RETURN TORETURN TO ~~~~~~RESTRICTEDREPORTS DESK FILE COPY Report No. PA-55a

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This report was prepared for use within the Bank and its affiliated organizotions.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

AGRICULTURAL CREDIT PROJECT

ISRAEL

September 11, 1970

Agriculture Projects Department

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CUWaiGCY EQUIVALITS

1 US$ = Pounds (IS) 3.501 Pound = US$0.281 million Pounds = US.$'285,000

IEIGHTTS AND 1E ASUT$S

(Iletric Systen)

1 Dunum = 0.1 hectare

ABBR VIATIO1 S

AG-' ?Y;C0: Agricultural E4 xport Co-mpany Ltd.I3A : Israel Bank of Agriculture Ltd.ZIM0.4OT: IMekorot Ilater Comnany Ltd.NS : iI1i± Ltd.YAjLJ : Yaad Agricultural Development Bank Ltd.

ISRAEL

AGRICULTTRL CREDIT PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS .... ........... .. .. *, i-ii

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

II. BACKGROLTJD ........................................... ...... o.... 1

A. General .............................................. 1B. Agricultural Credit ... .....*.# . ..... ....... 4 .". 4

III. INSTITrUrIONAL FRMAMEORK FOR CREDIT ...................... 6

iV. THE PROJECT .............................................

A * General Description . ................... ...... 8B. Detailed Features ........... ............. . .. . .. . . . 8C. Cost Estimates and Financing ............... ......... 10D. Procurement and Disbursement ....... ......... 13

V. ORGANIZATIDN AND MANAGEMENT ............................. 13

VI. PRODUCTION, MARKETING, PRICES AND PRODUCER BENEFIrS ..... 16

VII. BENEFITS AND JUSTIFICATIDN ........... *..... 20

VIII. RECOMMENDATIONS ......................................... 22

ANNEXES

*'. Growth of Agricultural Production2. The Kibbutzim and Moshavim Movements3. Ministry of Agriculture - Organizational Chart4. Loan Procedures5. Credit Institutions6. Greenhcuses and Packing Facilities for Flowers

--- Appendix 1 -- Flowers - Investment in Greenhouses--- Appendix 2 -- Flowers - Investment for Packing Station--- Appendix 3 -- Flowers - Total Investments by Years--- Appendix 4 -- Flowers - Cash Flow--- Appendix 5 -- Flowers - Economic Rates of Return--- Graph 1 -- Flowers - Sensitivity Analysis

This report is based on e fiTlhinrgs of a mission which vi3ited Israel inNovember I546, and iias comncsed c.f Xneszrs .W.H. Spa'l ar.cd K.H. Tlhasjes o theBank and E. QuicLke cf t.he FAG/IE0 Coopeat ve Progr~an.

m.hSl.C. 0 I7 ;JTS (Continued) - 2 -

7. Water Development--- Appendix 1 -- Cost Estimates in Improving Existing Irrigation Systevrl

Project Account - Cash Flow9. Project Coordination Committee10. Markets and Marketing11. Financial and Economic Justifications

Appendix 1 -- Financial Rates of Return--- Appendix 2 -- Economic Rates of Return

MAP

ISRAEL

AGRICULTURAL CREDIT PROJECT

SU111ARY AMD CONCLUSIONS

i. This report appraises an Agricultural Credit Project for whicha Bank loan of US$20 million equivalent is proposed. This would be thefirst agricultural project the Bank has helped to finance in Israel. Itwould support a three-year lending program, mainly to cooperative farmLngenterprises and processing and exporting entities, through the threebanks presently engaged in agricultural credit, the Israel Bank of AgricuJ-ture Ltd, (IBA) (90% Government owned); Yaad Agricultural Development BankLtd. (YAAD) (50% Government owned); and NIR Ltd. (privately owned)o IBA,the largest of the three, would be the borrower, and primarily responsiblefor Project administration. It would onlend to the other two participatirgbanks under subsidiary loan agreements, The Project does not involve theoccupied territories and East Jerusalem.

ii, The annual rate of growth in gross agricultural product averaged14% during 1950-1960 and 6% in the 1960ts compared with an overall averagegrowth rate of gross national product of 509%.. The saturation ofcertain sectors of the internal market, coupled with pressures on thebalance of payments, has placed the emphasis for agricultural developmenton export and import substitution crops. Total agricultural exports areplanned to raise their share in total agricultural output from 23% in 1966/6;'to about 30% in 1972/73-

iii. The Project has, therefore, been designed to increase participaris'production of expor- crops such as flowers (roses, carnations and gladioli"subtropical fruits (avocados, mangoes, tangerines and grapefruit), and off-season vegetables (lettuces, celery, carrots, artichokes, etc.) mainly byinvestment in greenhouses, packing and handling facilities and irrigation.The estimated value of production attributable to the Project would amountto It 118 million (US$34 million) annually at full development. Exportswould mainly be to Western European markets where Israel enjoys an advant,.-over competitors due to its ecological and climatic conditions coupled wit:.advanced agricultural and marketing techniques,

iv. The export crops are highly perishable and require specializedhand)ling, storage, packing and transport facilities if they are to reachhighly selective overseas markets in a condition which will cammand highprices. In some cases, existing storage and handling facilities areinadequate (Lod Airport and Ashdod Port), and increased production wouldalso necessitate an increase in export handling facilities, Provision has)therefore, been made in the Project for the improvement and expansion ofsuch facilities.

Ve, A major limiting factor to increased agricultural production isthe supply and efficient use of water. Israel has been extremely successf'iL.in maximizing yields through the use of advanced techniques and a furthar

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increase in production would be achieved if the irrigated area could beextended. The Project, therefore, provides a modest water developmentprogram.

vi. The Extension Service, which is well organized, has a staff ofover 600 of whom some 450 are specialists. It is capable of supervisingthe proposed Project without further assistance.

vii. Total Project costs would amount to US$49 million equivalent.Subborrowers, the participating banks and Government would contribute 20%each. The proposed loan, equivalent to about 40% of total Project costs,would cover the estimated foreign exchange component. Subborrowers wouldbe charged the prevailing commercial rate of interest of 9% per annum.

viii. The range of items to be financed under the Project is veryvaried and not suitable for bulk procurement. Nany items are manufacturedin Israel from imported materials. Supplies are adequate, prices competi-tive and servicing good. No tariffs are levied on agricultural machineryand irrigation equipment, which may be imported freely, and there aresufficient importers to ensure adequate competition. "With the exceptionnoted below, procurement would, therefore, be through normal commercialchannels, prices being subject to the approval of the banks granting theloans. The handling facilities for the national exporting agency, theAgricultural Export Co. Ltd. (AGREXC0) are larger self-contained schemessuitable for international competitive bidding which would be used forthis part of the Project.

ix. The overall economic rate of return is estimated at about 18%.The Project is suitable for a Bank loan of US$20 million equivalent for aterm of 17 years, including a grace period of four years. The Governmentwould bear the foreign exchange risk.

ISRAEL

AGRICULTURAL CREDIT PROJECT

I. INTRODUCTION

1.01 The Bank of Israel, on behalf of the Government, applied for aBank loan of about US$50 million, disbursable over five years, to helpfinance an agricultural credit project. This was the first request fromIsrael for a loan for agriculture, The five-year proposed lending programincluded nine subprojects covering a wide range of investments in suchitems as irrigation, livestock, settlements and crop development andprocessing.

1.02 A Bank mission visited Israel in June 1969 and reported thatseveral of the subprojects were in an advanced stage of preparation andcould be completed without Bank assistance. After consultations, theGovernment proposed that priority be given to the development of waterresources, export crops, and packing and handling facilities.

1.03 The Project, as now presented, includes a three-year agriculturalcredit program with subloans for three types of activities:

a) export crop development;

b) export handling facilities; and

c) water development (including drainage).

1.0A This report is based on the findings of an appraisal mission toIsrael in November 1969 consisting of 1vIessrs, W.H. Spall and KeH. Haasjes(of the Bank) and E. Quicke (of the FAO/IERD Cooperative Program).

II. BACKGROUND

A. General

Geographic and Climatic Features

2.01 Israel is situated at the eastern littoral of the Pbditerraneanbetween latitudes 30° 151 and 290 301. It covers about 21,000 kmn2, beingsome 420 km long and varying in width from 110 km to 15 km, Population atthe end of 1968 was about 2.8 million.

2.02 The climate is characterized by a clear division into a rainyseason (winter) and a dry season (summer). The annual rainfall varies froJi50 am in the south to 900 rmm in the north. Temperatures generally increasefrom north to south and vary according to altitude. Jerusalem (800 m abovesea level) has an absolute maximum of 450C and a minimum of minus 30Co Inthe Jordan Valley (Bet Shaan), the mean winter temperature is 10-200C r i-to 360C in summer. In the south, temperatures ri3e to well over L,c.

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i..culture in the _c_

2.03 Farming has undergone profound changes during the past 20 yearsduring which new crops have been introduced (sugar beets, cotton, ground-nuts, flovers, subtropical fruits and off-season vegetables) and techno-logical advances have resulted in increased yields. From 1948 until 1959,agricultural production mas diiacted toward food crops for domestic con-sumption. However, the use of advanced techniques led to over-productionand from 1960, the emphasis has been on production for export particularlyof high-value crops for the Western European market, During the 10 years1950-1960, the annual groith in gross agricultural prodact averaged 14%and during the 1960ts, averaged 6% compared with an overall growth of 5.91VAt present, agriculture accounts for about 7% of GI1P and 17 of the country'sexports. Agricultural production (at 1966 prices) increased more than six-fold between 1948 (IS 275 million or U$ 79 million) and 1968 (IE 1,681 mil-lion or US$480 million). The number of people presently engaged in agri-culture is 104,000, roughly 12. of the active labor force.

2.0o In 1968, the value of agricultural imports, excluding inputs andnachinery, amounted to US$89 million, mainly consisting of cereals andineat. I-leat imports accounted for US$19 million (2P16)O

2.O5 lxport of agricltural produce in 1968 amounted to US$312 mil-lion (compared uith US&l8 million in 1948), of which citrus accounted forapproximately 80Q%, Export of subtropical fruits, flow-ers and off-seasonvegetables is, however, increasing and the value rose from US$7 millionin 1965 to US315 rmillion in 1968, It is planned to raise the share ofagricultural export products in total agricultural output from 23" in1966/67 to about 30p in 1972/73.

2,o6 Out of a total land area of 2.1 million ha, 480,000 ha are culti-vated of which some 170,000 ha (compared with 120,000 ha in 1960) areirrigated (one third cit2us). A further 800,000 ha are suitable only forgrazing and/or afiorestation. The major limiting factor to the expansionof agricultural production is not land but water. Increased productionand income will depend upon changing the cropping pattern to high valueproducts and extending the irrigated area.

Irrigation

2.07 Israeli agriculture is heavily dependent on irrigation, As verylittle land can be irxrigated by gravity, most of the water must be pumpedfror,a streams, wells and Lake Tiberias. In order to maximize the use ofwater, the most modern irrigation devices and techniques are being intro-duced and obsolete installations replaced. This px'ogran will require sub-stantial investrlment over a number of years.

2,08 In the last 10 years, water use in agriculture has risen from990 million m3 to 1,300 million m3, About half of the additional water hasbeen supplied by wells and streams and the other half from Lake Tiberias.The installed capacity of the pumping station at Lake Tiberias is 320

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million m3 per year, of which in 1968/69 265 million m3 were utilized. Theproposed Project is designed to iLprove the efficiency of the water presern.5I'yutilized on about 60,000 ha (ara 4.08) and the resulting water savingswould permit an increase in crop yields of existing but poorly irrigatedareas and extension of new irrigated areas.

2.09 In Israel, water supply and use are strictly controlled by a waterlaw, administered by the Water Coni ssioner, which provides for a quota andlicensing system for all sources of supply. Supplies from private sourcesare developed by the owners (often with loans from the agricultural banks)who are responsible for all subsequent maintenance and costs. Public sup-plies come from MEKOROT IWater Co. Ltd., a public corporation responsiblefor major water resource developments in Israel which in 1969/70 will supplyabout 921 million m3 , of which some 735 million m3 (80%) will be for agri-culture, the remainder being for domestic and industrial use. TAEKOROT isresponsible for the collection of water rates in accordance with the Wat_zrLaw. In the South, rates are below actual costs but in the North (the areaof cheap water), consumers pay a surcharge to the Water Equalization Fundof the actual cost which is below IL 0.06 per m3.

Farming System, Farm Size and Tenancy

2.10 The farming system in Israel differs from that of other countrie ..I,hile there are some private farmers (mostly engaged in citrus production).,the cooperative types of settlements predominate (kibbutzlm and moshavim)(see Annex 2).

2.11 In Israel agricultural cooperation covers practically every fie.LirIt has engaged in the organization of marketing, purchase of supplies andequipment, financing of settlements, irrigation works, water allocation,the production of seeds, etc. The cooperative movement is, therefore, ex-tensive and well organized.

2.12 The economic and social principles to which both the kibbutzimand moshavim subscribe are: (i) settlement on nationally owned land;(ii) self-labor; (iii) mutual aid; and (iv) cooperative buying and sellir .Nevertheless, there are fundamental differences. A kibbutz is based oncommunal ownership, production and consumption, whereas in a moshav eachsettler farms on his own account and cooperates in specific spheres suchas sale of produce, purchase of supplies and equipment, provision of credii,etc. (details are at Annex 2).

2.13 The two types of settlement cannot be compared on the basis offarm units. In a kiobbutz, every adult couple, including those not engagec:in agriculture, is taken as representing a farm iuit, whereas a moshav isbased upon a fardly holding and the number of units is identical with thenumber of farms. 'Nany of the kibbutzim operate substantial industrialenterprises, employing a considerable portionof the settlements' inhabi-tants, whereas the moshavim do not. A kibbutz, from a production andfinancial point of view, must be regarded as one large farm (average sizeabout 500 ha), whereas a moshav will consist of from 50-150 independentfarming families. The average size of a moshav family farm is 3-4 ha.

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2*14 Presentlyj sormie 230 kibbutzim and 500 moshavim cultivate a totalof about 360,000 ha or 75 of the cultivated area of the country. Croppingpatterns differ according to soil, climatic and water conditions and notall the land is cropped annually because of 'water constraint and croprotation policy. In 1968/69, the cropping pattern for all settlements was:

Kibbutzim IJoshavim Total004.*000860 tOOO ha, 0 0o0 ..0 o0 0 ..

Irrigated crops

Field crops 46.8 46.5 93.3Orchards 15e5 23.5 39.0

Subtotal Irrigated 62.3 70.0 132.3

Rainfed crops

Field crops 74.1 42.3 116e4Orchards 0.2 0.8 10

Subtotal Rainfed 74.3 43.1 117.4

Total Cultivated 136.6 113.1 249.7

The Extension Service and Agricultural Research

2.15 Agricultural extension is essential because agriculture is anew occupation and 'way of life to many of the ne'w settlers. The ExtensionService, a Department of the iHinistry of Agriculture, comprises the centralspecialist departments ald 11 district offices covering the entire countr-y(Annex 3). It has a high caliber and dedicated staff of over 600 of 'whomsome 450 are specialists. As at the end of December 1968, 8 PhD1 s, 190 rf'csor BScts, and 246 technicians 'were in service. The Extension Services aresupported by a well organized Research Department (Annex 3).

B. Agricultural Credit

Background

2.16 Agricultural credit in Israel must be viewed against the back-ground of agricultural development and particularly the cooperative systemof the Kibbutzim and lIoshavim Hovements (para 2,10 and Anniex 2), 0hich nowuse the largest part of the credit directed to agriculture. The processof settlement determined the cooperative character ihich still distinguishesIsraeli agriculture from other sectors of the economy, and from faming inmost other countries of the world. Because of this, agriculture in Israelis more readily subject to planning than other sectors of the economy.

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2.17 Until the early 19 60ts, there was a shortage of institutionalmedium- and long-term credit for the agricultural sector, which led farmersto borrow short-term for investment purposes from non-institutional sourceb,often at high rates of interest. A system of supervised credit was thenintroduced, opermted through three agricultural banks, Israel Bank ofAgriculture (IBA), Yaad Agricultural Development Bank (YAAD) and NM Ltd.(NIR), with funds provided from the Development Budget. A system of "con-solidation" loans was also introduced whereby farmers could convert theirshort-term investment borrowing into long-term loans at an interest rateof 85, per armum, The institutional supply of credit, of which a substan-tial amount comes from Government funds, is now the most important sourceof finance for Israeli agriculture. At the end of 1968, outstandingmedium- and long-term loans for agriculture from all financial institutionsamounted to If 488 million (US$140 million) and the amount of non-institu-tional credit has steadily declined.

2.18 The Five-Year Plan (1968/69-1972/73) envisages a gross investmenton farms of about II 770 million (US$220 million) plus investments innational agricultural development projects of IL 606 million (US$173 mil-lion) 0 In addition, the demand for short-tern credit is likely to be aboultIL 450 million (US$130 million) annually,

2,19 In 1967/68, real gross investrment in agriculture declined byabout 4% as compared with 1966/67, continuing a trend whlch started in thelate 1950 s. The commercial banking sector, which inclu.dles the three agri-cultural banks, will assure the supply of short-tera credit, but the agri-cultural banks have insufficient resources to meet the demand for medium-and long-term investment funds without continuing Government assistance.

The Banking System

2o20 At the end of 1968, the Department of the Examiner of Banks inthe Bank of Israel (Central Bank) exercised control over 80 banrking andfinancial institutions, including the agricultural banks (para 2.17).The Banking Ordinance invests the Examiner of Banks with wide powers,enabling him, for instance, to instruct any institution subject to hiscontrol to correct any shortcomings uncovered in an audit. The uovernorof the Central Bank may talke such action as may be necessary to prevent thefinancial collapse of any bank or financial institution or even takel overeffective control himself. He may irmpose legal restrictions on activiti.eswhich could impair stability of a banking institution.

General Terms and Conditions of Institutional Credit

2,21 In general, medium- and long-term agricultural loans are grantedfor periods of three to fifteen years at interest rates varying fro_ul 6055to 9, per annun, for from 50-80% of the value of the investment. Forcertain categories (e0 go water development), tlhe repayment period mayexceed 15 years. Securities consist of mortgages on real estate, fixed orfloating charges on equipment and guarantees from the financial institutionof the settlement movements or cooperatives. It is very seldom necessa7:to foreclose.

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2,22 Short-te-m credit carries an interest rate of ll2' perannum. Such loans are generally secured by liens over crop proceeds, themarketing organizations making payment direct to the bank concerned.

Credit Control

2.23 An important feature of Israelts agricultural credits is itsexcellent system of credit control. Borrowers can choose to conduct theirbusiness with any one of the three banks engaged in agricultural creditbut having chosen, they must conduct all their business with that bank(or the bankts parent organization), which provides their short-term aswell as medium- and long-term credit requirements 0 iarketing organizationspay crop proceeds directly to the bank concerned, which recovers its loanbefore making payment to the borrower. This also ensures that the lendingbank has complete information about a borrowerts financial transactions.

2.24 Each year, a detailed technical and financial plan is preparedfor each type of borrover (on a monthly basis) in consultation with thesettlement organization, the iiiinistxy of Agriculture and the bank concermed,On the basis of this plan, a farmerts needs for working and investmentcapital are determined. Cash flows are examined monthly and any markeddeviations from the plan are immediately investigated, A more compre-hensive check is made half-yearly and instructions for the remainder ofthe year are given (Annex 4). As a result of such a tight control system)which also covers short-term credit, the amount of default does not exceed0.1% for the three agricultural banks (para 2.17).

III. INSTITUTIONAL FRA1I0,0RK FCR CREDIT

3,01 The three banks currently engaged in agricultural credit (para2.17), the Israel Bank of Agriculture Ltd. (IBA) (90% Government owned),Yaad Agricultural Development Bank Ltd. (YAAD) (50fl Government owrned) andNM Ltd. (privately owned) are limited companies registered under theCompanies Ordinance and subject to control by the Central Bank. All threeare well organized and managed, have had considerable experience in agri-cultural credit, and play a very important part in the agricultural creditstructure.

Sources of Funds

3.02 The three banks' resources originate from their own funds (sharecapital, deposits and debentures) and from interest bearing deposits fromthe Government Development Budget.

3,03 In order to raise additional funds from private sources, thebanks issue from time to time series of debentures (at interest ratesranging from 5-1/2%' to 6-1/2%), the proceeds of which are deposited withthe Treasury on terms as to linkage and redemption identical to those ofthe debentures. Debenture repayments are linked to the cost of living index

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and/or US$ exclh.izgc rat s. The Treajuryj on its part, deposits funds withthe banks, thus enabling them to grant unlinked loans (linkage on loans wasabolished in 1964), The terims of the Government deposits are currently18-20 years with interest at approximately 7d per annum. The issue ofdebentures has been most successful and more are contemplated. As at theend of December 1968, the amount of outstanding debentures was IL 180million (US$51 ndllion) 0

Use of Funds

30t4 All three banks provide credit to private farmers, settlements,and companies and Lnstitutions serving agriculture, principally in theform of medium- and long-term loans IBA also supplies the short-termcredit needs of its customers. YAAD clients obtain their short-term creditfrom Bank Leumi Le-Israel and NIR custoaers from Bank Hapoalim. At the endof 1968, total agricultural loans outstanding (mostly medium- and long-term) amounted to some IL 440 million (US$l25 million) representing about90% of total institutional medium- and long-term agricultural lending.Details are at Annex 5.

Lending Policies and Procedures

3.o5 The lending policies of the institutions are bound to Governmentpolicy for agriculture since a substantial part of the funds for lendingcome from budgetary allocations or exemptions from liquidity regulations.The three banks cooperate fully with the Government and even when makingloans from their own resources ascertain that the purposes for which theloans are required are in accord with the Government's overall developmentprogram,

3.06 The procedures adopted by the three banks for the granting ofloans under the Supervised Credit Scheme are those described in paras 2,23and 2.24, Despite the close interest taken by the Government in loanapplications, the final decision as to wqhether or not a loan should begranted rests with the bank concerned 0

Previous Results and Financial Position

3407 Condensed balance sheets are at Annex; 5. The three banks arefinancially sound institutions lixth remarkable repayment records. All areprofitable and pay dividends on their share capital ranging from 5-1/2% to8%o The ratios of net profit before taxation (after providing for reservesfor doubtful debts and depreciation) to the banklcs own resources (capitaland reserves) are: ISA., 13'; YAAD, 21P; and NIP,. 12%,. Although provisionis made for bad debts, the amount actually written-off has been negligibleand due to the ex,cellent system of credit control (para 2.23), the amountof late repayments is less than 0,l'% of outstanding loans.

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IV, THE PitOJE CT

A, General Description

Definition

4.01 The Project, which is not in ally way connected with the occupiedterritories and East Jerusale,av would help support export crop development(flowers, subtropical fruits, and off-season vegetables), improvement ofexisting, and establishment of new, export handling facilities and thedevelopment of water resources through medium- and long-tern loans by threeagricultural credit banlks (IBA., YAAD and 11IR) under a supervised creditprogram. The program,l is part of Israel's Five-Year Development Plan andis designed mainly to assist in increasing agricultural exports. Due tocropping rotation there would be a smanl element of import substitution(wheat and cotton) 0 Loans wlould be made to kibbutzim, moslavim, coopera-tives, individual farxmers and the Agricultural Export Company Ltd. (AGI-XC0'Investment would be in greenhouses; bushes and trees; new on-farm irrigatio;:equipment and improvemient and replacement of existing equipment; smallreservoirs and drainage works (including piping and equipment); and packingand handling plants (including buildings, machinery and equipment).

Lending Program

4,02 Total estimated cost of the Project is IL '70 million (US$49million) of which IL 137 million (US$39 million) would be financed byloans to subborrowers by the agricultulral banks. The nurmber and size ofloans to subborrowers would vary considerably in accordance with the typeoof investments within each subproject. For greenhouses for flowers, thenumber of loans would be about 900 and would range from IS 20.,000 (US$5,700)to IL 70)000 (US$20,000). Assuming that borrowers developed, on average,2 ha of subtropical fruits, the number of loans would be about 1,300 ranz-ing from IL 14,000 (US$4,0oo) to It 70,000 (US$20,000) according to acreageplanted. Investments in export handling facilities would involve about60 loans vayin.g f rom ISL 8000 (US$2,300) to IS 780,000 (US$220,000).AGRiEXC0 would have two loans for facilities at Lod Airport and Ashdod Portfor a total o-f IT 9 million (US$2.6 million). Water development loans,probably numbering about 200, would be in the region of IL 200,000 (US857',CNO)for a kibbutz or mQoshav.

B. Detailed Features

4.03 Investments financed under the Project are aimed mainly atincreasing agricultural exports. Brief details of the main areas ofinvestment follow,

14o04 Greenhouses for flowers. Subloans would be made for the construc-tion of some 450 hothouses lt for roses (48 ha) and 240 greenhouses l/ for

1/ Hothouses have heating systems whereas greenhouses do not.

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carnations (24 ha). It vould also plovide removable plastic coveringagainst hail -Por some 70 ha of gladioli and would assit in improving some20 ha of exist ing hothouses, In most- cases, these developments would bean extension of existing enterprises. The total inczemental productionwould amoult to approximately 80 million flowers per year, the numberrequixed for the packing capacity of two proposed flower packing plants(para 4.06). Besides the actual greenhouse structures, investment wouldinclude associated heating, ventilation and irrigation systems, Detailsare given in Annex 6. Borrowers would be kibbutzim. moshavai and individ-ual farmers (para 4.02).

4.o5 Fruit Plantations. The Project would include investment in theplanting of some 750 ha of-avocados; 280 ha of mangoes; 800 ha of tanger-ines; and 800 ha of grapefruits. The main investment would be plantingmaterials and irrigation systems (sprinklers) but part of the mai.ntenancecosts during the development period, would also be finranced, As in thecase of flovers, these develonments would be an extension of existingenterprises and would be undertaken by kibbutzim, moshavin and individualfarmers. Size of loans vould valor according to the acreage planted (para4.02).

4.06 Export I{anclling Facilities. Flowiers, subtropical fruits andoff-season g 1equire specal handling, storage, packing and trans-port if they are to reach overseas markets in a condition to command highprices under the Project; financing would be provided for farmerst coop-erative harvesting, sorting, grading and packing facilities. Investmentwould include the construction and equipping of packing plants (twio forflowers; nine for fruits; and one for off-season vegetables) and thepurchase of about 25 packing machines and ancillary equipment for variousvegetables,. Since the cooperatives also do mechanized harvesting as partof their packing activities, provision has been made for the purchase ofabout 30 comabine harvesters for carrots, celery and onions plus ancillaryequipment for cutting. topping and sizing onions, Existing storage andhancling facilities at Lod Airport and Ashdod Port are inadequate. Invest-ment would therefore also cover the constructicn and equipment of a moderi..fully automated handling plant at Lod Airport (for which a feasibilitystudy was carried out by Seker lanagement, Production and Systems Engineer-ing Consultants Ltd. in September 1969) and an increase in storage andhandling facilities (particularly cold storage) at Ashdod Port. Boththese facilities would be owned and operated by AGREXCO, which like farmerscooperatives, operates on a cost plus basis.

IWater Developient

4h07 Financing of high priority water development consisting of numer-ous small and medium investments in different parts of the country, wouldhelp to improve and extend water distribution systerms and to providedrainage in some 170 r,ioshavim and 80 kibbutzim.

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4.o8 Investment to improve the existing irrigation system louldinvolve the replacement of leaking and corroded fixed irrigation pipeson about one third of the settlements in the country, Automatic valveswould also be installed so that measured irrigation doses could be applied,and several items such as pressure regulators and metering systems wouldbe fitted to improve water distribution and reduce wastage along the edgesof irrigation plots. These investments, which are described in Annex 7,would lead to a 10% to 15,f saving in wlater from about 60,000 ha of landand would provide enough water to extend the irrigated area by about 91200ha. The 40 million m3 of irater saved in this way wiould be used to irrigate1,200 ha of the avocados, tangerines and grapefruits included under FruitPlantations (para 4.05), 3,000 ha vegetables and 5,000 ha of cottonj wiheatand other field crops.

h.o9 Construction of about 34 small reservoirs to impound run-off fromwinter storms would make it possible to irrigate and increase the yieldsobtained from 5,250 ha of rainfed iheat and 350 ha of rainfed cotton.Likewise, plastic pipe field drains would lead to improved yields on 2,700ha of existing irrigated but poorly drained grapefruit plantations, and1,340 ha of cotton and 2,500 ha of rainfed crops (see IIap).

C. Cost Estimates and Financing

Project Cost

4.1o Total Project cost is estimated at IL 170 million (US$49 million)of which 4h0ia II 70 million (US$20 million) would be in foreign exchange.Cost estimates by category are sunm2rized below:

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IS million US$ million ForPCategory Local Foreign Total Local Foreign Total i' .

I. Export Crop Development

(a) Greenhouses forFlowers 24.2 16.0 40.2 6.9 4.6 11.5 4c

(b) Plantations:(i) Planting and

maintenance 12.8 3.5 16.3 3.7 1.0 4.7 20(ii) Irrigation Equip-

ment 4.5 3.2 7.7 1.3 0.9 2.2 4c

Exort Handling Facilities

(a) Coo ratives( Buildings h.h 1.7 6.1 1.2 0.5 1.7 30

(ii) Plant, Machineryand Equipment 3.5 6.0 9.5 1.0 1.7 2.7 65

(iii) Vehicles and FarmMachinery 0.3 2.3 2.6 0.1 0.7 0.8 6o

(b) AGREXCOG) B-uildings 2.5 1.1 3.6 0.7 0.3 1.0 ICo(ii) Plant, IIachinery

and Vehicles 2.2 4.0 6.2 o.6 1.2 1.8 6r(iii) Planning and

Engineering 0.7 0.8 1.5 0.2 0.2 o.4 55

.i2I0 Water Development

(i) Irrigation Equipment 39.0 26.2 65.2 11.1 7.5 18.6 L4i(ii) Minor Civil Works 7.1 4.8 11.9 2.0 1.4 3.4 .

Total Project Costs 101.2 69.6 170.8 28.8 20.0 48.8 Lo

Cost estimates wiere prepared on the basis of current costs.Foreign exchange compoinent. estimates are considered realistic and are basedon data supplied by the Bank of Israelts Research Department which maintainscontinuing studies on foreign exchange elements of all capital w-orks in thecountry.

Proposed Financing

!1,12 A Bank loan of US$20 million (40h of Project costs) is proposedto cover the estimated foreign exchange element, Subborrowers would be

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recuired to contribute 20%, which is considered reasonable and within theirmeans. The three participating banks would contribute 20% and the Govern-ment would also contribute 20% by way of loans to the three participatingbanks of IS 35 million (US$ 10 million) in aggregate for a term of 17 years,including four years' grace period, at an interest rate of 7% per annum underloan agreements, satisfactory to the Bank, the signing of which would be acondition of effectiveness. Assurances to the above conditions were obtained.Project financing would be as follows:

Sub- Participat- GovernmentBorrowers ing Banks Bank Total.-. $ 7s T $ %

------------ US llions---------

a.Eport Crop Development

a) Greenhouses forflowers 2.3 (20) 2.3 (20) 2.3 (20) 4.6 (40) 11.5 (100)

b) Plantations 1.4 (20) 1.8 (26) 1.8 (26) 1.9 (28) 6.9 (lo0.

II. Fcport HandlingFacilities 1.6 (20) 1.1 (13) 1.1 (13) 4.6 (54) 8.4 (100)

III. Water Development 4.4 (20) 4.3 (20) 4.4 (20) 8.9 (40) 22.0 (100)

Total 9.7 (20) 9.5 (20) 9.6 (20) 20.0 (40) 48.8 .-0'¢'

4.13 The Bank loan of US$20 million, to be disbursed over three years,would be lent to the IBA (para 5.02), and Project Agreements would be enterec!into between the Bank and YAAD and NIR. The Government would bear the foretic-exchange risk. IBA would onlend to the other two banks engaged in agricric-tural credit under subsidiary loan agreements, satisfactory to the Bank. Thesubsidiary agreements would specify the types of loans eligible for financin ;the percentage to be financed; the rate of interest to be paid; maturity datrsand methods of repayment; and the requirements for the submission to IBA ofannual audited accounts for onward transmission to the Bank. The signing ofthese subsidiary loan agreements would be a condition of effectiveness.

4.14 Loans to subborrowers would be repayable over 10 to 15 years(para 5.11), and with loans commencing in three successive years, the latestrepayments would be made 18 years after the start of the Project. The cashflow projection at Annex 8 indicates that repayment of the Bank's loan over17 years, including a grace period of four years, would be appropriate.Accumulation of temporary surpluses would reach a peak of IS 23 million(us$ 6.6 million) (22% of the combined Bank and Government loans) in theeleventh year which should be sufficient to cover unforeseen slippage incommitments and disbursements.

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D. Pro curement and Disbursement

Procurement

4.15 The range of items to be financed is very wide and most of themwould not be suitable for bulk procurement 0 For instance; machinery forpacking plants covers 11 different types of packing operations and differ--ent machines would be required 0 The machines required for one pJ.ant wouldbe unlikely to attract international bidso Similarly with greenhouses andhothouses, the varying types of construction and equipment preclude bulJking,I-4any of the items required for the Project are manufactured in Israel fromimported materials. Supplies are adequate, prices competitive and servic-ing good. iTo tariffs are levied on agricultural machinery and irrigationequipment which may be freely ir,mported. International suppliers are wellrepresented and comnpetition is keen, In some cases, the Government indicate-a price ceiling above which essential supplies and machlinery may not besol.d,, WJith the exception noted below, procurement would, tl-erefore, bethrough nornal commercial channels, prices being subject to the approvalof the bank granting the loan. The handling facilities for AG&2EXCO atLod Airport and Ashdod Port (para 4,O6) are larger self-contained schemessuitable for international competitive bidding, Israeli contractors woul.dbe entitled to participate in the bidding, without preference. Assurances7Tere obtained tuat interi?ational cozpetitive biddgIn: woulc2 be used for thispart of thea lroject.

Disbursement

4v16 The Bank would reimburse IBA 50% of all loans disbursed by thethree participating banks against appropriate documentation, certified byIDA, that such loans, for the amounts specified, had been made for approvedpurposes. This percentage represents the average estimated foreign exchangeelement of subloans (see para 4.12)o

V. ORGAHIZATIOIN AIID 1IIMAGEyIENT

Project Ad.cTnistration

5cOl IBA, the largest of the three banks engaged in agricultural credit,would be the borrover and administer the Project assisted by YAADand NI.' (Annex 5) and a Project Coordination Committee (para 5.13).

Israel Bank of Agriculture Ltd, (IBA)

5.02 IDA was incorporated, under the Companies Ordinance, in 1951 anddevotes itself to financing the various branches of agriculture. Since itsfoundation, it has granted agricultural loans totaling ISt 765 million(US$219 million) and its volume of lending during the next three years isestimated at about IIL 80 million (US$23 million) annually,

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5.03 Resources. IBDls resources originate from share capital,deposits, deb;enures and interest-bearing deposits from the GovernmentDevelopment Budget. Its authorized share capital is IL 120 million(US$35 million), of which IL 86 million (US$25 million) is issued and paid.up, Government owns IL 77 million (US$22 million) or 90% of the issuedshare capital. Debentures outstanding at March 31, 1970, amounted toiS 18 million (US$5.1 million) (see para 3.03 and Annex 5). As at March31, 1970, Government deposits amounted to I£ 240 million (US$69 million).Condensed balance sheets are at Annex 5, Table lo

5o04 Use of Resources. The major part of IBA)s resources are usedfor granting loans to the agricultural sector. As at MIarch 31, 1970,loans outstanding amounted to IL 371 million (US$106 million) or 88% oftotal assets. Investments in companies to support agricultural lendingactivities amounted to IL 4 million (US$1,2 million) 0 Interest rates arein line with ruling comercial rates (para 2.21 and 2.22), 9% for mediur,-and long-term and 11% for short-term.

So5 Financial Position and Future Earnings. The credit controlsystem (para 2.23) has resulted in an excellent repayment record. Defaultis less than 0.1% and loans are well secured. The loan portfolio is, there-fore, sound but, prudently, annual provision is made for doubtful debts.Net profit before taxation, for the year ended i'Iarch 31, 1970, was IL 14million (US$4 million) compared with IL 12 million (US$3.5 million) in1969 (Annex 5, Table 4). Net profit, before taxation, was 16$ of share-holder's equity in 1970 compared to 15% in 1969. A dividend at the rateof 5-1/2% on Ordinary shares was paid in 1968/69 against 3% in 1967/68eThe reserve position is adequate (Annex 5, Table 1). The debt/equity ratiois about 3:1. Profits and reserves have shown a steady increase over theyears and forecasts indicate that this trend would continue (Annex 5,Table 5).

5.06 Organization and Management. IBA's Headquarters are in Tel Avivand adequate agency arrangements have been made with other financialinstitutions covering the whole country. Its Board, which presentlyincludes representatives of the I-Iinistries of Finance and Agriculture andthe Kibbu-tzim and I-Soshavim IIovements, meets at least once a month (morefrequently if necessary) and approves all loans. Loan applications areexamined in detail by a Loan Committee prior to Board presentation.IManagement practices are good and the stafl° of about 100, experienced,The accounting system, uhich is fully mechanized, produces adequate dataand statistics for management. Loan appraisal and supervision techniquesare satisfactory and close cooperation is maintained with the ltinistryof Agriculture and the other two agricultural banks. IBA is a well-managed>financially sound institution capable of administering the proposed Bankloan.

.rojectLcund and Project Account

5.07 A project fund, n'to wihic'h the proceeds of the Bank loan :iould bepaid, wirould. be established within ISA which iould onlend to hile othsr t%Tobanks (YAAD and N7IR) through subsidiary loan agreements on the same terms

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and conditions as applicab'le to IBA. IBA would also establish a consolidatedProject account which would reflect the operations and financial conditionof the Project fund and of IBA, YAAD and NIR with respect tQ all sub-lendingtransactions within the framework of the Project. In addition, each bankwould maintain a Government Loan account which would reflect the status ofthe portion of the Government Loan (para 4.12) received by it.

5.08 The three participating banks would draw from the Project fund50% of approved loans disbursed. They would pay to the Project fund inter-est on such drawings at the rate of 7-1/4% per annum and would lend tosubborrowers at 9%5 per annum.

5.09 Each badc would be individually responsible for the approval,administration and collection of loans and would assume the financial risk.Individual loans exceeding US$300,000 equivalent would require prior ap-proval by the Bank. Assurances to the above conditions were obtained.

Lending Policies and Procedures

5.10 Potential borrowers would be required to prepare detailed tech-nical and financial plans in consultation with the settlement organizations,the Ministry of Agriculture and the lending bank (para 2.24 and Annex 4)which would determine the creditworthiness of each applicant and soundnessof the investment. The various departments of the Ministry of Agriculture(Credit, Extension, Water, Marketing, etc.) would be responsible for pro-viding the necessary technical advice and services. Assurances were obtainedthat security (paras 2.21 and 2.22), lending and supervision procedures(para 2.24 and Annex 4) would not be altered without prior approval of theBank.

Terms and Conditions of Project Loans

5.11 The rate of interest to be charged to all subborrowers would be9% per annum, which is in line with prevailing commercial rates (para 2.21).Taking into account the blended funds (Government portion at the rate of7% per annum - para 4.12 - and the Bank's portion at 7-1/4% per annum -para 5.08) the participating banks would have a spread of 1-7/8% which wouldbe sufficient to cover expenses and give a small profit margin. Loans tosubborrmwers should not exceed the following grace and repayment periods:

Grace Years of Types ofPeriod Repayment Total Borrowers

i) Greenhouses for flowers 2 8 10 kibbutzim, moshavim,individual farmers

ii) Subtropical fruit plantations 7 8 15 same as (i)iii) Farmers' cooperative 2 8 10 kibbutzim, moshavim,

handling facilities cooperative societiesiv) AGREXCO handling facilities 3 12 15 AGREXCOv) Irrigation equipment and 3 12 15 same as (i)

minor civil works

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Assurances that these terms would not be exceeded wi+thout prior approvalof the Bank were obtained during negotiations.

5.12 Accounts and Auditing. The three banks' accounting systems aresatisfactory. Their operations are examined by the Examiner of Banks ofthe Central Bank (para 2.20) and their accounts are audited by firms ofindependent auditors. Assurances were obtained that their accounts wouldcontinue to be audited by independent auditors acceptable to the Bank,that the Government Loan accounts (para 5.07) and the Project account(maintained by IBA) would be subject to a separate audit, and that IBA

would send to the Bank, within three months of the end of each bank'sfiscal year, audited accounts together with copies of the auditors' reports.Assurances were also obtained that YAAD and NIR would make available to IBAall their books and records relating to sub-lending transactions within theframework of the Project.

5.13 Project Coordination Committee. In view of the number of organ-izations concerned with the Project (three banks and various Governmentdepartments), IBA should be assisted by a Project Coordination Committee(PCC). An ad hoc committee exists at present but needs to be formallyconstituted. The composition and duties of the proposed PCC are detailedat Annex 9. At negotiations, assurances were obtained that such a committeewould be formally established prior to the effectiveness of the loan.

VI. PRODUCTION, 1vIARKETING, PRICES AND PRODUCER BENEFITS

Production

6.01 Under the Project, about 23,000 ha would be cultivated (mainly bykibbutzim and moshavim), of which some 20,500 ha would be irrigated, 16,300 hafor the first time. Production of flowers, fruits and off-season vegetableswould account for about 84% of the total value of incremental farm output,the remainder being accounted for by cotton (9%), wheat, groundnuts, sorghumand hay. The incremental annual value of production would build up to aboutIS 71 million (US$20.3 million) by the end of the fourth year reachingif 118 million (US$33.7 million) at full production in the ninth year whentree crops would be matured. The total area, production and sales value ofindividual crops would be:

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Area, Production and Sales by Crop

Incremental Incremental Value ofArea Production Sales at Full

ProductionHa. % ?000 tons IL million

1. Flowers 160 1 82.61/ 28.2 242. Avocados and Mangoes 1,000 4 8.3 13.4 113. Grapefruits and

Tangerines 4,300 19 80.5 32.9 284. Vegetables 3,000 13 13h.0 24.6 215. Cotton 4,100 18 ll.42/ 10.7 96. Itbeat 8,400 36 18.6 5.8 57. Groundnuts 240 1 1.0 1.0 18. Sorghum 1,000 5 5.0 1.3 19. Vetches 750 3 0.1 0.1

22,950 100 118.0 100

1/ In millions of flowers.2/ Tons of seed-cotton or 3.9 tons of lint.

Market Prospects

6.02 High value and highly perishable exports of cut-flowers and freshfruits and vegetables to Western European markets would account for a largeproportion of the Project's production. Two factors would, therefore, be criticalto the success of the Project, first, growth and development of demand in theWestern European markets and second, Israel's competitive position in relationto other exporting countries with similar ecological conditions.

6.03 Increased per capita incomes in Western European countries have ledto rapid increases in the consumption of cut flowers and many vegetables andfruits. For example, imports of cut flowers into the Federal Republic of Germany.,which amounted to about 307 of the countryls total consumption of cut flowers in19680 rose from US$18.6 million in 1960 to US$70.2 million in 1968. In addition,improved transportation has considerably lowered the cost of importing a widevariety of fresh horticultural produce that wnas previously avallable only duringthe Western European summer months or not generally known. Only a srmall propor-tion of families in most W1estern European countries have as yet started to consumeproduce such as avocados and grapefruits on a regular basis. ioreover, these iterashave very high income elasticities of demand, so that once consumers becomefamiliar with them, they are likely to purchase relatively larger quantities asincomes continue to rise. For flowers, the demand is mainly for roses and carna-tions. There is also a strong demand in the off-season for familiar vegetablessuch as lettuce, carrots and celery as well as a shift in consumption patternstoward a wider variety of vegetables, e.g. ogen melons, as,rags and capsicums.ilar1et prospects for individual crops are given in Annex 10.

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6.o4 Over the last two decades, Israel has become a major exporter ofhorticultural produce to Western Europe, initially with citrus and more recentlyalso with cut flowers and fresh vegetables. Israel'sshare of the Western Europeanmarket varies greatly according to the season and the crop. It is as high as70% of the total market for grapefruit between October and April, but much lowerfor many vegetables although both the size and Israel's share of the market areincreasing rapidly under the influence of an aggressive market policy. The highdegree of marketing organization required to build up and maintain this positionis the responsibility of the Citrus Marketing Board for oranges, gapefruits andtangerines and of the Agricultural Export Company (AGREXCO) for other perishablehorticultural produce. These organizations, which are described in Annex 10,have offices throughout Western Europe. AGREXCO, which would handle most of theProject's production, works on a commission basis and handles produce from portof shipment through the point of sale in the main wholesale markets of WesternEurope. As a result of integrated marketing and strict quality control,whole-salers in the importing countries have the assurance of receiving regular suppliesof even the most perishable produce in good condition, e.g., flowers, picked inthe evening in Israel are marketed the next day in Zurich and Frankfurt. Therapidly increasing volume of horticultural exports will necessitate the con-struction of additional packing and handling facilities to ensure that the producecontinues to reach the markets in good condition and at the right time. Thefacilities included in the Project would reinforce this capability.

6eO5 There are no serious restrictions to prevent the import of horticulturalproduce from Israel into IrWestern European countries during the limited periodin winter when domestic supplies in these countries are shortest and priceshighest. However, since several competitors, for instance, other Ilediterraneancountries, have rather similar ecological conditions to Israel, the timing ofsales is particularly important. Advanced agrlcultural technology such as the useof hormone sprays, early and late ripening varieties, has enabled Israel to pro-duce at such times. A large on-going research program and a highly organizedextension service (para 2X15) should ensure that this comparative advantage ismaintained 0

6.o6 Although only a part of the Project's production of vegetables andfruits tJould be suitable in quality for export, the rerainder would not giverise to surpluses on the domestic market. Israel has a high per capita consump-tion of vegetables and until recently has not exported any of its production.With the establishment of efficient export marketing channels (para 6,08), partof the existing vegetable production is now being cliverted to the more profitableexport market, and the Project's lover quality production would contribute topreventing a fall in domestic supplies. Piarketing olf grape-fruits and tangerinesare controlled by the Citrus 14arketing Board and production unsuitable for exportas fresh fruit would be sold for industrial processing. Flol%er marketing is alsocontrolled to prevent surpluses arising (Annex 6, para 5).

6e07 Israel currently exports about 11,000 tons of high quality medium tomediur-long staple cotton lint, and imports 7,000 tons of lower quality lintfor use in the expanding textile industry. The incremental production froma theProject (3,900 tons lint) would partly be used for import substitution and theremainder exported for sale on world markets. Project production of hard wheat(18,600 tons) would substitute for somiie of the 3466,o0o tons presently imported.

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Mbrketing and Pricing

6.o8 Several systems would be adopted for marketing the Project's production.Cut-flowers for sale in Europe are traditionally sold f.o.b. and sales are nego-tiated in advance before dispatch. Vegetables are sold for producers b1r AGREGCOon a commission basis. In some countries such as the United Kingdom, wholesalersusually make the sale for AGREXCO on a commission basis, but in the EuropeanCommon Market countries, AGREXCO generally negotiates the sale itself. Producersreceive the sale amount less AGREXCO's commission, import duties, transport costs,port expenses and costs of packing materials. In the case of grapefruits andtangerines, similar arrangements apply. The prices projected for the Project arebased on the actual prices received in the last three years. Prices are expectedto remain firm as Project produce has a high income elasticity of demand. However,prices received are far more dependent on the quality of the produce than ontotal quantity on the market. The cooperative system of production and marketingin Israel is ideally suited to selling a high and uniform quality, which isessential since prices received for high grade flowers may be more than twiceas much as those for lower grade ones. Prices also vary greatly throughout theyear but Israeli exports are limited to those winter months when prices arehighest.

6.o0 In order to encourage exports, producers receive a 20% preferentialrate of exchange (IE 4.20:US$1.00). Basic foodstuffs for domestic consump-tion are price supported but the only Project crop so affected is wheat, thepresent price paid to producers being IE 0.31 per kg, equivalent to a 20%opreferential rate of exchange. Cotton prices have been projected in accordancewith the Bank's commodity forecasts indicating a price decline of 15% by 1975.

Producer Benefits and Revenue Generation

6.10 Most developments under the Project would be additional to existingenterprises but these would vary; for example, a kibbutz might grow an additional20 ha of wheat, whereas, a moshav farmer would be more likely to grow anadditional 0.2 ha of vegetables. The agricultural activities of kibbutzim andmoshavim vary so widely because of differences in location, age and size and dueto the variety of crops, that standard farm budgets would not be representative.The following table, which is illustrative only, indicates how producers wouldbenefit from some major project crops on a dunum (0.1 ha) basis:

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Producers' Benefits for some Major Project Crops(per Dunum - 0.1 ha)

Flowers Fruits VegetablesRoses Carnations Avocado) Grapefruit (Carrots)

Total Investmentincluding packingstation 60,731 21,875 1,656 2,211 1,163

Gross Income 29,956 23,977 1,296 1,837 1,386

Production Costs 13,944 17,750 720 1,044 981

Income after Pro-duction 16,012 6,227 576 793 S05

Financial Rate ofReturn 23% 26% 18% 17% 33%

Debt Service 9,585 3,453 336 438 183

Income Tax 1,933 856 99 135 62

Disposable Income 4,494 1,918 141 220 160

6.11 The financial rates of return of Project schemes would range from17% in the case of grapefruits plantations to about 33% in the case ofvegetables (Annex 11 Appendix 1). Producers would be able to service theirloans satisfactorily at 9% over the proposed repayment periods (para 5.11).At full production, after nine years, the net annual incremental incomeaccruing to producers would be about IL 51 million (US$14.6 million), andincome tax would be payable on this amount. The participants in the Projectwould pay an estimated average of 155J; the additional income tax gene:atedwould, therefore, be about IS 7.4 million (US$2.1 million) annually. Thisis in addition to the repayment of the Goverrment loan plus interest at therate of 7p per annum.

VII. BEINTEFITS AND JUSTIFICATION

7.01 The Project would contribute materially to the production ofexport and, to a lesser extent, import substitution crops. Improvement of

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packing, handling and cold storage facilities would enhance Israel's com-petitive position in the Western European market for off-season flowers,vegetables and subtropical fruits. Annual foreign exchange earnings and/orsavings attributable to the Project would reach about US$18 million at fulldevelopment of which about US$17 million would be export earnings. Sincemost inputs are manufactured locally this would mean net foreign earningsof about US$9 million after debt service.

7.02 Costs and benefits have been valued at II 4.20:US$l. This ratemore accurately reflects the shortage of foreign exchange in the economy thanthe official rate of exchange of IL3.50 = US$1. However, because both costsand earnings derive to a large extent from foreign sources the use of thisshadow rate does not have a very significant effect on the economic rate ofreturn calculation detailed below. Use of the official rate would lowerthese rates by about two percentage points. Project economic benefits areidentical to the financial benefits, but the economic costs are increaseddue to the increased costs of imported inputs. Cost of water and fertilizer,the two inputs being subsidized, and only to a small degree, have also beenraised to reflect their full cost. The overall rate of return to the econ-omy for the projected mix of activities over the life of the Project of 20years would be about 18% (Annex 11, Appendix 2). Due to the diverse natureof the Project activities and the varying agricultural conditions of kibbutzimand moshavim (para 6.10), there is some spread in the econormic rates of returnof individual parts, ranging from 12p for rainfed crops to 31% for grapefruitunder improved drainage.

7.03 The sensitivity of rates of return of one of the most sensitivecrops, flowers, has been tested against changes in export prices, investmentcosts and exchange rates. With a project economic rate of return of 20% afall in f.o.b. prices of all flowers (10%) would reduce the rate of returnby 8 percentage points; an increase in investment costs (15%) would decreaseit by 3 percentage points and an increase in the shadow rate of exchange(10%) would increase it by 4 percentage points (Annex 6, para 8). Highquality production and well organized marketing are of prime importance andIsrael has excellent technological and organizational expertise in thisfield. 1iIarket failure would therefore most likely result from an economicrecession in Wlestern Europe (the main cut flower market) where such luxuryitems as flowers would be the first to feel the effect of such a recession.A further sensitivity analysis has therefore been done assuming that at theend of four years from the start of the Project flower production wouldcompletely cease and the greenhouses would be used for another eight yearsto produce vegetables and/or strawberries for export. This would resultin a fall in the financial rate of return from 25% to 15% and a decline inthe economic rate of return from 20% to 11%. This assumption is based ona complete cessation of flower production which is most unlikely. In general,annual crops with higher rates of return such as vegetables and gladioliwould be theoretically more sensitive to changes in prices than tree or bushcrops such as avocados and roses, although the scope for substituting differ-ent annual crops would in practice reduce these effects.

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VIII. RECOIMENDATIONS

8.01 During loan negotiations, the following main assurances wereobtained:

a) the handling facilities for AGREXCO at Lod Airport and AshdodPort would be subject to international competitive bidding(para 4.15);

b) each bank would be individually responsible for the approval,administration and collection of loans and would bear thefinancial risk, but individual loans exceeding US$300,000equivalent would be subject to prior approva' by the Bank(para 5.09); and

c) each bank's accounts would continue to be audited by indepen-dent auditors acceptable to the Bank and audited accountstogether with copies of the auditors' reports would be sentto the Bank (through IBA) within three months of the end ofeach bank's fiscal year (para 5.12).

8.02 Conditions of effectiveness of the loan would be:

a) loan agreements referred to in para 4.12 shall have beenexecuted;

b) subsidiary loan agreements referred to in para 4.13 shallhave been executed; and

c) a Project Coordination Committee has been formally estab-lished (para 5.13).

8.03 The proposed Project constitutes a suitable basis for a Bank loanof US$20 million for a term of 17 years, including a four-year grace period.The borrower would be IBA.

September 11, 1970

ANNX 1

AfRICULTURAL ONIT PROJECT

aWTH o7 AGRICUIfRBAL URODWTION IN YIAW 1948-1961

Iex Sm.-4&ap3R Capita Production------1948/ 1967/ 1948/9 - 1948/ 1967/ Growth

Unit 1949 1968 100 1949 1968 Index

.heat Thous. tons 21.2 190.1 896.7 26.8 68.0 253.7

Barley 20.0 50.0 250.0 25.3 17.9 70.8

Sorghum ,3.0 22.0 733.3 3.8 7.9 207.9

Peanuts ,t 0.3 10.0 3333.3 0.4 3.6 900.0

Cotton (lint) F - 34.0 x - 12.2 x

Tobacco o.6 2.0 333.3 0.8 0.7 87.5

Sugar beet - 248.o x - 88.8 x

Melon & Watermelons 13.0 89.0 846.2 16.4 31.9 194.5

Vegetables n 80.0 382.0 477.5 101.0 136.7 135.3

potatoes 26.0 102.0 392.3 32.8 36.5 111.3

Citrus fruit I 273.0 1276.0 467.4 344.7 456.7 132.5

Gther fruit 39.2 278.4 710.2 49.5 99.6 201.2

Thereof:

table grapes 10.6 36.3 342.5 13.4 13.0 97.0

bananas 3.5 43.8 1251.4 4.4 15.7 356.8

deciduous fruit " 5.2 129.4 2468.5 6.6 46.3 701.5

sub-tropical ii 2.0 22.5 1125.0 2.5 8.1 324.o-------------------------------.----

Cow milk Mil. litres 79.0 395.0 500.0 99.7 141.4 2141.8

Sheep i goat nilk n 7.2 21.8 302.8 9.1 7.8 85.7

Cattle beef (Live weight) Thous. tons 7.6 36.5 480.3 9.6 3.1 136.5

Sheep & goat mSat 0.5 8.7 1740.0 o.6 3.1 516.7

Poultry meat 5.0 89.0 1780.0 6.3 31.9 506.3

Other meat ,, - 6.5 x - 2.3 x

Eggs mil. units 242.0 1238.0 511.6 305.6 443.1 150.0

Fish Thous. tore 3.5 23.9 682.9 4.4 8.6 195.5

Honey 11 0.5 1.8 360.0 o.6 o.6 100.0

Source: Statistical Abstract 1967; data on 1967/68 as published in summary statistical series for agricultural year 1967/68;

Agriculture and Settlerent-Planning and Development Center, January, 1969.

AiNIMEX 2Page 1

ISRAEL

AGRICULTURAL CMEDI' PROJECT

THE KIBBUTZIl Ai{D IMOSHAVIMT IOVEUENTS

1l Both the kibbutz and moshav are cooperative societies but of anunusual character, differing from similar groups in other countries. Today,these two forms of settlement are dominant in Israeli agriculture in regardto population, area cultivated, and value of production. They use thelargest part of the credit directed to the agricultural sector. Settlersare free to choose the type of organization they wish to join according totheir ideology.

Kibbutzim

2, A kibbutz consists of individuals who have united voluntarily toestablish a settlement based on the principles of absolute equality betweenall its members., mutual responsibility, the absence of ownership of privateproperty, and the organization of all production and consumption on acollective basis. It is an independent entity owned by the members, uhosestandard of living depends upon the successful running of the enterprise.It is governed by the general meeting of its members which elects theprincipal officers and various committees which deal with specific activities.

3. In the beginning, kibbutzim were largely based on agriculture,but in recent years they have entered the industrial field and a substantialpart of some kibbutzim income now comes from industry. The industriesinclude the manufacture of irrigation equipment, plywood, plastics, furni-

ture, kitchen equipment and canning of fruits and vegetables. Where it hasbeen found economical to do so, kibbutzim have affiliated to run regionalenterprises such as ginneries, poultry slaughterhouses, packing plants,feed mills, etc.

4. There are at present about 230 kibbutzim in Israel with about90,000 members.

Moshavim

5. A moshav is a village engaged exclusively in agriculture in whicheach settler supports himself by farming his individual holding (with thehelp of his family) on his oin account and responsibility. He is free toengage in wjhatever branch of agriculture he chooses. The cooperativeprinciples are limited to such spheres as the sale of produce, the purchase

of supplies and equipment, the operation of heavy agricultural machinery,the provision of credit, accounting services, the allocation of water, etc.

6. The supreme public body is the annual general meeting which electsthe Village Council, which in turn appoints various committees to assistin the day-to-day operations of the settlement.

ANNEX 2Page 2

7. In the case of water, an overall allocation is made to a moshavand the appropriate committee allocates the water to individual farmers inaccordance with the type of farming which they are undertaking. In thecase of credit, the loan is made to the moshav which onlends to the indivi-dual farmers. Only in rare cases do the agricultural credit banks lenddirectly to individual members of a moshav.

8. There are about 500 moshavim in Israel at present, with popula-tions varying between 50 and 150 family farming units.

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ANNEX 4Pege 1

ISRAEL

AGRICULTURAL CREDIT PROJECT

LOAM PROCEDURES ADOPTED BY IBA, YAAD AND NIH

1, Any borrower who intends to join the supervised credit systemrmust submit:

a) audited balance sheets and income and expenditure statementsfor the past five years;

b) an estimate of operations for the next 3-5 years;

c) a detailed plan of operations for the following year,which includes details of inputs and outputs (in physicaland money terms) and their timing, as well as investmentsrequired and method of financing.

Copies of the above are submitted to the Regional Offices of the Ministryof Agriculture for submission to the Central Supervised Credit Unit of theYinistxy.

2. The Regional Office of the Ministry checks the plans of opera-tions and makes its recommendations as regards the annual investment planto the Supervised Credit Unit of the Ministry, to the bank concerned andto the settlement union to wzhich the farm is affiliated.

3, The bank scrutinizes the plans and recommiiendations and decideson the measures to be taken.

4. Past performance and the plan of operation are discussed by a"judgment committee" composed of representatives of the Regional Office ofthe Ministry of Agriculture, the Central Supervised Credit Unit of theMinistry, the settlement union and the bank concerned. This committeerecommends to the bank and the Central Supervised Credit Unit the amountto be invested.

5. The bankst Loan Committees and Boards of Directors consider theabove recommendations and make their decision.

6. A detailed cashflow is prepared taking into account resourcesand requirements of long-term and seasonal financing.

7. Short-term credit is provided directly by Israel Bank of Agri-culture, Ltd. tIBA) for its customers, by Bank Leumi Le-Israel for YaadAgricultural Development Bank, Ltd. (YAAD) customers and by Bank Hapoalimfor NIR, Ltd. (I\IR) clients.

AiNffEX 4Page 2

8. The banks obtain details of charges registered on borrowers 1

assets and on proceeds from sale of produce and register a floating charge,unlimited in amount, on the boriowerst total assets.

9. The borrower signs an irrevocable Power of Attorney to registera first mortgage on his immovable property.

10. A guarantee of the settlements' 1>Iutual Aid Fund, normally fixedat 10% of the amount to be lent, is obtained.

11. The borrower gives irrevocable instructions (a) to his marketingagents to transfer all payments to his account with IBA, Bank Leumi orBank Hapoalim as the case may be and (b) to Bank Leumi and Bank Hapoalimto transfer to YAAD or NIR all loan repayments on maturity. This systemof obtaining collateral avoids the necessity of obtaining additionalsecurities for each individual loan.

12. Disbursement of loans is made on the basis of a report submittedby the borrower, and checked by the appropriate technical and field officers,indicating the investments made in accordance with agreed annual plan.

13. The supervision of the execution of the annual plan is asf ol ows:

a) a detailed cashflow statement is submitted by the borrowermonthly or bimonthly and is compared with the plan, anymarked deviation being investigated immediately;

b) the Regional Office of the iInistry of Agriculture checksquarterly, on the farm, the progress of the projectedinvestments and reports accordingly;

c) the borrower reports semiannually on actual results ofproduction and outlays and includes a forecast to theyearts end as compared to the original annual farm plan;

d) an audited balance sheet must be submitted 3-6 monthsafter the end of the year;

e) bank credit staff visit each farm at least twice a year.One of the visits is made on receipt of the semiannualreport.

14. The provisions of paragraphs 1 (a) and (b) and 13 (d) above arenot applicable to individual farmers.

ANNEX 5Page 1

i-SPAEL

AGRICULTURLL CREDIT PROJECT

CREDIT INSTITUTIONS

fsrael Bank of Agriculture, Ltd. (IBA)

1. The IBA was incorporated in 1951. Its authorized share capitalis IS 120 million (US$35 million); issued and paid up amounts to IE 86 million(Us$25 million) of which Government owns IF, 77 million (US$22 million) or 90%,and the balance is held by the Kibbutzim and Yoshavim Ynvements and privateindividuals. The Board of Directors is appointed by the shareholders andpresently includes representatives of the Ministries of Finance and Agricultureand the Kibbutzim amd Moshavim Movements. The Chairman of the Board isProfessor Haim Halperin, Professor of Agricultural Economics at the HebrewUniversity and at one time Director-General of the Ministry of Agriculture.

2. The total staff is 105, of whom five are agronomists and six othersare University graduates in law, economics, statistics and public administration.The majority of the staff are experienced banking officials having served withIBA for 10-15 years. lany of them have had previous experience in banks andf inancial institutions.

3. Headquarters are in Tel Aviv and adequate agency arrangements havebeen made with other financial institutions covering the whole country. Manage-ment practices are good. The Board of Directors and Loan Committees meet regularlyand loans are processed without delay. The accounting system, which is fullymechanized, produces adequate data and statistics for management. Loan appraisaland supervision techniques are satisfactory and close cooperation is maintainedwith the Ministry of Agriculture and the other two agricultural banks.

4. Since its foundation, IBA has granted agricultural loans for atotal of IL 765 million (US$219 million). As at March 31, 1970, loans outstandingamounted to IS 371 million (US$106 million). Loans are granted from the bank'sown resources and from funds made available by the Government from budgetaryallocations. These allocations are in the form of deposits which are repayableat fixed rates and dates and bear interest of approximately 7% per annum. Asat March 31, 1970, such deposits outstanding amounted to IE 240 million (US$69million). In addition, debentures are issued from time to time, the proceedsof which are deposited with the Treasury on terms as to linkage and redemptionidentical to those of the debentures. Debenture repayments are linked to thecost of living index and/or US$ exchange rates. The Treasury, on its part,deposits unlinked funds with the banks thus enabling them to grant unlinkedloans (linkage was abolished in 1964). Half the amount in the balance sheet(Table 1), "Deposits with the Ministry of Finance", is not, therefore, availablefor lending, it is security earmarked for the debenture issues.

AIRIN43X 5Page 2

5. aThe credit control system, whereby borrowers must conduct alltheir banking business only with one barn, has resulted in an excellentrepayment record. For several years, default has been negligible (lessthan 0.1,) and all loans are well secured. Nevertheless, adequate provi-sion is made annually for bad debts. In accordance with usual comnercialbanking practices, this reserve is not shown separately in the balancesheet but is held as part of inner reserves.

6. The reserve position is adequate, even without taking into accountthe inner reserves. In addition, the bank t s valuable premises have beencompletely written domn and are shown in the balance sheet at a nominal valueof IL 1 (Table 1).

7. The net profit for the year ended 'Ilarch 31, 1970, before taxation,was IL 14 million ( us$ 4 million). A dividend on ordinary shares was paidat the rate of 5-1/2,' in 1968/69 compared with 3% in 1967/68. Condensedprofit and loss accounts are at Table 4.

8. IBA is a well-managed, financially sound institution capable ofadministering the IBRD loan.

Yaad Agricultural Development Dank, Ltd. (YALD)

9. YAAD was incorporated in 1922 as the Central Bank of CooperativeInstitutions in Palestine, Ltd. and lends to agriculture and allied enter-prises. The name was changed in 1962 after a merger with two other com-panies. Its authorized share capital is IE 10 million (US$2.9 million);issued and paid up aimounts to IS 6.5 million (US$1.9 raillion). Forty-ninepercent of the ordinary shares (which are the only shares carrying votingrights) are owned by the Government and the remaining 51% by Bank LeumiLe-Israel (the largest commercial bank). The Government and Bank Leumiare each entitled to appoint one half of the number of Directors. TheBoard presently includes representatives of the Ilinistries of Finance andAgriculture.

10. YAAD has a total staff of 40, of whom 2 are agricultural econo-mists with IiSc in agricalture and 2 are economists trained in businessadministration. The senior officials are all experienced bankers.

11. As in the case of IBQ, management practices, the accountingsystem, loan appraisal and supervision techniques, and cooperation withthe Government and other banks, are all satisfactory (para 3). In addi-tion, in case of need, YAAD can draw on the selwices and expertise ofBank Leumi Le-Israel and Bank Leumi managers actively assis-t in loanappraisals and supervisions, The facilities of 176 Bank Lewui branchesare at the disposal of YAAD customers.

12. During 1963-1968, YAAD granted loans totaling IL 161 million(US$46 million). As at December 31, 1968, loans outstanding amounted toI 80o million (US$23 million). The source of funds for loans is basically

AHMEX 5Page 3

the same as IBA's and as at December 31, 1968 budgetary deposits amountedto Ir 68 million (US$19 million). YAAD issues debentures in the same waysand on the same conditions as IBA (para 4). Condensed balance sheets areat Table 2.

13. YAAD adheres to the credit control system (para 5) and its defaultrate is also negligible. Provision is made for bad debts and this isreflected in inner reserves (para 5). AI. loans are well secured andtaking into account past performance the reserves are adequate.

1.4. The net profit for 1968, before taxation, was IL 1.8 riillion(us$o.5 million). A dividend on ordinary shares of 8%o was paid in 1968compared with 7%7 in 1967. Condensed profit and loss accounts are at Table 4.

15. YAAD is a wjell-managed and financially sound institution. It isa subsidiary of Bank Leumi whose assets exceed US$974 million. YAAD is asuitable institution to participate in an IBRD loan.

NIFP, Ltd. (INIR)

16. This company was founded in 1934 by the Agricultural Union andHevrat Hatovdim, Ltd. to supply credit both to settlements directly and tocompanies and institutions serving agriculture. Its authorized sharecapital is IL 12 million (US$3.5 million); issued and paid up amounts toiT 6.6 million (US$1.9 million). The principal shareholders are BankHapoalim, Ltd. (a commercial bank); Hevrat Ha'ovdim, Ltd; and NIR Coopera-tive of Je-wish Wn.Torkers, Ltd. Government does not participate and, therefore,is not represented on the Board.

17. Despite this, budgetary allocations are made to NmIB as to theother two banks and as at December 31, 1968, the amount outstanding wasIL 42 million (US$12 million). As at that date, the amount outstandingon loans was IS 51 million (US$t14 million). It also issues debentures onthe same terms as IRA and YAAD.

18. It is the smallest of the three agricultural banks with a totalstaff of 14. The senior officials are experienced bankers and supervision,research and technical services are provided by Bank Hapoalim whose 142branches serve NIR. customers. NIR. operates under the credit control system(para 5) and, like the other two banks, loan defaults are negligible. Allloans are well secured and adequate provision is made for bad debts withinthe inner reserve. Condensed balance sheets are at Table 3.

19. The net profit for 1968, before taxation, was IL 1 million(US$0-3 million). A dividend on ordinary shares of 7% has been paid since1965. Condensed profit and loss accounts are at Table 4.

20. NIR is a well-managed and sound financial institution. It is asubsidiary of Bank Hapoalim whose assets exceed US$400o million and is asuitable institution to participate in an IBRD loan.

ANNEX 5Table 1

ISRAEL

AGRICULTURAL CREDIT PROJECT

CONDENSED BALANCE SHEETS

ISRAEL BANK OF AGRICULTURE LTD.

3-31-68 3-31-69 3-31-70_____0 % 1!'00 % IE;'OOO _

ASSETS

Premises and equipment 11 - - - - _ -

Investments 7,927 2.6 6,095 1.8 5,607 1.3Loans and other accounts - 281,085 90.9 308,919 89.6 371,300 8B.1Deposits with Mins. of Finance 3/ 13,595 4.4 2k,2h3 7.0 39,980 9.5Cash with Bank of Israel 6,34 2.1 _5459 1.6 4,505 1.1

308,951 100.0 -Wi.716 100.0 L21,392 100.0

LIABILITIES

Capital and Reserves

Share capital 80,108 80,108 86,151Received o/a shares 9 65 202General Reserve 12,500 14,500 17,500Unappropriated Profit 400 73 342

93,017 30.1 94,7h6 27.5 104,195 24.7

Debentures 21,056 6.8 18,780 5.4 18,333 4-4

Deposits for Granting Loans

Government 156,497 179,388 239,631USA I 867 - -Banks and others 9,808 17,730 26,321

167,172 54.1 197,118 57.2 265,952 63.1

Deposits and Other Accounts 27,706 9.0 34,072 9.9 32,912 7.8

Total 308,951 100.0 A4,716 100.0 421,392 100.0

1/ Premises and equtpment are recorded at nominal value of IG 1.2J Includes some short-term loans.3/ Earmarked as security for debentures.7/ Includes inner reserves and reserves for doubtful debts.

ANNEX 5Table 2

YAAD AGRICULTURAL DEVELOPMENT BANK LTD.

12-31-66 12-31-67 12-31-68ASSETS IL'IL'OOO IL'OOO %

Premises and equipment 536 1 576 1 620 -

Investments 1,171 1 767 1 1,243 1Deposbt with Treasuryl/ 34,807 42 85,399 56 141,643 61Loans " 38,884 47 56,641 37 79,871 34Other Accounts 5,o63 6 5,575 3 6,016 3Cash with Bank of Israel 2,133 3 3,392 2 3,720 1

Total 82,594 100 152,350 100 233,113 100

LIABILITTES

Capital and Reserves

Share Capital 6,527 6,527 6,527General Reserve 1,100 1,350 1,600Unappropriated Profit 15 19 20

7,642 9 7,896 5 8,147 3

Debentures 34,806 42 85,397 56 141,641 61

Deposits for Granting Loans

Government 28,957 46,460 68,052Banks and Others 2,284 2,902 3,315

31,241 38 49,362 33 71,367 31

Deposits and Other Accounts-/ 8,905 11 9__695 6 11,958 5

Total 82,594 100 152,350 100 233,113 100

Earmarked as security for debentures..2/-Medium- and long-term loans. Short-term credit provided by Bank Leumi Le-Israel.

2Nncludes inner reserves and reserves for doubtful debts.

ANNEX 5T'ble 3

NIR LTD.

12-31-66 12-31-67 12-31-68ASSETS ]1'000 %_L'__ % TL'OOO %

Premises and equipment-Inves nents 367 1 393 1 556 1Loans_/ 3/ 25,273 68 37,315 70 50,811 67Deposits with Treasury- 10,562 29 14L,995 28 23,440 31Cash and other accounts 450 1 348 - 522 -Deferred Expenditures 368 1 414 1 499 1

Total 37,020 100 53,465 100 75,828 100

LIABILITIES

Capital and Reserves

Share capital 2,242 3,814 6,640Received o/a shares 564 902Capital Redemption Reserve 282 282 2J2Premium on shares 116 116 527General Reserve 650 710 800Unappropriated Profit 29 2 20

3,883 11 5,826 11 8,269 11

Debentures 11,068 30 13,089 25 17,402 23

Deposits for Granting Loanm

Government 18,839 31,099 42,434Others 1,920 2,708 6,501

20,759 56 33,807 63 48,,25 64

Deposits and Other Accounts -/ 1,310 3 743 1 1)222 2

Total 37,020 100 53,465 100 75,828 100

1/7gyemises and equipment are recorded at nominal value of IL 1.edium- and long-term loans. Short-term credit provided by Bank Hapoalim.

3tarmarked as security for debentures.nc ludes inner reserves and reserves for doubtful debts.

ANNEX 5Table 4

1 RAELAGRICULTURAL CREDIT PROJECT

CONDENSED PROFIT & LOSS ACCOUNTSlERAEL BANK OF AGRICULTURE LTD.

1967/68 1968/69 1969/70IE'OOO % OOO IE:¢'000 X

INCOME

Interest on loans, etc. 26,756 100 27,057 100 33,285 100

EXPENDITURE

Interest on deposits, etc. 12,300 46 11,455 42 15,42a 46Administrative and general expenses 3,826 14 3,253 12 3,826 12

16,126 60 14,708 54 1),250 58

Profit before taxation 10,630 40 12,349 46 14,035 2?Comoany Tax 5,500 - 5,750 - 6,50C

Net Profit after tax 5,130 19 6,599 24 7535 3

YAAD AGRICULTURAL DEVELOPMENT BANK LTD.

r'NCOME

Interest on loans, etc. 3,465 100 5,284 100 6,80'9 ion

EXPENDITrURE

Interest on deposits, etc. 1,855 54 3,045 58 4,023 59Administrative and general expenses 654 18 753 14 963 L1

2,509 72 3,798 72 4,986 73

Profit before taxation 956 28 1,486 28 1,823 27Company Tax 296 _489 583

Net Profit after tax 660 19 997 19 1,2J0 18

NIR LTD.

INCOME

Interest on loans, etc. 2,806 100 3,830 100 5,339 100

EXPENDITURE

Interest on deposits, etc. 2,086 .74 2,770 72 3,997 7*5Administrative and general expenses 293 11 367 10 _88 7

2,379 85 3,137 82 4,385 82

Profit before taxation 427 15 693 18 951 18

Company Tax 150 _ 335 _40 _

Net Profit after tax 277 10 9 114 _r

ANNEX 5Table 5

ISRAEL

AGRIC1JLTURAL CREDIT PROJECT

ISRAEL BANK OF AGRJULTURE

ESTIMATED PROJECTED BALANCE SHEETS

1970/71 1971/72 1972/73 1973/7h 1974/75-.._________0-_-_---------E:'000--------------------------

ASSETS

Investments and Partici-pations 7,000 7,000 7,000 7,000 7,000

Loans and Other Accounts 415,000 470,000 515,000 560,000 620,000

Deposits with Ministryof Finance 33,500 33,000 33,000 33,000 35,000

Cash 7,000 7,000 10,000 10,000 12,000

Total 462.5o 517,000 565,000 610,000 67h,000

L AB IL T IES

Capital and Reserwes

Share Capital 88,ooo 90,000 92,500 95,000 97,000Reserves 20,000 23,000 27,500 35,000 4o,0oo

108,000 113,000 120,000 130,000 137,000

Debentures 21,500 26,000 31,000 33,000 35,000

Deposits for GrantingLoans * 298,000 338,000 369,000 397,000 4!7,000

Deposits and OtherAccounts 35,000 40,000 L45,ooo 50,000 55 ,oo

Total 462§500 517,000 565,ooo 610,00o 67______

* Includes the portion of the Oovsment and Bank loansused by IA project clients.

ANNEX 5Table6

IRAEL

AGRICULTURAL CREDIT PROJECT

ISRAEL BANK OF AGRICULTURE

ESTDTTED PROJECTED INCOME AND EXPENDITURE

1970/71 1971/72 1 1973/74 1974/75

INCOME

Interest on loansetc. ZAS 55,000 61000

EXPENDITURE

Interest on depsit8,etc. 13,000 20,000 22,000 25,000 28,000

Administrative andgeneral expenses 4a 5.o000 6,50o

22,500 25,000 27,500 31,000 314,500

Profit before tax vi.500 191000 21,500 24,000 26.500

_l.0 _ _0 5i5000 61,000

AiuEi2L 6Page 1

IS2AJ]L

AGRICULTULAL CREDIT PROJECT

FIGLIEtS--GfEI,AHOUSES UMI PACKU'IG FACILITIES

1. Israel t s exports of flowers have increased velry rapidly from10 million flowlers in 1966/67 to 42 rnULlion flowers in 1968/69. The mainspecies are roses, carnations, gladioli, anemones and gerberas, mainlyexported to Tlestern Lurope during the winter (Annex 10, paras 2-6). Israelplans to increase its export of flowers from 10 million in 1966/67 to 100million in 1969/70; to 280 million by 1972/73 and to 332 milJicn by 1974/75.

2. Roses are groun in hothouses and carnations in unheated green-houses. Gladioli grow under plastic cover to protect the flowers againsthail. The producers are responsible for a first sorting and packing, andthe transport of all flowers to the central packing station of the FlowerMarketing Board at the airport, which does the grading and final packing.To speed up handling at the airport, part of the handling activities would,in future, be concentrated in a number of regional grading and packingplants. The present regional packing capacity is adequate for 50 millionflowers in the season. To cope w-jith the 1972/73 target, when all flowerswill pass through regional packing stations, seasonal packing capacitymust be increased by 230 million flowers.

The Project

3. The portion of the project relating to flower production andexport would consist of the construction of greenhouses and two paclingstations for the procluction and export of 83 million flowiers as follows:

48 ha of roses at 675,ooo per ha = 32,4oo,000 flowers

24 ha of carnations at 1,000,000 per ha = 24000,000 flowers

67.5 ha of gladioli at 140,000 per ha = 9,450,000 flowers

20 ha of improved existing hothouses = 16,750,C00 flowers(10 ha roses, 10 ha carnations) ___

Total 82,600o000 flowers

4. For roses, the investment would involve hothouses with eitherplastic or glass cover and either hot air or hot water heating systems(details at Annex 6, Appendix 1). Greenhouses for carnations would notrequire heatin£g and gladioli would require only removable plastic tunnelsto protect against hail damage and a drip irrigation system to water theflowers under the plastic tunnels. Two flower grading and packing plants

AL14;, 6Page 2

would also be constructed (one in 1970/71 and one in 1971/72), each witha capacity for packing about 40 million flowers for export (details inAnnex 6, Appendix 2). Roses, carnations, gladioli and other flolwlers wouldbe packed, over 50% of the total would be roses. Total investrents ingreenhouses would amount to IL 40 million (US$11.5 million) with a foreigiexchange component of US$4e6 million (Annex 6, Appendix 3), The two pack-ing stations together would cost an estimated II 1.54 million (US$440,O00)with a foreign exchange component of US$136,000.

5. The production of 80 million flowzers has been estimated afterallowing for losses at the various stages of production and marketing.Cut flowers are sold f.o.b. (Annex 10, para 5) on the basis of ordersnegotiated in advance by the European offices of the Agricultural ExportCompany (AGRnTicO). Therefore, all losses after air shipment would be borneby the importing wholesalers in the countries conce:ned. The packingstation orly accepts from the farmers as many flowers as are required tomake up the specific daily export orders. On the basis of current experi-ence, farmers would deliver to the packing station some 75,000 roses fromeach dunun (0.1 ha) during the season, although the total number offlow'ers produced per dunum would be very much greater. Licenses to expandflower production are issued annually byr the Flower Harketing Board inaccordance with the official export projections. Although the totalseasonal production of roses may exceed 100,000 flowers per dunum, theareas allocated for planting are based on a yield of 75,000 roses only,to ensure that there are always enough high quality young blooms for export 0Comparable figures for carmations and gladioli are ll0000 flowers forcarnations and 16,000 flowers for gladioli. During the final grading atthe packing station, normally about 10%l of the flowers are rejected and sentfor sale on the local market. In calculating project output, it has beenassumed that 67,500 roses, 100,000 carnations and 14,000 gladioli would beexported from each dunum grown,

6. Project exports of cut flowers would earn an estimated US$6.8million annually in foreign exchange (If 23.8 million at the If 3.50:US$lexchange rate). AGRE.C-, the Flower i,arketing Board, and the packingstations in Israel work on a commission basis and riost packing plants areowned by farmers' cooperatives. Accordingly, packing stations do notpurchase from the farmers but charge handling costs to the products.Farmers participating in the project would receive the value of local andexport sales estimated at IL 28.2 million (US$8.1 million), including the20,' export preference (para 6009), but after deducting AGilE XCOts commission,which amounts to about 10%j of the f.o.b. value. Flower Harketing Boardcharges, costs of packing, packing materials, transport to the airport,and on-farm production costs would amount to IS 16.2 million (us$4.6 mil-lion). The net farm income of IS 12.0 million (US$304 million) would givea financial rate of return of 25' on the investments in greenhouses andpacking stations over the 20 years' life of the packing stations (Annex 6,Appendix 4). After deducting income tax allowances of IL 4.5 million,and assuming an average rate on tax of 20%, the additional tax revenueresulting from the project would amount to IL 1.4 million (us$0.4 rillion).

ANNEX 6Page 3

Financial returns for roses, carnations and gladioli individually would be23%, 26% and 50%, respectively.

7. A number of adjustments have been made to the flows of financialcosts and benefits in order to obtain the economic rate of return. First,the costs of water and fertilizers (both of which are subsidized), have beenraised to reflect their full cost. All other inputs, including labor, havebeen charged at their market rate. Second, since water quotas limit thecultivation of irrigated crops, flower production would necessitate reducing

the area of other irrigated crops. On the basis of the relative consumptiveuse of water, the net income lost from ceasing to cultivate 350 ha cottonhas been deducted. Third, the foreign exchange component of benefitshas been shadow priced to reflect most accurately the project's contributionto the economy. A rate of IE 4.20:US$l, which is supported by the preferentialrate of exchange currently used for agricultural exports, has been adopted.Economic benefits would therefore be the same as financial benefits. Economiccosts would, however, be increased because of the increased costs of importedinputs. This largely explains why the economic rate of return is about5 percentage points lower than the financial.

8. The sensitivity of the project to changes in (a) exchange rate,(b) f.o.b. prices, and (c) investment costs has been considered:

a) Changes in the shadow exchange rate: The economic rate ofreturn increases by 4 percentage points if a shadow exchangerate of IL 4.55:US$1 is adopted. It falls by 4 percentagepoints if the shadow exchange rate is considered to beif 3.85:US$l, assuming costs and prices remain as projected.

b) Changes in f.o.b. prices: The economic rate of return fallsby d percentage points if the f.o.b. prices of all flowers fallby 10% assuming the shadow exchange rate and costs remain asprojected.

c) Changes in investment costs: The economic rate of returnfalls by 3 percentage points if all the investment costs are15% higher than estimated, assuming the shadow exchangerate and prices remain as projected.

These analyses are presented graphically in Graph 1. Assuming an unfavorablesituation with prices falling by 10C and investment costs increasing by 15%,and the shadow rate of exchange at IL 4.55:US$l, then the economic rate ofreturn would be approximately as follows:

Projected rate of return 20%Shadow rate of exchange, IE 4.55:US$1 + 14Fall in f.o.b. prices of 10% - 8%Increase of investment costs of l% - 3,0

= approximately 13%

ANME 6Page 4

9. Economic rates of return have also been calciulated for roses)carnations and gladioli individually. The returns on roses at 19$ andcarnations (l95o) are lower than for gladioli (28,) but the rate of returnon gladioli is more sensitive to changes in prices.

ANNEX 6Appendix 1

ISRAEL

AGRICULTURAL CREDIT PROJECT

FLaWES: INVESTMENT IN GREENHOUSES

II/0.1 ha)

Items Roses Carnations Gladioli

Construction greenhouse 15,000i/ 11,8001/ 1,50 /

Installations, equipment 23,075- 6,2502/ 2,50 /

Seedlings and Planting 13,725-/ 1,3004/ _

Planning and Supervision 1,1450 600 -

Total 53,250 19,950 4,000

Hothouses under plastic(hot air heating system) 53,250

lothouse under glass(hot air) 63,250

Hothouse under plastic(hot water) 60,250

riothouse under glass(hot water) 70,250

1/ Life 12 years.2/ Life 12 years. No heating and ventilation system.3/ Replanting every 6 years.IT/ Trellises replaced every 6 years. Annual planting included in current expenditure.7/ Removable plastic tunnel, replaced every 5 years.f/ Irrigation equipment only.

ANNEX 6Appendix 2

BRAEL

AGRICULTURAL CREDIT PROJBCT

FLOWERS: INVESTMENT FCR PACKING STATION

(40 MILLION FLW^ER CAPACITY)

Life of Ins-Investment Item tallation in Cost

-years IL'000

Site preparation andpower connection 20 115

Buildings 20 265

Installations andequipment 10 150

5 158

Office equipment 7 30

Planning, supervision 20 40

Fork lift truck 7 12

Total 770

ISRA1L

A(ICULTURAL CREDIT PROJERT

INV8STMNET FOR THE DBEVLRIT OF FLOWERS EXPORT BY MhRS

1970/Y1M __ __ _ 1971/1972 1972/1973Total Ineest-ent Total are Ar a vestnet Foreign A- In eseteent Foreign Area inSt.t Foegn Foreign

It-ss in IL iG ha. in ha. in IL Exchange in ha. in IL Exchange in ha. in IL Exchange B.ch R

_______________________________ ________ ~~~~~~ ~~~ ~~in $ i-. L .in .... $8 0

Roses (hot air he.ting)

ojs1des plastic 9,851,250 18.5 8.5 4,526,250 6 3,195,000 4 2,130,000 40

-der glass 7,590,000 12 4 2,530,000 4 2,530,000 4 2,530,000 40

Roses (hot eater heatiog),

under plastic 7,230,000 12 2 1, 205 ,000 4 2,1410,000 6 3,615,000 40

cnder glass 3,863,750 5.5 1.5 1,053,750 2 1,405,000 2 1,405,000 41l

Total r-sas 28,535, °°° 48 16 9,315, 000 1,o047 16 9,54b0,000 1,113 16 9,680,000 1,112 40.1 3,272

Coossation greenhouses 4,788,000 24 8 1,596,000 210 8 1,596,000 210 8 1,596,000 209 46 629

Gladioli hail protection 900,000 67.5 27 360,000 bl 22.5 300,000 34 18 240,000 28 40 103

Is.present of existinghothouse. 6,ooo,000 20 2,000,000 143 2,000,000 143 2,000,000 l13 25 129

Tota1l ns'etaet inflower prsd,scti-o 40,223,000 13,271,000 1,,441 13,,436,000 1,500 13,516,000 1,.492 38.6 '4,,433

flower packing station (2) 1,540,000 770,000 93 770,000 93 42.3 186

[pl

AMX 6Appendix 4

ISRAEL

AGRICULTURAL CREDIT PROJECT

FLOWERS: CASH FLOW (IL'OOO)

Investments Operating Costs IYear G-reen- Packing Green- Packing Total Gross Net

houses Stations houses Stations Costs Revenue- Benefits

1 1 13,271 770 - - 14,041 - (14,041)13,436 770 4,728 773 19,707 9,573 (10,134)

i 3 13,516 - 9,336 1,547 24,399 18,969 ( 5,430)4 -_ 13,824 2,320 16,144 28,186 12,042

- 5 _ _ 13,824 2,320 16,144 28,186 12,0426 - 158 13,824 2,320 16,302 28,186 11,8847 3,160 158 13,824 2,320 19,462 28,186 8,724

3,100 42 13,824 2,320 19,286 28,186 8,9009 3,040 42 13,824 2,320 19,226 28,186 8,960

rO -0 _-_ 13,824 2,320 16,144 28,186 12,942

i 11 _ 308 13,824 2,320 16,452 28,186 11,7341 12 360 308 13,824 2,320 16,812 28,186 11,374

13 12,416 - 13,824 2,320 28,560 28,186 ( 374)14 12,356 - 13,824 2,320 28,500 28,186 ( 314)15 12,116 42 13,824 2,320 28,302 28,186 ( 116)16 - 200 13,824 2,320 16,344 28,186 11,84217 360 158 13,824 2,320 16,662 28,186 11,52418 300 - 13,824 2,320 16,444 28,186 11,742I 19 3,040 - 13,824 2,320 19,184 28,186 9,00220 (12,778) (39) 13,824 2,320 3,327 28,186 24,859

F'inancial Rate of Return 25%

1/ 7-x-ort plus local sales less AGREXCOts commission.

ANNEX 6Appendix 5

ISRAEL

AGRICULTURAL CREDIT PROJECT

FLO,ERS: ECONCMIC RATE OF RETURN (II1000)

Cperating Total NetYear Investments Costs Costs Benefits Benefits

1 15,164 - 15,164 - (15,164)2 15,342 5,721 21,063 9,57' (11,490)3 14,597 i 11,318 25,915 18,969 ( 6,946)

- 16,790 16,790 28,186 11,3965 _ 16,790 16,790 28,186 11,396

6 164 16,790 16,954 28,186 11,2323,45'i 16,790 20,241 28,186 7,945

8 3,268 16,790 20,058 28,186 8,128t 9 3,205 16,790 19,995 28,186 8,191

- 16,790 16,790 28,186 11,396333 16,790 17,123 28,186 11,063

2-2 721 16,790 17,511 25,186 10,6753 13,409 16,790 30,199 28,186 ( 2,033)

IL 13,344 16,790 30,134 28,186 ( 1,948)i1 ~ 13,131 16,790 29,921 28,186 ( 1,735)

1 16 208 16,790 16,988 28,186 11,1981?, 539 16,790 17,329 28,186 10,85715 312 16,790 17,102 28,186 11,084;ILc 3,162 16,790 19,952 28,186 8,23421' t (13,842) 16,790 2,948 28,186 25,238

,.- 1_ _ ___ __- ___

Hconomic Rate of Return is 20% assuming a shadow exchange rate ofIL 4.20:US$1.00.

ANNEX 6

GRAPH I

ISRAEL: AGRICULTURAL CREDITPROJECT FLOWERSECONOMIC RATE OF RETURN: SENSITIVITY ANALYSIS

SHADOW EXCHANGE RATE

IL 3.50 3.85 4.20 4.55US $ 1.00 1.00 1.00 1.00

40%%

-

oL 30%,0

w o

Y * / VARIATION WITH CHANGEIN SHADOW EXCHANGE RATE

020 %

Z .00, VARIAT ION WvITH CHANGE *_ O IN INVESTMENT COSTS

10%i A<VA'RIATION WITH CHANGE

IN F.O.B. PRICES

to

0- 20% - 10% 0 10% 20% 30%

PERCENT CHANGE

IBRD - 4999(R)

Ali? XE 7Page 1

AGIICULTURAL CREDIT P`OJECT

11ATEJ?1 DEVEL0PI'MT

Improving Existing Irrigation System

1. Nearly 32% of total project investment vwould be directed tovardimproving the existing irrigation system. About 40 million cubic metersof water would be saved and used to extend the irrigated area by about9,200 ha. The main investments would include replacing leaking and corrodedparts of the fixed irligation pipe netiqorks (Annex 7, Appendix 1) on

settlements which were mostly equipped for irrigation in the period 1950-1955. Investments would also include fitting automatic valves, awhichsupply measured doses of irrigation water, and which result in a saving ofabout 10g-15' in water use. Several factories in Israel now manufacturethese valves, which would be installed, together with pressure regulatorsand metering systerms to irmprove water distribution, and plastic extensionsand sector sprinklers to prevent water wastage over the boundaries of irri-gated plots.

2. The major part of the additional irrigation water saved would be

used to irrigate about 1,200 ha avocados, tangerines and grapefruits and

39900 ha vegetables, Five thousand hectares cotton, wheat and other fieldcrops would also be cultivated. Investments in the plantations, includingfixed and portable irrigation equipment and establishment and maintenance,have been included under Export Crop Development--Plantations (para 4.10).

3. All costs of establishing and rmaintaining fruit plantations(including fixed and portable irrigation networks) have been included incalculating the financial and economic justification of improving the

existing irrigation system. The additional production from extending theirrigated area would give a financial rate of return of 2W4, on the totalinvestment, Improved distribution would also improve yields on the exist-ing irrigated area, but they have not been included in the benefits.

4. Adjustments have been made to the financial flows of costs andbenefits in calculating the economic rate of return of 17o. The adjust-ments include:

a) raising the price of fertilizer which is subsidized to itsfull cost;

b) deducting a net income of IS 190 per ha for rainfed produc-tion that could be obtained from the same land if theproject were not to take place; and

c) increasing the cost of imported inputs to reflect a shadowexchange rate of IL 4.20:US$1 (Annex 11, para 5).

AUNEIThL 7Page 2

Regional Storage and Drainage

5. A number of small-and medium-sized investments involving storageand drainage in various locations would be included in the project. Themost important of these would be investment of IL 11.0 rillion in about 30small reservoirs in the South to store storm water run-off. Each reservoirwould deliver about 350,000 m3 of water to provide supplementar-y irrigationfor 174 ha rainfec; winter wheat in the South of the country (see 14ap).There would be about four smaller reservoirs in the North covering some350 ha. The investments (Annex 7, Appendix 1) would include dams, spill-ways, pumps and some portable irrigation pipes. Mo further investmentwould be required since nost of the portable irrigation equipment is avail-able on the sattleTnents, but is currently needed only for summer production.

6. Production and operating costs have been considered on an incre-mental basis and a financial rate of return of 20% has been calculated.After adjusting costs of imported inputs to reflect a shadow exchange rateof If 4.20:US$l, the economic rate of return over the 20-year life of thedams would be 17c,'

ANNEX 7Appendix 1

IRAEL

AGRICULTURAL CREDIT PROJECT

DTPR0VEMENT OF EXISTING IRRIGATION SYSTEM,

STCRAGE OF RUN-OFF AND DAINAGE

PROJECT COSTS

Av" %_btCost(IL'MOO)

Existing Irrigated Area 60,000

Valves, regulators, meters,sprinklers and pipes 33,4oo

Extended Irrigated Area 9,200

Pipes, sprinklers andother equipment 20,800

Storage of run-off 5,600

Pumps and pipes 7,500Minor Civil Works 6,500

:Drainage 6,500

Pipes 3,500Minor Civil Works 5,hOO

Total 77,100

ILS_ R1 A r_L

AGRICU1TOFRAl CRkEDIT PRCJECT

PR0JiXT ACCOUN1T - BANK AiD GOVERV,CT LOANS - CASil FLOII

(in MilDioan of IL)

1970/71 1971/72 1972/73 1973/74 1974/T5 1975/16 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/68 1983/84 1984/85 1985/1986 1986/87 1987/88

I N F L 0 W /

Bank roan 24.0 26.o 20.00ove-mont Lo.a 12 0 13.0 10.0ob-borr-aers lan Repayment- -- 2.0 6.o 8.0 9.0 9.0 9.0 8.0 8.0 8.0 7.0 7.0 7.0 7.0 4.o 3.0 3.0T.tare-t Rcceived / 2.6 5.4 7.6 7,6 7.6 7.3 7.0 6.5 6.0 5.6 5.1 4.6 3.8 3,4 2.4 1.8 o.8 0.2

Total .38.6 44.4 39.6 13.6 15.6 16.3 16.0 15.5 34.0 13.6 13.1 11.6 10.8 10.4 9.4 5.8 3.8 3.2

O U T F L O W

Loans to Sub-borrowers ±/ 36.o 39.0 30.0 --lntereet Paid:

On Bank Loa. 1.8 3.6 5.1 5,1On Gover-ment Loan 0.8 1.8 2.5 2.5

Pepaynent of Loans (Principleand Interest): _/Banl 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5locronment -- -- -- -.. 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 -_

Total .38.6 44.4 37.6 7.6 12.7 12.7 12.7 22.7 12,7 12.7 12.7 12.7 12.7 12.7 12.7 12.7 _ 22.o,nrl S-rpl-c or Deficit -- __ 2.0 6.0 2.9 3.6 3.3 2.8 1.3 0.9 o.4 (1.1) (1-9) (2.3) (3.3) (6.9) (8.9) 3.2

I'loltive Opl u -- -- 2.0 8.0 10.9 i4.5 17.8 20.6 21.9 22.8 23.2 22.1 20.2 17.9 14.6 7.7 (1.2) 2.0

Co.ntribution by thirc participating banko not included.B, ,d on repaynrent and grace peri,da an giren in pare 5.11.

3/ BDool IOn.d at 7-1/4ll P;OorrOrtot finds at 7/ p.a.. 17or gi, batlaee lending rate to -ab-borrocers (9% p.n.) -ewill aere to participating batks.H ta-vicion is -lae f,r b.d dobts ohich will be l3.e espon-ibility of l.ank granting 1lon - presently bad debts arc nftligibje.j Repoymeot on -mnuity bobis - Sank loan at 7-1/hdt p.a. int2rest - Govmr=snt loan at 73) p.a..

,IrIOr, 9

ISRAEL

AGRICULTURAL CREDIT PROJECT

PROJECT COORDINATION COMMITTEE

1. The Project Coordination Committee (PCC) will be establishedby the Government in consultation with IBA and the Chairman will benominated by the Minister of Agriculture.

2. The PCC will consist of:

a) one representative from each of the following departmentsof the M4inistry of Agriculture:

i) Credit,

ii) Planning and Development,

iii) Extension;

b) one representative from each of the three participatingbanks--IBA, YAAD and NIR;

c) a representative of the Ministry of Finance.

3. The duties of the PCC will be to:

a) advise on the overall policy for granting loans withinthe framework of the project;

b) approve sub-lending projects;

c) coordinate the services to be provided by the variousparticipating organizations;

d) assist in the introduction of standardized loan application,supervision and reporting procedures;

e) follow-up on the status of loan applications submitted tothe banks; and

f) generally advise and assist in the implementation of theproject.

4. IBA will provide the necessary secretarial services.

AiIUEEX 10Page T

AGRICULTRiiAL CJEDIT PROJECT

1iAIIKETS LID HLRKETING

A. Perishable Exports

1. High value and highly perishable exports of cut flowers andfresh fruits and vegetables would account for about two thirds of projectsales after allowing for all losses. Two factors which would be criticalto the success of the project are, therefore, examined in this Annex:(i) the growth of demand in Western European markets for off-season horti-cultural produce and (ii) Israells competitive position in relation tootUher exporting countr-ies with similar ecological conditions.

Demand Growth in 7.lestern Europe

Flowers

2. Both consumption and imports of cut floi-ers into Wlestern Europeare increasing rapidly, associated with increasing per capita income. Forexample, imports into Germany increased by 20,, between 1966 and 1968 duringa period when per capita GIP rose by 61,. Although precise studies are notavailable, it is estimated that the income elasticity of demand for cutflowiers in the more prosperous parts of Western Europe is exceeding 1.0.

Imports of Cut Flowers(coi.f* prices in US$ million)

Year Gerrmarn Switzerland Sweden France

1950 2.7 1.7 0.7 0l

1960 18.6 3.8 4-5 0.2

1968 70,2 9.7 7.8 4.5

3. Imports are higlly seasonal with the vast majority occurringbetween November and April, the period when Israel makes over 801 of itsexports. The most important flowiers are roses and carnations, Whichtogether make up nearly half of all cut flower imports in WIestern Europe.A large proportion of these imports is grown within Wlestern Europe, parti-cularly the Netherlands and Italy. Even so, Israeli flower exports havegrown rapidly from Us$1.05 aillion in 1966/67 to US$3.19 million in 1968/69,and are projected to reach US$19.4 million in 1975/76, including project

AL2EA'E 10

Page 2

exports which would amount to US$6.8 million. At this time, total Israeliexports would be no more than 5% of present Western European consumption,although during the season, the share would be greater and would contributetou-ard reducing the fluctuation between winter and summer consumption offlowers. To obtain these planned increases in Israeli production, increasednumbers of greenhouses and additional packing facilities would be requiredas described in Annex 6,

4. IJholesale prices of cut flowers in IWJestern Europe between Novemberand April are nearly double those during the other months and during thisoff-season period, Israel is able to compete vith European producers inspite of air-freight costs of about US$300 per ton, Since 1960, off-seasonflower prices have remained strong and average prices for Bakara roses,the variety most in demand, have shown a steatd increase in the Dutchflowier auctions.

5. Cut flowJers are traditionally sold f.o.b. at port of shipment.Sales are negotiated in advance on the basis of color and grade by theEuropean offices of the Agricultural Export Company (AGREXCO) (para 22)before packing and dispatch. The quality is critical since in many cases,the price differential between lower and higher grades of the same varietyon the same day will be greater than 100%. Considerable skill is requiredto obtain the high grades currently being achieved in Israel. Prices arenot expected to fall below the current levels, at any rate not before the1980's.

6. A first sorting and packing is carried outon the farm, but thepacking station will only accept as many flowers as are required to makeup the daily export orders. Project estimates have been made using theestimated number of flowers delivered to the packing stations, which isvery much less than the number of flowers groawn (Annex 6, para 5). Duringfinal grading in the packing station, normally about 10% are rejected andsold on the local market. Since AGREXICO and the packing stations work ona commission basis, the amount received by the farmer is the value ofexports (f,o*bo prices), converted at the 2021 preferential exchange rate(para 6.09), plus any local sales less costs of packing, packing materialsand AGREX'CO?s commission.

Off-Season Vegetables

7G With an increasingly prosperous consumer population in WesternEurope, there is a groving demand for a year-round supply of fresh vege-tables, such as lettuce, celery, carrots, etc. Demand for a wider varietyis also increasing, e.g. ogen melons, asparagus, capsicums, etc. Techno-logical advances such as freeze-packing of lettuces, controlled environmenton board ship and use of containers have greatly reduced transport costsmaking Israeli produce highly competitive. liany of these vegetables werepreviously only knoin in a limited luxury trade in the major European cities,and so income and price elasticities have yet to be experienced.

ALNEX 10Page 3

8. Eports of vegetables from Israel increased from US$2.25 millionin 1966/67 to US$5.o5 million in 1968/69. Further rapid increases toUS$19.0 rillion are forecast by 1974/75. The major vegetables exportedare artichokes, onions, carrots, lettuce, aubergines, capsicums, ogen andhoneydew melons, strawberries, celery, tomatoes, watermelon and cherries.The ilinistry of Agriculture produces individual export forecasts for about20 vegetables annually so that farmers may adjust cropping patterns accord-ingly. The demand for individual vegetables varies considerably betweenEuropean Economic Community (EEC) countries, United Kingdom (UK) and otherEuropean Free Trade Association (EFTA) countries. In terms of annualconsumption, most European countries produce a large share of their require-menits during the surnmer, supplemented by imports from within the region,e.g. the Netherlands. Consumption of most vegetables falls off during thewinter months when fresh supplies become limited. At the same time, theproportion of canned and frozen produce consumed increases. Quantitativeestimates of Israel's share of the market would have little meaning dueto the enormous scope for substitution between different vegetables andbetween fresh, canned and frozen products. In any case, the market foroff-season vegetables is so new and expanding so rapidly that presentimports give little indication of what future levels might be, The maineffect of the project would be to provide a wider variety of fresh vege-tables in IWestern Europe during a limited period when supplies are limited.In total, Israeli exports would amount to a negligible percentage of totalWlestern European consumption.

9. AGPMJCO uses a number of arrangements for selling vegetables.In the EEC, it negotiates its own sales in the main wholesale markets,whereas in the UK, wholesalers generally sell for AGIiEXCO on a commissionbasis. In both cases, AGREXCO pays import duties and all transport charges.With less perishable produce such as carrots, AGBEX1CO sometimes sells aconsignment on board ship at the port of importation. The f.o.b. price onwhiclh payiments to farmers are made is calculated as the sum of the salesreceived on all markets, less all costs between port of slhipment and finalsale, divided by the weight of goods shipped. Any losses from point ofshipment onward are, therefore, accounted for in the calculation of thefeo.b. prices. Individual f.o.b. price projections have been made for 18export vegetables and falls in price oP 20-30%' are anticipated 'y 1974/75.resulting mainly from the relatively larger quantities that will be shippedby Israel for sale on the off-season market.

10. It is estimated that rather more than one half of the project'svegetable production would be sold on the domestic market. On that partgoing for e:port, AGRXMCO's commission, -jacking materials, port expensesin Israel and packing house charges would be deducted from the f.o.b.prices. A further 20% of the production has been assumed to be lost orto remain unsold. Accordingly, average prices received by farmers, andprices projected in the project, would be cnly about 60% of the f.o.b.prices.

Ai'riL'zL: 10Page 4

Avocados and Iangoes

11. Consumption of fruits, such as avocados and mangoes is expandingrapidly, as these fruits are introduced more widely into the Europeanmarket. The first export shiprients of Israeli avocades were made about10 years ago when AGREXCO started to market them in London, using anaggressive marleting policy which concentrated on the wholesale and retailvegetable trades. Subsequently, avocados have been successfully introducedinto provincial cities in the UK and a first introduction has now beenmade in Scandinavia. Neither project nor national production of thesefruits is expected to saturate the iWJestern fuiropean market, since demandis forecast to continue to expand rapidly.

12, AGiELvXCO handles the export and sale of avocados and other non-citrus fruits in a similar way to vegetables. It is esti-ated that about60% of the crop will be exported and it has been possible to assume aconstant f.o.b. price, since reductions in transport costs, due to shippinga greater proportion by refrigerated ship rather than by air, would com-pensate for any fall in prices on the WJestern European rmarkets. Theremaining 405 of production would be sold on the local market at a muchlower price.

Grapefruits

13. iarket prospects for grapefruits, in contrast to those of oranges,are very favorable, Consumption of grapefruits varies considerably betweendifferent 1Western European countries. The three largest importers andconswuers are the UK, Germany amd France w%here consumption has expandedrapidly since 1960:

GraPefruit Bnports and Consumption(in thousand metric tons andl kgs per head)

…1962-------- _ _____---1967- - ---19751000 tons -kgs/head tOOQ tons kgsAhead t000 tons

UK 64.0 1.l 80.0 1.4 103.0

Germany 29.0 0.5 63.0 1.0 75.0

France 26o o.05 46.o 0.9 n.a.

1/ FAO projections.

Similar rates of increase were recorded in the Netherlands, Belgium andLuxer,iburg. For these six countries alone, total imports increased from134,C00 tons in 1962 to 216,000 tons in 1967 equivalent to an annual rateof increase of 10%1. Over the same period per capita, consumption has

ALIMEX 10Page 5

increased greatly but even the highest level of e14 kgs/head in the UK islow in comparison with the USA, 3.7 kgs/head and Canada 3,4 kgs/head.Consumption and imports are expected to continue to expand by 4%-5%0 annuallyto 1980 as per capita consumption continues to increase.

14. Israel is the dominant exporter to Western Europe between Octoberand 1Iay and exports have risen from 77,000 tons in 1963/64 to 127,000 tonsin 1968/69. In 1967, Israeli exports to the UK, Germany, France, Holland,Belgium and Luxemburg together amounted to about 93,000 tons or about 45%of the total annual imports of these six countries. During the season, itis estimated that Israelts share of the market is as high as 70o. Controlledharvesting has made it possible to concentrate exports early and late inthe season wihen supplies from competitors such as Cyprus are less and priceshigher. New planting of 800 ha and improved drainage of 2,700 ha existingplantations, which would be included in the project, would result in addi-tional exports of 38,000 tons of fresh fruit by 1978/79. This would beequivalent to 3,; annual increase in Israeli exports and would assist Israelto maintain its share of the expanding Wlestern European market.

15. Prices paid to farmers are based on an equitable division of thesales obtained from export, local and processing markets. All producersare paid a basic price for each exportable kind and size of fruit delivered.The Citrus ikiarketing Board controls the flowi of exports by controlling -thetime wdhen each orchard may be picked. An. additional premium is, therefore,paid for later deliveries as compensation for risk of damage by pests andweather. Prices projected for the project have been weighted assuming thatat full production, 70%' of the crop would be exported, 4% consumed on thedomestic market and 26% would go for industrial processing. Average pricesreceived on the export and domestic markets, respectively, during the lastthree years, have been projected to continue,but a lower price has beenassumed for grapefruits sold for industrial processing.

Tangerines

16. Demand for tangerines is increasing in Europe, and particularlyfor crosses such as clemantines, which are easy to peel, have few pits,and a good flavor. Unlike grapefruit, Israel has previously consumed allher production of tangerines, but successful shipments in 1968/69 have ledto a shift to exports and have created the need for increased export pack-ing facilities. Total imports of tangerines in lWestern Europe during thesix months October-I4arch have increased from 277,000 tons in 1964/65 to371,000 tons in 1968/69, an annual increase of 7.5%. The largest importersare France and Germany, each importing about 120,000 tons in 1966/67, Proj-ect exports would amount to 13,500 tons by 1978/79 when total Israeliexports would be about 55,00o tons. This would be less than 10,%t of totalEuropean imports during the winter season, and would be mainly from January-iMarch wihen shipments from Spain and North Africa decline. iTo more than 50%of project production would be exported, about 40%" consumed on the domesticmarket and the remaining 10% sent for industrial processing. A weightedaverage price has been projected for the project.

A1i01r1X 10Page 6

Israells Competitive Position in Itelation to Other Producers

170 Although several countries in the Mediterranean region havesuitable ecological cmnditions for producing off-season horticulturalproduce, Israel has a number of advantages over its competitors. First,by concentrating production of vegetables in the Arava and Bet-Shaanvalleys, Which are below sea level and have suitable soils, Israel is ableto exploit some climatic advantage over competitors in similar latitudes.Second, advanced agricultural technology, such as use of hormone sprays,early and late varieties has also enabled Israel to exploit the shortperiods when prices are highest. Advanced technology has also resulted inhigher yields and better quality, e.g. uniform size and color, and hencegreater returns per hectare and lower costs per unit of output. A largeon-going horticultural research program coupled with a highly effectiveextension service should permit these technological advantages to bemaintained. However, the most important factor affecting Israeltscompetitive position for horticultural exports is the integration ofproduction and export marketing that has been evolved over several yearsof successful horticultural exporting.

18. Within Israel, there is close coordination between agriculturalplanning, production and market organization., Which is well adapted toproduction of high value perishable crops. There is considerable experi-ence of producer cooperatives for packing and handling farm produce, andconstr-uction of additional packing facilities for packing expolts wouldnot present any organizational problems, There is also vertical integra-tion between producers and Aarketing Boards, and IMarketing Boards and thetwo export marketing agencies. Producers and producerst cooperatives arestrongly represented on the 13 Production and iiarketing Boards which coverall important branches of agriculture. Government and -wholesale marketingcooperatives are also represented on these Boards,

19. Three Boards would be directly concerned with the project'sperishable output, the Citrus, Vegetable, and Flower Ilarketing Boards.The two former Boards have statutory powers whereas the latter operatesas a limited company. The Citrus and Flowier Boards participate in market-ing operations themselves or through agents. lWith these Boards, producersmust sell through the Board, and payments to producers are based on thepooled receipts obtained on all markets. Premiums are paid for grade andthe time during the export season when the produce is supplied. TheVegetable Marketing Board on the other hand., does not engage in selling,

20. The Citrus MIarketing Board is responsible also for the exportof oranges, grapefruits and tangerines, Established in 1940, it has ahead office for Europe situated in London with 10 branch offices on thecontinent and 5 offices in the UK as well as offices in Israel. The Boardregulates shipments, transportation within I-urope and sales on the mainwholesale markets. The Board is also responsible for market analysis andpursues effective advertising and market promotion campaigns. The addi-tional project production of grapefruits and tangerines would not be avery significant -roportion of the Board' s turnover.

ANNEX 10Page 7

21. AGIEX,C0 is responsible for marketing all perishable non-citrushorticultural exports. It operates for producers and 14arketing Boards ona commission basis. Membership of its Board is shared equally betweenGovernment and the concerned lIarketing Boards and marketilg cooperatives.AGREXCO utilizes the services of the Export Crop Division of the Ministryof Agriculture for much of its market research. It has a vigorous tradepromotion policy that concentrates on advertising and demonstrations to thewholesale and retail green-grocer trades, and systematically opens up newmarkets throughout W,1estern Europe,

22. AGREXCO has expanded rapidly since its establishment in 1957,and nowJ has six branch offices in the EEC, UK and other EFTA countries,as well as a European flower distribution center in Frankfurt. Increasedcapacity will be required to enable it to handle the growth in exportsprojected for 1974/75, when project exports would amount to about onethird of Israelts total of non-citrus exports, as shown in the table below.The collection and dispatch facilities at Lod Airport and the cold storagespace at Ashdod Port included in the project would provide the additionalcapacity required.

ExPorts by AGREXCO at f.o.b. Prices(11$ million)

Type of Total Total Project ProJect asCrop Shipment 1969/70 1974/75 1974/75 % Total

Flowers Air 6.4 19.4 6.8 35Vegetables Air 1.9 304 0.7 20Vegetables Sea 7.8 15.6 5.3 / 34Fruits Sea 4.3 9.5 2.5 1 26

Total 20.4 47.9 15.3 32

1/ Estimate for 1978/79 when fruit trees in production.

B. Import Substitutes and Non-Perishable Exports

Cotton

23e Exports of cotton lint fron Israel have growm from 2,800 tons in1964 to 11,000 tons in 1968. Production in 1968 was 33,000 tons of lintand the proj ect would add an additional 3,900 tons of medium to medium-longstaple lint. Currently, Israel imports 7,000 tons of lower quality cottonlint and the textile industry is expanding, Part of the incremental pro-duction would be used for import substitution and the remainder would beexported for sale on world markets. Cotton marketing is controlled by the

AUFfT3SX 10Page 8

Cotton !Iarketing Board which has statutory pow7ers and participates directlyin marketing. The average f.o.b. price of US$600 a ton received in thethree years 1966-1968 has been projected to fall 15' by 197}, remainingstable thereafter.

Uheat

24. Project production of hard wheat would substitute for some ofthe 346,OOO tons of wheat currently imported. A constant price has beenused equivalent to the present price of imported hard wheat, which is notexpected to fall.

Page 1

IS3AL

AG;ICULTU2AL CREDIT D3JE CT

FINiUlCIAL AI'ID COOIOI C JUSTIFICATIOIC

Financial Justification

1l The project would be well integrated in spite of the largenumber of different elements that it contains, WIater development providingadditional irrigation water and the constructior of additional packingfacilities vould be sufficient for the project's production, The AG&i?XCOfacilities have, however, been designed to provicle for centralized modernreception and dispatch of the planned national, rather than project, exportsof flowers, fruits and vegetables up to and beyond 1975 (Annex 10, para 22).

2, The financial returns of the different elements of theproject, range from 13% to 5010 (A-nnex 11, Apperndix 1). The rates havebeen calculated on the basis of models prepared for each of the mix ofactivities in the projecto For example, a model has been prepared for400 ha avocado which includes the establishment of the plantation, main-tenance through the imnature period, and construction of a packing stationin the sixth year when the trees come into production. A life of 20 yearshas been assumed for the model to allow} for the rapid rate of change intechnology and in consumers' taste,,although the trees would continue toproduce avocados for more than 30 years after establishment. Since farmersoperate their ovn packing facilities cooperatively and at cost, all profitsare passed back to tle producer. Farm production, packing and marketingmust in consequence be considered as parts of a single proc uction processand the samne rate of return applies to the plantation and to the packingstation. A similar situation applies to AGIIEZrCO's facilities, w0hich areoperated for producers at cost and form part of the overall production andexport narketing cycle.

3. Calculations are based on the following general assumptions:

a) Cost estLmates are based on current costs prevailing inIsrael.

b) Costs ofi Lmported cormlponentS have been converted at theofficial rate of exchange (IS 3.50:US4l)0

c) Financial benefits include the 205' preferential rate ofexchange received by producers for agricultural exports,making an effective rate of exchange of IL 4 .20:US$l onthese exports.

d) Financial rates of return have been calculated before pay-ment of incorae tax.

AMAEX I1Page 2

Economic Justification

4. Project economic rates of return (Annex 11, Appendixu 2) aremostly about 5 lower than the financial rates. The economic rate ofreturn on the total project investment would be about 18% and has beencalculated as the average rate of return of each of the mix of activitiesweighted by the investment in that activity.

5. Several adjustments have been made to the flows of financialcosts and benefits as detailed below, but no additional costs have beenadded for the Extension Service. The existing Service is well organizedand would be capable of supervising the project without further assistance:

a) Costs of water and fertilizers (both of which are subsidized)have been raised by IL 2.8 million (US$0.8 million) annually inorder to reflect their full cost. All other inputs, includinglabor, have been charged at market rates.

b) The net income fron alternative production without the projecthas been deducted from project benefits. In the case of flowers,existing supplies of irrigation water would be used. Since quotaslimit the total amount of irrigated cultivation, the productionlost would be in proportion to the relative water consumptiveuses of the alternative crops, and an amount of It 0.2 million(US$0.1 million) has been deducted. i4Jost crops, however, wouldbe groun on extended irrigated areas and the net alternativeincome of If 2.0 million (US$0.6 million), from rainfed wheat,sorghura and hay, has been deducted frcm project benefits.

c) The foreign exchange componei;tu of all project benefits has beenshadowj priced in order to reflect more accurately project'scontribution to the eccnomy. A rate of IL 4.20:US$l has beenadopted. The preferential rate of exchange currently used foragricultural exports, which is also IL 4.20:Us$1, supports theuse of this rate. Economic benefits woulci, thus, be the same asfinancial benefits. Economic costs uoald, however, be increaseddue to the increased costs of imported inputs. Project invest-ment costs w-ould be raised 8%l or by IL 15.7 million (US$4.5million) and operating costs bar WS' or IL 2.7 million (US$0e8million) at full production. This explains why the projecteconomic rate of return is about 5 percentage points below thefinancial rate of return..

ANNEX 11Appendix 1

ISRAEL

FINANCIAL AND ECONOMIC JUSTIFICATICN

FINANCIAL RATES CF RETURN

Total Pereent of Rate ofInvestment Project Return in

i _____________________________ IL million Investment %

A. EXPORT CROP DEVELOPMENT

1. Flowers

Roses 28.5 16.7 23Carnations 4.8 2.8 26Gladioli .9 0.5 50Hothouse Improve-ment 6.o 3.5 30

Sub-total :Flowers 4o.2 23.5 25

2. Sub-Tropical Fruits

Avocado 8.0 4.7 18Mango 2.7 1.6 18Tangerines 6.2 3.6 17Grapefruits 7.1 4.2 17

Sub-total: Fruits 24 .O 14 .1 17

B. EXPORT HANDLING FACILITIMS

1. Farmers Coops.

Avocado 1.2 0.7 18FInwers 1.5 0.9 25Off-season Vegetables 7.4 4.3 33Tangerines 3.1 1.8 17Grapefruits 5.0 2.9 17

Sub-total: FarmersCoops. HandlingFacilities 18.2 10.6 24

ANTEX 1l.Appendix 1

Page 2

FINANCIAL RATES CF RETURN (cont.)

Total Percent or Rate oTInvestment Project Return inIL million Investment _

_ _ _ ~ ~ ~ ~ ~ ~ ~ ______________ _0

2. AGREXCO HandlingFacilities

Lod Airport 7.7 44.5 26Lydda, Materials 0.4 0.2 26Ashdod Port 3.2 .9 26

Sub-total: AGREXOHandling Facilitiel 11.3 6_6 26

WC. ATER DEVELOPMENT

1. Improvement of Exist-ing Irrigation System 54.2 31.7 24

2. Regional Storage &

a) Storage of Run-offNorth

In the North 3.0 1.8 14In the South 11.0 6..4 20

b) Drainage

Grapefruits 5.7 3.3 34Cotton 1.7 l 0 17Rainfed crops 1.5 0.9 13

Sub-total: WaterDevelopment 77.1 45.1 23

Total Project 170.8 100.0 23

Ii,

ANNEX 121Appendix 2

ISRAEL

AGRICULTURAL CREDIT PROJECT

FDIUA3IAL ANTD ECONOMIC JUSTIFICATION

ECONOMIC RATES OF RETIRN

Total Percent of ] Rate of'Investment Project i Return inIL million Investment

A. EXPCRT CROP DEVELOPTPNNT

1. Flowers it 10

Roses 28.5 1627Carnations 4.8 62.-Gladioli 0.9 0.5 28Hiothouses Improve- ment 6.o 3 5 27

Sub-total: Flowers 40.2 235 20

2. Sub-Tropical Fruits

Avocados 8.0 4.7 15I4angoes 2.7 1.6 15Tangerines 6.2 3.6 14Grapefruits ! 7.1 4.2 14

Sub-total: Fruits 24.o 14.1 14

. EXPORT HANDLING FACILITIES

1. Farmers Cooperatives

Avocados 1.2 0.7 I 15Flowrers 1.5 0.9q 20Cff-season Vegetables 7.41 4.3 2;Tangerines 3.1 1.8 14Grapefruits 5.0 2 ! 10 4

Sub-total: FarmersCoop. HandlingFacilities 18.2 10.6 | 18

ANNEX 11Appendix 2

Page 2

LOQILIliG RATES OF RLTURTI (cont.)

Total Percent of IRate of.Investment Project Retlrn in

__________ IIL million Investment

~~~~~__ ___________________ __ I -t

2. AGREXCO HandlingFacilities

Lod Airport 7.7 4.5 2 C,lydda, IIaterialsStore 0.4 0.2 20

Ashdod Port 3.2 1.9 _ 20

Sub-total: AGREXCOHandling Facili-ties _ 11.3 6.6 20 -

C. ''ATE) DEVELOPMENT

!imi~oviEg ExistingIrrigation System 5h.2 31.7 1l

2. legional Storage &

a) Storage of Run-Off f

In the North 3.0 t8 2In the South 11.0 6,4

b) Drainage

Grapefruits | 5.7 3.3 31Cotton 1.7 1i0 114Rainfed crops 1.5 0.9 _ 12

Sub-total: WaterDevelopment 77,1 45.i_ 18

Total Project 170,8 100.0 18

ANNEX 12

ISRAEL

AGRICULTURAL CREDIT PROJECT

ESTIMATED SCHEDULE OF DISBURSEMENTS

Quarter Ended Amount Undisbursed(US$ Million)

December 31, 1970 : 18

March 31, 1971 17

June 30, 1971 16

September 30, 1971 14

December 31, 1971 s 12

March 31, 1972 11

June 30, 1972 10

September 30, 1972 s 8

December 31, 1972 : 6

March 31, 1973 5

June 30, 1973 4

September 30, 1973 : 2

December 31, 1973 : 1

March 31, 1974 s

September 14, 1970

ISRAEL L~EBANON

WATER DEVT R I A N

IN\/a.-aeREPUBLIC 350

330 Sat~~~~~~~~~~~~~~~~ed a

~~ 0rarna~~~e areas Acre Nzaret

\ NEGEVI IRIAINISSE :0J0

uleIh i,

UN D et en EITiSHEAN

REPUBLIC ~ ~ ~ de ).~ (Se(

\ (

'2 ~ ~~~~2

,20 JAF ,0 2,3,2050 gJ t -

O 10 2,0 3~ 0 0Re satR \ Bt

JERUSALEU 72

I' O~~~~~ead

~~ J ~~JORDAN

NEGE IRRIGATION SYSTEM

Dimona Soda

Ein Hatseva.

0 Ein Yahav0//

ARAB~~~~~~~~~~~~AA

REPUBLIC~~~~~~~~~~~~L :AO EPBI

N.~~~~~~~~~~DN(Ela

30 I? 2( 05 SAUDIN

LEBANN RAIRAQKilomete,s ~ ~ ~ ~ ~ Mdierana

0 2 0 20 40 5

Miles IC Re

JUNE 1 9 70 IBeD 2821Rt