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Bank Group Activity

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
March 1973
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BANK GROUP ACTIVITY

Developing agricultural potential

In early November growing concern over real and prospective failures in the harvests of food grains led 100 agricultural experts to gather in the Board Room of the World Bank to discuss ways of increasing the quantity and quality of food production in the developing countries of Africa, Asia, and Latin America.

The 100 agricultural experts represented the 29 governments and organizations which make up the Consultative Group on International Agricultural Research, organized on the initiative of the Bank, which acts as chairman, in the spring of 1971.

At about the same time, another international group was being organized by the Bank. The 18 members of this informal panel-only seven were staff members of the Bank-were asked to study the problems of rural development, to work out how economists could measure social benefits deriving from rural development projects, to examine the Bank’s past lending programs to rural areas, and to recommend action the Bank might take in future.

Shortly before, in mid-October, the Bank Group’s Board of Executive Directors had received a 30-page paper—Market Prospects for Rice - Framework for Commodity Lending in 1973-4—which had been prepared by the Commodities and Export Projections Division of the Bank’s Economic Analysis and Projections Department. This study was followed one month later by Sugar—A Reappraisal of Investment Policies for Developing Countries and, in mid-December, by a third report, The International Tea Market—Review and Outlook for Bank Lending in 1973–74.

The first paper was frankly called “experimental.” It was written, as the covering sheet explained, “to improve the quality of the information made available to the Executive Directors and to reduce the time devoted to preparing (for each project) separate market annexes.” Today, the “experiment” is no longer regarded as remarkable and the 12-man division is now working to produce at least six additional papers during the current year.

Three different items, all devoted to the development of agricultural potential in the developing nations of the world. None had the impact of the Soviet Union’s harvest shortfall, the droughts in India and Bangladesh, or the floods in the Philippines, but each may help make life on the land a less hazardous undertaking in the future for millions of rural poor in the developing countries.

WORLD BANK LOANS APPROVED DURING SECOND QUARTER OF FISCAL 1973
AMOUNT
COUNTRYPURPOSE($ millions)
BrazilLivestock26.00
ColombiaWater Supply and Sewerage9.10
Costa RicaHighway Studies1.40
East African CommunityHarbors26.50
FinlandForestry20.00
IsraelSewerage30.00
KoreaRailroads40.00
LebanonEducation6.60
Malagasy RepublicRoads15.00
MoroccoAgricultural Credit24.00
Senegal (2 loans)Airport, Telecommunications9.25
Thailand (2 loans)Telecommunications, Highways65.60
Trinidad & TobagoEducation9.30
TurkeyIndustry40.00
Total loans during the second quarter of fiscal 1973322.75
Total loans during the first half of fiscal 1973548.95

Consultative Group on International Agricultural Research

The Consultative Group on International Agricultural Research, comprising representatives of governments of poor and rich countries, U.S. foundations, and international organizations, meets twice a year. At the November meetings the members of the Consultative Group try to resolve questions about objectives and procedures, and also pledge money for international agricultural research.

Research is at present carried out at six international centers: the International Rice Research Institute (IRRI), located in the Philippines; the International Wheat and Maize Improvement Center (CIMMYT) in Mexico; the International Center for Tropical Agriculture (CIAT), in Colombia; the one African center, the International Institute of Tropical Agriculture (IITA) in Nigeria; the International Potato Center (CIP, in Peru; and the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT), in India.

The responsibilities of the rice, wheat and maize, and potato research centers are obvious enough. CIAT in Colombia and IITA in Nigeria, on the other hand, are concerned with general agriculture in the lowland tropics, and each is working to develop systems of agriculture that will increase farm output in Latin America and Africa, respectively. In addition, each has primary responsibility for basic improvements in certain commodities: CIAT for beef cattle and cassava, IITA for yams, sweet potatoes, and cowpeas; and each is working to adapt other crops (for instance, rice from IRRI and maize from CIMMYT) to conditions in South America and Africa.

Agricultural systems for semiarid lands

ICRISAT attempts to develop systems of agriculture in the semi-arid tropics designed to benefit farmers whose unirrigated land has made it difficult to participate fully in the Green Revolution. Researchers at ICRISAT are also responsible for increasing yields from sorghum, pearl millet, chick peas, and pigeon peas.

In 1970 grants by three foundations and three donor countries to the four international agricultural research institutions (CIP and ICRISAT were yet to come) amounted to only $9 million. In 1971, $15 million was pledged to the six centers by the Consultative Group, which was then less than a year old. At the most recent meeting of the Group last November, the 29 members made commitments of $24 million to the six research centers.

IDA CREDITS DURING THE SECOND QUARTER OF FISCAL 1973
AMOUNT
COUNTRYPURPOSE($ millions)
Bangladesh (5 credits)Irrigation, Cyclone Protection,
Telecommunications, Reconstruction109.30
BoliviaRailroads8.00
GhanaSugar Rehabilitation15.60
IndiaAgricultural Education12.00
KenyaAgricultural Credit6.00
Malagasy RepublicRoads15.00
MoroccoAgricultural Credit10.00
Papua and New GuineaLivestock5.00
ParaguayEducation5.10
PhilippinesEducation12.70
SenegalIrrigation4.50
Yemen, People’s Democratic RepublicHighway Engineering0.565
Total credits during the second quarter of fiscal 1973203.765
Total credits during the first half of fiscal 1973212.065

Working for a breakthrough

At the back of everyone’s mind, of course, is the fragile hope that another technological breakthrough on the order of the Mexican wheat and Philippines rice “miracle” might be found. Not even the most exuberant optimist, however, expects such a drama to unfold right away—”A lot can happen short of IRRI and Mexico that would be of immense value,” one participant at the November meeting said.

The November meetings do more than collect money from governments, development banks, and foundations—an exercise of some interest in itself. A major responsibility is to reconcile different priorities among both Consultative Group members and the six recipient research centers. Left to themselves, governments and foundations—each with their own favorites among the six centers—might leave some oversubscribed while others went begging.

What research is important ?

Beyond this, there are fundamental questions to be asked and answered during meetings of the Group. What is important in agricultural research? What are its priorities? Where are there gaps in man’s knowledge about agricultural production and agricultural systems? What can or should be done to eliminate the gaps?

These basic questions are tackled first by the Consultative Group’s Technical Advisory Committee, an international 13-member panel of experts headed by Sir John Crawford, the Australian economist. Its recommendations are then taken up by the Consultative Group in its plenary sessions.

At last November’s meeting, Consultative Group members were informed of steps which a special subcommittee of the Group had taken toward initiating international research on animal production and health in Africa, including an immunological laboratory for the study of two widespread diseases of cattle—East Coast fever and trypanosomiasis. And—reflecting the concern that recent innovations in agriculture had often by-passed the poorer farmer—the Group members also called upon the six international centers to study ways of including the small farmer as a beneficiary of their research.

New concern for the smallholder

“Many members of the Consultative Group, including the Bank, are concerned with what might be done to help the lives of the small farmers,” Harold Graves, Secretary of the Group and Associate Director of the Bank’s Development Services Department, said recently. He added that “the centers have, of course, traditionally sought to maximize production using maximum inputs. Now, they are becoming increasingly concerned with the problems of the smallholder. How can they disseminate their research to him? How can they reach the subsistence farmer?”

No definite solutions to the problem yet exist, so no definitive answers emerged from the November discussions. Nonetheless, the Consultative Group put itself on record saying that in agriculture, more is not necessarily better.

If the Consultative Group on International Agricultural Research is trying to discover how to add a social science dimension to agronomic research, another panel led by the Bank is trying to determine how to quantify the social science dimension in agricultural projects.

Bank lending passes $2.5 billion

The Bank Group has been lending money for agricultural projects almost since its beginning. Total Bank lending for agriculture has already passed $2.5 billion, with half the amount having come in the past three years. One estimate contends that as many as 25 million rural people—5 million farm families—have, in some way, benefited from Bank lending to the agricultural sector. That figure represents, however, only between 5 and 10 per cent of the estimated rural poor who today live on per capita incomes of less than $50 a year.

What, then, of these “poorest 40 per cent” in the words of Bank President Robert S. McNamara, “who remain entrapped in conditions of deprivation which fall below any rational definition of human decency”?

Poorest are bypassed

Agricultural development projects have historically bypassed the very poor in favor of those less unfortunately situated. This neglect has seldom been willful. Many are numbered among the poorest of the poor because their lands are either too unproductive to be farmed economically, or are far from any transportation network, or because the areas in which they live are grossly unhealthy. Also many agricultural planners, those who look at the costs of agricultural projects as well as the benefits, feel the costs of “bringing blooms to the desert” are unjustifiably high.

Others feel differently. “It is possible,” Mr. McNamara said, “to design policies with the explicit goal of improving the conditions of life of the poorest 40 per cent of the populations in the developing countries—and that this can be done without unacceptable penalties to the concomitant goal of national growth.”

Integrated smallholder development

The Bank Group has, in the past, financed a certain number of projects—”integrated smallholder development”—designed to aid the very poor peasant farmer. The Lilongwe and Karonga projects in Malawi, the Wolamo project in Ethiopia, the Casamance scheme in Senegal are all examples.

But the Bank—even when it is, in fact, providing “soft” loans through IDA—has complex financial and economic responsibilities. It finances those projects which its economists say will add to the economic development of a particular country. The crucial factor in evaluating a project’s worthiness is often measured by its prospective economic rate of return. If a project’s costs are going to run so high that measured economic benefits will be but barely perceptible, then it is only natural that the Bank’s limited money—especially in the case of IDA funds—is used to finance another project for which the rate of return will prove to be higher.

For example, the economic benefits deriving from an irrigation scheme in Indonesia, may be easily measured. Agronomists know that with x additional cubic feet of irrigated water, rice production will probably increase by y. But if, for an agricultural project in Upper Volta, health clinics and schools must be built, feeder roads constructed, ten project managers hired, and a credit mechanism set up, the task of the agricultural economist is much more complex. The agricultural rate of return, easily quantified, might be low, but how does one add to that rate the “scholastic” rate of return if schools are to be built in the project area, the economic rate of return if roads are to be constructed, and the “medical” rate of return if health clinics are to be established?

Measuring benefits is difficult

A rational and internationally applicable system for the quantification of social benefits in a rural development scheme has not yet been developed. The Bank is working on it, however, through its recently formed Rural Development Study Working Committee.

Attached to the Committee is an international review panel, manned by outside agricultural economists and scientists, and organized to make independent recommendations to the seven members of the Bank’s own Committee. The 11 outside members—they come from Africa, Asia, and Latin America, as well as from Europe and North America—were impaneled in November, met informally and discussed what they thought the Bank might do in the field of rural development, and then sent their findings to the Bank’s own working committee which prepared a preliminary paper on the subject as the new year began.

It is said that the Bank often moves slowly. In this particular case it has moved quickly indeed.

“We simply cannot wait until all the answers are in,” Mr. McNamara said in his address to the Bank’s Board of Governors last year. “We must begin now with what we know now.” All the answers will surely not be found by the Rural Development Study Working Committee, but the Bank does know more today than it did last September.

Demand for primary products

The economic health of many developing nations—if not a majority of them—is determined by the volume of and price paid for primary products exported to the developed world. Unfortunately, however—at least for the poor—the demand for many of those primary products is both slow in growing and relatively inelastic.

Thesis: in normal circumstances, a Canadian will not eat more rice because its price has lessened, and an Englishman will not drink more tea, even if its cost declines by a few pennies a pound. Question: should the Bank, therefore, attempt to increase yields of tea or of rice in the developing world if the major consequence of its action would be only to reduce prices paid to the producers?

Until October of last year hints of an answer to the question were contained only in short “market annexes” attached to reports on specific agricultural projects coming before the Board of Executive Directors for its consideration. These “annexes” looked only at the economic consequences to a particular commodity from the particular Bank projects in question; they eschewed any attempt to define what overall Bank policy should be.

More complete information sought

The publication of the rice, sugar, and tea papers—papers prepared independently of separate project appraisals—was a natural outgrowth of the belief that both Executive Directors, in considering a loan proposal, and Bank staff, in making project appraisals, should have more complete information on short-term (one or two year) commodity projections. Today’s expanded Bank commodity reports project future world-wide supply, demand, and commodity prices. They are also now deliberately policy-oriented: in the case of sugar and rice, they state that the Bank should continue to support efforts at increasing production in the developing world.

Two of the three papers (none has yet been made public) have been enthusiastically bullish—the Commodities and Export Projections Division has not yet had to make the difficult and sensitive recommendation that the Bank curtail lending money for projects aimed at increasing production of a particular commodity.

The tea question

“Our tea paper was only moderately cautious,” Owen T.W. Price, chief of the Commodity and Export Projections Division notes. “Expansion will lead to falling prices,” he explains, “but we recommended that the Bank shouldn’t give a complete ‘no’ to the financing of further tea projects. The Bank can’t opt for the status quo when so many inefficient tea producers exist elsewhere. We will therefore continue to invest if a particular tea project looks as if it will be an efficient one. In any case, there are a lot of tea drinkers in the less developed countries and a lowering of costs will certainly be beneficial to them.

“We also have to look at tea from another angle; we must say, ‘Can these chaps we are trying to help do anything else?’ If, for them, it’s tea or nothing, then the Bank must help. And too, we must always be concerned with the problems of income distribution and employment.”

Other studies tentatively scheduled for a 1973 appearance before the Board include reports on iron ore, bauxite, meat, and some oils and fats. The Division is also preparing to produce similar works on cotton, jute, and hard fibers.

In the last fiscal year, the three institutions of the World Bank Group made loan commitments—most of them in foreign exchange—of more than $3 billion. Yet that sum is small when compared with the amount of foreign exchange generated by the developing nations themselves, mainly through the sale of exports. The Bank can, however, play a role beyond that which may be ascribed to its financial weight.

Pointing the way to economic growth

That role has been to point the directions—by carefully appraising projects, by advising on problems of institutional management, by assisting developing countries in the ordering of economic priorities—that lead to economic growth. The Bank’s work reported here is also crucial: its support of the Consultative Group on International Agricultural Research, inquiries into the problems of rural development, and its work in preparing an overall look at commodities affecting the development of the developing nations of the world. The support, inquiries, and work involved may be costly, but it surely would be costly to have done nothing at all.

Peter C. Muncie

International Finance Corporation

New support for local development finance companies

IFC has introduced a new form of support for local development finance companies in the developing countries. Since it was established in 1965 IFC has invested in 23 of these companies in 19 countries. Now, for the first time, it has helped one of them—the Private Development Corporation of the Philippines (PDCP)—to raise resources abroad by organizing and participating in a long-term loan on its behalf.

World Bank Staff Occasional Papers

The Economic Benefits of Road Transport Projects Herman G. van der Tak and Anandarup Ray

This exposition of the social surplus method of measuring benefits of highway projects sheds light on the nature of benefits to be expected from road transport projects with and without various market imperfections. Emphasis is placed on the relation of these benefits to changes in the production and consumption of transported commodities. Though the discussion is presented in terms of a road investment, the relevance of the method is not restricted to road transport projects.

Herman G. van der Tak is Economic Adviser to the Office of the Director, Projects, and Anandarup Ray is a member of the World Bank.

Occasional Paper 13/42 pages/ $3.

Distributed for the World Bank by

The Johns Hopkins Press

Baltimore, Maryland 21218

U.S.A.

The loan is for $15 million, of which IFC is providing $6.5 million, while $8.5 million has been placed with four banks: Manufacturers Hanover Trust, the Bank of Tokyo, Chemical Bank, and the Union Bank of Switzerland.

PDCP provides both loan and equity financing to private enterprises in the Philippines. It was established in 1963 with the support of a $15 million loan from the World Bank; equity capital was raised by a local public offering, to which IFC subscribed. Today shares in PDCP are held locally and by 18 European, Japanese, and U.S. banks and financial institutions.

The proceeds of the new loan will be used by PDCP to provide long-term financing for the foreign exchange element in its investments which, on the basis of its past operations, are expected to be concentrated in manufacturing, transportation, and power, with a priority to export-oriented enterprises. The loan is expected to provide about half the Corporation’s foreign exchange commitments in 1973 and 1974.

IFC’s gross commitments in the Philippines now total $54.3 million lent to or invested in eight enterprises.

Cement investment in Mexico

During this quarter IFC also invested $10.5 million for cement production in Mexico. The investment was in the form of two loans to Cementos Veracruz S.A. and has the purpose of expanding the company’s production capacity from 250,000 metric tons to 600,000 metric tons a year. The total cost of the project, including additional working capital and interest during construction, is estimated at US$23.9 million equivalent.

The IFC investment consists of two loans totaling $10.5 million. IFC will hold $6.0 million for its own account and First National City Bank will take as a participant $4.5 million; other loan capital of $6.5 million equivalent is to be provided by Banque Française du Commerce Extérieur, and the balance of $6.9 million will come from a fully subordinated loan by a wholly owned subsidiary of Cementos Veracruz, available cash, and further cash generation.

Mexico’s cement consumption has increased during the last decade at a rate of close to 10 per cent and is expected to continue growing at about a similar rate. The investment in Veracruz will undoubtedly help to meet this increasing demand.

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