CirRCULAX'.?r' TO BE RETURNED TO REPORTS In P n · 2016. 8. 29. · cirrculax'.?r' 0%)y to be returned to reports in p n n v document of international bank for reconstruction and

CirRCULAX'.?r' 0%)Y

TO BE RETURNED TO REPORTS In n P n v

DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTINTERNATIONAL DEVELOPMENT ASSOCIATION

Not For Public UseI II RETURN TO

I . R ---RT5 -ESKI A1 1r U I KI Report No. 379-PH

I ONE WEEKI

PHILIPPINES

OTrIC DcIfPROCTSIN AUTh CTAND Art' PROJTVT

LOAN No. 720-PH

T fl n x l'lfn flA AiTarr n'TLITr.7GENERiAL FEREORxrIZICE REVIEW

AND

RECOMMPENDATIONS FOR PROJECT REVISION

March 28, 1974

Agricultural Credit and Agro-Industries DivisionAsia Projects Department

I Thc . r-. spt pr epred for official use only by thA RBankr GZro.r It mav not be pubhlished n.,ntedi

or cited without Bank Group authorization. The Bank Group does not accept responsibility for theaccuracy or completeness of the report.

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PH ILIPPINES

LOAN 720-PH - RICE PROCESSING AND STORAGE PROJECT

TABLE OF CONTENTS

Page No.

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

II. PROJECT OBJECTIVES AND PERFORMANCE . ......... 1

A_ Obiectives and Main Features ................ , 1B. Performance .................................. 2

III. NEED FOR A REVISED PROJECT ........................ 4

IV. PROJECT COST, FINANCING AND DISBURSEMENT SCHEDULE . 8

V. PROJECT ORGANIZATION ..... ......................... 11

VI. BENEFITS AiD JUSTIFICATION ........................ 12

VII. RECOMMENDATION .................................... 14

A?MTMV Vt' C

1. rain Processin I- dustry itn -,hePhlpieI * iLd.LL K r, LLZUUOLLY Li LLIC rL1.L.L±PpJ.LL~

2. Revised Schedule of Disbursement3. Revised Descr'ption o' the Project4. Financial Rates of Return

Tables

1. Proforma Income Statements for New 2,000 Ton Operating Capacityr'LL11

2. Proforma Cash Flow Projection for 2,000 Ton OperatingCapacity Miil

3. Financial Rates of Return for 2,000 Ton Operating Capacity fill4. Proforma Incremental Income Statement (Expansion)5. Proforma Incremental Cash Flow Projection (Expansion)6. Financial Rates of Return (Expansion)7. Proforma Incremental Income Projection Kiskisan Replaced with

Cono Mill8. Proforma Incremental Income Statement Projection (Expansion of

Grain Silos)9. Proforma Cash Flow Projection and Financial Rate of Return Calcu-

lation (Expansion of Grain Silos)

Annex 5. Economic Rates of Return

- 2 -

Tables

1. New Integrated Mill with 2,000 Ton Operating Capacity2. Expansion of Existing 2,030 Ton Operating Capacity up to

4,000 Ton Operating Capacity3. Replacement of the Kiskisains4. Paddy Drier5. Expansion of Corn Storages (Silos)

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

OFFICE MEMORANDUM

I. INTRODUCTION

1L(1 The Toan Agreempnt with the Rpniihlir nf thp Philinninpq nrnuieiinofor a loan of $14.3 million equivalent was signed on February 4, 1971 andbecame efffective onn May 1Q 1Q71 The Pro4ect fnrms nprt of a fluop1nnmPntBank of the Philippines (DBP) program of lending to the private sector fordevelopment and modernization of the -rain processing industry. This repart

assesses the performance of the Project, reviews the amendments to the loanagreenment the bnrrnwer has recently ronnpoed, rpenmmaonnds m.easures needed forits successful implementation, and presents an up-dated financial andeconomi4 c evaluation of the Project. /

II. PROJECT OBJECTIVES AND PERFORMANCE

A. ObJectives ard '-In leatures

2.01 The objective of the Project is to assist the Government of thePIhL±ilppines iLn carryLLg out a program c,f iUodernULzatU o of rPhiLpp'1ne grinL

processing industry. The project is intended to add to the country's millingcapacity, to reduce grain spoilage, and to increase tne efficiency of grainprocessing. The state of industry is discussed in detail in Annex 1.

2.02 The need for improvement in grain processing and marketing has

long been recognized. Although most or the processing and storage raciiities

are in need of repair, replacement or modernization, private investment inthis sector has been hindered by lack of credit on suitable terms and inade-quate training of plant operators. The scope for investment in modern faci-

lities in this sector was limited until the mld-1960's, wnen new nigh

yielding varieties were introduced. In combination with fertilizer andreliable irrigation, the new paddy varieties have made it possibie to increasepaddy production, which in turn has brought out serious deficiencies in theprocessing industry. Lack of mechanical grain drying equipment is hinderingefficient processing of paddy varieties which mature in the wet season,

1/ In preparing this report, it has not been possible to take tull account

of the consequences of recent increases in petroleum prices. Energyinput of the Project is relatively small, about 2% of gross sales and20% of annual operating cost of the typical sub-project, and the recentpetroleum price increases are not expected to affect significantly the

substance of this report.

- 2 -

while traditional milling and handling facilities have proved increasinglyinadequate for handling commercial paddy flows in major producing areas.The poor storage facilities are causing high spoilage losses and low producerprices.

2.03 As originally conceived the Project was to finance new constructionof six large and 30 smaller integrated modern rice processing plants, andmodernization of 30 existing mills. These mills then would have a combinedcapacity of mechanically drying 225 tons per hour, milling 60 tons of paddyper hour, bulk storing about 150,000 tons (static), and sack storing afurther 24,000 tons. They were to be located mainly in Central Luzon andthe Cagayan Valley where rice production is heavily concentrated. They wereexpected to handle about 480,000 tons oi- paddy per annum, or 15-20% of paddyprocessed through commercial channels (as estimated at the time of appraisal).In addition, the Project provided the technical services required for itsimplementation, including a training program for rice mill operators, managersand officers of DBP and the Philippine Government under the joint auspicesof the University of the Philippines College of Agriculture and the UnitedNations Development Programme (UNDP). The need for a revised Prolect isdiscussed in Chapter III.

2.04 The Proiject provides funds to be relent through the DevelopmentBank of the Philippines (DBP) to private millers and traders. Subloans tobeneficiaries carry 12% annual interest and run for 14 years, includingabout one year's grace. Estimated total Project cost was $21.0 million,including contingencies, of which $14.3 million (68%) would be provided bythe Bank, $2.2 million (11%) by DBP, and $4.4 million (21%) by the benie-ficiaries. Revised cost estimates are given in Chapter IV.

B. PerforrLiance

2.05 Lack of Subloan Demand: Demand for subloans has been disaDDoint-ingly small. DBP received only eight serious applications during the firstyear of implementation. This was due in part to the Door crops caused bytyphoons, tungro virus disease and floods during the first two years of theProieet and in nart to the substantial devaluation of the currencv in 1973.Subsequent experience has shown that the models of the units originallyproposed in the Project were large in relatfon to local terhniral, finanria1and managerial capacity. Even a small unit with an annual throughputcanacitv of 6-O00 tons would reqniirp an investment cs of ahnot- P 2.6million (US$400,000). Although the beneficiary could borrow up to 80% ofthis, hp was renuired to provide his own t-cah conntributior.nf aoP 520,000 (US$80,000), which has proved difficult even for a well-to-domiller .

2.06 Shift of Emphasis to Rehabilitation of i )A411, As aresult of the poor response in subloan demand for new integrated rice mills,the Bank in March, 1972, agreed to shift the emphasis of the Project from

construction of new units to rehabilitation of existing ones. However,nDBP's m-40r preoccupation in the meantimp has been with trvinc to make asuccess of the first five units of new mills under the Project (para 2.07).&s a result, progress in thic rehabilitat4no pffort haQ so farbeen verylimited.

2.07 Abandonment of Construction of New Integrated Units: There havebeen oly five -uif a plIca...4- for new -. units. B4dd took aplace in December, 1972, with Erectors Co. the winning bidder, at P 18.2million 'or -.he fi've units. 7.k.is -was about 125Yo more than the appraisalm.. J. L.L L L 1. LL1I L .5 V ULL L . JL.&A.~ UL.4 S - '..' - -.* * -S- _F

estimate, and about 40% higher than the estimates DBP prepared immediatelyb-efore tbe biddingAu.Ln .-.Le cost overrun was Alargeyly due .t e devaltion

of the peso relative to the Japanese yen. In view of the very large costoverrun, DPnegotiated wi.-C -. the-.~ .8--1 4 Anning bide fo 8 reue price, --A~ LUL, AJ)I LL r,UL.L4LU WL LAI It=~ W .LIL"LL&L

5J.ALU%A=J ~%l.JL A.=L % J9JL %.L, CLI%A

on condition that there would be somv modifications in layouts and detailedspecidUIcai Xs L t sULec U Ull .JanIUaILr J,I IIJ 3 at wCeW U oLL aL r *F.0

million, which was a substantial reduction. However, soon after the bidnegotiation, the UdrastLc yen appreciLatiLon took place and this agai affectedthe bidder's position adversely. Following the yen appreciation, DBPwas reluctant to take tne yen risk, and this gave rise to prolonged negot'a-tions with the bidder regarding the currency to be used for payments underthe contract. Tne Bank approved on May 9, 1973, the proposed contract at thereduced price. Contrary to DBP's expectations, however, the beneficiariesfailed to provide the equity (an average of 20% of investment costs), andthe bidder withdrew his offer on July 14, 1973, after repeated extensions ofthe bid expiry date. As a result, the attempt to build these five unitshas been abandoned. Four of the five beneficiaries concerned have indicatedtheir interest in subloans under the rehabilitation program.

2.08 Sub-loans for Rehabilitation of Existing Facilities: The prospectsfor sub-loans under the rehabilitation program have been improving in recentmonths and there is scope for greatly accelerating their processing ifsome of the provisions in the Loan Agreement are amended. DBP has received33 applications for a total of about P 34 million (US$5.0 million), andits Board has approved eight of these, amounting to about P 8.9 million(US$1.3 million). Bank disbursement in this category was only $200,000 asof January 31, 1974, but should accelerate soon, and the remaining 25applications will be submitted to DBP Board in the near future.

2.09 Price Increase and Sub-project's Viability: On account of thegeneral price increase in the Philippines and of the drastic yen appreciationsince appraisal, an average investment cost increase of about 80% nowappears likely. Since the price of rice has doubled from P 1.70 perganta/2.43 kg at the time of appraisal to over P 3.40, however, the pros-pects for financial viability of the Project's rice mills remain satisfac-tory.

2.10 Training Program: The training of managerial, technical and operat-ing personnel of the grain processing industry, including those for Projectfacilities, is being conducted by UNDP at the College of Agriculture,

University of the Philippines. To date over 200 trainees have completedtheir respect'-ve courses.

2. 11 Disbursements: As of January 31, 1974, only $0.5 miiiion had beendisbursed ($0.2 million for grain processing and handling facilities and$0.3 million for consultant services). Disbursement lags far behind theprevious supervision mission's estimates, which anticipated about $1.0million would be disbursed by the above date. Tne lag is due mainly to theabandonment of the construction of the five new integrated rice millingfacilities (para 2.07). Subject to the revisions proposed below (SectionIII), the Project is however, expected lo pick up momentum. A revisedschedule of disbursement is given in Anr,ex 2.

2.12 Proposed Amendments: To make the Project more workable and toassure its speedy and full implementation, DBP has recently proposed severalamendments to the Loan Agreement, as follows:

(a) to expand its scope to include grains other than rice -

particularly corn;

(b) to add to the items eligible for financing other post-harvest equipment such as on-farm grain drying units,on-farm grain storages, grain moisture testers, grainmill operated trucks and grain carrying barges, andequipment and facilities required for manufacture ofrubber rollers for use in rice hullers;

(c) to include individuals and specific public entitiesas beneficiaries;

(d) to lower the minimum limit of sub-loans to $2,000 frcmthe present $10,000; and

(e) to extend the Closing Date by two years to June 30, 1977.

These amendments are justified (Section III). They were worked out follow-ing a Bank review mission led by Mr. Ducksoo Lee in AuRust. 1973.

III. NEED FOR A REVISED PROJECT

3.01 While there are ooDortunities for investment in the 2rain nrocessin2sector at large, the Project as presently defined is too restrictive, and itis doubtful whether more than S5.0 million out sf the Bank'R $14.3 millinncould be disbursed. On the other hand, with suitable revision it would bepossible to imnLement the Proiect fully and arhieve, its hbaic- nohb4cve,nwhich are still valid and of high priority.

3.02 Restrictiveness of the Project Framework: The Project framework istoo restrictive. Financing is restricted to facilities for rice. It excludes

-5-

coryi and other grains. It also is restricted to certain specific items, andexcludes equipment now found to be required. Only privately controlledcooperatives, corporations or associations can borrow. Individuals andpublic entities cannot and there is a mandatory $10,000 minimum for sub-loans, which has proven restrictive. Procurement procedures leave littlescope for beneficiary's justifiable preferences for makes and models ofequipment.

3.03 Changed Circumstances: At the time of appraisal, rice productionwas widely expected to increase rapidly and reach substantial exportablesurpluses. Under those circumstances, in line with government policy, itwas natural to propose new integrated rice processing facilities of largecapacities capable of turning out export quality rice (impossible withthe existing facilities), to expect that there would be a large number ofqualified corporate entities to be interested in the scheme, and to intro-duce strict procedures aimed at selection of the most productive processingsub-projects.

3.04 The circumstances have, however, greatly changed. Rice productionsuffered a series of setbacks and, instead of having exportable surpluses.the country has imported large quantities of rice. In addition, investmentcosts have increased by about 80% (whereas the rice price has doubled). Partlyas a result of these changes, the demand for new units has been very small.Therefore, the Proiect needs to be revised in the light of changed cir-cumstances.

3.05 Facilities for Corn: With expectations for rice far more optimistIcthan for corn, investment in nrorssing farilities wAs not vpt viewed asurgent at appraisal. Corn production has increased at 8.0% since 1966,and iR exnected to grow at ahotit 7n.z thrnoiuhouit thp 1 9 70 1cs Duiring lastyear's critical period of rice shortage, the Government successfullyra!mipaincd to Pnremirnaag Filininos to-n eat orn-n wit4h rice r a ndI-On step i-urn

production. The 1973 wet season corn harvest should be about one milliontons, an incrse of about 25Z over the corresponding season. of the previoisyear. It is now clear that the rationale for promotion of rice processingapnnlhlpQ penlluwa o11 tn i-nirfn the otheros tapnleop .r Tn eome.

4 vt.aloncemoreover, the grain processing mills being considered for rehabilitationwould be desig.n.ed to process both rice and corn, and most of the corn rilbs 9

for which a substantial sub-loan demand is expected from food manufactr...ersusing cornr as a primnry raw .mate,r-al would ba.A e avai b1-le for sorage ofrice as well.

3.06 With the large increase expected in corn production, there is aneed for at least 60 additionl corn mills of one=ton per day capacity, anda greater need for sack warehouses and bulk silos. Even with the currentproduction level, tahere is a pressing neeA 'or b.ulk 8110s as .icreasungly

large quantities are held between seasons and transported from surplus todeficient regions. The transport and storage 'olem i8 -- l .e .-

-~ ~& ~L.~ IIWA. %. CLU1 A ± L. I tCPLU A ZLOa' L~ the mor crucia

for corn because it is far more perishable than other grains. Unless pro-visions are made for adequate ----- storag a -- --o '-acilitie

fUo Lcorn wiLLth theL Le ,M LVLrodu tLiU FLUs ofo.LL1e L7..L0% ayr v

f or corn, with the expected production increase of over 7.0% a year over

the next decade, it will be difficult to avert large scale post-harvest grainlosses, which will in turn lead to considerable cutbacks in productionresulting from the decline in prices caused by the inability to transport,store and process.

3.07 Transport Equipment: Changes need to be made in the List ofGoods eligible for Proiect financing to cater to the changed conditions.

(a) Under "other ancillary equiDment and facilities" inthe Loan Agreement, vehicles can be provided in the caseof new mills, but not in i:he case of rehabilitationsub-loans. The Loan Agreement should be amended tocover both casas.

(b) Many mill-nw-nerq_ who havp sufficrint- canpacityv an recEpable of efficient operations without any rehabilitationnf their Pqiiipment, are handicapped hya lack of adequateand timely supplies of paddy. At present, they rely to agreat extent on traders for their through.put. SInce a2,000 ton mill, for example, will draw its paddy supplyfrom farmers within a In km radius (a full day's journey,one way, by buffalo cart) there is a need for transportatiornto provide an efficient collection System. Under thepresent terms of the Loan Agreement, such millers do notqual- 4 _: y for sub loan .fSA. veh..ce, sn1e o t _ .---- 4- _, neeAv

for rehabilitation. In view of this, it is recommended4-1-ha- tbe an Agreement b-e amencled so that bona4. fide .- 411LLI .. L. L LAI AA ~ Z&~4.u ~ a iLU %A C L .&II L. U%JLJ .LUV AlL.L.L-

owners may qualify, thereby permitting them to operate theirequip..er.t more economica'l y .C 14 UI 2L~L il~~. i)Si ~LL

(c) LI L .ie Project iU brlocadned tLUo JClude crL, UaLges WUUlU

be more suitable than trucks in some areas, since largequantities are transported by water. It is recommendedthat the Loan Agreement be amended to permit financing ofbarges for this purpose.

3.08 Additional Equipment: une of tne prerequisites ror a modern miiiis that paddy delivered to it must have a reasonably low and uniform moisturecontent (Annex 1, para 15). Tnere is, therefore, a great need for paddydriers at farm and community levels. Due to the absence of suitablemechanical driers on the market at the time of appraisal, the Project didnot include any provisions for on-farm grain driers or storage. The situa-tion has changed recently as a result of the success of a new design promis-ing a wide application (Annex 1, para 18). Extensive use of on-farm drierswould also entail the need for moisture testers and on-farm storages.

3.09 There is a need for equipment required to manufacture rubberrollers used by modern mill hullers. These rollers are consumed at the rateof one pair for each 70 tons or thereabout of paddy hulled. The uncertaintyover availability of these rollers at reasonable prices has been one of themost serious hindrances to technical progress of the milling industry.

- 7 -

There is evidence that local manufacturE of these rollers would be commerciallyfeasible. Provision of relatively low cost equipment under the Projectwould enable the Philippines to manufacture them domestically and reassureprospective beneficiaries that adequate supplies of rtubber rollers wouldbe available, and provide a significant incentive to modernization of theirfacilities.

3.10 Eligibility of Individuals: The shift of project emphasis fromconstruction of new units to rehabilitation of existing ones (discussedin para 2.06) is appropriate because rehabilitation would help accomplishthe original project obiectives and reduce the financial and economic cost.However, this requires a change in the definition of the beneficiary,who is presently defined (in Section 1.02 (e) of the Loan Agreement) as"a privately controlled cooperative, corporation or association to whichDBP proposes to make or has made a sub-loan". Since most of the prospectiveborrowers for rehabilitation and expansion are likely to be individuals,their exclusion is self-defeating. The Loan Agreement thus needs amendmentto include individuals.

3.11 E1igbility_of Specific Public Entities: At present publicentitips Are nor eligible to borrow under the Proiect. It is now desirableto include local governments and the National Grains Authority in the defi-nition of "beneficiary". The use of on-farm paddy drving units i8 a pre-requisite to the modern mill (para 3.06). Their estimated unit cost isabout P 9,000 .41,340) ar.d economic rate of return about 34.7%. About 200units can be installed and operated under the project. Local governmentspropose to procure such fac4l1ties and distribute them to barrioassociations on a long-term lease, in areas where the private sector isnot able to meet 4ncreased market4ng a;;d processirg requirements. T-

addition, the National Grains Authority (NGA), which is responsible foraA_.ministratlon of gover[ment gra'in pol'Ucy, is interested i±ri constructingbulk silos for its buffer stock operations. NGA is at present preparingsub-projects for financing under the Project. It is recommended that thedefinition of "benefir4ary" include local governments and NGA, on conditionthat all sub-loans to them will be subject to prior approval of the Bank,

based on assured need for the facilities, maintenance capability, technicalsondess and financial viability. The total of such sub-loans is not

expected to exceed $2.0 million equivalent.

3.12 Procurement Procedures: Contracts for civil works costing $100,000or r,ore wouLd remain suDject to international competitive bidding in accordancewith the Bank's Guidelines for Procurement. The procurement procedures forequipment requires amendment to take account of the revised scope of theProject and to permit beneficiaries to purchase spare parts and improvementsto their existing equipment or choose the most efficient new equipment forthe quality of processed grain needed by their markets. International com-petitive bidding could not take full account of these factors and ofbeneficiaries' preference. However, to take advantage of international com-petition, equipment costing $100,000 or more would be procured on the basisof quotations received in response to international advertisement taking

00-o-

into account the technical suitability of equipment chosen by the beneficiariesand suppliers' ability to provide service and spares. Civii works contractswith an estimated cost of less than $100,000 and equipment costing lessthan $100,000 would be procured througn ordinary commerciai cnanneis.

3.13 Minimum Limit for Sub-loans: Tne original Project was forimproving the rice recovery efficiency of existing cono mills, the relativelyefficient of the two classes of rice mills. it did not include improvingthe efficiency of the kiskisans, the class of smaller mills whose ricerecovery rate is only about 55-60% compared with the 66% average for conomill. However, replacement of kiskisans with cono mills would also bedesirable change, and it is recommended that the Project should facilitateit. Since small model cono mills cost at present about A 18,000 ($2,710)each, it would be impossible to finance them unless the minimum sub-loanlimit is reduced to about $2,000 from the present $10,000 (para 5.03 ofSchedule 5 of the Loan Agreement). An amendment to this effect should, there-fore, be made in the Loan Agreement.

3.14 Extension of the Closing Date: Since most of the sub-loans involv-ing larger amounts are likely to entail disbursements considerably beyond theoriginal schedule, it is recommended that the closing date be extended bytwo_ta to June 30, 1977 (Annex 2).

3.15 Revised Description of the Project: A draft Description of theProject embodying the recommended amendments appears as Annex 3.

IV. PROJECT COST, FINANCING AND DISBURSEMENT SCHEDULE

4.01 Project Cost: In light of the recent tenders (para 2.07), theaverage investment cost per unit capacity is expected to be about 80% higherthan in the appraisal estimates. As the price of rice has increased morethan the investment cost (para 2.09), the expected financial viability ofthe sub-proiects remains unimpaired. The total processing capacity thatcan be financed with the loan proceeds would be somewhat reduced from whatwas originally intended. Originally the Proiect was intended to processabout 480,000 tons of paddy annually. Because of the investment costincrease. and the use of funds for corn storages not originally planned;it will not be possible to finance processing capacity for more than 350,000tons- about 70% of the original target for rice=

-9-

Estimated Project Costs -(in thousands of US dollars)

Number Unit Foreignof Units Cost Total Exchange

Part A (i)

New Rice Mills 15 147.9 2,219 1,664NGA Grain Storage /b 1 700.0 700 525

Part A (ii)

Improvement of Cono Mills 60 103.6 6,213 4,970Replacement of Rice Kiskisan 140 3.0 414 166Replacement of Corn Kiskisan 60 3.0 178 71Expansion of Corn Facilities 3 1,858.3 5,575 4,739

Part A (iii)

Grain Driers /c 200 1.3 266 120Equipment for Rubber Roller

Production 1 200.0 200 200

Sub-total 15,765 12,455

Contingencies (10%) 1,577 1,245

Sub-total 17,342 13,700

Part B

Consultant 600 600Administrative Cost 1;000 -

Sub-total 1.600 600

Totai 18.942 14.300

/a Embodies the proposed prolect revision. May not add up on account ofrounding.

/b Facilities for the National Grains Authority.

/c About 10 sub-loans to local governments.

4.02 Financing: The Bank loan of $14.3 million, about 76% of therevised cost, would cover the entire foreign exchange component of therevised Project. For the new facilities under Part A (i), and thoserehabilitation sub-projects under A (ii) involving sub-loans of $20,000each or more, the beneficiaries would provide, on average, 20% of the invest-ment cost, and DBP would lend the remainder, of which the Bank would reim-burse 90%. For the expansion projects under Part A (ii) involving sub-loans of less than $200,000 each, DBP would lend the entire investmentcost, of which the Bank would reimburse 90%. The Bank would finance theentire foreign exchange component of the consultant and administrativeservices.

Financing by Categories/(in thousands of US dollars)

Bank DBP Beneficiary TotalPart A (i)

New Rice Mills 1,757 195 489 2,441NGA Storage 554 61 155 770

Part A (ii)Improvement of Cono Mills 6,150 684 - 6,834Replacement of Rice Kiskisan 409 46 - 455Replacement of Corn Kiskisan 176 20 - 196Expansion of Corn Facilities 4;415 491 1,227 6,133

Part A (iii)Grain Driers 263 30 - 293Enqipnmpnr fnr Rubber Rnllprs 166 18 36 220

Part BConsultants 410 190 - 600Administrative Costs - 1,000 - 1 f00

Total lb00 2,75 _1 Qg7 1R,AI42

Percentage 706%6 14% 10% 100%

/a The project costs includes a 10% price contingency.

4.03 Disbursement: A revised schedule of disbursements appears inAnnex 2.

4.04 International Competitive Bidding (ICB): The Bank has waived ICBfor all procurement under Part A (ii), the expansion and modernizationprogram for existing mills, because the investment costs for each beneficiarywere expected to be $100,000 or less. Conditions have now changed, and afew sub-loans involving more than $200,000 are likely to be forthcoming underPart A (ii). It would not be appropriate to waive the standard ICB require-ment for sub-loans involving more than $200,000 each simply because they are

- 11 -

under the expansion and modernization Drogram. It is recommended. therefore.that Section 3.07 (a) of the Loan Agreement spelling out procurement proce-dures reauiring ICB be amended to include goods and services renuired forinvestment Projects under Part A (ii) involving a sub-loan of $200,000 or more.The waiver nf TIr would remain vnlid fnr suth-Innn for rphahilitntinn Of

less than $200,000 on condition that the equipment specifications were certi-fied by the onaiultant as si4table for the confitions and evistino facilities

of the sub-borrower, and, after prudent shopping, the cost was reasonable.

4.05 Beneficiary's Equity Requirement: The 20% average equity (cashcontribution) requiremet- from the benefici4ary appl-ies only- to- th i4-r,ct--r

projects for new mills included in Part A (i), but not for rehabilitationand expanso of e-4-x4st-i 11.ill unAer Part- A (44i. ronditior --eni

4ng

.. d expansio a.a- -- - tA..J _ 11 lf*~A . O. - = , '.JP*S-A/a, - - - S-K .- f6

the equity requirement changed, and some of the large borrowers for expansionof corn silos a-A feed manuFac.urng fac414-4ities are likely ,. to be - ria

.JA ~*J. A . .. LJO am a. 1a u,ua . LLS£* ACL~LU .LtC LC l tDC UC .,MaL_..j

entities capable of providing a reasonable share of Project cost. There istI-.- n one anLy ..Vo reaso&n L-o exemplJ all *Le Uenee clarI..-.J.L oaO OUU-L oLnO

under Part A (ii) from the equity requirement. The beneficiaries of sub-loansoL $2V0 0,0 equivaler,t or more sh'lould Lt be rqU.LLeU LU contrLLA.UULte on avera

the same 20% equity required of the beneficiaries under Part A (i). It istLherefore recou-umenUdedU that SectiLon 3'J. 10 ol the 'LoanL tAgreemftent be amenduAeduaccordingly.

V. PROJECT ORGANIZATION

5.01 DBP: The Bank loan is to the Government of the Philippines forrelending to DBP on the same terms under a Subsidiary Loan Agreement. TheLoan Agreement specifies the main operating procedures to be followed underthe Project, including the establishment of a separate Project account.To ensure suitable sub-loan appraisal and supervision a separate GrainProcessing Division has been set up in DBP to administer the Project.

5.02 Sub-borrowers: Each sub-loan application is filed with one ofDBP's 26 branches, nearest the subproject to be financed. The applicationincludes details of the applicant's past experience in grain milling andtrading, the status of his processing and storage operations and facilities,the purpose of the loan and the collateral offered. This is sent to DEP'sGrain Processing Division for further investigation. DBP's Board of Governorsapproves sub-loans on the basis of such factors as managerial competence, priorgrain processing or trading experience, technical capacity of proposed mid-levelsupervisory personnel, suitability of location, and financial viability.

5.03 Detailed designs of rice processing and storage facilities are tobe prepared by the technical staff of the Grain Processing Division with theassistance of the consultants (Pemar Engineering). In connection with sub-project preparation, DBP and its consultants will seek the advice ofUNDP and IRRI. The Loan Agreement should be modified to take into accountthe beneficiary's preferences for makes and models of equipment (see para3.12). Sub-loans to a single beneficiary in excess of 5400,000 is subjectto approval of the Bank, and, in addition, under the revised Project,

- 12 -

every sub-loan to local government and NGA would be subject to priorapproval by the Bank, on the basis oL demonstrated technical and organiza-tional soundness and financial justification.

5.04 In the appraisal of potential sub-borrowers, the Grain Process;ingDivision is required to pay particular attention to the requirements forworking capital and the intended sources. Seasonal requirements wouldgenerally be large, and the Division will continue to endeavor to assistsub-borrowers either by arranging financing with private commercial banksor providing such funds out of DBP's own resources if necessary.

5.05 Project sub-loans are repaid at 12% annual interest over 14 years,including one year's grace covering construction and start-up period. A 12%interest rate is considered to be appropriate and in line with terms of sub-loans under the on-going Philippine Rural Credit Project (Loan No. 607-PH,$12.5 million), and gives DBP an adequate spread of 4.75% on Bank funds.

VI. BENEFITS AND JUSTIFICATION

6.01 General: The proposed revision would considerably strengthen theProject, and help it to achieve its initial objective of modernizingthe grain processing and storage industry. The nature of the benefitspostulated in the appraisal report would remain unaltered. The paddy drierswould complement other factors in facilitating the spread of high yieldingvarieties maturing in the wet season. The storage facilities would minimizepost-harvest grain losses and help stabilize inter-seasonal prices. Theprocessing mills would raise the quantity and quality of the grain produced,and allow better utilization of by-products. Effective design and locationof Project facilities would ensure adequate financial returns to the beneficiariesand acceptable economic returns to the country as a whole.

6.02 Financial Viability: Up-dated and revised financial analysesfor major types of subprojects appear in Annex 4, Tables 1-9. They reflectthe significant changes in investment costs, prices of paddy and rice, ricerecovery rates, operating costs, modified configurations of investmentcomponents, and changes in operating capacities, etc. The estimated financialrate of return on investment in new 2,000 ton rice mills is 18% before cor-porate tax and 16% after (Annex 4, Table 3). This is about the same asthe average of 18% originally projected at the time of appraisal for anew small mill of 6,000 tons. The estimated incremental financial rate ofreturn on a typical expansion of an existing mill is considerably higher,36% before tax and 30.0% after (Annex 4, Table 6). The corresponding ratefor replacing a kiskisan is 32% (Annex 4, Table 7). The weighted averagerate for all rice processing components is 32% before tax, which isrnnQidePrnh1v highpr thnn in t-ha nricinnl Annr:nic:>1 Thp Poesmt1nete finnnpinl

rate of return on investment in corn silos is 12.5% (Annex 4, Table 9). Theweighted iavrang fo-r nll thesQ conmponpnts IQ nnt pvnPrtPd tn fall hplnw 2?LT

The rate of return on equity would be considerably higher, and provideadequate incentives for participation ir the project.

- 13 -

6.03 Economic Benefits: In this analysis, only two readily quantifiablebenefits have been considered. First, from the net increase in grain out-put resulting from the higher milling recovery rates; and, second, fromthe prevention of erain loss achieved by the subproiects. The total ofthese quantifiable benefits would be about $3.5 million per year (2.9million from 17,000 tons of rice and SO.6 million from 8-000 tons of corn).Incremental output has been valued conservatively: rice at $170 per ton,and rnrn at $R0 npr ton. TherF wntileld 'h additionnal hpnpfits, surch as thedemonstration effect of modernization of the grain processing industry ingepnpral, siuhstitu1tion nf crraini imnnrt-s and timnroupd qiialities of np1ishedrice resulting from reduction in the percentage of broken kernels, etc.

6.04 (a) Increased Recovery: This benefit would accrue to the sub-projects with grai.n milling facil4ties ompared wIth the average illi

recovery rate of 63% for the entire Philippine industry, the new rice millsequipped with rubber hullers should obtain 69Y, while each mill wifh oanannual paddy input of 2,000 tons should have an incremental rice yield of120 tons. Existing cono millls shoUld achieve a recovery rate -f 69% -derthe Project, and the benefits attributable to their modernization would bea three percena.tge points 4ncrease for 2a,000 tons of cuent -th:oughpt and asix percentage points increase for additional throughput, so that the totalof su chI ir.ncremental yie 'l.ds wo u '.Cld be 18 0 to..s Thel kiski-sar.s to be rep'acedJA. ~U~.k .LLL,k~1~LLaJ.. ~ W~JLL.U U~I 1J J L~JLD . LLL M \.L MA . L %AJ U~_ I_.. C%_

with cono mills are assumed to have an average annual current throughputof 2420 tons anlu a current recovery rate of 6 Llee * L'rojecLL wouLU UOULJJe

the throughput by replacing each of them with a cono mill and enhance itsrecovery rate f'rom 60% to 66%,bU LLso L L[ha the ineuLtal yield would be L26tons

of grain. The annual value of such incremental yields would be aboutt'fl 0 .. a IJ . r An - . e- r -s- f 4$.8 0uiiou I-on 1St±ng OI or.7 mil.ou ifroim 16,000 tons of rice ana $U.1million from 1,600 tons of corn.

6.05 (b) Loss Prevention: This benefit would accrue to the sub-projectsror grain storage and driers. One on-farm grain drier is expected to processabout 100 tons of paddy per year and, by preventing spoilage and enhancingpaddy quality, to yield an additional 3.5 tons per year, equivalent to atleast 3.5% by weight of the paddy input. Thus, the Project's 200 graindriers should give an annual incremental recovery of about 700 tons of rice.The silos for corn are expected to redtvce the expected loss rate from 9.0%to 3.0%, equivalent to about 6,500 tons of corn. kne totai of such iosspreventions would be about $637,400 ($119,000 from 700 tons of rice, ard$518,4UU from 6,480 tons of corn).

6.06 Economic Cost of Investment: Tne economic cost of investment hasbeen calculated by deducting the estimated average financial investment costrequired for alternative investments in conventional types of facilitiesfrom the Project's financial investment cost. This procedure is consideredappropriate because the construction of new mills and the expansion of exist-ing ones under the Project will take place mainly in areas and in categoriesof investment urgently requiring additional facilities.

6.07 Economic Cost of Operation: The economic costs of operatingProject facilities would be relatively small, because only very limited

- 14 -

additional inputs are required compared witn tne input required for conven-tional facilities. For rice processing facilities such additional inputswould be about P 33,000 for every 2,000 tons of paddy througnput; P 9,000for 30 pairs of rubber rollers, F 4,000 for fumigant and E 20,000 for fueloil for grain driers. The only other significant economic cost of operationwould be the fuel oil for paddy driers, since the entire oil used wouldreplace the energy from the sun.

6.08 Economic Rates of Return: On the basis of these estimates ofeconomic benefits and costs of investment and operation, the rate of returnis 28% for new integrated rice mill; 69% for incremental investment onexpansion of existing mills; over 100% for replacement of the kiskisans withcono mills; 35% for paddy driers; and 13% for incremental investmenton expansion of corn silos (details in Annex 5, Tables 1-5). The weightedaverage for all components would be at least 35%. The Project would havea satisfactory overall rate of return, despite the very conservative valua-tion of the benefits.

VII. RECOMMENDATION

7.01 On the basis of the foregoing, and in consideration of the importantcontribution the Project is expected to make to agricultural development inthe Philippines, it is recommended that:

(a) the scope be expanded to include equipment and facilitiesfor storage and processing of corn, including feed plantsusing corn as a main ingredient;

(b) the list of items eligible for financing be further clari-fied and expanded to include trucks and barges operated byproject facilities, on-farm grain driers, on-farm grainstorages, and equipment a'nd facilities for manufacture ofrubber rollers for hulleru;

(c) beneficiaries be expanded to include individuals and, (sub-lect to the conditions in para 3.11), local governmentsand the National Grains Authority;

(d) the procurement procedure be modified to take into accountthe beneficiary's iustified preferences for makes and modelsof equipment, subject to the conditions in para 3.12;

(e) the minimum limit for sub-loans be reduced to $2,000 equiva-lent frnm the nresent $10,00;.

(f) the Glosing be extended by --- years to June 30, 1977;

(g) t-ho tjaiver of TrB be restrvictedA tor procureamert for civ4l works

and equipment with an estimated cost of $100,000 or less(subject to con.ditios set forth in, para 3.12); and

- 1S -

(h) the waiver of the 20% average equity (cash contribution) require-ment- be restr4ctedl to SUb-project-s for reh&-ab-ilitation a-A~~ LL u.L L ~~ LJ '.U jJA ~.J~.~ LJ .LJ.L L. LLIJL ~LAU.expansion of existing facilities (Part A (ii)) financedwith a su-loan of 'less than12,

MUarch 2u79 I1's4

ANNEX 1Page 1I

PHILIPPINES

RICE PROCESSING AND STORAGE PROJECT

GRAIN PROCESSING INDUSTRY IN THE PHILIPPINES

I. Rice Processing

1. Rice Production: Rice is the staple food for about 80% of thepopulation in the Philippines and corn for the remainder. During most ofthis century, rice production merely kept pace with population growth untilthe mid-sixties when the country had to import about 435,000 tons per yearon average between 1963 and 1965. In 1966, foodgrain self-sufficiency becamea major objective of government policy. With the advent of new high yieldingvarieties developed at the International Rice Research Institute, Los Banos,and the acceptance of these varieties by the farmers in areas of assuredwater supply, paddy production increased at a rate of 5.5% per annum between1955 and 1970, rising from a total of 4.1 million tons for the 1965/66 cropyear to 5.3 million tons for 1970/71. In 1969, as the result of modestexports of about 27,000 tons of rice, there emerged the widely held optimismthat the country had entered upon an era of self-sufficiency and that therewould be substantial exportable surpluses in good weather years. Thisoptimism was soon beset by a series of setbacks. In 1971-72, the cropsuffered severe damage from the three successive typhoons and widespreadtungro virus disease. In 1972-73, severe floods caused an extensive cropfailure in Central Luzon. These crop failures necessitated the importationof large quantities of rice during the crop year 1971/72 and again in 1972/73.

2. Despite the considerable increase in paddy production that isexpected to occur during the forthcoming years, 1/ it is not likely thatsupplies will exceed domestic demand for some years to come. In fact itwill be difficult to meet the demand increase of about 40% projected forthe current decade. 2/

3. Outlook for Rice Processing Industrv: Despite its adequacy interms of capacity, the rice processing industry in the Philippines needsrevamping. The combined static capacity of grain storaRes has been estimatedto be about 3.0 million tons, adequate to handle the entire paddy productionof 5.1 million tons for the 1971/72 crop year even under the assumption that

1/ IBRD Report No. 39a-PH, Agricultural Sector Survey - Philippines, 1973Vol. III, Annex 6, para 75.

2/ Ibid, Vol. I, p. 13, para 4.03.

ANNEX 1Page 2

as mnucn as 60% of it is narvesteu in the drY season. With an aggregatemilling capacity of 7.7 millions tons of paddy on the basis of 250 workingdays of 12 hours eacn, it wouid appear tnat tnere is an excess capacity otabout 50% in rice milling industry.

4. Contrary to the apparent adequacy, however, the industry is madeup largely of dilapidated, inefficient and obsolete facilities. A substantialproportion of the storage consists of warehouses designed for sack ratherthan bulk storage and is in poor condition, with rusted walls, broken windows,inadequate ventilation and high levels of humidity. The inefficiency of ricemilling industry is even more striking. With an average milling recoveryrate (the percentage by weight of milled rice recovered from the paddy) ofonly about 63%, the performance is very poor in comparison with the farsuperior performance demonstrated elsewhere in Asia and there is scope inthe Philippines for action to increase the recovery rate by several percent-age points.

5. About 95% of the paddy output is processed by mechanical millingprocess, and the remainder is hand pounded for subsistence consumption.Abotut 45% of the paddy output is milled by the oldest type of mechanicalhuller called Engelbergh or kiskisan which has a low recovery rate of lessthan 60% on average, and produces rice with a high percentage of brokenkernels. About 50% of the paddy is milled by the cono mills (disk hullermills) with an average recovery rate of about 66%, but these cono millsalso leave considerable scope for improvement.

6. Despite the great advantages to be gained by mechanically dryingthe paddy, especially in the very humid environment in which the wet seasoncrops are handled, there has been very little progress in the use of mech-anical driers in the Philippines.

7. The oldest mechanical rice mill is the kiskisan, a relatively smallunit with a throughput capacity normally ranging between 250 to 400 kg. perhour. It requires a relatively large power of about 15 hp for operation, andremoves the husk and bran in a single operation without separating one fromthe other. There are about 9,000 kiskisan mills operating in the Philippinesand they together process about 45% of the total paddy production. Theirmillion recovery rate ranges between 55-60% on the basis of the avera2epaddy milled to turn out "good second grace rice". This means that, withthe 1971/72 cron year naddv output of about 5.1 million tons- assuming thatabout 90% of it was actually milled, the 9,000 kiskisans milled about 2.1 mil-lion tons and turned out about 1.3 million tons of milled rire, and that thethroughput per kiskisan averaged about 2.4 tons, or about 5,300 cavans of44 kg.

R , .hiIa t1he 1 rge operators have severna1 itn4 t at-he bu1k1 -of the

kiskisan millers operate single units. The operation is so simple thatmanu Vicsisans oar ruin alnmost nn a salf-sae-trieu bkna4a a8 -hat- .11 t-all -. 411

owner does is to collect milling fees of P 1.00 to P 2.00 per 44 kg. cavanof paddy and to switch on the motor. The customer dps his paddy into

ANNEX 1Page 3

the hopper and takes home all the rice and the bran mixed with the husk. Thekiskisan normally accept job lots as small as one cavan of 44 kg. or evenless, and their typical job lot is only a few cavans. The kiskisan ownershave at present nothing to gain from improving the quality of milling. Inview of their poor performance, the kiskisans have been completely phasedout in Japan and Taiwan and are being rapidly eliminated in India.

9. Cono Mills. The next improved rice mill is the disk huller millcommonly called the cono mill which employs a multi-stage milling processthrough paddy cleaner, under-run disk huller, rice separator, cono-typepolisher followed by a rice grader. The whole range of cono type equipmentis manufactured in the Philippines. There are about 2,000 cono millsoperating in the Philippines and their combined throughput has been estimatedto be about 50% of the total paddy output. With the 1971/72 crop year paddymilling throughput of 4.6 million tons, the 2,000 cono mills processingabout 2.3 million tons, turning out about 1.5 million tons of milled rice,so that the average throughput was about 1,170 tons of paddy, or about27,000 cavans of 44 kg.

10. The milling recovery rates of the cono mills vary widely dependingupoIl the qualities of the machine, the operator, the paddy and the finishedrice. The average has been estimated to be 66% on the basis of the averagepaddy milled to turn out "good second grade rice", and this compares veryfavorably with the corresponding 55-60% recovery performance of the kiskisans.The cono mill reauires three times as much capital as a kiskisan of the samecapacity, and it takes more skill to operate. Its operating cost per unitof paddy milled is about the same as that of the kiskisan mill. While thecono mills do provide milling services to customers on the basis of fixedfees that are comnarable to those charged by the kiskisans- the main sourceof their income has been trading of paddy and rice rather than milling forfees. Their rire trading has been very profitable a.- the nrir_es have beenwidely fluctuating while sharply increasing in recent years.

11. Modern Rice Mills: Over the past 30 years, there have been aseries of advanr^e in rice milling technnlogv elsewhere in the world., andthe modern rice mills now obtain milling recovery rates much higher thanthnse possible wit-h the o-vnno millst Tn adAition- they yield moli shed rireof export qualities with far less brokens. This has been made possible byreplacement of the disk huller with rubber roll hiulers In the mwdern ricemill, paddy is passed through an adjustable clearance between the two rubberrollers rotating at different- aspeaaa so -hat- -he husk is re.moved from thepaddy with much less damage to the rice and therefore the recovery rate isa'cually much higher. The broun rice (hulled paddy) ic t-hen fed t-n t-he whiten-ing machine and the polisher which produce white rice by removing the branlayer from the grain.. Two types of whiteners or polishers are available:the vertical cone polisher and the horizontal abrasive or friction polisher.Boh. .o thes h,a v b een _ SU--A , -1 .. ttyal AA4 - -AA

varieties. There are no significant economies of scale in this modernprocess any Lnore thlan in the cono type miLlling.

ANNEX 1Page 4

12. A few modern rice mills have been constructed in the Philippinesin recent years: they have been disappointing in several wavs. Some of the

cauLses of the disappointment are inherent, but by no means incorrigible, inthe nature nf the mndern mills.

13. The first t-hreem, dern mills havp heen hiiilt recantly are toagThey have annual milling _apacities of 18,000 tons, 30,000 tons and 75,000tons of paddy on the basis of 250 worklin diay nf 19 hours per day Theirprimary problem is the difficulty in procuring paddy in quantities adequateto keep the n4l 4Is runn-ng at ful capacity. There appear to be dlseconoWesof scale in the physical logistics of procuring and delivering the largequantities of paddy even rhere production is h4ghl- Tat I

been reported that a rice mill with a mu zh more modest capacity of 2,000 tonsh.as had to bring the paddy from far.A a as far as 3nI,-.waa0 n z.d the -J. .13er,, o SaS LJ U.t t .A1j a.. .. ,. 4 S IL .. .. A. r. .'. r.fl. SW y ,. 4u.1 WLJLL.LLC

found it physically difficult to gather the required quantity. The task ofse-tti.g up tahe necessary pro-cuream-ent --

4 a-za4 -nnw ever-. -.,. Adifficult.

Since there are no -significant economies of scale in milling beyond thecapacities oI abouet 2,000 tons, the.s .eM411ers would 1have -een m.h better

off if they had started with smaller capacities and phased their expansionas theier marketing capabi ities grew.

14. Moreover, tese mills h-ave b,een constructed wl"hout adq te rw dI '4 * iUL trI VL L" *&LLL L V LUf '5 S.LU VS .1'UL &dUt:.jUaL L t . g"LU

for economy. For example, costly components of doubtful usefulness such ascentral control panel eq-uipped with closed circuit television ha-ve beeninstalled, so that very considerable savings should have been possible with-out reducing th'te essentiaL uXLct-ULLo dan'u the rated C-apacities.

15. These mil' 1- L'ave experienced severaCL technical problems arising

from the quality of Philippine paddies. They are equipped with mechanicalpaddy driers of large capacities, which are found to be unsuitaDie becausethe batches of paddy to be dried normally consist of many different varietiesof widely different moisture contents. As long as there is no wide practiceof on-farm paddy drying so that there is no uniformity in moisture content,the mills need to be equipped with a large number of small driers ratherthan a few large driers as in the case of these modern mills. The paddydrying problem ot these mills has given rise to another problem. The modernmills are equipped with integrated equipment which performs the entire pro-cessing from hulling, separating and polishing. The rice separator of thisstandard equipment is the specific gravity type which cannot properly functionunless the paddy being processed has a reasonably low and uniform moisturecontent. Despite the problems arising from the large redundant capacities,inordinately high investment costs and the difficulties with the driers andthe separators, however, these mills have been able to achieve an averagemilling recovery rate of about 69%, comparing very favourably with the 66%for the cono mills and the 55-60% for the kiskisans.

16. Mechanical Driers: There has been very little progress in the useof i,echanical driers. The use of mechanical driers of heated-air convectiontype has in the past relied mainly on imported facilities which are designedto suit environments very different from those of the Philippines. The im-ported facilities are usually intended for centralized drying plant operation

ANNEX 1Page 5

and therefore tend to be too large, too expensive and require a high degreeof skill for operation. Centralized paddy drying is not practical in thePhilippines because the paddy farms are typically very small, fragmented,scattered, planted to many different varieties, and often without ready accessto feeder roads to bring the harvested grain to the drying plant soon enougnto minimize quality deterioration.

17. There are five principal categories of advantages to be gained bythe use of mechanical driers:

(a) it enables the farmer to harvest the crop at the rightstage of maturity unaffected by the rain which is themost serious constraint against sun-drying and, in turn,harvesting;

(b) it shortens the time required for harvesting and increasesthe scope for additional crops;

(c) it helps the farmer to avoid being trapped with wetpaddy and improves his bargaining position vis-a-vispaddy traders;

(d) it prevents the most serious post-harvest grain lossesarising from the wetness of the paddy; and

(e) it enhances the milling recovery of the paddy by atleast 1.5 percentage points compared with what itwould be if it were sundriedj in addition to 2.0 npr-centage points loss prevention.

18. The appraisal mission was fully aware of "the need for driers atfarm and community levels." At th.at time, however, no suitable mechanicaldriers were being marketed which could be promoted for on-farm use and theimission concl.uded that, "Probably the best Long run arrnge,enUSt for ricedrying in the Philippines would be large, efficient driers at mills, com-binead wfith rapkid trarnSport from. field4 to mill. Yoee,bcueo h~ LLOLOjJJ, L *L%S* .LL~~t ~u W.LL. . UAWL Ho ev r uectause of/ tthe

poor feeder road network, this is not practicable everywhere." The situationhas improved recently as a result of the success of a Joint effort of UNDPand the University of the Philippines College of Agriculture in developinga design for sma"ll mechanical driers which would be cheap to manufacture,simple to operate and effective in drying the grain on the farm.

VrT Il l.A

.L. Corr Processing Inaustry

19. Production of Corn: Corn is the staple food for about 20% of thepopulation, ard its production iin tne Phiiippines, which at present is about2.0 million tons, has been increasing at the rate of about 8% per annum.AbUo ,ut 9 the production is white corn used mainly for food and theremaining 10% is yellow corn used mainly for feed. White corn has con-tributed much to alleviating the shortage of rice during the past two years.

ANNEX 1.rage 6u

Rapid expansion of modern poultry and pig industries has caused a strongdemand for yellow corn, and about 250,00() tons of yellow corn were importedto meet the deficit in 1972. The current four-year plan sets the targetsfor corn production aiming at an annual growth rate of 7.2%. from about2.3 million tons for 1971/72 to about 2.7 million tons for 1973/74 and itappears that these targets are attainable. The proposed strategies includeextending high yielding varieties and complementary packages of inputs, en-lar2ing the share of yellow corn in total production, and establishin2adequate storage and processing facilities.

20. Corn Processing Industry: There are about 600 cono corn millsand about 3,500 kiskisan corn mills operating in the country today. Thacomibined capacity of all the corn mills is about 1,050 tons per hour,345 tons by the cono mills and 705 tons by the kiskisans With noniit 2.1million tons of corn actually milled in 1971/72, the average number of hoursthat the mi lls worked was about 2,000 and thiS gi ves onme ineication thatthe degree of utilization of corn mills was considerably higher than that ofrine mills whirh wnrked on average about 1,390nQ hours in that year. Thecombined capacity of existing corn mills is adequate as a whole. However,there are arnumher of pckc-at of r-g io-n.a1 defi cienc1ie whi,h o,.l d beco -more serious as corn production increases. It has been estimated that, withthe lar-e inrreas erx-etped in c-rn nrodi,rtinn- therp Is An 4redAatet- needl

for about 66 additional corn mills of one-ton capacity. Moreover, there isa greater need for facilities for sack warehous-es and bulk sIloS. Evenwith the current level of production, there is a pressing need for bulksilos as --ir.crasngly loarg qutanti-i nf cnar- e held over -- periods ofP

- A.r. --- -.a . 7 --5 - r, 'i j -A,n -.t.C ' - - . - - -L atW .V. J . I. J= A.5tUC A.

time between seasons and transported from surplus regions to deficient regions.The transport and storage 4,rali ., isal th-e ..more crucia for c b-use

L*t. L Ol&Ok-" L a.,.. LJL t,.. JS-SLJ.LAA* -0 "J. -_. Std .LJ . AJ . LU L t.tL& UCLa 1usc

it is far more perishable than any other grain of importance. Unless pro-visions are made for adequate transport aAd storage facilities for corn,with the expected production increase of over 7.0% a year for the nextdecade, it would be difflcult to a-vert large scale post-harvest grain lossesand, in turn, considerable setbacks in production resulting from the declinein prices caused by the inability to transport and store.

ANNEX a

PHTLTPPT NFS

LOA.N 720-PH - RIT.VE PRPnrn1.5qTT%T P'PO.TTYrT

SCDUlThUT OF DTqTITMTT=N!T%¶ I

ReI s ed on T 1Cr 1 Y71 )V ~.L L.LU - -aL .J v', */ ' -'4/

Unit: Thousands of 'JS dol'ars(Us$1.oC P6.76)

Appraisal /a Previous /a New New Estimate as % ofEst.ate LIst--,4. e Etl.'-,,zte4 pre-Jous Est-Im,ate

7T.:DT) /U-V

Semesters

FY73

2nd 3,8l6 236 236 100

FY7M. ;,,, U,U 44) eUu

2nd 9,810 2,221 1,104 50

FY75is -~')IJ4I U., Q-)U OI

2nd 14,300 12,775 7,418 58

- - - - - - - - -Original Closing Date- - - - - - - - - -

FY76'st -1 4, 300 ° 10,170 712nd 12,407 87

FY771 st 13,4,55 9X42nd 14,300 100

- - - - - - -Proposed Closing Date- -

,/Aq qo 'eeil Rivpi s.ion mnrvvt. Octoberh ' 1Q73q h-,r by TL. L nd P

iiatsuda, Annex 3

March 28, 1974

ANNEX 3

LU1J.L ,-L LL Lk'l A..

RICE PROCESSING AND STORAGE PROJECT

Re-vised Description oL the Project

The Project is part of the Borrower's lending program for grain processingand storage development and consists of supplying funds for the following:

Part A

(i) The construction, equipping and operation of new moderngrain processing and storage facilities by the beneficiaries;

(ii) The rehabilitation, expansion and operation of existinggrain processing and storage facilities by the beneficiaries;

(iii) The provision of equipment and facilities for on-farm graindrying and storage, and for manufacture of rubber rollers forpaddy hullers;

(iv) The facilities under (i), (ii) and (iii) hereof include:

(a) bulk storage facilities for rice, corn andrelated products;

(b) warehouses;

(c) mill operated and on-farm grain driers and on-farmgrain storages;

(d) equipment and facilities for rice and corn millingand corn feed manufacture;

(e) equipment and facilities for manufacture of rubberrollers for hullers;

(f) trucks and barges to be operated by bona fideoperators of grain processing and storage facilities;and

(g) other ancillary equipment facilities.

Part B

The training of managerial, technical and operating personnelof Project facilities.

.March 28, 1974

ANNEX 4Table 1

PHILIPPINES

LOAN 720-PH: RICE PIOCESSING PROJECT

Proforma Income Statements for New 2,000 Ton Operating Capacity mill1/

Based on the Latest Project Cost Estimate

(in thousands of Pesos)

-_____________----Years-----------------------

1 2 3 4 5RLevenue 2/ 1,754 i,724 174 I,(4 1,24Less: Cost of Paddy 3/ 1,364 1,364 1,364 1,364 1,364GrvssJf i onU S~- 'QO..L_ 390J 390' ,9039Less: Operating Cost 4/ 190 190 191 191 191Operating Profit 200 200 199 199 199Less: Depreciation 52 52 52 52 52Less: IrTt.Prt 5/ 102 98 94 8F 84Profit before Tax 46 50 53 58 63Less: Tax 6/ 12 13 1i 15 16Profit after Tax 34 37 39 43 47

1/ The operating capacity of the mill is 2,000 tons of paddy input per yearand is equipped with a bulk silo of a static capacity of 666 tons. The totalcost of the project is 1,000, the sub-loan is estimated to be 800 (80%).

2/ The milling recovery assumed is 69% and the bran yield 10%, so that theoutput would consist of 2,000 x .69 = 1,380 tons of milled rice and 200 tonsof bran. The revenue is calculated on the basis of the selling price ofY3.00 per ganta of 2.43 kg of milled rice: 1,380,000/2.43 x 3.00 = Y1,704,000and p250 per ton of bran: 200 x 250 = Y50,000.

3/ The cost of paddy assumed is p30.00 per caban of 44 kgs, so that the totalcost for 2,000 tons is 2,000,000/44 x 30.00 = r1,363,636 or, say, 1,364.

ITe operating cos. here consists ofI L.w cUQLonent5: (a) iiL ihiie currenltexpenditures other than interest and, (b) the interest cost on working capital.The fo. .er is 160 Wnd c'onsistsO ofI:. W-flsO.-0 ( 21 .0w) , Trucking (91.7 *0) , TJ__.nLg a.d

unloading (4.0), Fuel (19 5) Fumigant (4.0), Rubber Rollers (10.0) Bags (30.0),Repair and Mai-nten-ce (2 which is procted o *nrea 1. ea,h year,Inventory Insurance (18.0), Insurance on Depreciable Assets (5.0), Taxes andLevies (,0); and Misrel aneous (9Q 5) The latter is the interest cost on workingcapital. It is assumed that, on average, the working capital required is for333 tons of paddy, equivalent of half of the static silo canpaity. Since thprate DBP charges is 11% for 270 days and the project would require the workingcapital for about 330 days, the rate would actually be .11 x 330/270 = 1_1A,1_say, 13.5% per annum. The total interest cost would be 1,364/6 x 13.5 = 30.The total operating cost would, therefore, be 160 + 30 = 190.

5/ At 12% per annum for the sub-loan of 800 plus the capitalized interest of48, or 800 x .06 (½ year), during the first year.

6/ Corporate Income Tax at 25% up to the first p100,000, and 35% of pre-taxprofit over and above ?100,000.

*.-a .. 'I" 1Q71,

ANUNEX 4

?HKTP ~ ~ ~ ~ ~~~ ~_ ____.

zPHILI-PPINES;

TLOAN 720-i-,: RICIE P.OKoCESTSl7NS PROJECT

Proformn Cash F'ow Proiection for 2.000 Ton rDeratirv. Caracitv 1/il-/

(in thouspnds of PFsos)

Construction - Yca:s-S__ u Ot' FPrnr?s Period 1 2 3

>.,era n~ r, 'Profit- - 200 200 199 199 100Lcar.s (,BRD &: DBP)2/ 800 - - - - -

3_.?fclry' EciJ3 20 - _-

To4-t1 I ,n 000 200 - O 100 100 100

Lpl ic'. eati on s

3ebw -ter~sri(|5)/ 132) 132 132 13? 132incomle x - 1 2 13 14 15 16

jc ec L. Coso 1,000 - - - - -

- .1 ,0O lj l 14 .4 147 148

Benefic .ir-'s Net Trflow - 53 52 51

i/ At t .e c-obable "'Investment "ost" of I .000.

2)/ IPP P1 b *CCes 811 of t r-v-cst,rerit Cc,117 .n , n l 0 _ ' = _ Oi-

.-;_zCr D1210 filanc-s uT) ito ?0 or 72j. s,' .0 e '-nves.Lent (os t".

,! 'Te oenef.iciar,y pro-vi-des 203? of -tlie "iTveStiiernt Cost"?.

4./ a 1 3-vea., eol .um amortization of tnhe rate ol' 1i2% on 8-!8 consisting

March 28, 1974

ANNEX hTable 3

PHILIPPINES

LOAN 720-PH: RICE PROCESSING PROJECT

Financial Rates of Return for New 2.000 Ton Onerating Canacitv Mill

(in thous~nds of Pesos?

1/ 2/ 3/Year Cost Pre-Tax Benefit Post-Tax Benefit

1 1,000__2 - 200 1883 199 186

4 - ~~~~199 1855 199 1846 198 1837 198 1828 - 197 1819 197 179

10 9 17<11 196 1711) 195 r6

13 194 16311. t.L4 '74

T-4. ( 324.- 4 O)64 . 10 r 1 IT.L Ll L U. . L 10 I

1/ At the end of the amortization period, the entire undepreciatedasse-ts are regart-R-Kd as she s'vage -vC"ao !ue 1,010 - 52A. I -J.'1 IPA -tI1 O.U r 2 '- 4II

f ILLLU opeLraLg.LUL, pr-Lot U LLI J.U.l I, WiLJchiL A. u oLfL in.terlt on

working capital.

2/ The operating profit above adjusted by deduction of the estimatedcorporate income tax.

March 28, 1974

ANNNExTable4

PHILIPPINES

LOAN 720-PH: RICE PROCESSING PROJECT.~ ~

1/Proforma Incremental Income Statement

Exansion of Existing 2,000 Ton Mill to 4,000 Tons Operating Capacity


--------------- L-s--------------------

Incremental 1 2 3 4 5

Revenue 2/ 1,828 1,828 1,828 1,828 1,828T .__ .L_ n_ 7 -XI-At I a1 % l 4 -]l I .LtI. /Ie8s:; 'uAJ of aL uJ 3/ It3.)U4 1,3UL4 1,3YJ4 1I36 ,_04 I

Gross Profit 464 464 464 464 464Less: Operating Cost 1/ 204 204 205 205 205Operating Profit 260 260 259 259 259

+ s s H / | \ n~~~~~_ 1 1 - % _ -Less; Depreciation 417 41 41 1

Less: Interest 6/ 74 71 68 64 61Profit before Tax 139 142 144 148 151Less: Tax 7/ 39 40 41 42 43Prroit after Tax 100 102 103 106 108

1/ The investment cost required for expanding an existing cono mill ofa 2,000 ton operating capacity to a 4,uuv zon operating capacity equippedwith rubber roll hullers for improving the recovery rate from 66% to 69%across the board is estimated to be 700.

2/ This is the value at 13.00/ganta of 2.143 kg. of polished rice from,000 tons of paddy recovered at the rate of 69% less the value at the same

unit price of polished rice recovered from 2,0W tons of paddy at the rateof 66% and less the value of 200 tons of bran. (4,000,000 kg. x .69/2.43 kg x?3.00 + 400 tons of bran x Y250 - 2,000 000 kg x .66/2.43 x 3.00 - 200 tonsof bran x 0250 = p1,827,778, say, 1,8285.

2/ The incremental cost of the paddy is assumed to be '30.00 per cavan of44 kg. (2,o0o,ooo/44 x F30.00 = Y1,363,636, say, 1,364).

4/ The incremental operating cost has been conservatively estimated to be204 consisting of 190 required for a new unit of 2,000 ton capacity (seeAnnex 2, Table 1, footnote 4) plus the additional cost of rubber rollers andfuel oil which would not be required if the 2,000 tons of the paddy weremilled by the process employed before the expansion.

5/ The incremental investment is depreciated by a straight line method overa period of 15 years.

6/ At 12% per annum for the sub-loan of 700 amortized over a 13 year period.

7/ At the rate of 25% up to pre-tax profit of 100, and 35% over and above.

}arch 28, 1974

Taol.e

rT-'T TTP 71WnTE

LOVA 7W20-Pl; sRICE PROCE-SSING PROJECT

Profcr.ra Incremental Cash Flow Proj ection.

Expmnsi.on of Existin 2,4000 Ton NMill to 4,000 Tan OPerating Cveacity-

(in thousands o' Peson)

Constrtction ---Years -------Psriod 1 2 3 ,4 %

v v Ww va *- 4 A4A,.ILi.'.C .. W.i4 I , ',A fU

III.s-s, 17 rL X1-tiU _- LVo e_. v y L7 25Y

Loans (TRD & DBP)2/ 700 - - - - -

Total 700 260 260 259 259 259

- -~~ a._0 _ S

Aonlic ations

Neot Service.' - 109 109 109 109 1 091Inccone 'ax - 49 -0 5 Y 5 52Pro4ect Cost 700 - _ - _ -

Total 700 158 15S) 160 161 162

Re.Te- ic,isrys' Net Tnflow - 1A, 1fl1 00 OR 07

--

1/ At the t, obab'e "ITnvestrent Coast,' o' 700.

2/ DBP finances the entire incre,iiental cost of which 90p is reiabursedby tne Bank..

3/ A 13-Year equal swn -inortization at the rate of 12% on 700.

March 285 1974

Table '

1' HIL IPPIN ,R'S

LOA]N 720-PM.: iICE PROCESSING P.OJEICT

4'inancia- "av .zts cf .'.et-

(irli,, q_,. hus.d v1of Peso s)flS L 3 S ¼) S. LA.- 3AU 4. 46 '

Il 0/~~~~~~~~~~~~~~~J

Year Cost Pre-Tax Benefit lost-Tax Benefit

1 7002 - 2GU 1

3 - 259 219I. 0rci0 P4 - Cl

5 - 259 217

7 _ 258 2140 010

9 _ 257 21110 - 25f, 20811 - 256 20712 - 255 20513 - 252 2031)4 (47) 254 202

Internal Rate of .eturn:

1/ At the end of the amortization period, the entire undepreciatedassets are regarded as the salvage value: 700/15 = 14.

2/' The operating profit in Table 1, whi-h is net of interest onworking capital.

3, rne operating profit above adjusted by deduction of the estimatediri"ome tax.

AŽ'NEX 4

*WAN- 720-PH;: RICE PROUCESSING PROiACT

Proforma incremental Income Projection

Kiskisan Replaced With Cono Mill/


Before AfterReplacement Replacement Incremental

Revenue'' 7,500 15,000 7,500

Operating Costa/ 700 1,030 300

Mliscellaneous 200 4oo 200

Tax 500 1,000 500

Current Income 6,100 12,600 o6,500

Financial Rate of Return:4/ 31 .6/.

1/ Rep.lacer,,ent of0 a kiskisan Wit1h a cono milL is estinated tocost about P 20,000.

2/ Before the replacement, the typical kiskisan to be consideredunder the project would .have had an annual revenue of t'750WUfrom 5,000 cavans/44 kg, at the rate of Y1.50, and after thereplacement it is expected to double the throughput and chargethe same rate.

3/ The net increase is mainly for the increased energy cost,either electric power or fuel oil.

4/ This rate has been calculated on the basis of an averageinvestment cost of P20,000 in year 1, and an average incrementalnet income of L6,,500 per year for years 2-14.

March 28, 1974

ANNEX 4Table 8

PHIT.IPPINES

TCOAN 720-PH: Rice Processing %roiect

Prolforma IncremAntal Incoma Statement Prolection&xpansion of Grain nSi1os Carancit.v frm 15iR000r t1onn t r t.n i6Onnn fnnR ( qtAmri)i/

Years-----------------

1 2 3-15

Revenue&/ 3 26,190Lss: Cost of Corrr- 10n170 go 3lf0Gross Profit 2,925 5,850Less: Operating 2os" 951 1,862 3,724Operating Profit (251) 1,063 2,126Less: e p $c t r_ 629 838Less: Interest 603 905 1,206ro4it before Tax (85h) (H71) 82

I,ess: Tax - 21rofit after Tax (85L) (471) 61

1/ The projection is illustrative of an existing complex of corn silosfl t . a 0. 4sa -t.-i -capacty. of l f)O1n L- +I+ VA *0 +onthaAt = bnta

additional 1 8 ,000-ton static capacity. Investment cost is estimateds_ 1 1) En A n 4-:_ -r 7. ff'.7 ; c4, wo n 1- -A E not;E;

VU Ut : * C.J..;L LAJ±osVLSl..L ;E, 'JV. I LA 1 #.X_ f W'.JJ.RI. 1LL14 ..t 314g...v * 4.

and ancillery facilities. Most likely some investment in feedmia[afackIL.ur±rLIg equiLpr,,ent and .II cJ.L_L±L,_Lq WVU.uldU Lue £qui-LLVU. Fo.

simplicity, profitability calculation for feed manufacturing are notmade here, and the project1ions show thl= dcuruUfLt of increUental silo-based corn trade only.

2/ Proceeds from 36,000 tons of corn procured (two-turn over). At theselling price oI P750 per ton with a loss rabe of 3.0% (2.u0 forweight loss and 1.01 for handling loss).

3/ The cost of 36,000 tons of corn bought at the rate of P565 per ton.

/ Annual operating cost at full development is estimated to be 3,724made up of loading (u7), barging (1,80) j, unloading (I41), Uaggingl,

and loading (130), electric power and lubricant (166), wages andbenefit (87), insurance 131 + 63 194), demurrage (40), intereston working capital (1,047), and a 10%< contingency (339).

5/ A 15-year straight line.

March 28, 1971

A M?TFY 4

Table 9

PHILIPPINES

LOAN 720-PH: Rice Processing Project

Proforma Cash Flow Projection

and

Financial Rate of Return Calculation

Expansion of Grain Silos Capacity from 18,000 tons to 36,000 tons (static)1-/

(a) Cash Flow

------------- Years---------------1 2 3-12

Source of FundsOpera-ing D'rof-H?/ (251) 1 2,196Loans (IBRD-DBP)3/ 5,025 5,025J.* %U V C ;.A V .. VCpFa V..L4.O ! ev * V

Beneficiary's Equity_/ 1,507 1,256

Total 6,562 5,249 2,126

Annl ctin

Debt Service)/ - - 1,992Tnterest rapntalized./ 301 905 -Invgstment Cost!/ 6,281 6,281Ta-r 9 _ _21

Total 6,582 7,186 2,013

Beneficiary's Net Inflow - 1,063 113

1/ Tneremental nanaitv wounld bA 18 OOO tons andi would handle 36jooo tons ona two-turnover basis.

2/ SPe Tnhble S

3/ DBP finances 80% of the project, and reimburses from IBRD 9051 of suchsub-loan.

4/ Interest accruing on IBRD-DBP loan is capitalized during the firsttwo vears.

5/ 1ten year amortization on sub-loan of 10,050 plus 1,206 in interest; ('(Vl91PVi (ll i"ino' ±}.hP tiJA vo>r.q ofb a",. nP*. c ;rc1

6/ At the rates of 25% up to 100 and 35% over and above 100.

(b) Rate of Return Calculations

1 2 3-11 12

Investment Cost (6,281) (6,281) - 2,512Operating Benefit (251) 1.063 2,126 2,126

Net Benefit (6,532) (5,218) 2,126 &,638

Rate of Return: 12.5%

March 28 , 197h

AN-NEX 5Table 1

PHILIPPINES

LOAN 720-PH: RICE PROCESSING PROJECT

Economic Rates of Return

Various Component Models

1. New Integrated Mill with 2,000 Ton Operating Capacity


1 2-14

Economic Benefitl- - 136

Economic Cost of Investment?/ (350) -

Economic Cost of Operation- - (33)

Net Economic Benefit (350) 103

Economic Rate of Return: 28.3

1/ This is the value of that part of the 69% recovery in excess of wKlatit would be if the paddy were recovered at the rate of 63%. theestimated average recovery rate of all mills in the Philippiries.Polished rice has been valued at $170 per ton. and the recoverv rabeof the mill is assumed to be 69%, both very conservative fi.gures(2.000 tons x .06 net increase in recovery x $170 per ton x f6.T terdollar = P136,680). There would be additional benefits ofconsiderable Liportance resultine from prevention of the loss ofpaddy before milling, and from improving the quality of rice byreducing the broken. and also from the demonstration effectconducive of the desirable modernization of the industry.

2/ This is that part; of the investment cost that would be in excess ofwhat it wfould cost to construct a conventional mill of a comparableope Nting capacity.

3/ This is that part of the operating cost of the mill that would notbe inmcrred if thp naddv were milled bv conventional mills. andconsists of P9,000 for 30 pairs of rubber ollers, P4,000 for-fmwic.n*. and Ua0jnn fnor fNiP nil for grain dr-eris

March 28, 1974

ANNfU 5Table 2

PHILIPPINES

LOAN 720-PH: RICE PROCESSING PROJECTr

2. Expansion of Existing 2,000 Ton Operating Capacity Up '!'o tI,000 Ton Opu.rating rCapaciGy


---- Years----1 2-1_

Economic Benefit-/ - 205

Economic Cost of Investment_/ (200) -

Economic Cost of Operation-/ - (66)

Net Economic Benefit (200) 139


1/ The value of that quantity of rice (recovered at the rate of 69%from 4,000 tons of paddy) that is in4excess of what it would beif 2,000 tons were milled at the average recovery rate of 63%,the average for all mills and the remaining 2,000 tons were milledby the existing mill at the rate of 60%, the average for the conomalUs. The polished rice is valued at $170 per ton (4,000 tons x.69 - 2,000 x .63 - 2,000 x .66 = 18G tons valued at 180 x $170converted by 6.7 to P205,020). There would be additional benefitsof considerable importance re.ulting from prevention of the lossof paddy before milling, improvement of the quality of rice byreducing the broken, and also from the demonstration effectconducive of the desirable modernization of the industry.

2/ That part of the estimated investment cost that would be inexcess of what it would cost to construct a conventional mill ofa comparable operating capacity or to expand an existing mill ofa smililar capacity to a 4,000 ton operating capacity.

3/ That part of the operating cost that would not be incurred if thepaddy were milled by conventional mills, and consists of p15,000for 60 pairs of rubber rollers at P300 per pair, P8,000 for fumigantand P40,000 for fuel oil for grain driers.

March 28, 197h

AINNEX 5Table 3

PHI LIPPINES

LOAN 720-PH: RICE PROCESSING PROJECT'

3. Replacement of the Kiskisans


1 2-lb

Economic Benefitl/ 11 22

Economic Cost of Investment2/ (20) -

Economic Cost of Operation3/ - (1)

Net Economic Benefit (9) 2i

Economiic Rate of Return: Over 100.0%

1/ The value of that part of polished rice (recovered at theaverage cono rate of 66%) in excess of what it would be fLf

half of the alto tons of paddy were milled at the averagekiskisan rate of 60% and the remaining half at the industryaverage of 63% (440 x .66 - 220 x .60 - 220 x .63 = 19.8tons of milled rice valued at $170 x 19.8 converted by 6.7to the peso, 122,552.

2/ The estimated average investment cost for replacing akiskisan imill of about 15,000 cavan (660 ton) operatinrgcapacity with a cono mill with 30,000 cavan (1,320 ton)-operating capacity, and includes the cost of a set of conomilling equipment with a millin-g capacity of 50-100 cavan/12 hours and of remodelling and/or purchase of the enginerequired.

3/ The estimated net increa.se in operating cost.

March 28, 1974

AMTEh 5

PIT T.TPPT1IP\S

TDlALN 720-PH:RICE PRO,- .;TESSINIG PPOJT2rT

1 2 - 10

Economic Benefit ,992 3,986

Economic Cost of Invest,mentg" (9,000)

Economic Cost of Operatiox ' (1,005) (1,005)

Net Economic Benefit (8,013) 2,981


1/ The value of the paddy loss prevented by the drying and of thevalue of the ne1t i e A in ml1ig re r TnhAe l pre ven+; ow~~~& .vcv|w; s ssw-w|1. 1l W. lv,sWV cA,>y . ;|tLoo vfivGZV| X

is conservatively estimated to be 2.0% and the increase inrecovery 1 .5% of' the throughput' *The throughput ls alsoc

vatively estimated to be 1.0 ton per day (conpared with 1.7 toncapacity per I-8 husVU four UIu sIIIu.-1 reduLioni fIr-Uo 24 tU 1 4p0)

and 100 days per year (100 tons x 0.35 (.02 for loss preventionanu .0I_ L.or recover;y iI;ruea) --- $170u pe"r tonI A ru. perdollar = .3,986).

2/ The estimated total cost of an on-farm paddy drying unit, consis1.-ing Of' r_3,000 ior a mechanical drier witn a capacity oi 4u cavanl-(1.7 ton) per 7-8 hours and Y6,ooo for a shed to house the drierand to provide for a holding space for about 200 cavans ( 9tons) of paddy.

3/ This covers only the cost of kerosene fuel cost at the rate ofr6.7 kq$1.50) per bon of paddy Go reduce tne mooisture contentfrom 24% to 14%. While menhanical drying would require less laborper unit of paddy compared-with sun-drying, this has not beenconsidered in estimating the benefit.

March 28 1974

ANNEX 5Table 5

PHILIPPINES

LOAN 720-PH: RICE PR62ESSING PROJECT

5. Expansion of Corn Storage_(Silos)L-(in thousands of Pesos)

--- Years…---------------Incremental 1 2 3-14 15

Economic Benefit-- - 578 1,157 1,157Economic Cost of Investment - (4.000) (3,161) - 1,790Economic Cost of OperationL4 _ - __-_-_

Net Economic Benefit (4,000) (2,583) ' LL 1157


/1 The project is to expand three existing corn storage facilities withadditional grain storage for 18,000 (static) each. The investment costper unit is estimated to be P 12,562, consisting of P 7,537 for civilworks and P 5,025 for ancillary facilities.

/2 This is the value of corn that would have been lost without the additionalstorages of this kind. and it is estimated that the average storage lossof corn is 9.0% and that this can be reduced to 3%, so that on a two-turn-over basis the quantity of corn saved would be 18,000 tons x 2 x 0.62,160 tons. This has been valued very conservatively at $80.00 per tonand converted at the rate of P 6.70 ner dollar (2-160 tons at S80.00 atP 6.70 per dollar = P 1,013,040, say, 1,157). This does not include thesignificrant Peonomir val iu of rpAurinir t-hp nFrnhplTn nf SPAun"Al Oln a t- and_ _ _ _ _ _ - _ _ _ _ __ - - C2 -- -0…a - _- --

the negative long run effects of such gluts on production.

/3 The financial cost of investment is P 12,562. The economic cost ofinvestment in estimated on the anssp!ntionn that the eont of CiYil wnrknecessary for creating conventional facilities of a comparable staticcapacnritv wtoild eh at lPAQt 2 of auc-h i-nct- ur.dAar the proJ4et- anrA tfhat-

the cost of equipment and other ancillary facilities required to handleadditional 18,000 tons of i-.n per season would be about 70% of suchcost under the project (7,357 x .75 + 5,025 x .30 = 7,161). An averageeconomir liff of 20 vyars is asumed And at the endi of the 15th year,25% of the original economic cost of investment is salvaged.

/4 The economic cost of operation would be most likely negative becauseof the savings on. transport, ar-ketin.g, etc.JU made ossile by efficientbulk-handling.

March 28, 1974

Documents

CirRCULAX'.?r' TO BE RETURNED TO REPORTS In P n · 2016. 8. 29. · cirrculax'.?r' 0%)y to be returned to reports in p n n v document of international bank for reconstruction and