Document of

The World Bank FilE C OpyrFOR OFFICIAL USE ONLY

Report No. 2704-TH

THAILAND

AGRICULTURAL CREDIT PROJECT

STAFF APPRAISAL REPORT

February 15, 1980

Projects DepartmentEast Asia & Pacific Region

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

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CURRENCY EQUIVALENTS

$1.00 = Baht (B) 20

B 1.00 = $0.05

$1 million = B 20 millionB 1 million = $50 thousand

WEIGHTS AND MEASURES

1 meter (m) = 3.28 feet

1 kilometer (km) = 0.62 miles1 hectare (ha) = 2.47 acres1 kilogram (kg) = 2.2 pounds1 rai = 0.16 haI cubic centimeter (cc) = 0.061 cubic inch

ABBREVIATIONS

ACFT - Agricultural Cooperative Federation of ThailandADB - Asian Development Bank

Associations - Farmers' AssociationsBAAC - Bank for Agriculture and Agricultural CooperativesBOT - Bank of Thailand

CAD - Cooperative Auditing DepartmentCLT - Cooperative League of ThailandCooperatives - Agricultural CooperativesCPD - Cooperative Promotion DepartmentDAE - Department of Agricultural ExtensionDOF - Department of FisheriesMOAC - Ministry of Agriculture and CooperativesMOF - Ministry of Finance

NESDB - National Economic and Social Development BoardOAE - Office of Agricultural EconomicsRID - Royal Irrigation Department

FOR OFFICIAL USE 6NLY

THAILAND

AGRICULTURAL CREDIT PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

1. BACKGROUND . .. . . . . . . . . . . . . . . . . . . . . .1 .

General .. . .. . . . . . . . . . 1The Agricultural Sector .... . . . . . . . . . . .. . . 2Agricultural Credit . . . . . . . . . . . . . . . . . . . . 3Farmers' Cooperative Organizations . . . . .. . 4

2. BANK FOR AGRICIJLTURE AND AGRICULTURAL COOPERATIVES (BAAC) . . 7

Organization and Management . . . . . . . . . . . . . . . . 8Staffing . . . . . . . . . . . . . . . . . . . . . . . . . 8Training . . . . . . . . . . . . . . . . . . . . . . . . . 9Lending Procedures and Operations . . . . . . . . . . . . . 9Financial St:ructure and Condition . . . . . . . . . . . . . 10Audit ..... .. . . . .. . . .. . . . .. . . . . . 12

3. THE PROJECT . . . . . . . . . . . . . . . . .. . 13

Project Area . . . . . . . . . . . . . . . . . . . . . . . 13Project Lending Component . ... 14Project Technical Assistance Component . . . . . . . . . . 16Cost Estimates ..... . . . . . . . ... . . . . . . 20Financing . . . . . . . . . . . . . . . . . . . . . . . . 21Procurement . . . . . . . . . . . . . . . . . . . . . . . 21Disbursements.. . . . . . . . . . .. 22Accounts and Audit.. .. . .. . 22

4. ORGANIZATION AND MANAGEMENT ..... 23

Credit Operations .. 23Training Program . . . . . . . . . . . . . . . . . . . . . 25Survey and Study . . . . . . . . . . . . . . . . . . . . 26Reporting Requirement and Monitoring . . . . . . . . . . . 26

5. MARIUCTING AND PRICES . . . . . . . . . . . . . . . . . . . . 27

Marketing . . . . . . . . . . . . . . . . . . . . . . . . 27Pr:Lces . . . . . . . . . . . . . . . . . . . . . . . . . . 28

This document has a mtricted distribution nd may be ued by recipients only in the porformeof their official duties. Its contents may no otherwis be disclosd without World Bank uthoriation.

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Page No.

6. BENEFITS, JUSTIFICATION AND RISKS . . . . . . . . . . . . . . 28

Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . 28Production . . . . . . . . . . . . . . . . . . . . . . . . 29Rates of Return . . . .* . . . . . ... .... . ..... . 29Employment Impact .a.c.t. . . . . . . . .... . . . . . . . 30Foreign Exchange Impact . . . . . . . ..... . . . . . . . 30Project Risks . . . .*.*. .* . . .. . . ... . . . . .. . 31

7. AGREEMENTS REACHED AND RECOMMENDATION . . . . . . . . . . . . 31

TABLES

1.1 Farmers' Cooperative Organizations . . . . . . . . . . . . 53.1 Summary Cost Estimates . . . . . . . . . . . . . . . . . . 203.2 Project Financing . . . . . . . . . . . . . . . . . . . 215.1 Present and Projected Farm-Gate Prices of Outputs

and Major Inputs. . . . . . . . . . . . . . . . . . . . . 286.1 Main Incremental Production . . . . . . . . . . . . . . . . 296.2 Rates of Return . . . . . . . . . . . . . . . . . . . . . . 30

ANNEXES

1 Bank for Agriculture and Agricultural Cooperatives2 Detail Project Costs and Phasing3 Estimated Schedule of Disbursements4 Costs and Benefits Analyses5 Selected Documents and Data Available in the Project File

MAP - IBRD 14506 Agricultural Credit Project

THAILAND

AGRICULTURAL CREDIT PROJECT /1

1. BACKGROUND

General

1.01 The Roya:L Government of Thailand has requested Bank assistance tostrengthen the Banlc for Agriculture and Agricultural Cooperatives (BAAC) and

agricultural cooperatives, which in the long term are intended to serve smallfarmers throughout the country. The Government aims through this project to(a) improve BAAC's term lending capability to finance new credLit programs, and(b) strengthen appreciably the presently weak cooperative system to servesmall farmers more effectively. The project proposes to finance a creditprogram for farmers and fishermen through BAAC, and a technical assistanceprogram primarily to strengthen the cooperative system./2 The credit programwould include term credit for: on-farm development in irrigable areas; shrimpculture; oil palm development primarily for demonstration to smallholdersettlers; and other lending categories to be further identified by BAAC duringproject implementation. The major components of the technical assistanceprogram would include: intensive training for cooperative staff andgovernment staff who administer cooperatives; establishment of threeadditional mobile training units for promotion of cooperatives; improvement ofthe cooperative auditing system; restructuring of cooperatives in poorfinancial condition; employment of consultants for improving 13AAC's lendingand other banking operations; replanning of three oil palm settlement schemes;review of the oil palm sector; and a study to identify a supporting systemsuitable for Thailand, which would reduce the risk of lending to smallfarmers. The total project cost is estimated to be about $37.6 million, ofwhich the Bank would contribute $19.0 million. BAAC would implement thecredit component, the Cooperative Promotion Department (CPD) 'would undertakethe training program for cooperative staff, while BAAC and the appropriategovernment agencies would be responsible for other technical assistance.

/1 This report reflects the findings of a Bank mission that visited Thailandin February-March 1979 consisting of Messrs. Y. Nakahara, I. Moreithi,A. Hasan (Banlk), and R. Hoover and C. Goldthorpe (consultants), and afurther visit by Mr. Nakahara in August 1979 for postappraisaldisclussions. The project was prepared by the Government with thecollaboration of the FAO/Bank Cooperative Program.

/2 Assistance is limited to agricultural cooperatives which are all multi-purpose business operations. Other types of cooperatives (i.e., consumer,thrift and credit, and service cooperatives) are not included in theproject.

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1.02 The proposed project would be complementary to other Bank-supportedprojects, notably the Chao Phya Irrigation Improvement Project II (Loan1468-TH), the two National Agricultural Extension Projects (Loans 1393-TH and1752-TH), and a proposed agricultural research project presently under prepa-.ration. The project would encourage increased production of rice, which isThailand's staple food and major export crop. It would also assist inimproving the country's unfavorable balance of trade through import substi-tution from oil palm development, and through export of rice and shrimp.

1.03 The proposed project would aim at financing farmers throughout thecountry but concentration of lending would occur in certain areas according tocredit demand and the strength of the support services. The scope of theproject would be geared to BAAC's lending capacity; however, BAAC's intensivetraining program to be conducted during the project period would substantiallyimprove its present capacity to finance new credit programs.

The Agricultural Sector

1.04 Agriculture accounts for about 30% of Thailand's GDP, employs aboutthree fourths of the labor force on a full- or part-time basis, and is thesource of about 60% of total exports. From 1960 to 1977, the sector grew at4.9% in real terms and has been the mainspring of overall economic growth.The key factor in the past growth of agriculture has been the expansion,averaging 4%, of the cultivated area and, to a lesser extent, construction ofirrigation facilities, and the resulting improvement in water control, anddiversification of cash crops such as maize, cassava, kenaf, sugarcane, andrubber in rainfed areas. However, yields of the major crops have remainedstagnant and the cropping intensity is at a low 76%. Continued use oflow-productivity technology in general, coupled with diminishing availabilityof arable land, has resulted in a declining agricultural growth rate. Theindustrial sector is still too small to offset a decline in agriculturalgrowth; the growth of the Thai economy is therefore heavily dependent onincreased crop yields through intensive land use and use of improvedtechnologies in both the irrigated and rainfed areas.

1.05 There are still significant disparities in farm income between theagro-economic regions, mainly due to unequal resource endowment. The CentralRegion is agriculturally the most prosperous, partly due to the fertility ofthe soil but also due to heavy government investments in irrigation and otherinfrastructural facilities which permit double cropping and crop diversifi-cation. However, the bulk of the farm population is concentrated in theNorth and the Northeast where most of Thailand's poor are to be found. Thesetwo regions together contain two-thirds of the country's farm units, theNortheast being somewhat larger with one-third of the country's land areaand 40% of its agricultural households. The main cause of poverty in theseregions is the low yields obtained from growing rice and other crops under

rainfed conditions and the low cropping intensity, particularly in years oflow rainfall. Development of the rainfed areas, therefore, has a specialbearing on efforts to redistribute income because most of the farmers inThailand depend on rainfed agriculture.

1.06 Structurally, Thai agriculture consists of smallholdings which arerelatively evenly distributed. Over 90% of farm operators are owners, mostlysole owners. The problem of tenancy is not significant except in the CentralRegion where tenancy is growing (12% of farm operators are tenants). Rice isthe main crop; other major crops, mostly grown in the rainfed areas, includemaize, rubber, sugarcane, cassava, kenaf, mungbeans, soybeans, cotton andtobacco. Livestock, dominated by water-buffalo, is of moderate importance andaccounts for about 15% of the agricultural output; it has, hcowever, somepotential for further development in rainfed areas particularly within amixed-farming system.

Agricultural Credit

1.07 Agricultural credit in Thailand is available through credit institu-tions and from inf-ormal sources. The types of credit institutions, ordered bylending volume, are:

(a) BAAC, wiich lends directly to individual farmers as well as tocooperatives and farmers' associations;

(b) commercial banks, which provide working capital andl developmentcredit mainly for medium- and large-scale farmers; and

(c) cooperaitive organizations, which provide mainly seasonalproduction loans to their members.

1.08 Traditionally, most credit has been provided by ini-ormal sourcessuch as moneylenders, merchants, friends and relatives. With governmentsupport, however, institutional credit has been increasing steadily in recentyears. The Bank of Thailand (BOT) has played a leading role in this increase.In particular, BOT introduced in 1975 a guideline which established annualtargets for the commercial banks to lend a certain portion of- their resourcesto farmers, directly in the form of loans or indirectly by p:Lacing depositswith BAAC. As a result, the total outstanding institutional credit to farmersand farmers' cooperative organizations at the end of March 1979 reached B 16.0billion, a volume estimated by BOT to meet about 60% of short-term productioncredit needs but only a small portion of medium- and long-term credit needs.

1.09 Institutional Credit. The two major sources of institutional creditare BAAC and the commercial banks. BAAC is the primary lender to cooperativesand farmers' associations. At the end of March 1979, BAAC had loans of B 9.2billion outstanding, of which B 3.5 billion were extended to farmers' coopera-tive organizations, while the commercial banks had B 7.9 bilLion. Terms and

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conditions for agricultural credit in Thailand are generally secured bymortgages on land, personal guarantors and/or floating charges on crops ormoveable property such as farm equipment. Both BAAC and the commer-cial banks follow these practices. Cooperatives and associations lend tomembers against crop expectations as well as personal guarantors.

1.10 Interest Rates. Interest rates are regulated by the Government andwere recently raised by 3%. BAAC will thus charge an interest rate of 12% to18% for short- and medium-term loans to individual farmers. The BAAC rate tocooperatives and associations is also 12% and they onlend to their members at15% thus obtaining a spread of 3%. These interest rates would prevail underthe proposed project where the average interest rate charged by BAAC would beabout 14%. Commercial banks now charge a minimum of 15% for both short- andmediumterm loans. Inflation rates in Thailand averaged about 8% in the lastthree years, but are projected to average about 13% per annum in the early1980s.

Farmers' Cooperative Organizations

1.11 There are two types of farmers' cooperative organizations inThailand; cooperatives and associations. The cooperative movement whichstarted in 1916 was based on unlimited liability village societies (mostlycredit societies) and the first Cooperative Societies Act was enacted in 1928.A major revision of the Act in 1968 restructured the cooperative infra-structure into a three-tier system of district (merging over 10,000 villagesocieties), provincial, and national cooperatives. The Cooperative League ofThailand (CLT) was also established under the revised Act to becomeresponsible for promotion, training /1 and coordination of agricultural aswell as nonagricultural cooperatives. Until they were legalized in 1962,associations were informal groups organized at the village level for thepurpose of jointly purchasing inputs and marketing farm products. The numberof cooperatives (as of September 30, 1978) and associations (as of March 31,1979) and their memberships are given in Table 1.1 below:

/1 At present, CLT provides training only to nonagricultural coopera-tives, while CPD is responsible for the agricultural cooperatives' train-ing program.

Table 1.1: FARMERS' COOPERATIVE ORGANIZATIONIS

AverageType of OI anizatiLon Category Number Membership membership

Agricultural coop-- Agriculture 769 760,405 989eratives Land settlement 91 53,293 581

Fisheries 8 1,429 179

Subtotal 868 815.127 939

Farmers' associatiLons 3,608 350,600 97

Total 4,476 1,165,727 260

1.12 The periEormance of both cooperatives and associations has been dis-appointing despite the strong support from the Government. lThe primarycause of the poor performance of cooperatives appears to be iLneffectivemanagement in conducting their multipurpose operations (such as lending,supply of inputs, and marketing of farm products and, in some cases, storageand rice milling) due to staff shortages, inadequate support for stafftraining, and insufficient incentives to attract qualified individuals to workfor primary cooperatives at the district level. Most associations were unableto hire staff because of the limited profits earned from their small-scaleoperation. A joint survey conducted in 1978 by BAAC and other concernedagencies classified as good only 16 out of the 742 cooperatives and none ofthe 1,564 associaltions surveyed./1 Other cooperatives and associations hadminor (24% and 16% respectively) or major (74% and over 80% r espectively)managerial and financial problems which required BAAC to deny completely, orapprove only a portion of, the requested increase in lending until correctivemeasures were taken.

1.13 Cooperatives are overseen by two departments within the Ministryof Agriculture and Cooperatives (MOAC); CPD is in charge of supervising andregulating cooperatives and CAD has the responsibility for auditing coopera-tives. The Department of Agricultural Extension (DAE) is in charge of super-vising and regulating associations. Unfortunately, both CPD and CAD have notbeen effective as overseers of cooperatives. The major weaknesses of CPD wereineffective supervision of cooperatives, emphasis on numerical expansion asopposed to quality control of cooperative operations, limited planningcapabilities, inadequate staff training and lack of professional assistance

/1 Classification was based on criteria developed jointly by BOT, CPD, theCooperative Auditing Department (CAD), BAAC and the commercial banks.

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for cooperatives to become efficient business organizations; CAD's weaknesseswere insufficient staffing to meet audit schedules, narrow role limited toidentifying exceptions to regulations and procedures, inadequate stafftraining, and centralized location of auditors in Bangkok which limits directcontact with primary cooperatives.

1.14 To assist small farmers throughout the country, the Government hasdecided to revitalize the failing cooperatives and associations. With theassistance of consultants financed by USAID, the National Economic and SocialDevelopment Board (NESDB) prepared a "Five-Year Comprehensive Plan for theDevelopment of Agricultural Cooperatives" in February 1979. The Plan recom-mended a modified cooperative system that would establish a single cooperativeframework through which farmers could obtain full services for extension,credit, input supply and marketing; the Plan also recommended strengtheningCPD and CAD to assist cooperatives. The modified system would aim to:

(a) establish the cooperative as the sole cooperative organizationproviding agricultural services and inputs to farmers;

(b) provide farmers with access to credit, particularly to seasonalproduction credit, irrespective of land ownership;

(c) assure farmers of marketing outlets for surplus production andan adequate price support program;

(d) provide farmers with fertilizers and other basic inputs needed forproduction;

(e) provide extension services for farming through the village levelstructure of the cooperative system;

(f) establish a training program that would provide cooperatives with ateam of trained staff to improve their management;

(g) enable farmers to operate cooperatives as efficient and financiallyviable businesses with assistance from government agencies; and

(h) enable government agencies to perform their promotional, regulatoryand advisory roles effectively in assisting cooperatives.

1.15 In April 1979, the Government decided to modify the presentcooperative system and established a special Subcommittee for Improvement ofAgricultural Cooperatives under NESDB. In August 1979, this Subcommitteerecommended that:

(a) the Office for Development of Agricultural Cooperatives be organizedunder the Subcommittee to be responsible for supervision, coordi-nation, monitoring and evaluation of programs to restructure anddevelop cooperatives;

(b) procedures be established to incorporate associations into thecooperati.ve system with the support of all agencies concerned,starting in 1979 in Singburi province;

(c) the merits of combining the input supply and marketing operations be

reviewed at the national level by the Marketing Organization of

Farmers and the Agricultural Cooperative Federation of Thailand(ACFT);

(d) the posilion of an independent Registrar be created (this functionis presently exercised by the Director General of CPD);

(e) a draft revision be prepared of the present Cooperative Societies

Act; this would clarify the roles of the Registrar, CPD and CAD;

and

(f) an intensive training program be implemented for cooperatives, CPD,

CAD and BAAC.

The Subcommittee also recommended that funds required for restructuringcooperatives in poor financial condition, and for intensifying training ofcooperative and government staff, be sought under a Bank loan.

1.16 With the assistance of consultants financed by USAII), the Government

initially prepared a training program which would cover about 800 cooperativesin three years. However, because of the inadequate local tra:Lning capability

and the projected slow progress of restructuring cooperatives where the

trained managers and staff would serve, the program was reduced to include

about 400 cooperatives and the restructuring program to about 350 cooperatives

selected on a priority basis. Another fundamental decision taken in January1980 assigned CPD full responsibility for implementing the training as well as

the restructuring program. Under this new organizational arrangement, NESDB's

Office for Development of Agricultural Cooperatives would become a coordinator

and monitor of various government cooperative programs implemented by CPD, CAD

and other agencies.

2. BANK FOR AGRICULTURE AND AGRICULTURAL COOPERATIVE' (BAAC)

2.01 BAAC is a government-owned institution that was established in 1966

as the successor to the Bank for Cooperatives. It is now the single largestcredit institution serving farmers in Thailand. It plays a much bigger rolethan the commercial banks in assisting smaller farmers, particularly by

onlending through cooperatives and associations. (A survey of the differenttypes of farmers served by BAAC and the commercial banks has not yet beenundertaken.) BAAC is now changing from a passive supplier of funds to adevelopment-oriented bank. The proposed cooperative system (para. 1.15)assumes that BAAC would ultimately function as an apex bank, while thecooperatives function as the primary lending conduits to small farmers.

2.02 Since its inception, BAAC had disbursed B 27.6 billion ($1.4 bil-lion) by March 1979. However, more than 70% of the disbursement hasoccurred since 1975 when BOT established a guideline for commercial banks toextend credit to farmers (para. 1.08). To manage its increased level ofoperations effectively, BAAC has already made numerous organizational andoperational improvements, such as creating a Planning Department and a LoansDepartment in charge of all lending programs, intensifying its trainingprogram with emphasis on field staff, and simplifying its reporting system.

Organization and Management

2.03 The activities of BAAC are controlled by a Board of Directorsconsisting of 11 members. The Chairman is the Minister of Finance and theVice Chairman the Under-Secretary of State of MOAC. Other members arerepresentatives from the Prime Minister's Office, the Judicial Council, theMinistry of Interior, the Ministry of Finance (MOF), MOAC, the Budget Bureau,BOT, and the Thailand Bankers' Association. The General Manager is also anex-officio member of the Board.

2.04 BAAC, with its head office in Bangkok, has 58 branch offices and 479field units in the provinces. The General Manager is in charge of day-to-dayoperations assisted by four Deputy General Managers (two of these positionsare now vacant). The head office (Annex 1, Chart 20245) is responsible forplanning and control functions, and general admininstration. There are fourdepartments (Planning, Loans, Banking and Accounting, and General Administra-tion) and two offices (Secretariat, and Audit and Inspection). Branch offices(Annex 1, Chart 20424) are in charge of field operations; lending (appraisal,approval within authorized limits, disbursement, supervision, and collection)and soliciting deposits. Under the direct control of branch offices, fieldunits assist borrowers in preparing loan applications and contact themperiodically to check their adherence to loan conditions, particularly on useof funds and on repayment, as well as to advise on any implementationproblems.

Staffing

2.05 In 1978, BAAC increased its staff by 8%, placing most new staff inbranches and field units, but still failed to fill 719 newly authorizedpositions (611 for branches and field units) necessary to cope with theincreasing business volume. This large number of unfilled positions reflectsthe difficulties of attracting suitably qualified people to work away frommain urban centers in Thailand. By providing greater allowances for staff inoutlying areas, BAAC expects to fill these vacancies soon. Another specialeffort made by BAAC focused on raising the morale of the existing staffthrough: (a) intensive training; (b) individual staff performance evaluation;and (c) evaluation of branch performance. At the end of March 1979, BAAC hada total staff of 3,632, of which 15.4% (559) were at the head office and 84.6%(3,073) at branches and field units. In general, the staff are well qualifiedand of good caliber. The managers of departments, divisions and branches areusually university graduates, many of them with several years of experiencein other organizations.

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Training

2.06 Over the last few years, BAAC has devoted considerable effort tostaff training. Thie first intensive training program, implemented in 1978,comprised eighteen 1-8 week courses for 1,153 staff. To improve theefficiency of branch operations and the quality of lending programs, prioritywas given to training for field staff, including support service staff. Atwo-month course attended by the heads of field units showed immediateresults: after completing the course, they were able for the first time toinspect the financial records of cooperatives and associations withoutassistance from the supervising government officers, and succeeded inenforcing financial disciplines which had been neglected in the past. BAAC ispresently improving its training program, assisted for one year by anexpatriate consultaLnt financed under the Colombo Plan.

2.07 A special three-week training course /1 on formulating and evaluat-ing small-scale agricultural projects was held in August 1979 for staff of theProject Division of the Planning Department. Fifteen BAAC staff and 3 govern-ment officers participated in the course which included field-work for theformulation of a pr oject under consideration and evaluation of an ongoingproject. After completing the course, each trained staff member was givenfull-time responsibility at head office for a specific commodity in a specificregion. This included responsibility for identification, formulation andappraisal of new projects.

Lending Procedures and Operations

2.08 Loans to Individual Farmers (Individual Loans). BAAC provides loansof all maturities to individual farmers for a wide range of agriculturalinvestments, including production inputs, marketing, on-farm development, farmmechanization, and purchase of work animals. It also extends a ten-yearspecial loan funded by the Government to consolidate and refinance farmers'old debts borrowed at high interest rates. Short-term production loans arebased on credit need per rai, fixed by crop, but adjusted to reflect localconditions in provinces. All individual borrowers are required to join asmall informal guarantee group, which enables BAAC to take advantage of thesocioeconomic sanctions arising from the joint liability characteristics ofthese groups, partiLcularly in the case of repayment. Each memlber is liablefor his own loan and for other loans guaranteed by the group. The limit onshort-term loans is 60% of the value of the expected marketable surplusproduce. Medium-term loans (up to B 30,000) can be borrowed withoutcollateral if guaranteed by two members of the group. However, collateral isrequired for mediurn-term loans exceeding B 30,000 and for all long-term loans.Small loans have an interest rate of 12% but interest on larger loansincreases progress:Lvely up to 18%.

/1 The course was sponsored by the Asia and Pacific Regional AgriculturalCredit Association and given by two lecturers from the College ofAgricultural Credit, Reserve Bank of India.

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2.09 Loans to Cooperatives and Associations (Institutional Loans). Mostof BAAC's loans to cooperatives and associations are made available undercredit line agreements renewed every five and three years respectively; theseloans therefore function in a manner similar to a revolving fund. However,BAAC stipulates the amount to be used for short-term and for medium-terminvestments respectively. The loan purposes include: (a) onlending tomembers in the form of short- and medium-term loans for agricultural purposes;(b) purchase of produce from members; and (c) purchase of farm inputs andsupplies sold to members. The limit on the amount of loans is 12 times theowned funds for cooperatives and 10 times for associations. BAAC alsoprovides a small amount of long-term loans for construction of cooperative-owned facilities such as rice mills and storage facilities. All interestrates to cooperatives and associations are 12%, while funds onlent to membersare charged at 15%.

2.10 Recent Lending. Total loans disbursed in 1978 amounted to B 6.7billion ($335 million), an increase of 22% over the previous year.Disbursements to individual farmers were B 4,876 million (73% of the total),to cooperatives B 1,641 million (24% of the total) and to associations B 183million (3% of the total). The latter was the only group to decreasedisbursements (by 30%), because of poor bookkeeping, misappropriation offunds, and unsatisfactory repayment record. A large portion (70%) ofdisbursement was for short- and medium-term loans. Most long-term loans werefinanced by funds from external sources (Japan and the United States). Theannual growth rate appears to have leveled off to 20% in 1978 from an averageof 46% between 1973 and 1978.

Financial Structure and Condition

2.11 Financial Structure. At the end of March 1979, BAAC's fundsamounted to B 12,813 million ($640 million). The three major sources wereowned funds, deposits and borrowings as described below:

(a) Owned Funds. At the end of March 31, 1979, BAAC had paid up capitalof B 1,420 million, accumulated profit of B 296 million, reserves ofB 57 million, and unallocated profit of B 85 million, totalingB 1,838 million in owned funds. Of the total paid-up share capital,B 1,402 million (99%) was held by the Government and the remainderby cooperatives, associations and their members.

(b) Deposits. Of total deposits (B 7,753 million), B 5,586 million orabout 70% came from resources I of commercial banks (para. 1.08).Other deposits of B 2,167 million were made by various governmentagencies or solicited from the general public; the latter has becomethe major source of increase since 1977, when branch offices startedspecial campaigns for increasing deposits at the provincial level.

/1 This represented 9% of their total deposits at the end of the 1977 fiscalyear. This percentage was increased to 11% for 1979 and 15% for 1980.

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(c) Borrowings. Total borrowings were B 2,944 million. This amount

came from the rediscounting facility and credit line provided byBOT: B 1,990 million; from foreign governments (Japan and the

United States): B 627 million; and from the GovernimeŽnt: B 327 mil-lion.

2.12 The rapid growth in deposits from commercial banks, together with

borrowings from BOT, supported the recent growth of BAAC's loan portfolio,raising the total debt/equity ratio from 0.7:1 in December 1973 to 5.9:1 by

March 1979. The liquidity position of BAAC is sound with a current ratio of

about 3.6:1. Its financial structure is considered to be satisfactory

(Annex 1, Table 4).

2.13 Financial Performance. BAAC's gross income increased sixfold over

the past five years, from B 193 million in 1973 to B 1.2 billion in 1978.However, net income dropped from B 47 million in 1973 to B 5 million in 1975,

and then increased again to B 85 million in 1978. A calculation shows that

the cost of funds as well as of operations has been rising because of

increased deposits; by the commercial banks (at an interest rate of 8% in 1978)and the lhigher unit cost of operations. The net spread was calculated as

0.76% in 1978.

2.14 Financial Prospects. Based on a tentative five-year (1979-83)

projection, BAAC expects its lending volume to increase at an annual growth

rate of 20%, so that total disbursement in 1983 would be B 15.1 billion($755 million). Considering the rapid improvement of BAAC's lendingcapability under way, this forecast seems to be reasonable, but the sources of

incremental funds required are still not confirmed. BAAC is aware that the

heavy dependence experienced in recent years on deposits froml the commercialbanks would no longer be possible, since their lending to farmers, directly or

indirectly, is expected in 1980 to reach the maximum level of 15% required by

BOT. Soliciting deposits from the public will be given high priority, but itscontribution will be small in comparison with the large volume of fundsneeded. Solicitation on a large scale in rural areas will also be costly. Toretain adequate funds, therefore, BAAC is preparing a long-term plan for fundmobilization, inc:Luding measures such as expansion of borrowings from BOT,

capital increase by the Government, and new borrowings from overseas.

2.15 Arrears and Provisions for Doubtful Accounts. BAAC has always made

an annual analysis of individual loans but not institutional loans, and the

resulting lack of accurate information on arrears of about 40% of the loanportfolio is presenting a serious problem. Since CPD and the DAE also

extended loans to cooperatives and associations respectively, loan portfolio

control became complex and many cooperatives and associations failed to

maintain members' repayment records. As a result, BAAC could neither obtain

periodic reports on the status of arrears, nor investigate the exact status ofBAAC's loans due to weak management and poor bookkeeping. This situation has

changed since the Government notified the cooperatives and associations that

BAAC had a legal right to inspect their loan portfolios and, hence, BAAC is

now able to enforce financial discipline for reporting and portfolio control.

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BAAC expects to find out the accurate status of arrears of cooperatives inpoor financial condition through an evaluation to be conducted together withCPD and CAD (and DAE for associations). Considering the time required tocomplete the restructuring program, BAAC plans to conduct its own reviewwhenever necessary without waiting for the findings of the evaluation teams(para. 3.16).

(a) Individual Loans. Arrears of individual loans (those which maturedduring the fiscal year, plus loans in arrears for more than oneyear) as of March 31, 1979 were about 28% of the outstandingportfolio, a level considered unsatisfactory. However, this highlevel is caused because many loans become due between January andMarch and it is customary for borrowers to delay repayment forseveral months. Over 40% were short-term loans which matured duringthe 1978 fiscal year. In the past, loans more than two years inarrears have dropped to a level of 4% or less. Therefore, thepresent accumulated bad debt provision, which is about 4.0% of theoutstanding portfolio, appears to be adequate.

(b) Institutional Loans. Arrears of institutional loans as of March 31,1979 were reported to exceed 60% of the outstanding portfolio. Onereason for the high percentage is that many cooperatives and asso-ciations onlent a portion of the repayments in the following season,a practice initially started in protest against BAAC's slowprocessing of loan applications which resulted in late disbursement.Another reason is the abuse of the flexibility granted under thecredit line agreement; many cooperatives and associations haveonlent a much larger portion for medium-term loans than authorizedby BAAC and, in some extreme cases, almost the entire amount. Also,many cooperatives and associations lacked the staff to control theirloan portfolio. To control new lending, however, the financialcondition of cooperatives and associations is now graded (para.1.12), and new funds to those with a low grading are beingrestricted. The adequacy of the present accumulated bad debtprovision, which is 8.7% of the outstanding portfolio, would bereviewed when additional information on arrears becomes available.

(c) Legal Action. BAAC has a Legal Division at head office and a legalunit in each branch office responsible primarily for taking legalaction against willful defaulters. Because of the sensitivity oftaking legal action in rural areas, approval of the General Manageris required in all cases. In 1978, legal action was taken against2,300 individual farmers and four associations. Only 40% of farmerswere taken to court while 60% made full or partial payments prior tocourt action, and most borrowers repaid their arrears prior to thedate of foreclosure fixed by the court.

Audit

2.16 As required by its charter, BAAC's accounts are audited annually bythe Office of the Auditor General of Thailand, the government institution

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responsible for auditing all government departments and state enterprises inthe country. BAAC's Office of Auditing and Inspection, which is directlyresponsible to the General Manager, carries out internal audilting, and auditsthe branches three times a year. An informal study group has been organizedwith the participation of the Office of the Auditor General, CAD and BAAC todiscuss auditing problems with a view to improving auditing procedures.

3. THE PROJECT

3.01 The proposed project would, over three years: (a) provide fundsthrough BAAC for medium- and long-term lending; (b) assist the strengtheningof credit institutions (i.e., cooperatives, associations as t]hey are incor-porated into the new cooperative system, and BAAC) and the government agencies

supervising the cooperative system (i.e., CPD and CAD); and (c) integratecredit with other support services both for selection of subprojects andimplementation of investment plans approved by BAAC. Support to BAAC for termcredit would include its ongoing term lending operations which financeinvestments by individual farmers and cooperatives with good lperformancerecords. The project would be the first phase in assisting BAAC to functioneffectively as an apex bank for cooperatives; the primary role of BAACemphasized under the new cooperative system is to increase the effectivenessof cooperatives as conduits for providing credit to small farmers.

3.02 A definition of small farmers was developed for the purposes of theproject so that they would receive BAAC's special attention under the project.Emphasis would be given to increasing the share of project proceeds onlentto this group of farmers over what has been achieved in the past under BAAC'songoing term lending programs. During negotiations, assurances were obtainedfrom BAAC that it would use its best efforts to ensure that not less than 50%of loan proceeds allocated for subloans would be used to finance small farmersdefined as: new settlers selected by government agencies responsible forsettlement, or any other farmers primarily engaged in farming activities, whooperate holdings smaller than the average holding in the particular province.

3.03 The major bottleneck to increasing yields through intensive farminghas been the low use of fertilizers and other inputs. Traditionally, theGovernment has followed a policy of keeping prices to producers low at thefarm-gate and toletrating high input prices and/or inadequate supplies; thisleads to a continuation of an extensive form of cultivation, with low use ofinputs and low yields. Improvements have recently been made in the outputprice/input cost ratio to provide farmers with greater incentives to usefertilizers. Continued improvement is necessary, however, if agriculturalyields per ha are to increase; consequently demand for institutionalcredit is likely to grow.

Project Area

3.04 The three subloan categories specified for financing under theproject are located in the Central and Southern regions because of the

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delay in preparation rather than the lack of viable lending categories inother regions. Under BAAC's ongoing term lending programs, for example, loansgranted in 1976 were equally distributed between the Central and Southernregions and the Northern and Northeastern regions. To correct regionalimbalance within the project, BAAC would direct lending for nonspecifiedcategories, particularly toward farmers in the North and Northeast regions(para. 3.09).

Project Lending Component

3.05 On-farm Development. The project would finance improvements on11,200 ha of paddy fields and would directly benefit about 4,000 farm holdingsand indirectly benefit many neighboring small farmers renting a small area ofthe improved paddy fields, mostly for the dry season only. Subprojects wouldbe located mainly in the Central Plain where the Bank-supported Chao Phyaprojects have demonstrated the benefits of changing the cultivation patternfrom growing traditional rice varieties in the wet season to growing high-yielding varieties in both wet and dry seasons. In areas where majorirrigation and drainage systems already exist, many farmers are seeking loansfrom BAAC because of the uncertainty about the adequacy of public funds forfinancing the growing demand for on-farm development. Implementation ofon-farm development through borrowing is a new scheme; therefore, subborrowerswould be made fully aware of their repayment obligations in applying forloans.

3.06 Borrowing requests under the project would be initiated by a groupof farmers with irrigable paddy fields in contiguous areas suitable foron-farm development. To be eligible for financing, the group should becohesive not only for implementation, but also for operation and maintenanceof the constructed irrigation and drainage system. The proposal of the groupwould be reviewed by the Provincial Land Consolidation Committee composed ofrepresentatives of the local government, the Office of Land Consolidation, theRoyal Irrigation Department (RID) and BAAC. BAAC would appraise subprojectsthe Committee considers feasible. With BAAC's approval for financing, thegroup would then be assisted by the members of the Committee at the provincialand district levels, including cadastral survey by the Land Department andtopographic survey and design and supervision of civil works by RID. Areas ofinvestments would include land leveling, excavation of on-farm irrigation anddrainage ditches, construction of access roads, and realignment of farmboundaries. On-farm civil works would be carried out by small local contrac-tors. Payment to contractors would be made by BAAC at the request of thegroup after inspection by representatives of the group and RID engineers.BAAC would automatically debit the amount paid to contractors as loans to thegroup. During negotiations, assurances were obtained from the Government thatthe necessary funds would be made available to the concerned line agencies forimplementation of on-farm development subprojects.

3.07 Shrimp Culture. The project would finance the 225 shrimp farmerswith landholdings of about 5 ha in two settlement schemes covering 1,080 ha(350 ha in Surat Thani province and 720 ha in Nakhon Sri Thammarat province)in the Southern Region. Settlers for these schemes would be selected by a

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local committee headed by the District Officer and representatives of the

concerned agencies including CPD. Priority for settlement would be given to

inhabitants of the province, particularly to those who are landless or already

living in the settLement areas, as well as to farmers who have been displaced

by other government projects such as dam construction. These procedures are

consistent with those used by the Public Welfare Department, '1e major

government settlement agency. When BAAC has appraised and approved the

settlement schemes and the farm plans of settlers, CPD would carry out, prior

to financing, topographic and cadastral surveys and construction of major

infrastructure such as roads and canals to lead brackish water into newly

constructed fish ponds. Investments would include: land clearing;

construction of shrimp ponds, dykes and a water control system, including

pumps (5-7 hp); construction of living quarters; and purchase of fishing nets,

traps, and other small shrimp farming tools. Civil works would be carried out

by small local contractors, who would be paid by BAAC under arrangements

similar to those adopted for on-farm development subprojects. Because most

settlers would have had no previous experience in shrimp culture, the

Departmen,t of Fisheries (DOF) would provide intensive training and establish

demonstration ponds in addition to regular extension services.41 CPD would

also assist cooperatives organized by settlers in each scheme.. During

negotiations, assurances were obtained from the Government that the necessary

funds would be made available to the concerned line agencies i-or implemen-

tation of shrimp culture subprojects.

3.08 Pilot Oil Palm Development. The project would provide long-term

credit for establishing 350 ha of oil palms by about 220 sett:Lers in three

settlement schemes located in the South (i.e., Tha Sae, Lang Suan and Au Luk).

These plots would demonstrate good cultural practices to settLers who had

already aLdopted poor practices which may delay fruit bearing at least for

several years and, in serious cases, up to ten years. To ensure that good

practices would be followed, a technical manual for cultivation of oil palms

has been jointly prepared by the Government and the Bank for use by project

extension officers. Selection of settlers would be conducted by a local

committee under procedures similar to those adopted for shrimp culture

subprojects. After approval for financing by BAAC, individual settlers would

be assisted to plant about 1.6 ha of oil palms, but some of tlnem would plant a

larger area (up to 4 ha) to test the optimal scale of oil palm cultivation for

smallholcLers under different local conditions. The project would finance land

clearing and preparation; purchase of planting materials and small implements;

and all cash outlays for oil palm production up to the fourth year, the

first year of fruit bearing under good cultural practices./2 CPD would assist

cooperatives that are organized by settlers in each scheme.

/1 Shrimp farming techniques are well established in Thailand but an ADB

fishery project is financing a research program, conducted by DOF, to

raise technical standards.

/2 Cash outlays are included to ensure that settlers can successfully

establish the demonstration plots.

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3.09 Nonspecified Lending Categories. Although the specified subloancategories would enable BAAC to expand its term lending programs at theinitial stage of implementation, a major feature of the project is tostrengthen the capacity of BAAC to identify, appraise and implement soundcredit programs in the agricultural sector during the entire project period.Nonspecified lending categories would allow BAAC the flexibility to financecredit demands not specifically identified at the time of appraisal and alsoto correct the regional imbalance within the project by increasing lending inthe North and the Northeast. During negotiations, assurances were obtainedfrom BAAC that farm plans for new prototype subprojects would be subject toBank review and agreement prior to commitment of funds by BAAC.

3.10 BAAC, assisted by the concerned technical agencies, has alreadyconducted field surveys to identify the need for and feasibility of newlending categories. Some categories have been prepared for review by the

first supervision mission. BAAC's review has indicated that the new lendingcategories would probably include financing of fresh fish culture (B 50million), the ongoing new village development program (B 25 million), andBAAC's ongoing term lending (B 35 million) handled by four branch offices, alllocated in the North and the Northeast. Orchard development (B 60 million) inthe East and the South, and backyard dairy development (B 15 million) locatedin the Central Region and the North, are also under review. Other possibi-lities under consideration are financing of shallow and deep well irrigationin the Northeast, and rubber planting in the South.

Project Technical Assistance Component

3.11 Technical Assistance to BAAC. The project would finance 108 man-

months of consultants and 135 man-months of overseas staff training to assistthe institution building of BAAC. Three consultants would be provided for atotal of 90 man-months and would comprise:

(a) a program development specialist, to assist in improving BAAC'sreporting system and in establishing a management informationsystem;

(b) a training specialist, to develop appropriate training courses fordifferent functions and prepare a master plan for staff careerdevelopment; this specialist would take over from the consultantprovided by the Colombo Plan (para. 2.06);

(c) an agricultural credit specialist, to further improve the capability

of BAAC's staff to identify and appraise new projects (para. 2.07).

An additional 18 man-months of short-term consultants' services would be

provided for special assignments. Five staff would participate annually inoverseas training courses (from 3-12 months) sponsored by foreign universitiesand governments or international agencies. During negotiations, assuranceswere obtained from BAAC that the qualifications, experience and terms andconditions of consultants to be employed would be acceptable to the Bank.

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3.12 TraininR Program. The project would provide funds for an intensivetraining program to strengthen the cooperative system, including training forsenior staff of cooperatives, officers of CPD, and auditors of CAD. (BAAC,however, would carry out its staff training programs without projectfinancing.) To make the training program for cooperative staff responsive tothe actuaL needs of' primary cooperatives, the Government has adopted severalprinciples to be implemented under the project. The first principle is topromote decentralization of planning and implementation respon,sibilities fromBangkok to regional training centers. Ten regional centers would each beresponsible for about seven provinces and would develop specif'ic courses for

individual provinces; in the future, simple courses could probably beimplemented by provincial CPD officers. The second principle is to developthe training capacLty within CPD, which is also necessary for in-servicetraining of CPD andl CAD staff. The third principle is to mobilize staff ofCPD, CAD and BAAC for follow-up of trained staff during their visits tocooperatives. Without constant on-the-job advice through frequent follow-up,the trained staff may fail in solving the actual problems they encounter atthe district level.

3.13 The training program would provide one to three day courses for aver40,000 farmers (present and prospective cooperative members), 1-2 day coursesfor 1,600 cooperatLve committee members, and basic courses of up to 60 daysfor 1,600 cooperative staff. Annual in-service and advanced training courseswould also be established. The courses for farmers would promote cooperativeprinciples in an effort to gain their trust in the strengthened cooperativesystem. The present 9 mobile training units would be increased to 12 units,and priority would be given under the project to mounting an intensivepromotional campaign. Training of cooperative staff would use existingtraining facilities of various government agencies and would mobilizeinstructors from universities, BAAC and other government agencies to lectureon special subjects at the head office center (at CPD's Bangkok TrainingCenter) and ten regional centers (at Chainat, Khon Kaen, Chiengmai, Songklaand six other locations to be designated). Each center would be headed by adirector and would have a minimum staff of three, with specializations inmanagement, accounting, marketing and training.

3.14 Both CPD and CAD would organize training programs for their ownstaff. Training would be provided for 800 officers of CPD and 450 auditorsof CAD. Each agency would focus on priority subjects, but in:Ltially, theprogram would familiarize present staff with the new roles of CPD (promo-tional and advisory functions) and CAD (advisory function). Also, a coursemay be necessary for staff who are involved in restructuring cooperativesin poor f'inancial condition. A joint course for staff of CPD. CAD, BAAC andother government agencies would be planned to deepen their understanding ofmajor cooperative issues and to improve their working relationship in assist-ing cooperatives. In addition, annual in-service and advancedL training cour-ses would be established. All these courses would be held at CPD's BangkokTraining Center.

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3.15 To support the training program proposed by the Government, theproject would finance: (a) the improvement and expansion of two existingtraining facilities, (b) construction of about 40 houses for CPD trainingstaff of the ten regional training centers, (c) 3 mobile training units,(d) purchase of audiovisual aids and teaching materials for underequippedmobile units, (e) employment of expatriate (144 man-months) and local (432man-months) consultants, and (f) fellowships for about 40 CPD and CAD staff tovisit other Asian countries. During negotiations, assurances were obtainedfrom the Government that the qualifications, experience, and terms andconditions of the consultants to be employed would be acceptable to the Bank.In addition, the Government would provide subsidies for cooperatives beingrestructured to cover training expenses and to enable them to raise salarylevels, so that they can retain the services of trained managers and staff.The Government would provide a monthly subsidy of B 3,000 ($150) formanagers, B 2,000 ($100) for senior staff, and B 1,800 ($90) for cashiers.These allowances are considered adequate to attract qualified staff tocooperatives in small towns. Subsidies would last for five years but would bereduced by 20% annually.

3.16 Restructuring of Cooperatives. Another major government program tostrengthen the cooperative system is the restructuring of cooperatives in poorfinancial condition. Under this program, the multi-operations of a coopera-tive would first be examined thoroughly and a restructuring plan would beprepared, based on the findings of an evaluation team consisting of staff fromCPD, CAD and BAAC. Assisted by a consultant, CPD would establish operationalprocedures for evaluation, train members of field evaluation teams, and reviewthe proposed restructuring plans./l During negotiations, assurances wereobtained from the Government that the qualifications, experience, and termsand conditions of the consultants to be employed would be acceptable to theBank.

3.17 Improvement of the Auditing System. CAD does not have sufficientauditors to audit cooperatives and associations once a year as legallyrequired. The shortage of CAD auditors would become serious under the newcooperative structure, with the additional responsibilities and activitiesassigned to CAD, such as auditing problem cooperatives on a quarterly orsemiannual, basis, establishing control systems in cooperatives, and counsel-ling on managerial and operational matters. Furthermore, participationin the program to evaluate and prepare plans for restructuring cooperativeswould also require a large number of auditors. Therefore, the Government hasdecided to increase the number of auditors from the present 150 to 500, andalso to establish 72 local offices in all provinces by 1984, so that auditorscan be located outside Bangkok and become familiar with local conditions.

/1 Considering the complexity and the large number of cooperatives to berestructured, the evaluation operation is scheduled to be completed inabout five years.

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During the three-year project period, 290 additional auditors would beemployed; with project financing, about 50 provincial offices would beestablished and about 50 houses constructed as an incentive for relocation ofqualified auditors to provincial offices.

3.18 Review of Oil Palm Development. The project would f-inance 8 man-months of consultants to be employed by CPD to prepare a comprehensive planfor the three oil palm settlement schemes now being developed without properplanning, and to conduct a sector review to formulate a master developmentplan for the oil palm sector in the South. The replanning would be conductedby a team of consultants (i.e. an economist/financial analyst,, a land useplanner/surveyor, a land settlement agronomist, an oil palm productionspecialist, and an oil palm processing specialist). The consultants wouldrecommend actions to rehabilitate the slow growing oil palms planted underpoor cultural practices (on an estimated 5,700 ha), and a plan for settlementof new areas. BAAC is prepared to finance on its own a pilot plan forrehabilitation, but sources of funding for full rehabilitation of the 5,700 haand settlement of new areas would be explored separately. The sector reviewwould update the findings of a regional study conducted in 1974 that consi-dered parts of Southern Thailand suitable for oil palm cultivation. Prior tolaunching a large-scale program, the Office of Agricultural Economics (OAE)would formulate a master development plan. Because oil palm cultivation isstill new in Thailand, no local specialists are available to assist inundertaking this review. The project would therefore finance two expatriateconsultants (a senior economist and a tropical tree specialist) for a total of3 man-months to assist OAE in its review. During negotiations, assuranceswere obtained from the Government that the qualifications, experience, andterms and conditicons of the consultants to be employed would be acceptable tothe Bank.

3.19 Study of Supporting Systems for Lending to Small Farmers. Smallfarmers in Thailand have traditionally been denied access to institutionalcredit. With this in mind, BOT initiated a study to review the experience inother countries with different supporting systems for lending to smallfarmers. The Government, however, has further decided to conduct a study toselect a suitable supporting system to reduce the risk to BAAC and thecommercial banks iLn making loans to small farmers. Therefore, the first phaseof the study would establish a definition of small farmers to be assisted. Asurvey of small farmers to find out the present status of farming, types ofcredit need, obstacles denying access to institutional credit and otherrelated -problems such as storage, marketing and processing would be necessary.The second phase would be to first select a system most appropriate for smallfarmers to obtain credit from BAAC and the commercial banks, and then toprepare a plan to introduce the system. The project would finance twoexpatriate consuIltants employed by OAE for a total of 8 man-months (one toassist in each step of the second phase) to assist the Government in carryingout this part of the study. During negotiations, assurances were obtainedfrom the Government that terms of reference for the study would be acceptableto the Bank, and ithat the qualifications, experience, and terms and conditionsof the consultants to be employed would also be acceptable to the Bank.

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Cost Estimates

3.20 Table 3.1 presents a summary of project cost estimates. Detailsare provided in Annex 2, Tables 1 and 2. Total project costs (including taxesand duties) are estimated at about $37.6 million, with a foreign exchangecost of $19.0 million or 50%. A total of 432 man-months of local technicalassistance would be utilized for training, at an estimated total cost of$432,000. The average man-month cost (based on local individuals' fees andlocal allowances) is expected to be about $1,000. In addition, at anestimated total cost of $2.0 million, a total of 281 man-months of expatriatetechnical assistance would be utilized for the training program, assistance toBAAC in improving its operations, in restructuring cooperatives, in replanningsettlement schemes, in conducting an oil-palm sector review, and in carryingout a study to devise ways of reducing the risks to agencies involved indirect lending to small farmers. The average man-month cost (based onindividuals' fees, international travel and local allowances) is expected tobe about $7,000.

Table 3.1: SUMMARY COST ESTIMATES

% totalLocal Foreign Total Local Foreign Total project %---- (B million) ---- ----- ($ million) ---- cost F.E.

LendingOn-farm 125.09 151.81 276.90 6.26 7.59 13.85 37 55Shrimp culture 27.35 27.05 54.40 1.37 1.35 2.72 7 50Oil palm 2.91 8.29 11.20 0.14 0.42 0.56 1 74Nonspecified 97.00 97.00 194.00 4.85 4.85 9.70 26 50

Subtotal 252.35 284.15 536.50 12.62 14.21 26.83 71 53

Technical AssistanceBAAC 1.90 29.36 31.26 0.10 1.47 1.57 4 94

Training prog. 77.67 46.29 123.96 3.89 2.30 6.19 17 37Cooperative

staff 39.65 23.67 63.32 1.99 1.17 3.16CPD staff 32.37 14.38 46.75 1.62 0.72 2.34CAD " 5.65 8.24 13.89 0.28 0.41 0.69

Other 40.83 20.31 61.14 2.03 1.02 3.05 8 33

Subtotal 120.40 95.96 216.36 6.02 4.79 10.81 29 44

Total ProjectCosts 372.75 380.11 752.86 18.64 19.00 37.64 100 50

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Financing

3.21 The Bank loan of $19 million would finance 54% of project costs,exclusive of taxes and duties. This would cover all of the estimated foreignexchange costs. Funds for the lending component and for technical assis-tance to BAAC would be onlent directly to BAAC by the Government at the sameinterest rate as the rate of the Bank loan. The Government would assume theforeign exchange risk. Table 3.2 shows the proposed financing arrangements:

Table 3.2: PROJECT FINANCING($ million)

Project components Subborrowers BAAC Government Bank Total

Lending 4.54 6.76 1.71/a 13.82 26.83Technical assistance to BAAC - - - 1.57 1.57Training program - - 3.44 2.75 6.19Other technical assistance - - 2.19 0.86 3.05

Total 4.54 6.76 7.34 19.00 37.64

/a Includes costs for survey, design, supervision and construction ofbasic infrastructure.

BAAC's contribution would come from internally generated funds. TheGovernment contribution to the line agencies for the training program andother technical assistance programs would be made available under the normalbudgetary allocatiLon. These allocations, as well as the proceeds of the Bankloan, would be released to the line agencies through MOF. During negotia-tions, assurances were obtained from the Government that it would make therequired funds available to the line agencies.

3.22 It is a normal practice of farmers in Thailand to complete on-farmdevelopment works during the dry season in order to avoid losing a wet seasonpaddy crop. Preparation for financing the coming dry season crops is welladvanced with the support of BAAC and other agencies. Lack of funding woulddelay the implementation of on-farm development subprojects. To assist BAACto start financing subprojects for implementation in 1980, retroactivefinancing of up to $600,000 would be included in the loan to cover disburse-ments against local contracts for on-farm development subprojects afterMarch 1, 1980.

Procurement

3.23 Construction works under subprojects for on-farm development,fishponds, settlers' housing, land clearing and preparation, and other civilworks (about $17 million), and similar works under the training program fortraining facilities and staff housing (about $2 million), consist of a largenumber of small items widely dispersed in area and time. They could not be

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combined into contracts of sufficient size to be of interest to internationalcontractors. There are sufficient local contractors to ensure adequatecompetition. Therefore, contracts for civil works would be carried outfollowing local competitive bidding procedures acceptable to the Bank.

3.24 Equipment, machinery and other farm supplies (about $2.0 million)would be purchased locally by subborrowers under the overall supervision andguidance of BAAC to ensure quality and reasonable prices. There aresufficient local suppliers of such goods to ensure adequate competition.However, subborrowers would be required to solicit at least two pricequotations from local suppliers and to present the quotations to BAAC fordisbursement. Audiovisual aids and other equipment (about $0.6 million) andvehicles (about $0.5 million) under the technical assistance component wouldbe procured by the line agencies through local competitive proceduresacceptable to the Bank, with the exception of small lots of $10,000 or less,which would be procured by prudent shopping through normal commercialchannels. During negotiations, assurances were obtained on procurementprocedures.

Disbursements

3.25 Disbursement of the loan proceeds would be as follows:

(a) 55% of the subloans disbursed by BAAC;

(b) 50% of the cost of civil works contracts for training and otherfacilities;

(c) 50% of the cost of audiovisual aids and other equipment;

(d) 100% of the c.i.f. or ex-factory cost, or 55% of off-the-shelfcost, of vehicles; and

(e) 100% of the cost of consulting services, overseas training andfellowships.

3.26 Disbursements for BAAC subloans would be made against certifiedstatements of expenditures; disbursements in the other four categories wouldbe fully documented. Supporting documentation would be retained by CPD,CAD, OAE and BAAC and would be made available for inspection by Bank super-vision missions. It is expected that disbursements would be completed byDecember 31, 1984, about 18 months after the completion of commitment underthe project (Annex 3).

Accounts and Audit

3.27 Separate accounts of all financial transactions under the projectwould be maintained by CPD, CAD, OAE and BAAC and audited annually by indepen-dent auditors acceptable to the Bank. These accounts, together with theauditor's comments and opinions, would be sent to the Bank within six monthsof the close of each fiscal year. BAAC would also send to the Bank itsgeneral audit report. During negotiations, assurances were obtained onaccounting and auditing procedures.

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4. ORGANIZATION AND MANAGEMENT

4.01 The Government would designate the Long Term Credit Advisory Commlit-

tee on Agricultural Credit to be responsible for coordinatiP f all project

activities conducted by participating agencies. Under this project coordinat-

ing committee, task forces would be organized by the concerned agencies to

be in charge of coordination at the working level, particularly for integra-

tion of credit with other support services, from the early stages of identi-

fication through to implementation.

Credit Operations

4.02 BAAC would be responsible for implementing the lending component in

coordination with other government agencies who provide technical assistance

to farmers. Subloans would be made directly to individual farmers as well as

to members of qualified cooperatives./l Since most of the cooperatives in the

project areas are in poor financial condition and ineligible to participate

immediately, BAAC would mainly extend loans directly to farmers; however,

lending through cooperatives would be initiated as soon as they are restruc-

tured under the government program and recover their eligibility for partici-

pation. As an apex bank, BAAC would assist cooperatives to improve their

lending capability so that they become eligible for onlending to member

farmers under the project. This approach would initially be promoted on a

pilot basis in four provinces in the North and the Northeast. BAAC wouldalso continue to improve its own operational capacity for identification,appraisal, supervision and collection.

4.03 Organizational Structure of BAAC. The Loans Department at headoffice would be responsible for the lending component and would be assisted

by the branch offices. However, the Planning Department at the head office

would, in collaboration with the Loans Department, identify, a,ppraise and

seek Bank approval of prototype subprojects for new subloan categories(para. 3.09).

(a) Loans Department. In 1978, the present Loans Department was estab-

lished by merging two departments responsible, respectively, for

short- and medium-term loans, and for long-term loans. The primaryresponsibilities of the unified Department are to oversee thelending operations conducted by branch offices and to review loan

applications to be approved at head office; the present authority

of branch-i managers for approval is up to B 40,000 for short- and

medium-term loans and up to B 80,000 for long-term loans to

individual farmers. The Department has five divisions; one is in

charge of disbursement and reimbursement under lending programsfinanced by overseas loans and the other four are in charge of all

_L Associations were not considered as lending conduits under the project

because of the new goverrment policy to incorporate them into the

cooperative system.

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lending programs on a regional basis. Initially the Departmentwould be responsible for appraising subprojects, but this responsi-bility would, with the approval of the General Manager, graduallybe transferred to the branches, although large-scale and complexsubprojects would still be directly appraised by the Department.The Department now has 139 staff, but this would be increased tohandle the additional workload arising from the project.

(b) Planning Department. The Planning Department was established in1978 to strengthen BAAC's planning function. It has four divisions,of which the Project Division is responsible for identification ofnew lending categories./l In the past, the Project Divisionreviewed various investment schemes at the request of governmentagencies or local leaders, and assessed their feasibility for BAACfinancing. Although still engaged for a short period in this newtask, the Division prepared, with the assistance of the FAO/CPmission, the project proposal submitted to the Bank for appraisal.The staff of 16 was increased to about 30 during 1979.

(c) Branch Offices. Branch staff would initially assist in, but thenassume responsibility for, the identification and appraisal ofsubprojects; they would have primary responsibility for supervision.At least one staff member in each branch office has completed anintensive training course for term lending and is responsible forimplementing BAAC's ongoing term lending programs.

4.04 Subloan Terms and Conditions. The major terms and conditionsincluded in the Loan Agreement to govern lending operations under the projectwould cover (a) lending rates, (b) maturity, including grace period, (c)limits on lending, and (d) collateral requirements. Further details would bespecified in BAAC's Rules and Regulations issued for implementation of theproject. Coordination with government technical services, procedures forappraisal and supervision, and other technical matters for lending would bedescribed in BAAC's credit manual. During negotiations, assurances wereobtained from BAAC on terms and conditions of subloans.

4.05 BAAC lends to farmers at interest rates of 12% to 18% and to co-operatives and associations at 12% (para. 1.10). The average cost of funds toBAAC is projected to be close to 11%. The present narrow spread would notcover the additional costs for collection of institutional loans in arrearsand for restructuring cooperatives in poor financial condition. Althoughlending to cooperatives under the project would be minimal because mst ofthem are not eligible for participation, a major issue for review during theproject period is the future increase of lending to successfully restructuredcooperatives. The impact of the increase on BAAC's long-term profitability

/1 The other three divisions are responsible for statistics and budgeting,research and evaluation, and development of working systems (includingmanuals and procedures).

- 25 -

would require close scrutiny because the viability of cooperatives must also

be maintained within the spread fixed by government-regulated interest rates.

4.06 Review of Loan Portfolio. Overdue accounts to cooperatives and

associatio ; remain BAAC's main financial problem (para. 2.15). Verification

of the actual arrears situation, however, cannot be established with certainty

until completion of the government program which evaluates in detail the

financial condition of cooperatives. The program is scheduled to be completed

in about five years. During the three-year project period, about 350

cooperatives are planned for evaluation to be conducted jointly by CPD, CAD

and BAAC. Therefore, BAAC would carry out its own evaluation to reduce

arrears immediately and use the findings of the joint evaluation teams when

they become available for planning its long-term lending program to

cooperatives. During negotiations, assurances were obtained that BAAC would

conduct annually, and furnish to the Bank for its review promptly upon

completion, a loanL portfolio evaluation on the status and causes of arrears,

and plans for restructuring cooperatives in poor financial condition.

TraininR Program

4.07 Training responsibilities would be assigned to CPD for farmers,

cooperative staff and CPD officers, and to CAD for its auditors. Within CPD,

one of its three deputies would be assigned full responsibility for the train-

ing program. Once the staffs of the regional centers are adequately trained,

they would assume full responsibility for planning and implementing a regional

training program; these programs would be coordinated by CPD's TrainingDivision in Bangkok. While CPD would be responsible for planning and

implementing the training program under the project, CLT (para. 1.11) is

expected to assume CPD's training responsibilities on a phased basis, by

region or by subject. In line with the transfer of responsibility to CLT, CPD

training staff (from its head office and regional training centers) would be

transferred to CLT. The Government is seconding administrative staff to CLT,

so that the transfEer of responsibility for training may begin during theproject period.

4.08 Consultants would assist both CPD and CAD in managing their training

programs. To improve CPD's farmer training program, consultants would assist

CPD in establishing a system to assess the efficiency of its mobile training

units. CPD's head office center would be assisted for three years by two

expatriate consultants specialized in general management and in accounting and

financial management. They would assist CPD to identify training needs,develop training programs and courses, prepare necessary training materials

and manuals, and develop evaluation criteria and procedures ior regional

training programs. In addition, three local consultants in management or inother specific subjects would assist the head office, as well as one local

consultant to assist each of the ten regional centers, particularly in train-

ing staff. The head office center would acquire a group of staff with higher

qualifications and wider experience who would be able to train and assist the

regional training staff on a regular basis. CPD and CAD would also be

assisted for three years by expatriate consultants in conducting separate

training programs for their own staff.

- 26 -

4.09 Review of Implementation Plan. CPD and CAD would update the present

training program and implementation plans for review by the first Bank super-vision mission. This exercise is necessary particularly for the cooperativestaff training program because CPD was designated in January 1980 as the

responsible implementation agency. Refinement and updating of the plan wouldbe conducted on a continuous basis with the assistance of trainingconsultants.

Survey and Study

4.10 The OAE would be responsible for carrying out two reviews under the

project; both would receive extensive input from other agencies. First, forits review of the oil palm sector (para. 3.18), OAE would organize a working

group with representatives from concerned agencies. A master oil palmdevelopment plan would be formulated by OAE with the help of expatriateconsultants. This plan would then be reviewed by a special committee withrepresentatives of concerned agencies, which would coordinate the plan with

other regional programs for tropical tree crops. Second, for the study ofsupporting systems for lending to small farmers (para. 3.19), OAE and itsconsultants would confer with concerned agencies in selecting a suitablesupport system and formulating an action plan for implementing the system. Aspecial committee, consisting of representatives of the concerned agencies,would review the recommendations of the study.

Reporting Requirement and Monitoring

4.11 Progress Reporting Requirement. CPD, CAD, OAE and BAAC would submitsemiannual and annual progress reports to the Bank. The annual report wouldform the basis of an annual review of the project by the Long Term CreditAdvisory Committee on Agricultural Credit, which would coordinate projectimplementation, and the Bank. The implementing agencies would also maintainup-to-date files, maps, and financial and other pertinent information on theproject, which would be available for review by the Bank.

4.12 Monitoring of the Cooperative System. Considering the prioritygiven by Government to revitalizing the cooperative system and the numerousprograms being undertaken, monitoring of the entire cooperative system isnecessary. This coordinated approach would benefit the concerned governmentagencies as well as the Bank. The CPD training and evaluation consultantswould prepare a proposal for monitoring, which would be reviewed by MOAC, CPD,CAD, NESDB and BAAC.

4.13 Monitoring BAAC. BAAC has already simplified its internal reportingsystem, and responsibility for periodic data collection has been concentratedin the Banking and Accounting Department. Analysis of the collected data is,however, carried out mainly by the Planning Department. BAAC would reviewits present system and propose changes, to be discussed with the Bank, toestablish a management information system most suitable for BAAC. The systemwould aim to: (a) improve procedures for data collection and report formatsto reduce the large volume of paper flow and duplication in report content;(b) ensure timely reporting; (c) collect data for preparing annual work

- 27 -

programs by region and lending category; and (d) evaluate the financial,economic and social impact of individual lending programs. BAAC is reviewingthe use of computers for data processing. The project consultant wouldundertake a review of BAAC's scope for using computers (e.g. by rentingcomputers owned by universities in Bangkok) and their cost.

5. MARKETING AND PRICES

Marketing

5.01 Rice. In view of the expected increase in domestic consumption Aand world market dlemand for rice, marketing of the 68,500 toiis of paddyproduced under thie project would present no problem. Rice farmers wouldusually sell their produce to merchants at the farm gate, and to private orcooperative rice imills. Most of the paddy would be milled locally and thesurplus product sent to Bangkok. The marketing infrastructure and facilitiesare well established.

5.02 Fish and Shrimp. In view of the relatively low price of fishcompared to meat, and increases in per capita income and population, thedemand for fish and fish products in Thailand is projected to grow at about 5%per year up to 1985. There is an ample local market for the increases in thethe fish supply generated under the project. Most shrimp is exported fromThailand to Japan and Hong Kong (which imported about 12,500 tons in 1976);other markets in Europe, the US, and the Middle East have also startedimporting shrimp from Thailand. The acceptance of Thai shrimnp in these majormarkets ensures ready outlets for the projected output of 405 tons of shrimpunder the project. The shrimp farmers would sell their products mainlythrough middlemen, but CPD would assist the cooperatives organized by settlersto market their products jointly and obtain better terms. Adequate coldstorage facilities are available within the vicinity of the project areas.

5.03 Palm Oil. At present, domestic demand for palm oil is about 8,000to 10,000 tons, most of which is imported due to the small area bearing fruitsand lack of facilities to refine crude palm oil. Domestic consumption isexpected to grow at about 7% annually, and reach 20,000 tons around 1985, atwhich time production of local palm oil is also expected to reach 20,000 tons.Further major expansion of oil palm growing in Thailand would, therefore,have to rely mainly on export markets for palm oil, the possibilities of whichwould be explored under the sector review. However, production under theproposed demonstration plots would be 5,000 tons of fresh fruit bunches whichwould produce about 1,000 tons of palm oil and 250 tons of kernel palm oil,only a small proportion of the projected domestic consumption; its impact onsupply would accordingly be negligible.

/1 Domestic consumption of rice grew at an average of 3.5% while productiongrew at aboul: 3.0% during the last decade. The decline in exports isexpected to continue in the future primarily due to growth in population.

- 28 -

Prices

5.04 Table 5.1 shows the current financial and economic prices used inproject analysis as well as projections thereof based on the Bank's commodityprice projections. The farm-gate prices for the project's products areconsidered to be satisfactory and are adequate to ensure the necessaryincentive for farmers to make investments.

Table 5.1: PRESENT AND PROJECTED FARM-GATE PRICES OFOUTPUTS AND MAJOR INPUTS

(Baht)

1979 1985Financial Economic Financial Economic

Crops (B/ton)Paddy 3,000 4,200 3,000 5,000Shrimps 50,000 61,000 50,000 61,000Fish 1,800 2,200 1,800 2,200Palm oil (FFB) n.a n.a 960 1,130

InputsFertilizer (B/ton)Ammophos 3,800 3,420 5,240 4,720Urea 5,000 4,500 6,300 5,600

Seeds (B/ton)Local paddy 3,000 4,200 3,000 5,000HYV 5,000 5,000 5,750 5,750

Labor (B/man-day) 30 27 30 27

6. BENEFITS. JUSTIFICATION AND RISKS

Beneficiaries

6.01 The proposed project would benefit large numbers of farmers eitherdirectly or indirectly, especially those with small holdings; the total numberof direct beneficiaries is estimated at about 9,000 farmers. An appreciableproportion of the nonspecified lending component would assist farmers in thetwo poorest regions, the North and the Northeast. By restructuringcooperatives and providing technical assistance to BAAC, the project wouldcontribute towards strengthening BAAC as the apex cooperative bank, andcooperatives, its onlending conduits, as the major agricultural creditinstitutions serving farmers throughout the country. In the long run, the

- 29 -

project would assist the socioeconomic development of rural areas, particu-

larly by providing credit to small farmers who have traditionally been

denied access to institutional credit.

Production

6.02 As Tabl,e 6.1 shows, the project would generate increased production

of commodities, notably rice (and to a lesser extent fish and shrimp), which

are important for the Thai economy and are also suitable as al source of income

for small-scale farmers.

Table 6.1: MAIN INCREMENTAL PRODUCTION(At Full Development)

Quantity Gross VaLue/aProducts (tons) Baht M $ M

Paddy 68,500 205.5 10.3

Shrimps 405 20.3 1.0

Oil palm (FFB) 1,250/b 2.4 0.1

Total 228.2 11.4

/a At 1979 constant prices.

A Equivalent to 1,000 tons of palm oil and 250 tons of palm

kernel oil.

Rice and shrimp production would increase exports while palm oil would reduceimports, thus helping to improve Thailand's increasingly unfavorable balance

of trade.

Rates of Return

6.03 Financial rates of return on the three specified subproject invest-

ments (which amou,nt to over 60% of the proposed lending to subborrowers) rangefrom 25% to 36%, the aggregate being 26% (Table 6.2). These rates indicate anadequate incentive to subborrowers. The estimated rate of return for shrimp

culture is the most favorable, but is sensitive to changes in benefits(Annex 4). A 20%, fall in benefits would reduce the financial rate of returnfrom 36% to 23%. Economic rates of return were calculated using a standard

conversion factor of 0.92. The economic rate of return is estimated to be 38%

for on-farm development, the cost of which is $13.9 million; 32% for shrimpculture, the cost. of which is $2.7 million; and 27% for oil palm development,

the cost of which is $0.6 million. The average economic rate of return on

these components, which account for 45% of total project costs, is 35% (Annex4). Financial and economic rates of return are given in Table 6.2 below.

- 30 -

Table 6.2: RATES OF RETURN(Percentages)

Subproject Financial Economic

On-farm development 25 38Shrimp culture 36 32Oil palm development 27 27

Aggregate 26 35

Employment Impact

6.04 At full development, the project would benefit directly about 9,000families and create incremental employment opportunities equivalent to about2,000 man-years./i Settlement schemes and on-farm development would be themajor sources of increased employment, primarily as a result of higher crop-ping intensity. The employment opportunities thus created would be suited tounskilled labor and would therefore benefit the landless rural poor and thosewith small farm holdings.

Foreign Exchange Impact

6.05 Thailand is one of the world's leading rice exporting countries.However, the growth of Thai rice exports has been declining because domesticconsumption increased while the increase in production slowed down due tocultivation of marginal land. Thus, while the rice produced under the projectmay not be exported, it would meet domestic demand which would otherwise haveto be met from exportable production. Accordingly, the project's output istreated as if it would be wholly exported. At full development, the projectwould generate incremental rice production valued at B 324.6 million ($16.2million) f.o.b. Bangkok, and fish and shrimp valued at B 34.8 million ($1.7million); in addition, there would be import substitution through palm oilvalued at B 3.9 million ($0.2 million c.i.f. Bangkok); the total foreignexchange earnings would therefore amount to B 363.3 million ($18.2 million) atfull development. Foreign exchange expenditures at full development areestimated at about B 18 million ($0.9 million) annually, thus giving a net ofB 345.3 million ($17.2 million).

/1 This does not include employment opportunities accruing to contractorsduring the development period, but includes an estimate of opportunitiesto be created by subprojects of nonspecified lending categories.

- 31 -

Project Risks

6.06 Project risks vary according to the category of subproject lending,the quality of subproject appraisal and preparation, and the thoroughness withwhich the training and technical assistance components are iunln.emented andthen integrated into daily operational procedures of the staff involved.Risks common to all subproject lending would include: failure to achieveprojected yields resulting from inherent difficulties in teaching and imple-menting new agricualtural practices, higher than expected development orproduction costs, and costs rising faster than agricultural prices. Theserisks are not unusual for agricultural projects, and they would be minimizedunder the proposed project through the hiring of qualified technical staff.The provision for an intensive training effort for relevant government, BAAC,and cooperative staff should help to ensure that the agricultural creditprogram is carried out effectively and efficiently.

6.07 Several risks could affect the outcome of the technical assistancecomponent for str,engthening the cooperative system. The major risk is thatfarmers might not be convinced of the viability of cooperatives which hadfailed in the past and, therefore, the merits of becoming members under thenew cooperative system. Considering the conservative attitudes in rural areasand the pervasive distrust of cooperatives by many farmers, :Lnitial success inrestructuring cooperatives in poor financial condition would be essential toencourage participation. The second risk is that progress in restructuringcooperatives on a large scale may take longer than expected because of thecomplex problems in management and business operations that must be solved.The third risk is that the present training capability may be inadequate totrain on an average four senior staff from each of about 400 cooperatives.

7. AGREEMENTS REACHED AND RECOMMENDATION

7.01 During negotiations agreement was reached with the Government onthe following principal points:

(a) BAAC would use its best efforts to ensure that not less than 50%of loan, proceeds allocated for subloans would be used to financesubloans to small farmers (para. 3.02);

(b) funds would be made available from the budget to tlhe responsibleline agencies for survey, design and supervision o:E civil workscarried out by private contractors and construction of majorfacilities to be provided by the Government for development ofsettlement schemes, and for the training program and other technicalassistance programs (paras. 3.06, 3.07 and 3.21);

(cc) BAAC wculd furnish to the Bank for its approval a model proposalof a farm plan for each new lending category prior to commitmentof funds by BAAC (para. 3.09);

- 32 -

(d) the qualifications, experience and terms and conditions ofemployment of consultants would be acceptable to the Bank(paras. 3.11, 3.15, 3.16, 3.18 and 3.19);

(e) terms of reference of the study to review supporting systems forlending to small farmers would be acceptable to the Bank(para. 3.19);

(f) the implementing agencies would follow agreed procurementprocedures (paras. 3.23 and 3.24);

(g) BAAC's accounts, together with the auditors' comments andopinions, would be sent to the Bank within six months of the closeof each fiscal year. BAAC would also send the Bank its generalaudit report (para. 3.27);

(h) BAAC would adopt subloan terms and conditions acceptable tothe Bank (para. 4.04); and

(i) BAAC would conduct annually, and furnish to the Bank for itsreview promptly upon completion, a loan portfolio evaluation onthe status and causes of arrears, and plans for restructuringcooperatives in poor financial condition (para 4.06).

7.02 Subject to the above assurances and conditions, the project would besuitable for a Bank loan of $19.0 million, with repayment over 20 years,including 5 years of grace. The Borrower would be the Kingdom of Thailand.

- 33 - ANNEX 1Table 1

THAILAND

AGRICULTURAL CREDIT PROJECT

BAAC

Operational Indicators, 1973-1978 /a

1973 1974 1975 1976 FY77 FY78

No. of branches 58 58 58 58 58 58

No. of field units 301 317 331 352 388 409

Total staff 2,366 2,577 3,108 3,130 3,352 3.622

of which:

Head office 279 329 409 438 508 559

Branch and field urLits 2,087 2,248 2,699 2,692 2,845 3,073

No. of individual farmerclients ('000) 380 516 605 618 702 780

No. of cooperative c:Lients n.a. n.a. 562 638 641 772

No. of farmers' association clients n.a. n.a. 1,524 1,582 1,550 1,574

/a From 1973-76, BAAC's fiscal year is from January 1 to December 31. From

1977 onwards, BAAC's fiscal year runs from April 1 to March 31.

ANNEX 1Table 2

AJRICULTURAL CRfDIT PROJECT

MAC - Trom and Conditions of no olA Landing Proaram /

Type of Interest Tarlo.n Purpo-- h rim loon amount Collateral rat p... 2 (Years) Approval authority Reaerk

Individu-lShort-torn Markting Par all abort- and mdiom-rm Pledgiog of produc 7 1/2 Fr a1 loans (.ecl4diro Prodoutton loans are ndvuoad oa

loee And group Suarantee tsrflunial the banis of credit oa.ds per ra-Lchib is fired f or each crop and

Mani um lo.e (fhethr oe or more Starch Moger, up to b 80,000 pvith , and shich .rs rev tiedlucre) is snhjeut to the fo11lloin Depaty is-rerl M.rega., a_1aly. The maimu loan.ovarall niete: B 00,000 to B 1 MMi li amounts for hort- cnd ediu-

G.o-ral Merager, B I illion to term arm revised pooicdically to1. R 20500f per booracer undur group ' 2 million account for inflationary incL. as.a.

Agricoltural prodoction ga_rutieo. The brooch aseafer'n approvalnpoecee CGroup gusruntre and/or 12 1 - 1-1/2 Ba.rd of Diroctora, orthority is ala trevised period&

2. R 100,000 per boroccr who mot- orogtga of lied ovar B 2 mdllion itiily in lint rith r-viatoos ofE.gga lend ae colla.rsl. loan liits. Last diabors-.ente

ero soda in re.h.3. Marketing loam to 851 of ap-

praitel -Iod of producs a.d upto S 50,050.

Modiu-t.rm Draft animols, fern Semi ss above. 12 3-5iepluots, catar puss, 4. Agricoltnrel production lobseli-tstonk, fiah ponds , Itmitsd to so amuat that lairland tl-arirg srll repaymset dos nort osred 601irrigation corks. tc. of amual oath surplus.

Long-to-rn Pirociog of agricul Mtul Miniue S 10,000 Land mortgage plu 12 15-20 Minimum 201 contribr tioninvesionnen MootMum B 2.0 illior e-ratite if neceSeery by borrotoer. Last diebhrsn

mor in trunks.

Rof irercing of old debts 40,000 Land mortSgaa end IZ 10

Aaricol1tra1 Coorotives Los to Cooarrivi -end Parnars' Associations

Cuek c..sdit lalandieg to meebsos (i) 0 3 ntllo 0for 130 mssbers Olortgago of ismavblo 9 5 All loan approval othority Th. miniu withdrawa by en in-(ii) 12 tiesa of quity for co-op s property. raste ith Head Offic a e ttertion to drtrrelnd anonally

* years in operation follocel bheed or eetoblichad criteriawhich tabs inot accou.t itie pret

General Maregn p to repeymnt performnce end overall0 2 million oParations.

lord of Directirre,oe

Purchase of firm sopplias 6 tim_ of equity Semi .. abho. 9 1 3 2 millior CaGsh rdit egrasoants armranaead .very 5 yeare.

Marketing of meshere' ' 5 million and a01 of vslu of Pledge of prodorn a.. d/ 7 iprodaco pledged produce or mortsgse of Penalty

msovable property. 2

Long-tare Major inves tent in B 5 million Mor tgge of icovable Minimus 202 .ontrihbtion byagricultural projects property. 6 15-20 borrcse.

Parmec' AesucistiorCaah oredit. Rlendina to mma.re (i) 3 1 million for 50 meabsrs end Mort.sg of i_oveblo 9 3 Cash credit aersenta are

e 2 million frr 50-150 mbo.s property. r-newed every 3 yoars.

(ii) I times of nqcity

Parchaso of farm uppliee 4 titne of shara capital Sam as abovo. 9 1

Loaeg-t Pima cisg of goiculcurel B 5 sillion Mortgage of iovubls 6-8 15-20 minimum 201 ootribetirn byirve tmnts property. borroser,.

/e Thea. worn the ter_ and .onditione ea of December 1979.

- 35 _ ANNEX 1Table 3

THAILAND

AGRICULTURAL CREDIT PROJECT

BAAC

Loans Disbursed by Maturity/Type /a(B million)

1973 1974 1975 1976 FY77 .b FY78Amt. % Amt. % Amt. % % Amt. % 3 Amt. % Amt. % %

Loans to IndividualsShort term 532 68 831 69 1,298 61 1,951 60 2,603 65 2,966 61Medium term 241 32 364 30 709 33 1,160 36 1,241 31 1,467 30Long term - 9 1 94 6 123 4 170 4 443 9

Subtotal 773 (75) 100 1.204 (69) 100 2.101 (63) 100 3.234 (75) 100 4.014 (73) 100 4.876 (73) 100

Loans to CooperativesCash credit for relending /c 246 100 351 90 772 89 691 85 1,069 88 1,407 86Cash credit for input supply - 36 9 82 9 51 6 101 9 122 7Cash credit for marketing - 2 1 - 1 2 - 79 5Long-term loans /d - - 12 2 72 9 36 3 33 2

Subtotal Z46 (24) 100 389 (22) 100 866 (26) 100 815 (19) 100 1,208 (23) 100 1,641 (24) 100

Loans to Farmers' AssociationsCash credit for relending /.cL 3 100 143 100 379 98 282 98 256 97 179 98Cash credit for input supply - - 8 2 6 2 7 3 4 2Cash credit for marketing -- - - - -

Long-term loans /d - - - - 1 - -

Subtotal 3 (1) 100 143 (9) 100 387 (11) 100 288 (6) 100 264 (4) 100 183 (3) 100

Total L 022 (100) 1.736 (100) 3.354 (100) 4,337 (100) 5.486 (100) 6.700 (100)

la 1973 through 1976 is on calendar year basis; from 1977 onwards it is fiscal year basis (April I to March 31)./b FY77 covers a 15-month period./c For relending as short- and medium-term loans.Id For investment in fixed assets, mainly rice mills and storage godowns.

-36- ANNEX 1

Table 4THAILAND

AGRICULTURAL CREDIT PROJECT

BAAC: Balance Sheet. 1973-79 /a(B million)

1973 1974 1975 1976 FY77 FY78

AssetsCash on hand & due from banks 136 294 338 549 2,262 3,571

Institutional LoansLoans to cooperatives 785 966 1,642 2,173 2,536 3,008Loans to farmers' associations 3 139 441 533 521 482Accrued interest - 41 84 113 41 32Less reserve for losses (7) (20) (51) (91) (145) (306)

Institutional Loans Outstanding 781 1.126 2.116 2.728 2.953 3.216

Individual LoansLoans to farmers 1,101 1,446 2,473 3,849 4,403 5,680Accrued interest 113 138 213 331 306 408Less reserve for losses (43) (60) (87) (131) (207) (241)

Individual Loans Outstanding 1.171 1.524 2.599 4.049 4.502 5.847

Fixed assets less allowance fordepreciation 71 92 106 115 124 152

Other assets (e.g., prepaid expense,supplies, etc.) 15 22 27 30 65 24

Total Assets 2.174 3.058 5.186 7,471 9,905 12,810

LiabilitiesCurrent LiabilitiesSavings deposits 66 76 284 335 281 431Time deposits 185 400 583 595 1,298 1,591Loan compensatory deposits 117 175 308 432 284 145Deposits from commercial banks - 201 1,671 3,161 4,539 5,586

Total 368 852 2.846 4,523 6.402 7.753

Others 43 55 96 61 127 66Accrued interest payable 32 53 79 113 168 199

Total 75 108 175 174 295 259

Long-term liabilitiesMiscellaneous (MOF/OECF/AID) 54 226 195 375 544 954Bonds 170 170 171 120 - -BOT rediscount 257 420 515 981 1,006 1,990

Total 481 816 881 1.476 1.550 2.943

EquityPaid-up capital 1,000 1,000 1,000 1,000 1,300 1,420Reserves 57 57 57 57 57 57Accumulated profit 193 225 227 240 301 381

Total Equity 1,250 1,282 1,284 1.297 1.658 1.858

Total Liabilities 2.174 3.058 5,186 7.470 9.905 12.810

Estimated current ratio /b 3.0 2.4 2.2 2.6 3.2 3.6Total debt/equity 0.7:1 1.4:1 3.0:1 4.7:1 4.9:1 5.9:1Long-term debt/equity 0.4:1 0.6:1 0.7:1 1.1:1 0.9:1 1.5:1

/a For 1973 through 1976, year ending is December 31; fron 1977 onwards year ending isMarch 31.

/b Based on estimate of loans maturing within one year and excluding interbank deposits.

-37- ANNEX 1

Table 5

THAILAND

AGRICULTURAL CREDIT PROJECT

BAAC

Income Statement, 1973-78/a(B million)

1973 1974 1975 1976 FY77 FY78

IncomeInterest earned on:Loans to cooperatives & farmers'

associations 61 76 130 206 261 319Loans to individual farmers 123 146 220 380 546 704Deposits 8 20 13 23 76 152

Miscellaneous income 1 1 1 1 18 14

Total 193 243 364 610 901 l,189

ExpensesInterest paid on:Borrowings 26 32 39 53 66 105Deposits 21 42 121 286 446 533

Subtotal interest paid 47 74 160 339 512 638

Administrative expenses 82 103 141 173 208 269Reserves for bad debts 17 30 58 84 129 197

Total Expenses 146 207 359 596 849 1,104

Net Income 47 36 5 14 52 85

…()---- ( /b ------------

Interest 8.73 8.23 8.61 9.24 9.04 9.01Other income 0.43 0.78 0.34 0.38 1.05 1.40

Gross Income 9.16 9.01 8.95 9.62 10.09 10.41

Interest expenses 2.23 2.75 3.93 5.35 5.74 5.60Administrative expenses 3.88 3.82 3.46 2.73 2.33 2.32Reserves for bad debt 0.81 1.11 1.43 1.32 1.44 1.73

Total Expenses 6.92 7.68 8.83 9.40 9.51 9.65Net income 2.24 1.33 0.12 0.22 0.58 0.76

/a 1973 through 1976 is on calendar year basis; from 1977 onwards it is fiscalyear basis (April 1 to March 31).

/b Percentage of average total assets.

-38 - ANNEX I

Table 6

THAILAND

AGRICULTURAL CREDIT PROJECT

BAAC

Individual Loans-Collections Performance(B million)

1973 1974 1975 1976 FY77 FY78

SHORT-TERMPrincipal Collected /a- Amount 383 505 660 1,125 2,803 2,522- % of amount matured 64 77 79 78 75 75

Arrears- Amount 219 147 213 317 953 838- % of amount matured 36 23 21 22 25 25

MEDIUM-TERMPrincipal Collected /a- Amount 130 172 185 325 1,037 997- % of amount matured 48 61 60 64 63 64

Arrears- Amount 139 108 127 181 425 550- % of amount matured 52 39 40 36 37 36

LONG-TERMPrincipal Collected /a- Amount 0 0 0 0 39 126- % of amount matured 0 0 0 0 98 99

Arrears- Amount 0 0 0 0 1 1- % of amount matured 0 0 0 0 2 1

TOTALPrincipal Collected /a- Amount 513 677 845 1,450 3,879 3,645- % of amount matured 59 73 74 74 71 72

Arrears- Amount 358 255 304 498 1,550 1,389- % of amount matured 41 27 26 26 29 28

La Includes loans which were restructured.

THAILAND

AGRICULTURAL CREDIT PROJECT.

BAAC

Agina of Arrears of Individual Loans as of March 31. 1978(Baht million)

Total 0-1 year 1-2 years 2-3 years 3-4 years 4-5 years 5-6 years 6-7 years 7-8 years 8-9 years 9-10 YearsAmount Z (%)/a Amount X Amount X Amount x Amount Z Amount x Amount X Amount X Amount Z Amount X Amount Z

Short-term 705 100 (79) 487 (69) 100 (14) 44 (6) 18 (3) 9 (1) 10 (1) 11 (1) 14 (2) 9 (1) 3 (-) >

Medium-term 187 100 (21) 107 (57) 21 (11) 14 (7) 7 (4) 7 (4) 9 (5) 12 (6) 6 (3) 3 (2) 1 (1)

Total 892 /b (0) 594 (67) 121 (14) 58 (i) 25 (3) 16 (L) 19 (2) 23 (3) 20 2() 12 I() 4A()

/a Figures in parentheses indicate arrears in each case as X of total arrears.

/b In comparison with total arrears of B 1168 in Table 6, excludes (i) B 237 million of medium-term loans restructured during the year; and (ii) B 38million of long-term loans in arrears not reported by aging. If arrears of long-term loans (B 38 million) were over two years, then total arrearsover two years are in the order of B 215 million or about 3.7% of loans outstanding.

Iv~ Iz

40 -

ORGANIZATIONAL - FUNCTIONAL CHARTOF

BANK FOR AGRICULTURE AND AGRICULTURAL COOPERATIVES(HEAD OFFICEI

IDR *ornor DIRECTOR

|GENERAL MArAGER

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ANNUALLY

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ANALYSISfOR BRANCHESOR OTHeR TEE EANK SAME AS OATEER,AEGIONWORKING UNITS I1

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| OFFICERS ARO EMPLOYEE 3 REVIELWANOMOOIFICATIONOF

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AND FOrUMS RELATING TO VARIOUSB_ USINESS ACTIVITIES

TRAINING DIVISION- PROVIDING TRAINING

TO SANK STAFF

-COORDINATE ACTIVITIESWITH OTHER TRAININGINSTITUTES

so,T G.n. - 20E25

- 41 -

ORGANIZATION CHARTOF

BANK FOR AGRICULTURE AND AGRICULTURAL COOPERATIVES (BRANCH)

BAAC(HEAD OFFICE)

BRANCH

BANKING ANO AGRICULTURALCREDEACCOUNTING SECTION SECtION

BANKING ACCOUNTING INSTTUTIONAL &INDIOUAL LONG-TERMUNIT UNIT LOANS UNIT LOANS UNIT UNIT

WrBa-24E

World Bank -20424

ANNEX 2Table 1

THAILAND

AGRICULTURAL CREDIT PROJECT

Detail Prolect Costs and PhasinR (Summary)(Baht million)

Year Foreign1 2 3 Total Amount %

Government Preliminary WorksOn-farm development 3.30 6.10 4.50 13.90 0.83 6.Shrimp culture 4.50 6.60 3.40 14.50 3.05 21

Subtotal 7.80 12.70 7.90 28.40 3.88 14

Lending to SubprojectsOn-farm development 30.40 75.80 105.90 212.10 123.02 58Shrimp culture 10.40 10.40 10.40 31.20 19.66 63Oil palm development 5.80 1.60 2.20 9.60 7.10 74Nonspecified categories 34.80 56.80 102.40 194.00 97.00 50

Subtotal 81.40 144.60 220.90 446.90 246.78 55

BAAC Technical Assistance 9.53 9.53 7.01 26.07 24.50 94

Training ProgramCooperative staff 17.15 18.67 16.81 52.63 19.68 37CPD staff 20.67 9.78 11.23 41.68 12.48 30CAD staff 3.82 3.88 3.99 11.69 6.96 60

Subtotal 41.64 32.33 32.03 106.00 39.12 37

Special Technical Assistancefor CooperativesRestructure of cooperatives 2.18 0.50 0.50 3.18 1.56 49

Improvement of auditing 11.40 12.86 19.60 43.86 13.08 30

Subtotal 13.58 13.36 20.10 47.04 14.64 31

Other Technical AssistanceReplanning of settlement schemes 1.32 - - 1.32 1.04 79Oil palm sector review 0.20 1.12 - 1.32 0.52 39

Study for lending to smallfarmers 0.60 0.78 1.34 2.72 1.27 47

Subtotal 2.12 1.90 1.34 5.36 2.83 53

Total 156.07 214.42 289.28 659.77 331.75 50

Price contingencies 10.84 29.58 52.67 93.09 48.28 -

Total Prolect Costs 166.91 244.00 341.95 752.86 380.03 50

- 43 -ANNEX 2Table 2Page 1

THAILAND

AGRICULTURAL CREDIT PROJECT

Detail Project Costs and Phasing(Baht miljlion)

Year1 2 3 Total

1. Government Preliminary Works(a) On-farm Development

Topographic survey 0.30 0.40 - 0.72Cadastral survey 0.50 0.70 - 1.20Designing/supervision 2.00 3.60 2.50 8.10

Other 0.50 1.40 2.00 3.90

Subtotal. 3.30 6.10 4.50 13.90

Price contingencies 0.30 1.30 1.40 3.00

Total (Ca) 3.60 7.40 5.90 16.90

(b) Shrimp CultureSurvey and designing 0.20 1.10 - 1.30

Canal and road construction 3.80 4.50 2.20 10.50

Other 0.50 1.00 1.20 2.70

Subtotal 4.50 6.60 3.40 14.50

Price contiLngencies 0.40 1.30 1.00 2.70

Total (10 4.90 7.90 4.40 17.20

Total Preliminary Works 8.50 15.30 10.30 34.10

2. Lending to Subprolects(a) On-farm Development

Land clear:Lng/leveling 13.93 34.68 48.46 97.07

Roads and dlitches 12.27 30.70 42.94 85.91

Structures 3.10 7.62 10.60 21.32

Other 1.10 2.80 3.90 7.80

SubtotaL 30.40 75.80 105.90 212.10

Price contingencies 2.70 14.50 30.70 47.90

Total (.E) 33.10 90.30 136.60 260.00

- 44 -ANNEX 2Table 2Page 2

Year1 2 3 Total

(b) Shrimp CultureLand clearing 0.70 0.70 0.70 2.10Ponds and dikes 3.70 3.70 3.70 11.10Check gates 2.35 2.35 2.35 7.05Housing and shelters for pumps 1.65 1.65 1.65 4.95Pumps 1.50 1.50 1.50 4.50Other 0.50 0.50 0.50 1.50

Subtotal 10.40 10.40 10.40 31.20

Price contingencies 0.90 2.00 3.10 6.00

Total (b) 11.30 12.40 13.50 37.20

(c) Oil Palm DevelopmentLand clearing/preparation 2.60 - - 2.60Seedling and planting 1.90 - - 1.90Fertilizer/chemicals 0.90 1.20 2.00 4.10Other 0.40 0.40 0.20 1.00

Subtotal 5.80 1.60 2.20 9.60

Price contingencies 0.60 0.30 0.70 1.60

Total (c) 6.40 1.90 2.90 11.20

(d) Nonspecified Categories 34.80 56.80 102.40 194.00

Total Lending to Subprolect 85.60 161.40 255.40 502.40

3. BAAC Technical AssistanceConsultants (expatriate) 5.88 5.88 3.36 15.12Fellowships 3.65 3.65 3.65 10.95

Subtotal 9.53 9.53 7.01 26.07

Price contingencies 0.95 2.00 2.24 5.19

Total BAAC Tech. Ass't 10.48 11.53 9.25 31.26

45 - ANNEX 2Table 2Page 3

Year1 2 3 Total

4. Training Programe(a) Cooperative Staff

Improvement of facilities 1.32 - - 1.32Staff housing 2.71 4.06 4.07 10.84Equipment and aids 2.55 1.30 - 3.85Vehicles 1.26 0.72 - 1.98Consultants (expatriate) 3.36 3.36 3.36 10.08Consultants (local) 2.40 3.12 3.12 8.64Subsidy for trainees 1.83 3.05 3.20 8.08Operational costs 1.72 3.06 3.06 7.84

Subtotal 17.15 18.67 1L6.81 52.63

Price contingencies 1.63 3.78 5.28 10.69

Total (4 18.78 22.45 22.09 63.32

(b) CPD StaffImprovemerLt of facilities 10.08 - - 10.08Equipment and aids 2.33 - - 2.33Vehicles 1.28 - - 1.28Consultants (expatriate) 1.68 1.68 1.68 5.04Fellowships 0.24 0.24 0.24 0.72Salaries 0.31 0.31 0.31 0.93Subsidy for cooperative staff 4.35 7.25 8.70 20.30Operational costs 0.40 0.30 0.30 10.00

Subtotal 20.67 9.78 11.23 41.68

Price contingencies 1.70 1.24 2.13 5.07

Total (b) 22.37 11.02 13.36 46.75

(c) CAD StaffEquipment and aids 0.23 0.15 0.20 0.58Vehicles 0.54 0.36 - 0.90Consultants (expatriate) 1.68 1.68 1.68 5.04Fellowships 0.24 0.24 0.24 0.72Salaries 0.31 0.54 0.84 1.69Operational costs 0.82 0.91 1.03 2.76

Subtotal 3.82 3.88 3.99 11.69

Price contingencies 0.34 0.72 1.14 2.20

Total Xc 4.16 4.60 5.13 13.89

Total Training Program 45.31 38.07 40.58 123.96

-46 - ANNEX 2Table 2Page 4

Year1 2 3 Total

5. Special Technical Assistance forCooperatives

(a) Restructure of CooperativesEquipment 0.04 _ _ 0.04Vehicles 0.18 - - 0.18Consultant (expatriate) 1.47 - - 1.47Salaries 0.42 0.42 0.43 1.27Operational costs 0.07 0.08 0.07 0.22

Subtotal 2.18 0.50 0.50 3.18

Price contingencies 0.19 0.06 0.09 0.34

Total (a) 2.37 0.56 0.59 3.52

(b) Improvement of AuditingStaff housing 4.50 3.50 4.50 12.50Equipment 1.13 0.82 1.14 3.09Vehicles 1.73 1.25 1.73 4.71Salaries- 3.08 5.65 9.59 18.32Operational costs 0.96 1.64 2.64 5.24

Subtotal 11.40 12.86 19.60 43.86

Price contingencies 0.92 1.99 4.46 7.37

Total (b) 12.32 14.85 24.06 51.23

Total Special Tech. Ass't 14.69 15.41 24.65 54.75

6. Other Technical Assistance(a) Replanning of Settlement Schemes

Consultants (expatriate) 1.12 - - 1.12Operational costs 0.20 0 0 0.20

Subtotal 1.32 - - 1.32

Price contingencies 0.13 - - 0.13

Total (a) 1.45 _ _ 1.45

- 47 -

ANNEX 2Table 2Page 5

Year1 2 3 Total

(b) Oil Palm Sec:tor ReviewConsultants (expatriate) - 0.42 - 0.42Operational costs 0.20 0.70 - 0.90

Subtotal 0.20 1.12 _ 1.32

Price contingencies 0.02 0.23 - 0.25

Total i(b) 0.22 1.35 - 1.57

(c) Study for Lending to Small FarmersConsultants (expatriate) - 0.28 0.84 1.12Operational costs 0.60 0.50 0.50 1.60

Subtot.al 0.60 0.78 1.34 2.72

Price contingencies 0.06 0.16 0.43 0.65

Total (c) 0.66 0.94 1.77 3.37

Total Other Tech. Ass't 2.33 2.29 1.77 6.39

Total Proiect Costs 166.91 244.00 341.95 752.86

- 48 - ANNEX 3

THAILAND

AGRICULTURAL CREDIT PROJECT

Estimated Schedule of Disbursements($'000)

Bank fiscal year Cumulativeand semester disbursement

FY81 1st -2nd 1,200

FY82 1st 2,0002nd 5,200

FY83 1st 7,7002nd 11,700

FY84 1st 14,6002nd 17,700

FY85 1st 19,000

- 49 - ANNEX 4Table 1

THAILAND

AGRICULTURAL CREDIT PROJECT

Aggregate Financial Costs and Benefits /a(Baht million)

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Years 8-25

Incremental BenefitsOn-farm development (0.9) 11.7 46.5 100.5 105.9 111.0 115.8 118.5Shrimp culture 2.6 8.9 16.6 21.5 22.7 22.7 22.7 22.7Oil palm development 1.0 0.5 1.1 ?.7 4.3 5.1 5.3 5.4

Total 2.7 21.2 64.2 124.7 132.9 138.8 143.8 146.6

Incremental CostsInvestmentOn-farm development 33.2 89.6 135.8Shrimp culture 11.4 12.3 13.3Oil palm development 6.3 1.9 2.9 3.0

Subtotal 50.9 103.8 152.0 3.0

ProductionOn-farm development 1.0 8.7 24.9 42.2 42.2 42.2 42.2 42.2

Shrimp culture 1.6 4.8 8.0 9.5 9.5 9.5 9.5 9.5Oil palm development - - - - 0.9 0.7 0.7 0.7

Subtotal 2.6 13.5 32.9 51.7 52.6 52.4 52.4 52.4

Total costs 53.5 117.3 184.9 54.7 52.6 52.4 52.4 52.4

Net incremental benefits (50.8) (96.1) (120.7) 70.0 80.3 86.4 91.4 94.2

Rate of return: 26.3%

Sensitivity Analysis IRR %Yields down 10% 22.1Yields down 20% 17.9Investment cost up 10% 24.0Investment cost up 20% 22.1Production costs up 10% 24.6Production costs up 20% 23.0

/a See project file for details of a specific lending category.

ANNEX 4-50 - Table 2

THAILAND

AGRICULTURAL CREDIT PROJECT

Ap:gregate Economic Costs and Benefits /a(Baht million)

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Years 8-15 Years 15-25

Incremental BenefitsOn-farm development (1.3) 11.0 52.0 120.0 133.0 14D.0 147.0 150.5 150.5

Shrimp culture 3.2 11.0 20.1 26.2 27.7 27.7 27.7 27.7 27.7Oil palm development 1.3 0.6 1.2 3.1 5.0 6.0 6.2 6.3 6.1

Total Benefits 3.2 22.6 73.3 149.3 165.7 173.7 180.9 184.5 184.3

Incremiental CostsInvestment

On-farm development 30.8 77.6 109.2 - - - - -

Shrimp culture 10.5 11.7 12.2 - - - - - -

Oil palm development 6.3 2.7 3.1 3.2 - - - -

Subtotal 47.6 92.0 124.5 3.2 - - - -_

ProductionOn-farm development 4.3 12.0 22.0 37.8 35.5 34.1 34.1 34.1 34.1

Shrimp culture 1.5 6.0 10.4 11.8 11.8 11.8 11.8 11.8 11.8Oil palm development - - - - 1.5 1.5 1.6 1.6 1.5

Subtotal 5.8 18.0 32.6 49.6 48.8 47.4 47.5 47.5 47.4

InfrastructureOn-farm development 3.3 6.7 5.4 4.0 1.3 - - -

Shrimp culture 4.6 7.1 4.0 1.2 0.8 0.8 0.8 0.8 0.8

Subtotal 7.9 13.8 9.4 5.2 2.1 0.8 0.8 0.8 0.8

Total Costs 61.3 123.5 166.5 58.0 50.9 48.2 48.3 48.3 48.2

Net incremental benefits (58.1) (101.2) (93.2) 91.3 114.8 125.5 132.6 136.2 136.1

Rate of return: 35.2%

Sensitivity Analysis IRR %Yields down 10% 30.7Yields down 20% 25.9Investment cost up 10% 32.7Investment cost up 20% 30.6Production costs up 10% 33.6Production costs up 20% 32.1

La See project files for details of a specific lending category.

- 51 - ANNEX 4Table 3

THAILAND

AGRICULTURAL CREDIT PROJECT

Sensitivity Analysis /a

On-i arm Oil palmdeveloDuent Shrimp culture develoPment Aggregated proiect

FIRR % EIRR % FIRR X EIRR % FIMR % EIRR X FIRR % EIRR x

YieldsDown 10% 21.0 33.3 29.6 25.4 24.3 24.0 22.1 30.7Down 20% 17.0 28.8 22.8 19.6 21.4 20.6 1L7.9 25.9

Development CostsUp 10% 22.7 35.2 33.0 29.5 24.6 24.9 24.0 32.7Up 20% 21.0 32.9 30.2 27.6 22.4 22.7 22.1 30.6

Production Costs /bUp 10% 23.3 36.7 33.3 28.8 - - 24.6 33.6Up 20% 21.2 35.3 30.7 26.1 - - 23.0 32.1

/a See project files for detaLils of a specific lending category.

/b Production costs for oil palm development up to the fourth year were capitalized.

- 52 - ANNEX 5

THAILAND

AGRICULTURAL CREDIT PROJECT

Selected Documents and Data Available in the ProJect File

A. Selected Reports and Studies on the Sector and Subsector

Al. World Bank, Thailand: Towards a Development Strategy of Full Participa-tion, May 5, 1978.

A2. USAID, Rural Financial Markets in Thailand: Assessment and Recommenda-tions, May 19, 1978.

B. Selected Reports and Studies Relating to the Project

Bi. Ministry of Agriculture and Cooperatives, Economic Feasibility Study onPalm Estate Projects in Southern Land Settlement Cooperatives, January1978.

B2. FAO/IBRD Cooperative Programme, Thailand Agricultural Credit ProjectPreparation Mission, March 19, 1979.

B3. National Economic and Social Development Board, A Five-Year Comprehen-sive Plan for the Development of Agricultural Cooperatives, February1979.

B4. Bank for Agriculture and Agricultural Cooperatives, Annual Reports,(latest for 1978 fiscal year).

C. Selected Working Papers

Cl. Role of the Bank of Thailand in Agricultural CreditC2. Oil Palm DevelopmentC3. Strengthening of the Cooperative SystemC4. Farmers' Cooperative OrganizationsC5. Draft Terms of Reference for ConsultantsC6. Financial and Economic Rates of Returns Analysis

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