989 53,58i 69,847 84,883 101,186

Interest on short-term credit 9/ 29010/ 1,980 2,398 3,104 3,664 4,193

TOTAL OPERATING COST 36,699 45,969 55,984 72,951 88,547 105,379

1/ Increased at 5% per year until year 5.

2/ 5% investment cost in seed processing equipment. Charge for year 1 is for the operation

of existing equipment.3/ Twenty-two paper bags and 22 jute bags per ton of seed sold. Paper bags costs are 8 sucres

per bag. Jute bags cost 24 sucres new and are assumed to be used six times.4/ 264 sucres per ton if seed sold.

5/ 5% of building cost. The charges for year 1, 2, 3, and for existing facilities.

6/ 25% of purchase price of vehicles.

7/ 10% of 1 + 2.8/ 330 sucres per ton for 2,400 tons in each of the first two years.9/ 9% on 1/2 of processing costs plus seed purchases.10/ Before the project EMS obtained money at 1% from BNF to finance purchases from seed growers.

Interests costs without project reflect this. This credit subsidy is being terminated atthe beginning of year 1 of project.

December 10, 1975

ECUADOR

SEEDS PROJECT

Streams of Costs and Revenue to the Seeds Corporation (EMS) at Alternative Levels of Sales Prices for Certified Seed 4'

Without Year

Project 1 2 3 4 5 6 7 8 9 10-20

Cash Outflow

Investment - 20,975 24,659 7,206 - 605 605 605 - -

Operating Cost 2- 36,699 45969 55.997 72.990 88,703 105,739 105,739 105,739

105 739 105,739 105 739

Total Cash Outflow 36,699 66,944 80,656 80,196 88,797 105,739 106,344 106,344 106,344 105,739 105,739

Cash lnflow at Current Seed Prices

Seed Sales 29,997 35,619 44,922 60,665 74,213 89,800 89,800 89,800 89,800 89,800 89,800

Dockage Sales 6676 8.163 9,912 12,293 14.539 14539 14,539 14,539 14,539

Total Cash Inflow 34,099 42,295 53,085 70,577 86,506 104,339 104,339 104,339 104,339 104,399 104,339

Net Returns to Investment Capital (2,600) (24,649) (27,571) (9,619) (2,291) (1,400) (2,005) (2,005) (2,005) (1,400) (1,400)

Total Ca6i lTnflow with 102Increase in Seed Prices 3/ 45,857 57,397 76,193 93,206 112,237 112,237 112,237 112,237 112,237 112,237

Net Returns to Investment Capital (21,087) (23,259) (4,003) 4,409 6,498 5,893 5,893 5,893 6,498 6,498

Total Cash Inflow with 12/,

Increase in Seed Prices 3/ 46,569 58,255 77,316 94,546 113,816 113,816 113,816 113,816 113,816 113,816

Net Returns to Investment Capital (20,375) (22,401) (2,880) (5,749) 8,077 7,472 7,472 7,472 8,077 8,077

Total Cash Inflow with 15%Increase in Seed Prices 3/ 47,638 59,553 79,000 96,556 116,185 116,185 116,185 116,185 116,185 116,185

Net Returns to Investment Capital (19,306) (21,103) (1,196) 7,759 10,446 9,841 9,841 9,841 10,446 10,446

1/ Base cost estimate plus 107, physical contingency.

2/ Allows for replacement of vehicles every 6 years. Includes interest on operating capital

3/ On all seeds except barley, soybeans and pasture seeds. Pasture seeds are priced at current import prices throughout.

4/ All costs and revenues are in constant monetary terms. This means that it has been assumed that inflation will affect

costs and sales pTices in the same way.

December 12, 1975n-IZI Da

ECUADOR

SEEDS PROJECT

Projected Cash Flow for Seed Corporation (EMS), Assuming 12% Increase for Certified Seed Prices(1,000 Sucres)

Year

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

I. CASH INFLOW1/

A. Long Term Loan 15,262 17,942 5,244 - - - - - - - _

2/B. EMS Investment Capital 5,713 6,717 1,962 - _ _ _ _

C. Short Term Creditfor Purchase of Seed 3from Growers 34,062 42,627 58,235 72,162 87,777 87,777 87,777 87,777 87,777 87,777 87,777 87,777for Operating Costs _/ 9,927 10,872 11,444 11,444 10,508 9,246 7,927 6,549 5,109 3,604 2,031 387

D. Revenue from S,Ole of Seedand Dockage -_ 46,569 58,255 77,316 94,546 113,816 113,816 113,816 113,816 113,816 113,816 113,816 113,816

E. Cash Balance from Previous Year - 87 168 1,277 2,901 4.163 5,482 6,860 8,300 9,805 11,378 13.022

TOTAL CASH INFLOW 111.533 136,500 154,369 1

79,429

215,002 215f 002 215,002 215,002 215.002 215,002 215.002 215,002

II. CASH OUTFLOW

A. Investment 20,975 24,659 7,206 - - - - - - - - -

B. Working CapitalSeed Purchases 34,062 42,627 58,235 72,162 87,777 87,777 87,777 87,777 87,777 87,777 87,777 87,777Operating costs (exclusive

of interest) 9,927 10,959 11,612 12,721 13,409 13,409 13,409 13,409 13.409 13,409 13,409 13,409Interest on Short Term Loans 5/ 1,980 2,407 3,136 3,762 4,423 4,366 4,307 4,245 4,180 4,112 4,041 3,967

C. Loan RepaymentShort Term yprincipal) 43,989 53,499 69,679 83,606 98,285 97,023 95,704 94,326 92,886 91,381 89,808 88,164Long Term 6 (principal and

interest) 687 2.181 3,224 4.277 6,945 6,945 6,945 6,945 6.945 6.945 6,945 6,945

TOTAL CASH OUTFLOW 111,620 136.332 153.092 176,528 210X839 209,520 208,142 206,702 205.197 203,624 201,980 200.262

ENO OF YEAR CASH BALANCE- 87 168 1,277 2,901 4,163 5,482 6,860 8,300 9,805 11,378 13,022 14,740

1/ Base line FE cost, less consultanits, plus 10% physical contingencies.

1/ Base line local cost, less consultants, plus 10% physical contingencies.2/ Cash balance from previous year is used to gradually reduce loan for operating costs to zero.4/ Based on 12 percent price increase from current levels for all seeds except barley, soybeans, and pasture seeds. Xx5/ 9% interest on 1/2 of short term loan since money is used for only 6 months. c,S/ Twelve year loan at 9% interest with four year grace period on principal payment.7/ Debt service payments in the above table are presented in real terms since all entries are in July 1975 prices. The debt

service, of course, is payable in nominal terms and, due to inflation, will be more easily handled than appears from thistable; the above shows the "worst case" from the sub-borrower's viewpoint.

February 23, 1976

ECUADOR

SEEDS PROJECT

Projected Cash Flow for Seed Corpsration (EMS). Asuming 15% Increase for Certified Seed Prices

(1,000 Sucres)

Year

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

I. CASH INFLOW

A. Long Term Loanl 15,262 17,942 5,244 - - - - - - - - -

2/B. EMS Investment Capital- 5,713 6,717 1,962 - - - - - - - - -

C. Short Term Creditfor Purchase of Seed from Growers 34,062 42,627 58,235 72,162 87,777 87,777 87,777 87,777 87,777 87,777 87,777 87,777for Operating Costs -' 9,927 9,977 9,211 7,246 3,294 - -

D. Revenue from O1e of Seedand Dockage - 47,638 59,553 79,000 96,556 116,185 116,185 116,185 116,185 116,185 116,185 116,185 116,185

E. Cash Balance fromn Previous Year _ - 982 2.401 -5475 10.115 1j4069 18.173 22.277 26,381 30Q4A8 34.589 38.693

TOTAL CASH INFLOW 12i,602 137,796 156,053 181.439 217,371 218,031 222.135 226.239 230.343 234447 238.551 242.655

11. CASll OUTFLOW

A. investment 20,975 24,659 7,206 - - - - - - - -

D. Working CapitalSeed Purchases 34,062 42,627 58,235 72,162 87,777 87,777 87,777 87,777 87,777 87,777 87,777 87,777Operating costs (exclusive

of interest) g 9,927 10,959 11,612 12,721 13,409 13,409 13,409 13,409 13,409 13,409 13,409 13,409Interest on Short Term Loans 5 1,980 2,367 3,035 3,573 4,098 3,950 3,950 3,950 3,950 3,950 3,950 3,950

C. Loan RepaymentShort Term. principal) 43,989 52,604 67,446 79,408 91,073 87,777 87,777 87,777 87,777 87,777 87,777 87,777Long Term 6 (principal and

interest) 687 2,181 3,224 3,460 6,945 6,945 6,945 6,945 6.945 6,945 6.945 6.945

TOTAL CASH OUTFLOW 1119620 135,397 150,578 171,324 203,302 199,858 199,858 199,858 199,858 199,858 199.858 199.858

END OF YEAR CAShI BALANCE - 982 2,401 5,475 10,115 14,069 18,173 22,277 26,381 30,485 34,589 38,693 42,797

1/ Base line FE cost, less consultants, plus 10% physical contingencies.2/ Base line local cost, less consultants, plus 10% physical contingencies.3/ Cash balance from previous year is used to gradually reduce loan for operating costs to zero.4/ Based on 15 percent price increase from current levels for all seeds except barley, soybeans, and pasture seeds,5/ 97, interest on 1/2 of short term loan since money is used for only 6 months.6/ Twelve year loan at 9/ interest with four year grace period on principal payment.7/ Debt service payments in the above table are presented in real terms since all entries are in July 1975 prices. The HI

debt service, of course, is payable in nominal terms and, due to inflation, will be more easily handled than appearsfrom this table; the above shows the "worst case" from the ab-borrower's viewpoint.

February 23, 1976 w

ECUADOR

SEEDS PROJECT

SEED CORPORATION (EMS) BALANCE SHEET AS OF DEC. 31, 1974 (condensed)

('000 Sucres)

1. CURRENT ASSETS CURRENT LIABILITIES

Cash in hand 343.4 Banking operations 16,115.8

Bank deposits, bonds and others 8,223.3 Accounts payable 672.0

Accounts receivable 2,965.4 Social Security contributions withheld 39.2

Other current assets 577.5 Social benefits to employees 149.3

Other obligations related to personnel 173.6

Inventories: Dividends to be distributed (15%) 224.5 17,374.4

Unprocessed products and inputs 5,442.7

Processed products 2,969.8 8,412.5 20,522.1TOTAL CURRENT LIABILITIES 17,374.4

2. FIXED ASSETSNon-depreciable:Imports in transit 546.9

Land and construction in process 1,175.5 1,722.4 CAPITAL

Depreciable: original worth Depreciation Present Equity 6,941.5

Plant equipment, cummulative worth less capital not paid in 75.0 6,866.5

furniture, machinery,

vehicles, bags and

containers 2,181.8 381.7 1,800.1 1,800.1 3,522.5 Profit present financial year 1,272.6 8,139.1

3. DEFERRED CHARGES Original Worth Depreciation Present

cumulative worth

Facilities, etc. 1,763.6 294.9 1,468.6 1,468.6

TOTAL ASSETS 25,513.2 TOTAL LIABILITIES & CAPITAL 25.513-5

(Original figures have been rounded)

- DeX4 >C

ANNEX 10Page 1

ECUADOR

SEEDS PROJECT

Econoimic Evaluation

Financial Benefit

1. The quantifiable benefits of this project would be generated bythe increases in yields that farmers could expect by switching from unim-proved seed to certified seed. The recommended and most coummon practice isfor the farmer to combine the use of certified seed with the use of ferti-lizers. If a farmer was not using fertilizers with unimproved seed, he willexperience dramatic yield increases when he begins to use both certifiedseed and fertilizers. However, not all of these yield increases can be attri-buted to the introduction of certified seed. A large part of these increasesare due to the use of the fertilizers. Since the project does not have afertilizer component, an attempt: has been made to estimate the yield increasesthat may be attributed only to the use of certified seed. The estimatedyield increments shown in Column 9 of Table 6, Annex 2, represent the judg-ment of the mission to estimate conservatively the yield increases due toseed alone. The yield increments are considered obtainable by adding no newinputs or costs to the production process other than replacing the use ofunimproved seed by certified seed. These yield increments are multiplied bythe increase in area planted of the respective crops relative to the areaexpected without the project to obtain an estimate of the increase in nationalproduction attributable to the project (Table 1). By the fifth year of theproject the area of crops sown with improved seed is expected to have increasedby 83,500 ha, from 68,600 ha without the project, to 152,100 ha with the project,and this should lead to an additional annual production of 25,300 tons of thevarious crops.

2. The gross value of the increased production is estimated by multi-plying the projected price of each product (less harvesting cost) by theamount produced. iNot all this value can be considered as a benefit of theproject. When a farmer switches to certified seed, he pays a higher pricefor seed than previously. His increased price per unit of seed purchasedis measured by the price of certil-ied seed minus the price of commercialgrain (Column 1, Table 2). This is multiplied by the sales of certifiedseed each year in excess of sales expected without the project to obtain anestimate of increased seed expenditures attributable to the project (Table 2).

3. As a result of the project, the sales prices of certified seeds mayhave to be increased about 12% above current levels (Annex 7 and 9); thus,an allowance has been made for the increased prices of seed being purchasedwithout the project. To account for this, a 12% increase for EMS sales of

ANNEX 10Page 2

certified seed produced since one year before the project is added to the abovecost estimates to obtain projected seed expenditure increases generated by theproject. These estimates are shown in Table 2.

4. Net project financial benefits are obtained by subtracting increasedseeds expenditures generated by the project from the gross value of increasedproduction. These estimates are shown in Table 3.

Project Costs

5. The investment and recurrent costs for each of the agencies overa 20-year period is shown in Table 4.

0Flow of Project Benefits

6. Table 4 shows that the benefits of the project would be quite highrelative to the investment costs. On the basis of these figures the economicrate of return is 48% for a 20-year period. Every effort has been made to ob-tain conservative estimates of production increases due to the project. How-ever, if the estimated benefits are reduced by 50%, the economic rate ofreturn would be 16.5%, and if the costs were increased by 50% the economicrate of return would be 27.6%. Thus, the project would be economically jus-tified even if the benefits were considerably below those estimated here orif costs were considerably higher.

Project Cash Flow

7. The projected cash flow for the project is shown in Table 5.

December 23, 1975

ECUADOR

SEEDS PROJECT

Incremental Quantity of Productior Cenerated bv the Project

IncreasedProduction Tncrra-. of Ares Sown with Certified S-ed2/ and the Tncremental Produc ion with Certified Seed Relative to Last Year Without Proiectper Hectare Year 1 Year 2 Year 2 Year 4 Year 5 and Beyonddue to Increased Increased Increase< Increased Increased

Certified Area Area Area Area Area

Crop Seed-. Planted Production Planted Production Planted Production Planted Production Planted Production

kg ha tons ha tons ha tons ha tons ha tons

Wieat 180 0 0 1,900 342 3,700 666 5,500 990 7,500 1,350

Barley 140 1,100 154 2,800 392 4,400 616 5,600 784 7,000 980

Soft corn 130 0 0 1,400 182 2,900 377 7,100 973 11 goo I AC)

Hard corn 210 1,600 336 3,200 672 4,700 987 5,900 1,239 5,900 1,239

Rice 600 6,000 3,600 12,000 7,200 18,000 10,800 24,000 14,400 29,500 17,700

So;y~'oesr. 140 2,100 294 4,300 602 5,700 798 7,900 1,106 10,00e' 1,400

Pean,:ts 200 700 140 1,000 200 2,000 400 2,400 480 3,000 600

Sesame 100 100 10 200 20 300 30 350 35 400 40

Beans 60 0 0 0 0 4,000 240 6,000 360 9,000 540

Total 11,600 4,534 26,800 9,499 45,700 14,919 64,750 20,317 83,500 2..311

1/ Actual increases in production should be higher than this because the usual practice will be to combine certified seed with th; added use of fertilizer. Theincreases shown here are due only to the use of certified seed (see Annex 2, Table 6).

2/ The increase in area planted with certified seed over the area planted with certified seed in year 0.

D b 1December 13, 1975

ECUADOR

SEEDS PROJECT

Incremental Exoenditure by Farmers for Seed under the Project

1Amount by WhichCertified Seed

Price will Exceed Increased Sales of Certified Seeds over Lest Year Without the ProjectCommercial Price

Crop of Product 1' Year 1 Year 2 Year 3 Year 4 Year 5 and BevondS/ton tons '000 sucres tons '000 sucres tons '000 sucres tons '000 sucres tons '000 sucres

Wheat 3,370 200 674 400 1,348 600 2,022 800 2,696 1,040 3,505

Barley 3,300 150 495 300 990 400 1,320 500 1,650 605 1,996

Soft corn 4,580 50 229 100 458 250 1,145 400 1,832 440 2,015

Hard corn 4,620 25 116 50 231 75 347 75 347 130 600

Rice 4,690 300 1,407 600 2,814 900 4,221 1,200 5,268 1,490 6,988

Soybeans 3,680 150 552 250 920 400 1,472 550 2,024 620 2,281

Peanuts 8,492 20 170 90 764 120 1,019 150 1,274 170 1,444

Sesame 11,220 0.5 6 0.9 10 1.1 13 1.3 15 1.5 17

Beans 11.970 0 0 200 2,394 300 3,591 450 5,386 495 5t925

Sub-total - 895.5 3,649 1,990.9 9,929 3,046.1 15,149 3,046.3 20,492 4,991.5 24,771

Additional cost of seedproduction by EMS 3,242 3-,242 3,242 3,242 3,242

Seed Expenditure Increases

Generated by Project 6,891 13,171 18,391 . 23,734 28,013

1/ After price of certified seed is increased by 12'!. above current prices.

December 13, 1975

to

ANNEX 10Table 3

ECUADOR

SEEDS PROJECT

Incremental Net Benefits Generated by Project('000 Sucres)

Value of Increased Production Generated by Project-1/Year 1 Year 2 Year 3 Year 4 Year 5 Onward

Wheat 0 1,659 3,230 4,801 6,548

Barley 408 1,038 1,632 2,077 2,597

Soft Corn 0 842 1,745 4,273 6,769

Hard Corn 968 1,928 2,832 3,555 3,555

Rice 12,708 25,416 38,124 50,832 62,481

Soybeans 1,866 3,820 5,064 7,019 8,844

Peanuts 1,,87 2,554 5,108 6,129 7,662

Sesame 86 171 258 300 343

Beans 0 0 4,068 6,102 9,153

Total Gross Valueof Increased Production 17,819 37,428 62,061 85,088 107,952

Less, Increased SeedExpenditures Generatedby Project 6,891 13,171 18,391 23,734 2d,013

Net: Project Benefits 10,927 24,257 43,670 61,354 79,939

1/ Calculated by multiplying the increased production generated by the project(Table 1) by the commercial price of grain (Table 2) less 650 sucres per tonto account for added harvest costs.

2/ With 12% increase in certified seeds prices.

December 13, 1975

ECUADOR

SEEDS PROJECT

Financial Rate of Return

Streams of Costs and Benefits of the Project

('000 Sucres)

Project Year

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

Cash Outlays1/

National Seed Council (NSC)Investment Costs2/ 385 165

Recurrent Costs 1,875 1,875 1,875 1,875 1,875 1,875 1,875 1,875 1,875 1,875

Seed Certification Department (SCD)

Investment Costs2! 3,355 2,640 1,595 1,650 825

Recurrent Costs 413 1,675 1,675 1,675 1,675 1,675 1,675 1,675 1,675 1,675

National Agricultural Research Institute (INIAP)

Investment Costs2/ 8,525 2,118 2,613 385 798 1,623 702

Recurrent Costs 702 702 702 702 702 702 702

Seed Corporation (EMS)Investment Costs_7 20,975 24,662 7,216

Recurrent Costs 9,927 10,959 11,612 12,721 13,409 14,014 14,014 14,014 13,409 13,409

Technical Assistance 6,050 5,417 2,447

Total Project Costs 51,505 49,346 29,375 16,973 17,661 20,466 19,889 19,889 17,661 17,661

Benefits Generated by Project 10,927 24,257 43,670 61,354 79,939 79,939 79,939 79,939 79,939 79,939

Excess of Benefits over Project Costs (40,578) (25,089) 13,935 44,381 62,278 59,473 60,050 60,050 62,278 62,278

Financial Rate of Return: 48%

R

1/ Includes 10% physical contingencies. CD

2/ Includes replacement of vehicles and farm machinery every 6th year. 4

December 15, 1975

ANNEX 5

ECUADOR

SEEDS PROJECT

Project Cash Flow

(1,000 Sucres)

-------------- y e a r ---------------1 2 3 4 5-10

I. CASH INFLOW

A. Loan 1J 12,262 33,885 13,526 2,106 _B. Loan Payments by EMS.2. 687 2,181 3,224 3,460 6,945C. Government Contribution

Through Agency Budgets ./ 12,390 68 5,521 3,433 3,433Other Appropriations Ut 11,464 _ 431 2,740

TOTAL CASH INFLOW 36,803 36,134 22,271 9,430 13,11d

II. CASH OUTFLOW

A. InvestmentLoan to EMS 2/ 15,262 17,942 5,244 4 _National Seeds Council 3b5 - - - -Seed Certification Department 3,355 2,640 1,595 - -INIAP 8,525 2,118 2,613 - -Technical Assistance 6,050 5,417 2,447 - -

B. Recurrent CostsNational Sseds Council 1,875 1,875 1,875 1,075 1,875Seed Ce,tification Department 413 1,675 1,675 1,675 1,075INIAP - - 702 702 702

C. Loan Payment 5- 936 2,653 4,614 5,178 8,866

TOTAL CASH OUTFLOW 36,603 34,520 20.765 9,430 13,118

CASH BALANCE -0- 1,614 1,506 -0- -0-

1/ Disbursements are calculated as year I = 50% of FE component of year 1 investment;year 2 = remainder of year 1 FE investment plus 75% of year 2 FE investment; year 3 =

balance of year 2 FE investment plus 75% of year 3 FE investment; year 4 - balance of loan.2/ See Annex 7, Table 6 for projected cash flow of EMS.3/ Incremental budget expenditures for SCD and INIAP.

Short fall of inflow relative to outflow.Interest only is charged for first four years, 3,% on disbursed amount plus 0.75% onundisbursed balance. Beginning in year 5 the loan is amortized over eleven years.

December 23, 1975

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