international bank for reconstruction and...

_ | t \ \ kJ 19 RESTRICTED

Report No. TO-560b

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

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

COOPERATIVE FARM PROJECT

TUNISIA

January 19, 1967

Projects Department

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CURRENCY EQUIVALENTS

US $1 = 0.520 Dinars (520 Millimes)

D 1 = 1,000 Millimes = US $1.923

D 1,000,000 = US $1,923,000

WEIGHTS AND MEASURES

Metric System

T U N I S I A


TABLE OF CONTENTS

Page No.

SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..

I. INTRODUCTION . . . . . .*. . . . . . . .*. * . . .. . . . . .. 1II. BACKGROUND INFORNATION . . . . . . . . .. . . . . . . . .

III. THE PROJECT AREA . . . . . . . . . . . . . . . . . * * * * .*. 2

As General* ............. - e , o a a o a -o a e 9 ................a... 2B. Land Tenure and Cooperatives. .g. . . .. e... 2C. Mechanization. . . . . . . . . . . . . . . . . . . . . . . . 3Do Livestock. . * . . e . . . e a a . .. . .. . . . . . . 3E. Extension and Research ae*e@*g ee4.....* 4F. Marketing. . . . . . .a . . . e . . e . . . . . 5

IV. THE PROJECT .o . . . . . . . .. . . o ... . . . . . .e. .e.. 5A. General Description. . . a . . . . . . . .* . . .* * . . a 5B. Detailed Featureso . . . . . . a , . . . . , . . . . . . . . 6C. Cost Estimates . . . . . . . . .. . . . . . .. . . a 7D. Financing. . . . . . . . . . . . . .. .a .. .. . .. . 9E. Operating Results. . . . . . . . . . . . .* * . . . . . . . 9

V. ORGANIZATION AND MANAGEMENT. . . . . . e. e e e. 11

VI* PROCUREMENT. . . . . . . . . . a . .. .. . . .. . . . . . 12

VII. ECONOMIC BENEFITS AND JUSTIFICATION. . . . . . . . . . . . . . . 13

VIII. CONCLUSIONS AND RECOMMENDATIONSo . . . . . . . . . . . . . . . . 13

This report is based on the findings of a mission in June 1966to Tunisia composed of Messrs. P.C. Goffin, C.P. McMeekan (Consultant),A.M. van Nimmen, and G. de Brichambaut (FAO). It was prepared byMessrs. Goffin, McMeekan and van Nimmen.

ANNEXES

1. Land Tenure2. Organization and Management of Cooperative Units3, The Office des Terres Domaniales (OTD)4. The Office National de Motoculture et de Mise en Valeur Agricole5. Marketing and Prices6. The Banque Nationale Agricole (BNA)7. List of Goods8. Cashflow Projection9. Gross Receipts

10. Decree No. 67-2 of January 2, 1967 Concerning the Agricultural Coopera-tion Commission

11. Ministerial Circular of December 22, 1966 Setting up the Bureau ofControl (Organization Chart of the Undersecretariat of State for Agri-culture)

12. Calculation of Economic Rate of Return

MAP 1MAP 2MAP 3

T U N I S I A


SUMMARY

i. The Government of Tunisia has requested a loan/credit to helpfinance a cooperative farming project as part of its program of organizingagricultural and livestock production.

ii. This program is essentially an exercise in agrarian reform wherebythe benefits of the economies of scale are provided to the traditional sub-sistence level smallholder and to farm workers by integrating traditionalsmallholdings and State-owned land, farmed on a mechanized cereal croppingpattern, into large cooperative units.

iii. The Project would establish new production cooperatives over atwo-year period on about 160,000 ha in Northern Tunisia, the most productivezone of the country. It would also consolidate development of 213 existingcooperatives on 185,000 ha and provide additional capital inputs to Statefarms intended for eventual absorption into the cooperative movement. Thenew cooperative would introduce livestock as a major element in production.

iv. The Project would be managed by a new organization, comprising ahigh-level National Commission having overall control and a management unit(Bureau of Control) with a direct chain of command from the Commission tothe field level.

v. The cooperatives would be financed by loans from the BanqueNationale Agricole (BNA) from funds derived from Government and the proposedloan/credit. BNA would act as financial agent of the Commission and wouldaudit the cooperatives' accounts.

vi. Investments financed under the Project would include farm build-ings, livestock buildings, farm machinery, irrigation equipment, tree cropestablishment, range pasture improvement, soil and water conservation,livestock, management and technical assistance and feasibility studies.The total investment cost would be about US$32.5 million, of which 30 percent would be for existing cooperatives, 62 per cent for new cooperativesand 8 per cent for State farms. The proposed Bank loan of US$12 millionand an IDA credit of US$6 million would cover 55 per cent of the totalinvestment cost. The foreign exchange component would amount to about 38per cent of the total project cost.

vii. The Project would move a large number of subsistence farmers toa cash economy status. The average annual net return to the economy wouldbe about 10 per cent.

viii. The Project is technically feasible and economically justifiedif executed as projected. The Project is suitable for a Bank loan of US$12million, at the standard rate of interest and with a term of 18 years,including five years of grace, and for an IDA credit of US$6 million onnormal IDA terms.

T U N I S I A


I. INTRODUCTION

1. The Government of Tunisia has requested a Bank loan and an IDAcredit to help finance the formation and development of Agricultural Unitsof Production (cooperatives) in Northern Tunisia. The Government proposesto establish cooperatives on some one million hectares of land comprisingex-colon farms and "traditional" smallholdings adjacent to the former.The total program is phased over about 10 years. The area involved liesin the Northern Governorates of Tunis, Bizerte, Beja, Djendouba, Le Kefand Nabeul (Map 1).

2. This report is based on the supporting documents of the loan/credit application from the Government of Tunisia and on the findings of amission in June 1966 to Tunisia composed of Messrs. P.C. Goffin, C.P.McMeekan (Consultant), A.M. van Nimmen and G. de Brichambaut (FAO). TheFAO mission which visited Tunisia in October-November 1964t, and a Bankmission which visited Tunisia in October-November 1965 assisted the Govern-ment of Tunisia in the preparation of the Project. This report was preparedby Messrs. McMeekan, Goffin and van Nimmen.

II. BACKGROUND INFORMATION

3. Agricultural production represents about 25 per cent of Tunisia'sgross national product and agricultural products about 60-65 per cent oftotal exports. Over 50 per cent of the labor force is employed in agricul-ture. Population is 4.5 million with an annual rate of growth of about2.5 per cent. Annual per capita income is about US$180.

4. The principal crops are hard and soft wheat, barley, olives,grapes, citrus, dates and other fruits and vegetables. The most importantexport crops are olives, grapes (wine), wheat, citrus and other fruits andvegetables. The annual growth rate of agricultural production is currentlyassessed at 2.4 per cent per year. Farming is practiced with varyingdegrees of intensity over four million hectares (9.8 million acres). Thisrepresents a little over one hectare (2.47 acres) of cultivated land perinhabitant, which is rather low. Over much of the country the scope fordevelopment is severely limited by natural conditions. While the northernarea lends itself to a Mediterranean type of agriculture, the land graduallydeteriorates through the central area to desertic conditions in the South.Rinfall varies from 1,000 mm to 400 mm from north to central Tunisia.

5. The northern area of Tunisia is served with an extensive networkof paved roads and gravel feeder roads. The principal towns of the areaare also connected by railroad.

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III. THE PROJECT AREA

A. General

6. Northern Tunisia is the area with the best climate and soils. TheProject traverses the large cereal and livestock sector of the country. Itis rainfed. The cereal belt includes the Great Plains with 400 to 600 mmrainfall. Livestock are raised mainly in the more hilly and mountainousregions of higher rainfall. The production potential is good.

B. Land Tenure and Cooperatives

7. Land is held under four main tenure systems: (1) Melkland oftraditional smallholders operating largely on a subsistence level; (2) pi-vate (modern) farmland held in units of economic size and farmed by moresophisticated Tunisian farmers using modern techniques; (3) State landfarmed on a large-scale, mechanized basis mainly for cereal production bythe Office des Terres Domaniales (OTD); and (4) Cooperative ProductionUnits (CPU's), the farming cooperatives. Most of the useable land in theproject area is held by traditional smallholders, Extent of this and ofthe other forms of tenure are indicated in Annex 1. Annexes 2 and 3 givefurther details of the CPU's and the OTD, respectively.

8. Historically, cooperative farming was commenced in 1961. By theend of 1965, 213 cooperative units were farming about 185,000 ha withapproximately 15,000 members. This growth of cooperatives, from 1962 to1966, was as follows:

---------Number of Hectares--------Year Cooperatives Members Melkland State Land Total

1962 15 530 4,804 3,661 8,h651963 80 6,057 41,406 2h,357 65,7631964 51 3,288 20,944 18,855 39,7991965 67 5,237 51,000 20,548 71,548

Total 213 15,112 118,154 67,421 185,575

9. Essentially, the planned change to production cooperatives repre-sents the Tunisian Government's approach to agrarian reform. The interest ofthis approach lies in the fact that it is the direct opposite of that adoptedby many countries which commonly subdivide large land holdings into small,individual lots. The Tunisian program is to eliminate subsistence small-holdings through the cooperative system.

10. Cooperatives are founded around a nucleus "Colon Estate" (takenover by Government from former French or Italian settlers) by addingadjoining Melkland (traditional smallholdings) to bring each cooperati e

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unit up to about 1,000 ha. A key feature is the extension of the economiesof scale to the traditional sector. The land is farmed mainly for cerealproduction (hard and soft wheat) with some forage and tree crops on suitableland. It is intended to integrate livestock production based on foragewhich will replace fallow in the present mixed cropping pattern.

C. Mechanization

11. The ex-colon lands previously owned by expatriates were highlymechanized with tractors, implements, and combine harvesters. With thecommencement of the cooperatives in 1961, the Government, with the assist-ance of U.S.AID, has modernized much of the old equipment.

12. Concurrent servicing facilities were not provided. During 196h/65Government built 16 agricultural machinery workshops, 12 of which are inthe project area. They are operated by a government agency, the OfficeNational de Motoculture et de Mise en Valeur Agricole (Annex 4 and Map 2).

13. During 1966, negotiations were completed with U.S AID for financetotaling about US$1 million to assist in equipping and staffing these work-shops. U.S.AID has contracted four French-speaking Canadian agriculturalengineers to set up the servicing organization, to supervise it and to trainstaff. The services of these workshops will be used by cooperatives atnegotiated prices.

D. Livestock

14. Most of the nation's one half million head of cattle and about1.5 million sheep (one third) are in the project area. Production followsthe traditional pattern of smallholder operation by stockowners, who seegreater merit in numbers of animals than in per animal output. Animalsare regarded as capital from which animal output is less important than theasset itself. Livestock thus tend to be scavengers subsisting on the fringeof a cropping economy. Tunisian farmers have not yet become good husband-men in a modern sense though this is not true of the small private, modernsector.

15. The establishment of cooperatives sets the stage for a completelynew approach. The large output of forages (oats and vetches, beans, sorghum,alfalfa, etc.) under the new cropping system makes available suitable foodin quantity for improved animal production. While cooperatives can selland have sold these fodders to independent producers, this outlet has limitedscope and suffers from the disadvantage that the cooperative does not derivethe full potential. The use of forage within the cooperative is highlydesirable not only to maximize returns, but to exploit fully the laborintensive character of livestock enterprises. Such use too provides apractical way of overcoming the husbandry weaknesses. Centralized animalproduction units under competent professional supervision using unskilledlabor of members can achieve modern level production efficiency.

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16. So far, cooperatives have not integrated livestock production inthis way save in a few cases. Members have strongly resisted attempts tobring their livestock into the cooperative. This approach has not beenpressed. Sufficient progress has been made, however, with purchased animalsboth on State and cooperative farms to show that this alternative is feasible.Accordingly, it is now being concentrated upon as a major feature of theProject.

17. Essentially a small herd of milking cows of local origin isacquired. This is increased in numbers by breeding up to the estimatedcapacity of the cooperative and graded up in quality by the use of importedsires through artificial insemination. Concurrently, fattening operationsinvolving purchased calves and surplus homebred male calves are established.Calves are grown from four to five months to twelve to fifteen months forsale as meat. Older cattle may be purchased to add 50 to 100 kg liveweightprior to sale for slaughter. Smiliar sheep fattening operations are carriedout. Most animals will be fed in centralized housing units. Some 14cooperatives and many of the State farms are now operating along these lines.

18. The results obtained indicate that cooperative members can carefor livestock efficiently when properly supervised and that the financialreturns are high. The greatest bottleneck to more rapid implementation ofthe program is the lack of trained personnel and the lack of suitablesources of finance for livestock purchases. The Government intends totrain additional people as rapidly as possible and to provide the necessaryadditional finance.

E. Extension and Research

19. Extension services to cooperatives are provided by the Under-secretariat of State for Agriculture as part of its overall extension serviceobligation. The rate of staffing of the services to cooperatives is adequate.For each Governorate, one Regional Commissioner of Agriculture is in charge.This officer supervises cooperative unit teams consisting of five to sixagricultural assistants headed by one professional agriculturist for eachunit group of about 20 cooperatives.

20. The quality of the advisory and supervisory work is not good.Graduate level operators are young and inexperienced. Assistants are alsoyoung with lower level training. Both groups are keen and prepared toaccept responsibility. The State farms are better off since OTD employsa number of expatriate agriculturists and animal husbandmen who do a veryefficient job in both direct extension and in training local counterparts.The position of the cooperatives should improve when similar personnelbecome available to them as provided for as part of the Project (see para 43).

21. The authorities are aware of this general situation and are par-ticularly conscious of the lack of livestock technicians. The problem isbeing met in various ways. Two schools train men at senior and juniorlevels, respectively. Both concentrate on agriculture. One center for

animal production training operates with assistance from Germany. Its out-put could be stepped up to supply field needs of cooperatives. Overseasveterinary training of some 10 selected Tunisians is in progress. Similaroverseas training in animal production should be organized.

22. On the research side an agricultural research station and a live-stock center are supported by Government. Both have accumulated data rang-ing back to former French administration times. Both are currently sufferingfrom lack of experienced personnel. Work is not oriented sufficientlyclosely to current national needs. Thus, little attention is being devotedto fertilizer use to permit cooperatives to increase cereal yields. Animalstudies are particularly academic and need to be reoriented toward moreuseful objectives. In particular, improved methods of utilizing availableand new forage in a practical way need investigation. UNDP assistance isbeing sought to improve the overall agricultural and animal research situa-tion.

F. Marketing

23. Prior to independence, export surpluses went mainly to Franceunder special tariff and price conditions so that marketing presented noreal problems. The French market virtually disappeared in 1964, creatingserious difficulties particularly for wine and olives. Solution has beensought by both Governments and limited exports of agricultural productshave been resumed. Export of hard wheat to world markets has continued atprices about 20 per cent below the official support price.

24. While the cooperatives are not currently involved in wine produc-tion, they could be so, should State farms producing grapes be absorbed.However, this appears unlikely. Most of the cooperative production underthe Project would be wheat and animal products, the bulk of which can beabsorbed by the local market. There is an expanding market for milk anddairy production capable of absorbing the output planned. Currently, theequivalent of 70,000 tons of milk is imported annually. Currently also,Tunisia is an importer of meat. The outlook for olives and olive oil isuncertain, dependent upon the conclusion of negotiations with France andthe Common Market countries (Annex 5).

IV. THE PROJECT

A. General Description

25. The Project is a part of a ten-year national program to integrateand develop about one million hectares of State and smallholder land intoa cooperative farming system in the northern zone of Tunisia, and has threemain parts: (1) the consolidation of the 213 cooperatives on about 185,000ha established prior to 1966; (2) the establishment during the period Sep-tember 1966 to September 1968 of new cooperatives on about 160,000 ha, each

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on about 1,000 ha; and (3) the maintaining of productivity on State (OTD)farms during their pre-cooperative stage. The Project would be implementedsubstantially over a four-year period. It would cost a total of aboutUS$32.5 million involving a foreign exchange component of US$12.4 million(about 38 per cent).

26. The Project is about half the size requested by the Government.Scaling down is justifiable on the score of organization and managerialdifficulties (Section V) and was agreed to by government representativesduring appraisal. Even the reduced scale involves greater annual rate ofprogress in cooperative formation than achieved during the past five years.

27. The Project is geared to the production of hard and soft wheat asthe major cash crop supplemented by forage crops and livestock. Replacementof fallow by forage crop production for utilization by animals representsa significant change in the traditional land-use pattern in the projectarea. Livestock production would be implemented by the establishment ofcentralized animal units for milk production and/or the fattening of sheepand cattle (paras 15-18). The Project would make provision for the pro-duction of tree crops (olives, almonds, citrus and other fruits) on selectedareas of some cooperatives. Some vegetable production would occur onlimited irrigated areas on suitable cooperatives.

B. Detailed Features

Existing Cooperatives

28. The 213 existing cooperatives, many of which have been hastilyestablished, and few (para 16) of which have yet been organized to embracelivestock production, require additional inputs to bring them into fullproductivity. Farm machinery and small-scale irrigation equipment to pumpunderground water for sprinkler irrigation are required. The major need,however, is for farm buildings, largely for centralized livestock productionand for a revolving capital fund for livestock purchases for fattening.Provision is also made for the establishment of tree crops and the regener-ation of range pasture land. The total estimated cost is US$9.8 million,or about 30 per cent of the total project cost (para 33).

New Cooperatives

29. These average about 1,000 ha, including a central core of State(OTD) farmland with a variable proportion of smallholder land (about 60per cent). The cooperative would take over the buildings and much of theequipment of the State unit, but would require considerable additionalcapital inputs. These include farm machinery for large-scale mechanizedgrain production and harvesting, forage harvesting equipment, small-scalepumping and sprinkler irrigation facilities, farm buildings, includingcentralized livestock production units, as well as finance for tree cropestablishment and the regeneration of range pasture land. Finance wouldalso be provided for livestock purchases, including some imported males ofdairy breeds for grading-up of local stock.

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30. In addition to capital inputs of this type, technical assistancefor supervision and management would be necessary, along with finance forfeasibility studies by contracted consultants. Personnel provided undertechnical assistance (para 43) would service all cooperatives. However,the total estimated cost of establishing the new cooperatives would beabout US$20 million, or about 62 per cent of the total project cost (para

33).

31. Some 106 new cooperatives were established late in 1966 on about123,000 ha, of which about 91,000 were Melkland, and 32,000 State land; ofthis total,however, some 20,000 ha are wasteland, leaving only 103,000 haof cultivable land. This first tranche of new cooperatives under theProject has approximately 8,600 members. No capital inputs for this tranchehave yet been authorized pending the result of the loan/credit application;in the meantime, the machinery from the Office de Motoculture (ON) is beingused over the whole of the new cooperatives.

State (OTD) Farms

32. It is intended to absorb most State (OTD) farms into the coopera-tive system as and when this becomes administratively and financiallyfeasible. In the interim, during what might be termed the "pre-cooperativephase", it is highly desirable to maintain efficient production on the300,000 ha of such land in the project area. Even more important, it isdesirable to extend forage crop and livestock production on all State farmsso that they may be better prepared for eventual transfer to the cooperativesystem. Currently, the State farms are well managed by OTD whose operationsas a whole are profitable (Annex 3 and Map 3). However, much machinery isold. Capital for replacement would be provided under the Project. Thetotal estimated cost is about US$2.7 million, or about eight per cent ofthe total project cost (para 33).

C. Cost Estimates

33. The total investment cost to the Project and the proposed extentof Bank participation are as summarized on the next page:

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Cost Estimates and Bank Financing

--------------Project Cost-------------Of Which Proposed

Dinars Equivalent to Foreign Bank/IDA(millions) US$ Millions Exchange Financing*

.... (US$ millions)...

A. Existing Cooperatives

Buildings 1.4 2.7 0.4 2.1Farm machinery 0.7 1.3 1.0 1.1Irrigation equipment 0.7 1.3 0.5 1.0Tree crops 0.9 1.7 -- --Pasture -/ 0.6 1.2 -- --

Cattle purchase 0.5 1.0 --

Sheep purchase 0.3 0.6 -- --

Subtotal 5.1 9.8 1.9 4.2

B. New Cooperatives

Buildings 1.0 1.8 0.3 1.4Farm machinery 4.1 7.9 6.0 6.3Irrigation equipment 1.6 3.0 1.2 2.4Tree crops 1/ 1.0 1.8 -- --

Pasture 0.9 1.7 -- --

Sheep purchase 0.2 0.5 __ __Cattle purchase ) ( 0.7 -- --Imported bulls of ) 0.4 (dairy breeds ) ( 0.1 0.1 0.1

Water & soil conser-vation 0.4 0.8 -- --

TechnicaL,services 3/ 0.4 0.9 0.4 0.7Studies 4/ 0.5 0.9 0.5 0.7

Subtotal 10.5 20.1 8.5 11.6

C. State Farms

Farm machinery 1.4 2.7 2.0 2.2

Total 17.0 32.5 12.4 18.0

Percentage -- 100 38.3 55.2

1/ Mainly planting material.2/ Regeneration of existing pasture land.3/ Salaries and other costs of expatriate and local supervisory staff.JT/ Feasibility studies prepared by consultants.

* The Bank/IDA would finance 80 per cent of the total cost of all itemsinvolving foreign exchange.

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D. Financing

3h. All funds required for the Project would be channeled through theBanque Nationale Agricole (BNA) (Annex 6). These funds will be passed onto the cooperatives and the State (OTD) farms at a uniform interest rate ofsix per cent per annum, according to the following terms:

1) For cooperatives: average term of 13 years (never exceed-ing 17 years), with a grace period normally of four years(and never exceeding five years).

2) For State (OTD) farms: maximum term of five years withno grace period.

Of the interest charged, two per cent will be kept by BNA to cover operatingexpenses and to build up a fund for meeting bad debts. This commrission isconsidered sufficient in view of the fact that BNA will only bear 15 percent of the risk of nonrepayment of debts in the case of loans to coopera-tives and none of the risk in the case of loans to the State (OTD) farms.Grants to be provided to the cooperatives for water and soil conservationactivities (see para 38) will be also channeled through BNA.

35. It is proposed that a loan/credit be made available to the Govern-ment in the amount of US$18 million, sufficient to cover some 55 per centof the total project cost. It is proposed that US$6 million should be anIDA credit, on normal IDA terms, and that US$12 million should be a Bankloan at the standard rate of interest for a term of 18 years, includingfive years of grace. Disbursement of the loan/credit would be againstdocumentation comprising (1) invoices relating to all imported items inthe list of goods; and (2) documentation of local currency costs of itemsin the list of goods which have been incurred by BNA. In all cases, dis-bursements would amount to 80 per cent of the cost of each item in the listof goods (Annex 7 and para 33).

36. It is possible that the Govermment would be assisted by U.S.AIDin financing a revolving fund, in BNA, totaling about D 1.5 million, tofinance livestock purchases for fattening operations on a continuing basis.U.S.AID officials both in Tunisia and Washington are currently working onthis possibility.

E. Operating Results

37. Analysis of the financial accounts of the production units as ofAugust 31, 1964, shows that out of 95 cooperatives then in existence, 28were making a profit and 67 a loss. Total losses for the fiscal year 1963/64amounted to D 84,663. At August 31, 1965, of the existing 146 cooperatives,103 were making a profit and 43 a loss for the fiscal year 1964/65. Profitstotaled D 360,546. Some of these accounts are not completely reliable,because of the inefficient bookkeeping methods used. However, the accountsdo indicate a satisfactory rate of performance in view of the short period

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since establishment, A major weakness apparent is that the volume of short-term debt has grown substantially. At December 31, 1965, it amounted toD 1,888,613 as against a total of D 1,977,337 for the long-term and medium-term debt. It is clear that part of the expenditures for capital investmenthas been financed with short-term money, both from BNA and from suppliers'credits. The borrower has therefore decided to review the financial posi-tion and prospects of all existing cooperatives, case by case, before theend of 1968. The object of this will be:

1) if necessary, to adjust the terms of any existing loans asappropriate, for instance by conversion of some short-termdebts into longer-term debts; and

2) where the existing cooperative is not considered like'ly tobecome profitable within a reasonable period, to draw up,and then arrange the implementation of,a revised plan tomake it profitable.

In cases where it does not prove possible to draw up a revised plan to makea particular cooperative profitable within a reasonable period, that coop-erative will not receive additional capital inputs under the Project.

38. Financially, the need to provide work for more members thanrequired by farming operations has been a severe burden on the cooperativeswhich have had to accept loans from the Government to employ surp'2us laborin specified water and soil conservation activities unrelated to production.This cost should not therefore be a cooperative responsibility and theGovernment has agreed that in future it would cover such activities withdirect grants, channeled through BNA.

39. Subsidy elements (ranging from 10 to 50 per cent of the cost ofcapital inputs) and variable interest rates (ranging from 1.5 to 6 percent) that are presently in existence are also undesirable, since they donot allow the real development costs to be appreciated by the cooperatives.The Government has therefore proposed that subsidy elements should bewithdrawn from capital inputs and that the standard interest rate specifiedin paragraph 34 should be used in the Project.

40. The cashflow projection for a typical cooperative of 1,000 ha,taking into account the terms of the loans to be made available, and theelimination of subsidies on capital inputs, is given in Annex 8. Estimatedgross receipts for such a cooperative are given in Annex 9. The cooperativemembers will be moved from subsistence farming to the monetary economy.Their net income will reach about D 40 in the first few years and will riseto D 250 at full development.

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V. ORGANIZATION AND MANAGEMENT

41. The organization and management of the production cooperativesat the time of appraisal is explained in Annex 2. It was not satisfactoryat that time and is the key problem for this Project. The Government hassince taken some major steps to improve the situation, including the estab-lishment of a high-level policy-making National Commission for AgriculturalCooperation (Annex 10), the setting up of an executive Bureau of Controlwith exclusive responsibility for supervising the management of the cooper-atives (Annex 11) and the appointment of BNA as sole financial agent of theGovernment for the Project. The remodeled organizational arrangements forthe sulpervision of the management of cooperatives is shown diagramaticallyin the chart of Annex 11.

42. The National Commission was set up by Presidential Decree ofJanuary 2, 1967. It has overall control of policy for all the cooperativesand its members represent all the major interested parties. In particular,it has the responsibility of deciding the pace of formation of new cooper-atives (which will be within the agreed definition of the Project) and todecide the needs of the cooperatives, as well as the means for putting thecooperative development program into effect.

43. The Bureau of Control has been established within the Under-secretariat of State for Agriculture in accordance with a MinisterialCircular of December 22, 1966. The Bureau has exclusive responsibility,under the Commission, for supervising the management of cooperatives andshould be an effective coordinator of all the various services presentlybeing provided to them. Arrangements have been made for the appointmentin the near future of managerial and technical experts satisfactory to theBank and IDA. These experts, who are expected to be recruited abroad andto have Tunisian counterparts, would be contracted for about four yearsand would comprise one senior agricultural production economist, fourassistant production economists and four animal production spec-ialists.

44. The Bureau will be specifically charged with reviewing thefeasibility reports prepared on new cooperatives by consultants (see Annex 2,para 4). Only after accepting the cooperatives' potential economic viabilityon the basis of this report will the Bureau recommend the necessary financingto BNA, who will only be able to make loans to cooperatives after such arecommendation has been received. The Bureau will then be responsible forthe organizing of the new cooperatives.

45. In regard to the supervision of the management of existing coop-eratives and of the new cooperatives once established, the Bureau wouldactually delegate the execution of some tasks to existing organisms. Butthe Bureau would retain the responsibility to see that this execution iscarried out according to its directives and standards. Furthermore, it isunderstood that in future no public or semipublic bodies will be permittedto issue directives concerning the functions of the cooperatives except

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through, or under the authority of, the Bureau. The Bureau will only makerecommendations to BNA to finance those cooperatives that meet the Bureau'sstandards of management, whose farm plans, budgets and investment planshave been approved by the Bureau, whose financial records are kept inaccordance with the Bureau's standards and that are following the technicaladvice given out by, or under the authority of, the Bureau.

46. The Bureau will be responsible for carrying out the reviews ofthe financial positions and potentials of the existing cooperatives (seepara 37). It will also be responsible for putting into effect any recommen-dations made by BNA for improving bookkeeping methods in the cooperatives,which recommendations will be made as a part of the independent auditingservices to be provided by BNA.

47. To enable BNA to carry out its role effectively arrangements arebeing made to appoint one agricultural credit specialist satisfactory tothe Bank and IDA and to appoint three qualified accountants to work exclu-sively on cooperative accounts. It is expected that the credit specialistwill be recruited abroad and will have a Tunisian counterpart.

48. It is thought that the above arrangements, if strictly followed,will lead to improved management of the cooperatives themselves. Themanagement situation should be closely watched by supervision missionsduring the implementation of the Project, however, and the whole positionshould be reviewed after one year's operations.

VI. PROCUREMENT

49. The Government has an official tender system which provides forcompetitive bidding. Foreign as well as domestic suppliers may submitproposals. The calling of tenders is advertised in the large newspapersof Tunis. A number of well-known international firms in agriculturalmachinery and equipment are represented in Tunisia and are required toprovide after-sales service. These local trade channels are used forprocurement, and importations are normally under dealer licenses. Eval-uation of tenders for items financed under the loan/credit would be decidedon sound economic criteria, but with a preferential margin allowed to localproducers of up to 15 per cent.

50. A decree dated July 19, 1965, imposed restrictions on the importof tractors in order to protect a new assembly plant in Tunisia. Assuranceshave been obtained that the Government will exempt all tractors purchasedunder the Project from the provisions of this decree, and will announce thisexemption in all tendering documents and related advertisements.

- 13 -

VII, ECONOMIC BENEFITS AND JUSTIFICATION

51. Proposed investments on the 185,000 ha of existing cooperativesshould help to lift the gross receipts of these cooperatives from the presentlevel of D 19 per ha to approximately D 50 per ha (see Annex 9). Of this,60 per cent would be derived from wheat and olives and 37 per cent fromanimal products. Present net annual income on these cooperatives can beestimated at D 12 per ha and will rise to approximately D 27 per ha whenthe cooperatives are at full development, i.e. after 17 years of operations.Yearly added value resulting from the presently envisaged investments inthe existing cooperatives will then amount to some D 2.8 million.

52. The proposed investments in new cooperatives would also lead toannual gross receipts of some D 50 per ha, similar in nature to the grossreceipts from the investment in already existing cooperatives. Consideringthat present net annual income before creating these cooperatives can beestimated at D 9 per ha and that it will rise to approximately D 27 per hawhen the cooperatives are at full development, yearly added value resultingfrom this part of the Project will amount to about D 2.9 million.

53. The investment in the new cooperatives would yield an annual rateof return to the economy of about 10 per cent over a lifetime of 24 years(see Annex 12).

5h. The farm machinery investments in the State lands will generatea satisfactory rate of return in line with the existing returns to mechanizedcereal farming on these lands. The total investments under this headingrepresent a small part of the Project and of the total investment require-ments of an on-going, profitable organization (see Annex 3).

55. By the investment in the agricultural cooperatives, the coopera-tive members will be moved from subsistence farming to the monetary economy.Their net income will reach about D 40 in the first few years and will riseto about D 250 when production reaches full development. This additionalpurchasing power would stimulate the national economy. The Project iseconomically justified.

VIII. CONCLUSIONS AND RECOMMENDATIONS

56. The development of production cooperatives has become the estab-lished policy of the Government of Tunisia in seeking more efficient land-use. Appraisal has indicated that the new system is capable of raising thelow production of traditional land to a much higher level, of expandingexport earnings and of increasing the per capita income of the Tunisianfarmer.

57. Attention should be drawn to the fact that with this Project, theBank and IDA would be entering a new field--that of production cooperatives.Participation in the Project would be noted by countries interested in this

- 14 -

approach to agrarian reform either because of its ideological connotationsor its promise as an alternative to perpetuating the economic and sociolog-ical inefficiency of subsistence-level smallholdings. The Bank and IDAmight therefore be faced with further requests for financing of a similartype in even more difficult circumstances.

58. Moreover, the weak incentives which characterize the functioningof production cooperatives must be recognized. Historically, this defectappears to have been a major reason for their relatively poor performance.In practice, it has proved difficult to incorporate effective alternativesto the incentive motive provided by private ownership and operation. Thismakes successful performance of such an enterprise highly dependent onorganization, management and supervision.

59. However, the Bank and IDA should be aware that in the case ofTunisia, it has no alternative in the existing political climate if itwishes to contribute significantly to the performance of the agriculturalsector of the economy. The Government is firmly committed to productioncooperatives. It is determined to make the system work and it is encourag-ing that it has proved most amenable to suggestions made by the variousBank missions that have reviewed the Project. The Bank/IDA mission hasformed the distinct impression that the existing senior administratorsregard the current concepts as "evolutionary" rather than "static." Par-ticipation by the Bank and IDA could well stimulate changes in a usefuldirection.

60. If executed as outlined in this report, the Project is technicallyfeasible and economically justified. During the past two years, theTunisian cooperatives have made progress toward better management and areprepared to strengthen their financial base, to have qualified personneland to take further measures to increase the efficiency of labor use. TheTunisian Government has recently taken steps to improve the supervision ofthe management of the cooperatives which should assist the improvement ofthe management itself.

61. The Project is suitable for a Bank loan of US$12 million, at thestandard rate of interest and with a term of 18 years, including five yearsof grace, and for an IDA credit of US$6 million, on normal IDA terms.

January 19, 1967

ANNEX 1


Land Tenure

After nationalization of foreign property in May 1964, the preseptstatus of land tenure in Northern Tunisia is estimated to be as follows:

Agricultural Surface in Northerm Zone--1965(in 1,000 ha)

Traditional agriculture 1,132State land 313Modern (private) agriculture 150Cooperative Production Units 185Irrigation land outside CPU's 20

Total agricultural land 1,800

The traditional agriculture contains mostly small and scatteredholdings, farmed in the traditional, that is, more primitive, way with lowproductivity.

According to the original development program, this land shouldbe transferred by 1973 to cooperatives. In the last four years, about120,000 ha have been transferred. As holdings are small, scattered and inmany cases no firm title or even ownership is established, the transfer initself proves to be a very complicated and lengthy operation.

The State land, under the "Office des Terres Domaniales" (seeAnnex 3), is largely land taken from French and Italian settlers, but alsoconsists of some previous public habous land (nontransferable land, therevenues of which were used as a gift for public charities); the lattermight be of lower quality than the old colon land. A large part of thisState land, which contains some of the best large-scale farm areas, wasoriginally scheduled to be transferred by 1970 to serve as nucleus for theformation of cooperatives out of State land plus traditional or privateland. VJhether this scheme of transfers will be realized as quickly asplanned is doubtful. The agricultural operations on the State lands havebeen running fairly well and have assured an important part of the totalTunisian agricultural production.

More recent measures indicate that some State land might also besold to private farmers.

1/ SOURCE: Undersecretariat of State for Agriculture, Tunisia.

ANNEX 1Page 2

Modern (private) agriculture consists of the larger and in generalwell-cultivated Tunisian holdings. In the program for agricultural develop-ment this category is supposed to remain unchanged. This, in general, isan important sector in Tunisian agriculture and further expansion eitherfrom rent or ownership of traditional land or from buying State propertycould be possible. Support of this sector, as well] as support of State andcooperative agriculture, might be useful to give Tunisian agriculture thenecessary flexibility.

The Cooperative Production Units (CPU's), numbered 213 on 185,000ha by the end of 1965 and are supposed to increase rapidly till a largepart of the traditional agriculture and most of the State land has beenorganized in this way. The annual increase in acreage of CPU's for thenext five years, as foreseen in the Tunisian agricultural development plan,varies from 150,000 ha to 180,000 ha a year. For 1966 alone this would beequal to the program executed in the four preceding years. As explainedin this report this too ambitious tempo has been scaled down for the years1966 and 1967 to about 160,000 ha for the two years taken together and willbe reviewed thereafter.

Irrigated land in the Medjerda Valley Authority forms most of alimited section of irrigated agriculture, outside the production coopera-tives. A slow and rather regular increase till a maximum of 90,000 ha in1974 is expected. So far the growth has been about 5,000 ha a year and thesubsequent increase planned may also prove to be too ambitious.

Summarizing, the agricultural program plans a transfer from Stateland and traditional (that is small and backward) agriculture to cooperativeagriculture, maintaining a limited private sector and developing a limitedarea of irrigated agriculture.

Land tenure structure is completely changed under the CPU. Herefarm units of about 700-1,200 ha are formed, consisting of a nucleus ofState-land (so far about 40%--usually an old colon farm) to which varioustraditional holdings are attached so as to farm one well marked unit forfarming.

The State land remains State property for the first five yearswhen it is rented to the cooperative, and after this may be sold to themembers of the cooperative to increase their shareholding and with it theprofit-sharing and income capacity of these members. Traditional land isattached and holders lose individual ownership, but receive a proportionateshare in the cooperative instead. Small private moderm farmers can beincluded and then also receive a share for their land. A landowner withinthe designated area of the cooperative can decline membership and in thatcase either sell or rent his property to the cooperative. Larger privateowners are not obliged to become part of the cooperative, but may decideso if they wish. The basic principle is that individual landownership istransformed in share ownership and that the individual characteristic of aholding disappears as it becomes part of the overall cultivation plan for

ANNEX 1Page 3

the cooperative. Shares in the cooperative can be transferred to othermembers or members-to-be of the cooperative or can be sold back to thecooperative. The prices at which shares are or will be transferred are notindicated in any of the regulations, but appear to be determined at themoment of the transaction by each individual cooperative.

For his share, the farmer-landowner now receives the right to workat the cooperative as far as work is available, at fixed rates, and to shareproportionately in the profit of the cooperative after deduction of theamount paid out for work, and a contribution to legal reserves.

In practice, however, the transfer of some private holdings intothe cooperative has not been realized, which means that the cooperativefarm unit is in places broken up by other landholdings. Even in the olderMedierda Valley, land consolidation and transfer is still a problem. Thetransfer problem should be more manageable with the reduction in scope ofthe Project (see para 26 of the main report).

In the Medjerda organization some of the cooperatives have beenorganized differently and after consolidation and reallocation the membershave an individual plot to take care of, with obvious advantages of incen-tive for good farming.

Although the various decrees do not say so, a realistic appraisalof the situation might in the future lead to the same kind of owmership inthe CPU's which would then become a kind of service cooperative with possibleextended powers for directives for production.

The other forms of land tenure in State land and larger modernprivate holdings will be maintained.

ANNEX 2


Organization and Management of Cooperative Units*

The cooperatives included in the Project were, or will be, estab-lished in accordance with Law 63-19 of 1963 which replaced the old Protec-torate Law of 1934 on agricultural cooperatives. The new law is differentfrom most cooperative laws, as it leaves out the usual definition of avoluntary organization of people to obtain a certain goal as a basicdescription of a cooperative. Law 63-19 states the function of the coop-eratives as ccamon utilization by farmers of all technical and economicmeans to facilitate their agricultural production and to get the benefitsfrom the results of their activities.

The CPU (Cooperative Production Unit) is, next to the servicecooperative, one of the two forms recognized in the Law. There are threekinds of CPU's foreseen in the Law: the production cooperatives for theNorth, the ones for animal production and the cooperatives for mixedfarming. Only the first group is dealt with in the Project.

The statutes of each cooperative have to follow certain prescribedrules and must be approved by the Secretariat of State for the Plan and theNational Economy which, through the Undersecretariats for Agriculture andFinance, is in charge of the financial and technical supervision of thecooperatives.

The constitution of a CPU originates at the Undersecretariatsfor Agriculture and Finance after consultation with a Regional Commissionfor Cooperatives. Future members (small farmers and agricultural labor)also have to be consulted. Beforehand, the Undersecretariat for Agriculturehas investigated the size, location, land tenure, cultivation plan, economicprospects (to reach a minimum income of D 250 per member family), etc., byemploying consultants to prepare a feasibility study based mainly on eco-logical and economic considerations.

Once the area has been established, small farmers within theseboundaries have the option to become members of the cooperative, or toexchange their parcel for a lot outside the cooperative. Larger landownerscan sell or rent their farms to the cooperative (see also Annex 1).

The cooperative therefore has three kinds of land: (a) thenucleus, property of the State and rented to the cooperative for fiveyears; (b) land bought or rented from landowners who did or could not jointhe cooperative; (c) land brought in by members (usually small plots fromone half to ten hectares) for which they have to give up title and receivea proportionate share in the capital of the cooperative.

* Prior to the recent changes in the arrangements for the supervision ofthe management of the cooperative (see Section V of the main report).

ANNEX 2Page 2

The results or profits of the cooperative are divided (aftervarious rules on reserves, etc.) among members on the basis of two criteria:labor and shares. During the year, members receive an advance on the profitin the form of established wages (350 millimes per day for general labor,400 for tractor driver, 500 for combine driver, 600 for technical director)for their actual work in the cooperative. Membership in the cooperativewithout contributing labor is excluded.

Management is split into an administrative and a financial part.The administrative function belongs to a board of at least three members aselected by the total membership. This board selects its president amongtheir own group. The board also nominates a technical director (usually arather young man who received a year's training at the National School forCooperatives) who also receives a land share to be a full member of thecooperative. This director is also the accountant and administers smallexpenses, pays salaries and advances on labor. For larger expenses, usuallyper check on the BNA, he needs the approval and signature of the RegionalDirector of Cooperatives. The latter also is responsible for the annualaccounts and balance sheets of the cooperatives.

The CPU's themselves are grouped in Local Cooperative Units (LCU's)(including also service cooperatives in the same area); these LCU's areagain grouped in a Regional Union of Cooperatives per Governorate.

Under this construction the overall supervision and direction ofthe CPU's is quite complicated. The Undersecretariats of Agriculture andFinance all have a say, not only in the constitution, but also in the oper-ation of the cooperatives. The Undersecretariat of Agriculture nominatesa regional agriculturist for each Governorate as a kind of technical super-visor and consultant for the cooperatives. But this man can also receivedirections from the Governor (as nominated by the President) and the localdelegates. At the same time the Regional Union of Cooperatives has aManager of Cooperatives, nominated by the Board of the Regional Union ofCooperatives, upon approval of the Undersecretariat of Finance, who alsocan give directives to the cooperatives and exercise control over theirfinances.

The shortcomings in the actual organization and management areobvious when visiting the cooperatives in the field. Expert studies aremade and detailed plans are worked out in the Undersecretariat of Agricul-ture, but the implementation of all this work remains difficult. Delaysin credits, supplies, spare parts are problems in the field, but the centralplanning moves on and does not seem to take delays, shortfalls and otherhandicaps into account. Directives can and are given by so many authoritiesthat the execution of them must be confusing. The young directors of thecooperatives are school graduates who have little practical experience andfind it difficult to provide competent leadership.

ANNEX 2Page :R

Yet there is a tremendous determination to make the program work,noticeable with all the people involved in these cooperatives. This,combinedwith the real potential for further development, justifies supporting thegradual transfer from traditional to modern agriculture.

It is also clear that, with the present problems, the rapid expan-sion, proposed under the original program, will have to slow down to enablean adjustment of the existing situation and to develop the capable manpowerknow-how and experience on how to run further CPU's effectively. The keyproblem for this program is not financing, but organization and management.

ANNEX 3


The Office des Terres Domaniales (OTD)

Purpose

The Office des Terres Domaniales (OTD) is a public institutionestablished by a Decree of September 30, 1961, with the purpose of continu-ing agricultural production and providing efficient management on most ofthe lands previously owned by foreign settlers.

The aim of the Government by setting up OTD was to maintain asmuch as possible the high productivity prevailing on the ex-colon landswhich constitute the most fertile agricultural soil in the country. In thelong-run, however, the majority of the State lands in the northern regionof Tunisia will gradually be attached to smallholder plots to form thenuclei of agricultural production units. The jurisdiction of OTD overthese lands will thus be relinquished little by little over a period ofseveral years, forecasted--according to the Tunisian development plan--toend around 1972.

At present, OTD is still managing approximately 394,000 ha ofagricultural land, 313,000 ha (or 78%) of which are located in NorthernTunisia.

Organization and Management

OTD is administered by a Board of Directors composed of 10members under the chairmanship of the Undersecretary of State for Agri-culture. Members of the Board comprise four representatives of the Govern-ment, the President of BNA, the Director of the Office de Motoculture, arepresentative of the Neo-Destour, two trade-unionists and the Director ofOTD.

Responsibility for the management of OTD lies with the Director,the latter being appointed by the Government. Coordination of the work andcentralization of the accounts is undertaken in the Head Office at Tunis.This office is equipped with a staff of administrative, technical andfinancial personnel which deals with problems related to land registration,acquisition of equipment and bookkeeping.

The territory covered by OTD is divided into 16 regions, ten ofwhich are located in Northern Tunisia (see Map 3). Each region is headedby a Regional Director with a personnel staff organized along the samelines as the one in the Head Office.

Each region is in turn composed of a certain number of sectorsdepending on the number of hectares as well as on the number of farmsincluded in the region. At the head of a sector stands a Sector Supervisor,who is responsible for all farm operations within his sector and who isassisted on the larger farms by a farm manager.

ANNEX 3Page 2

Farm machinery owned by OTD is presently inadequate, but in orderto increase its productivity, it is rotated between farms and during plow-ing, planting and harvesting season, used as long as 21 hours a day. Forlower echelon maintenance work OTD runs a few workshops at the regionallevel and some supplementary shops taken over from the colons on the largerfarms.

Including management, staff at the regional offices, sector super-visors, technical agents and mechanics, OTD has a total personnel payrollof 415 people, 36 of which are foreign expatriates.

Financial Situation

Separate budgets are drawn up by the Regional Directors and sentto the Head Office where they are consolidated into the OTD budget andapproved by the Board of Directors. The Secretary of State for the Planand the National Economy gives a final approval to the proposed budget.

Current expenditures are financed by OTD from its accumulatedreserves or, occasionally, from special governmental loans. For capitalinvestments OTD can, furthermore, turn toward BNA, foreign aid givers orsuppliers' credit as sources of finance.

As shown in the balance sheets attached below, the profits ofOTD which in 1962 amounted to D 237,904, were as high as D 3,183,682 in1965.

The accounts of OTD are controlled by an independent auditorappointed by the Secretary of State for the Plan and the National Economy.

ANNEX 3

TABLE 1


OFFICE DES TERRES DOMANIALES

Comparative Balance Sheets(in Dinars)

Situations as at December 31.

1962 1963 1964 1965

ASSETS

Fixed Assets

Land 121,039 276,399 521,318 841,098Buildings, Machinery, Vehicles 213,349 1,430,410 ,1i43,294 1,208,237

Total Fixed Assets 334,388 1,706,809 1,664,612 2,049,335

Investments - 5,000 8,000 312,280

Current Assets

Stocks, receivables 1,127,634 1,716,869 2,743,344 5,823,209Cash 272,388 1,424,609 859,065 461,305

Total Current Assets 1,400,022 3,141,478 3,602,409 6,284,514

Total Assets 1,734,410 4,853,287 5,275,021 8,646,129

LIABILITIES

Capital and Reserves

Capital 500,000 2,120,000 2,956,927 4,198,570Amortization Reserve 400,000 600,000 217,700 217,700

Total Capital and Reserves 900,000 2,720,000 3,174,627 4,416,270

Long Term Loans 151,772 628,936 503,674 309,975

Current Liabilities 444,734 429,972 h03,614 736,202

Surplus

1962 237,904 237,904 - -1963 836,475 - _1964 1,193,106 -1965 3,183,682

Total Liabilities 1,734,410 4,853,287 5,275,021 8,646,129-~ , _=

ANNEX 3

TABLE 2


OFFICE DES TERRES DOMANIALES

Income Statements(in Dinars)


1962 1963 19 6 4 1965

A. REVENUES

Rent 151,350 99,274 121,087 340, 052

Agricultural Produce

Wheat and vegetables 842,362 1,134,751 1,698,349 2,247,563Oil and olives 414,196 389,953 910,763 1,256,341Dates and fruit 153,788 86,028 190,859 431,965Other 132.646 559,077 399,840 889,251

Total Agricultural Produce 1,542,992 2,169,809 3,199,811 4,825,120

Other __174,153 287,688 243,769 139 288

Total Revenues 1,868,495 2,556,771 3,564,667 5,304,460

B. OPERATING EXPENSES

Wages and salaries 700,578 677,592 1,271,470 2,306,810

Fuel 247,889 173,268 258,859 541,698

Spare parts 109,017 139,967 193,371 573,443

Fertilizer 134,311 143,673 227,457 625,847

Depreciation 448,005 410,555 519,380 472,610

Other 237,561 236,644 413,669 883,026

Total Operating Expenses 1,877,361 1,781,699 2,884,206 5,403,434

C. CHANGE IN STOCKS 246,769 61,403 512,645 3,282,656

D. OPERATING RESULTS (A+C-B) 237,904 836,475 1,193,106 3,183,682

ANNEX h


The Office National de Motoculture et de Mise en Valeur Agricole

Purpose

The "Office National de Motoculture et de N4ise en Valeur Agricole"was created by a law dated July 21, 1959. It is a semi-public organizationwhich functions primarily as an equipment rental agency, performing soilconservation and reclamation as well as cultivation work for the Government,the cooperative production units and the private sector.

The Office also does its own repair work. This is performed in thefield for preventive maintenance and minor repair works and in a central shopin Tunis for major repairs. In this context the organization has a responsi-bility for on-the-job training of mechanics and drivers. It has also servedas a distributing agency for fertilizer, but the latter activity is on thedecline.

Finally, the Office is responsible for the management of 16 repairshops which are being equipped by a loan from U.S. AID. Eight of these shopswill be specialized in maintenance and minor repairs; the other eight willperform maintenance only. Spread all over the agricultural regions ofTunisia (see Map 2 ), the shops will be used to repair the agriculturalmachinery of the Office, but they will also provide repair services on acommercial basis to the cooperative farms and to the private sector. Twelveof these shops are located in the project area and will be within a distanceof not more than 30 km. from any cooperative unit, They wiU start operationin the beginning of 1967. It is the intention of the Government to eventuallytransfer the management of the shops from the Office to the Regional Unionsof Cooperatives.

Organization and Management

The Office is managed by a Director and has a total staff of around400, including some 25 officers. Although functioning within the Under-Secretariat of State for Agriculture, it is an autonomous organization whichfinances itself with the revenue from its operations. The management seemsto be competent, and the work done so far seems satisfactory. In the frame-work of the U.S. AID loan, four Canadian engineers will be hired as technicalassistants to set up the new repair shops.

The Office will not have a monopoly for repairs, but will competewith private repair shops. An agreement is being worked out between theOffice and the cooperatives concerning the tariffs or scale of charges.

Financial Situation

The attached summary income statements show that of all activitiesundertaken by the Office, the work performed for the Government in connectionawith soil conservation and reclamation constitutes the greatest source ofprofits.

Total profits of the organization have increased from D. 21,078 in1963 to D. 49,508 in 1965.

ANNEX 4

TABLE 1


OFFICE NATIONAL DE MOTOCULTURE ET DE MISE EN VALEUR AGRICOLE

Income Statements(in Dinars)

1963 1964 1965

A. REVENUES

Cultivation work 40,277 41,806 73,922Soil conservation 455,175 538,542 629,824Fertilizer operations 170,118 524,724 240,595Workshops 122,534 167,106 165,277Adninistration 13,322 15,653 5,699

Total Revenues 801,426 1,287,831 1,115,317

B. EXPENDITURES

Cultivation work

Wages and salaries 11,534 9,706 10,138Goods and services 31,184 40,884 49,903Depreciation 8,792 2,426 4,980Other 1,217 1,284 2,241

Total 52,727 54,300 67,262

Soil conservation


Total 279,997 336,763 426,259

Fertilizer operations

Goods and services 161,000 485,884 233,456Other 5,095 19,746 3,383

Total 166,095 5o5,630 236,839

Workshops


Total 137,235 166,026 178,550

Administration


Total 11414710 178,9141 106.857

Total Expenditures 780,764 1,241,660 1,015,767

C. PROFITS (OR LOSSES) ON

PREVIOUS YEARS 416 650 (-50,042)

D. PROFITS (A + C -B) 21,078 46,821 49,508

ANNEX 5


Marketing and Prices

At the time of the French, farmers marketing was no specific problemfor the project area. The modern farms mostly produced staples like hardwheat, soft wheat and barley, some wine and olives, whereas the large areaof traditional farming mostly produced for their own subsistence. Apartfrom the wine, the staple crops were largely consumed locally and whateversurplus remained available was assured of a market in France, mostly atspecially favorable prices, sometimes duty-free, or at least at preferredtariffs. Wine was also sold at a special high price to France, where it wasmostly used for mixing with other wines.

In 1963, there already was some change in position because of theCommon Market regulations which led to lower prices for hard wheat, butafter the break with France in May 1964, the position changed completely asthe automatic outlet at privileged prices in the French market vanishedovernight. At the moment, this has only seriously affected wine, a productwhich is not included in the Project. The exportable surplus of other cropsis sold in the French market or elsewhere at world market prices and some-times in barter trade with Eastern Europe. It should be realized, however,that hard wheat exports are at prices below the official support price ofD. 42 per ton as paid by the Office des Cereales to the farmers.

The following table shows the main agricultural exports of Tunisiaover the last few years:

Export of Main Agricultural Commodities 1960-1965(quantity in 1,000 tons, unit value in dinars per ton)

---- 1960-- 1961--- ----1962--- ----1963--- ----1964--- --- 1965---Qt. U.V. Qt. U.V. Qt. U.V. Qt. U.V. Qt. U.V. Qt. U.V,

Hardwheat 116.0 44 33.0 47 29.0 48 116.0 31 90.0 30 8.8 38

Wine 135.0 55 133.0 60 125.0 61 167.0 61 149.0 59 72.3 38.3

Olive oil 24.0 239 44.0 217 54.0 236 29.0 342 51.0 234 46.3 292

Citrus 38.0 42 42.0 44 38.0 47 31.0 58 44.0 50 46.0 56

Dates &otherfruits 4.0 179 1.4 240 3.8 206 3.7 119 4.0 242 5.6 272

Prese-vedf!'!;ts &ugs. 7.8 130 7.5 132 10.7 111 12.5 146 18.0 141 17.2 133

COiRCE: Rapport sur le Budget Economique de l'Annee 1966, Secrebariat d',tat au Planet a l'Economie Nationale, September 1965.

ANNEX 5Page 2

I'iarketing of the CPU production does not seem to present any majorproblem. In five years time the total annual increase in cereal productionfrom the already existing and newly created cooperatives will only amountto some 30,000 tons. Allowing for small increases in production in otherparts of the country, total wheat production in Tunisia will only increaseby about 2 percent a year. The Development Plan expects wheat productionin 1968 to cover not only the increase in domestic consumption, but also tomaintain exports of hard wheat and to eliminate imports of soft wheat, nowamounting to about 150,000 tons. This seems too ambitious, and probably apart of wheat consumption will still have to be imported in the coming years.

Similar arguments apply to the milk and meat production. The largequantities of cattle and dairy products which are presently imported (in1964 for D. 0.7 million and D. 1.4 million respectively) could easily beproduced domestically at an economical price. After ten years of operationthe milk production from the already existing and newly envisaged cooperativeswill only be equal to the amount of milk presently being imported in Tunisia.Wool production, on the other hand, will be sold on the local market for thetraditional, cottage-type industry as wTell as for the recently Governmentestablished production of carpets.

Problems might arise in the future with respect to the marketing offruits and vegetables, which will have to be sold largely abroad, eitherfresh or in processed form. To find a profitable market for these products,sales will have to overcome various handicaps. Internal production andtransportation costs, as well as processing costs, are rather high: produc-tion costs because of less than optimum yields and quality, transportationcosts because internal transport appears to be too rmuch monopolized and pro-cessing costs because materials for processing are expensive and also becausein various cases maximum efficiency in processing is not attained.

The importance of fruits and vegetables in the total income resultingfrom the project is negligible. In some cases, however, a relatively smallbut unmarketable surplus of high value fruit and vegetable crops couldjeopardize the profitability of a given coop. Particular attention shouldbe given to this problem, especially by the recommended management unit tobe set up in the Undersecretariat of State for Agriculture.

With regard to olive oil no major marketing problems seem to existin the short period. Export receipts will, however, be somewhat lower thanbefore, as Tunisian oil export now has to face the EEC tariff of 17 percentin its main market -- France -- , instead of the previously existing rate of9 percent. Long-term prospects depend on the hitherto uncertain status ofTunisian relations to the Common Nsarket. Negotiations on some form of associa-tion have been started in July 1965, and are presently being continued.Italian opposition to concessions, in particular for fruits and vegetables,seem to be rather strong, and even if satisfactory solutions could be foundfor many problems it would take at least two years before Tunisia would havean easier access to, these important markets.

ANNEx 5Page 3

Officials in Tunisia are aware of some of the marketing problems.Studies are being made and technical assistance has been asked on how todevelop and expand exports for agricultural products. The Association ofTunisian Exporters is developing activities in the market expansion. Apartfrom these activities, trade political problems and some basic internalproblems of productivity, cost and quality will have to be tackled.

On the domestic scene the CPU's will use the existing "CooperativeCentrale des Agriculteurs de Tunisie" (CCAT) and the Regional Union ofCooperatives for the marketing of most of their products. CCAT is a servicingcooperative which was created several years ago with local agencies andstorage facilities. It sells the cereal crop to the Office des Cereales, theGovernment agency which is the sole buyer of cereals.

To maintain adequate quality and supply of dairy products to the cityof Tunis, the Government has set up a dairycorporation (STIL) under the contro'of the BNAe This organization purchases milk from producers at agreed pricos"at the factory", collection and transport being the responsibility of theproducers.

While most of the meat of the country is slaughtered and sold atlocal village killing and selling centers, an arrangement similar to that formilk has been developed for the meat trade of Tunis. A Government establishedcompany (Ellouhoume) took over a very old privately-owned large city slaughter-house after independence. It operates this in collaboration with localbutchers, buying stock of all types from producers, slaughtering, processingand selling the product to retail butchers.

With regard to prices the high special prices received in the Frenchmarket now are a thing of the past and in most cases sharp competitive worldmarket prices will prevail. For hard wheat there is quite clearly a gapbetween the internal ex-farm price of D. 42/t. and the present world marketf.o.b. price of around D. 30-38/t. The wine price will also drop almostcertainly to about half the previous level and a recent plan documentestimated that the average price per ton for 1966 will drop to D. 29 comparedto about D. 60 in 1961-1964.

The prices for other products are highly uncertain. In its calculationof revenues of the Plan for the Development of Agriculture certain pricelevels, in general close to the 1964 prices, have been assumed. As far asexports are concerned these figures are just a guess. Competition could forcedown prices; on the other hand, a favorable future association with the CommonMarket might support price levels.

ANNEX 6


The Banque Nationale Agricole (BNA)

Background

The Banque Nationale Agricole de Tunisie (BNA) was established onJune 1, 1959, by the Government to centralize and coordinate in one insti-tution the agricultural credit activities scattered in several public andprivate organizations operating in Tunisia under the French protectorate.

In its desire to eventually separate the subsidy and assistance typeof intervention to agriculture from regular methods of financing, theGovernment has accepted that the new Agricultural Credit Bank should beoperated by a businessmanlike management. The BNA was, therefore, giventhe legal status of a private corporation.

Purposes

The primary objective of the DNA is to promote agricultural develop-ment through the issue of short-, medium- and long-term loans, and moregenerally to carry on all the normal banking and financial operations,including commercial loans. It can also participate in industrial enter-prises by taking direct equity investments.

Ownership

The BNA capital is composed of nominative shares of D. 10 each,distributed as follows:

Tunisian Government D. 200,000

Office des Cereales Legum-ineuses Alimentaires etAutres Produits Agricoles(Gov't. Marketing Board) D. 109,920

Private Tunisian share-holders (farmers) D. 90,080

Total D. 400,000

Organization and Mianagement

The BNA organization consists of the Head Office and 24 agenciesspread all over the country, with a density decreasing from North to South.Total personnel on Say 31, 1966, amounted to 387 as against 333 on October 30,1965, and 318 in December 1964. The Agricultural Credit Department in theHead Office has a staff of over 50.

The BNA is administered by a Board of Directors with extensive power.The Board is composed at present of eleven members, five of which are

ANNEX 6Page 2

appointed by the Government and six by the General Assembly. Of the latter'group two represent private farmers and four represent a series of semi-public institutions which deal with agricultural matters. The members holdoffice for six years and can be re-elected, The Board of Directors appointsamong its members a chairman who is also the chief executive (PresidentDirecteur General).

Having the same president since its establishment the BNA has hadcontinuity in management. It has gradually increased and improved thequality of its staff.

The present system of accounting provides an effective control ofexpenditures. The BNA, however, is studying with the help of consultantsthe possibilities of modifying and mechanizing their present system in orderto cope with the increased operations and to enable more up-to-date data tobe readily available to management.

Internal auditing is the responsibility of the controller. Hisdepartment consists of five units and effects periodic visits to the agenciesin the field. External auditing is presently carried out by two auditorsappointed by the General Assembly. The BNA is also subject to inspectionand control by the Government. A financial controller appointed by theUndersecretary of Finance attends all Board meetings.

PowJers

The General Assembly of the shareholders has general sovereignpowers on the corporation. It appoints and discharges members of the Boardand decides on all matters exceeding the Board's competence: approval ofthe balance sheet and the profit-and-loss account, merger or dissolution ofthe corporation, changes in capital structure, etc.

Resources

The lending resources of the BNA are made up by capital which ismostly government subscribed, deposits, one loan and funds administered bythe BNA.

12. Its share capital of D. 400,000 is fully paid and its reserves andnon-distributed profits as of December 1965 were respectively of D. 171l,008and D. 38,820.

Sight and short-term deposits, since 1960, have started atD. 2,800,000 and have been increasing year by year to reach D. 17,125,000in 1963; they declined to D. 14,584,000 in December 1965. The share of semi-governmental agencies together with the time deposits of US AID accountfor about 60 percent of these deposits.

The rates of interest paid to depositors are ruled by the CentralBank of Tunisia. For sight deposits the rate is maximum 1.25 percent toprivate depositors, and 1.75 percent to governmental and autonomous

ANNEX 6Page 3

governmental agencies and cooperatives; for term deposits, the rate variesfrom 2 percent to 3.5 percent according to the period of notification (threeto twelve months) and to the amount deposited (D. 1 to D. 5,000).

There is no limit to the borrowing power of the Bank. Since itsestablishment, it has contracted only one loan from the Development Loan Fund(DLF) with the government's guarantee. The loan of-US $5,000,000 at 4 percentinterest was granted on June 27, 1961.

These resources are backed up by rediscount facilities at the CentralBank of Tunisia by a quota of up to D. 1.2 million. In specific cases thesefacilities may be used, with the Central Bank agreement, to finance a mediumterm loan up to 5 years, renewable every 3 months.

Several funds have been entrusted to BNA by the Tunisian Governmentfor specific end-use lending operations or in the framework of the law onagricultural development (May 1963). Some other funds are set up to copewith emergency situations or to assist farmers in traditional areas. A fundis to be set up within BNA for this present Project.

Use of Resources

Investment. BNA's own resources are used for short-term loans andpartly for equity investment. At March 31, 1966, their participations amountedto D. 213,357.

Short-term loans. The largest part of short-term credit comes fromthe current accounts and deposits representing about 70 percent (D. 11.5million) of the total money available at short term. Out of the total amountof short-term loans granted in 1965 (D. 22.5 million) only D. 4.5 millionor 20 percent went to agriculture, while about D. 18 million or 80 percenthas been granted to commerce and industry.

Medium- and long-term loans are normally financed on special fundswith the Government's guarantee to cover risks of defaults. No long-termloans are granted on BNA funds. Besides the funds, the only medium-termloans granted by the BNA to agriculture are those which can be rediscountedwith the Central Bank.

Risk and Guarantee

The BNA's risk is total for the short-term and limited according tofund specifications for medium-term loans. The guarantees requested are thesame for the loans issued on both BNA's own resources and on Government funds.

For short-term credit the guarantees are:

Ci) Lien on crops;

(ii) insurance certificate (fire and hail risks) in favour of BNA;

(iii) delegation of payment for produce delivered to the marketingboards through which all products are practically channeled.

ANME 6Page 4

For medium- and long-term loans the guarantees are:

(i) lien on livestock and farm equipment;

(ii) a mortgage on the land is also required.

This last guarantee, however, is more nominal than real. There is a lot ofwork that has to be accomplished before all land is registered, identifiedand given a title of property; and even with a title deed, it would in thepresent Tunisian climate of opinion be difficult if not improbable for aBank to sell the land.

The real guarantee, therefore, depends on the profitability of theproduction units, and on how well these units are managed. These two elementsbecome essential in assessing the risk.

Lending Procedures

The loan applications from farmers or cooperatives are received bythe field agencies, which are supposed to check the statements and eventuallyvisit the farmer or the cooperative. But provisions vary slightly betweenfarmers and cooperatives.

For farmers, comments may be requested by the local credit committees,before their application is submitted to the Head Office in Tunis, while forcooperatives an approval of the demand for credit is required by the RegionalManager of Cooperatives and the agricultural extension member of the govermor-ate. For loans under this Project, a recommendation has to be made by theBureau of Control.

In the agricultural credit section at the Head Office, the appraisalcovers the following parts: for the farmers it examines the validity of thetitles to the land, the securities he can offer and its credit-worthinesswhile for the cooperatives, the economics of the applicant's scheme includingan evaluation of present and projected income are analysed with the assistanceof delegates from the Undersecretariats of Agriculture and Finance.

In order to ensure proper utilization of the short-term loans, cashpayments are usually made in tlhree installments according to an agreedschedule, set up between the cooperatives, the Undersecretariat of Agri-culture and the BHIA. The medium and long-term loans, on the other hand, arewhenever possible disbursed by direct payments to the suppliers.

Lending Operations

Details of the number and amount of agricultural and commercial loansmade in the 1959-1965 period are given in the attached tables.

In 1959-60 the loans granted to agricultural cooperatives and farmerswere 13 percent of the total loans granted by BNA; those increased to 27percent in 1965 due to the increasing share of credit to cooperatives. BNAfinancing to agriculture out of its own resources and deposits represented

ANNEX 6Page 5

in 1965, 20 percent of the total loans granted and the balance, 7 percent,was financed through the special funds. Repayments of loans are satisfactory.

Bank's Income

For the short-term operations and the DLF loan, the bank derivesits income from the margin between interest paid and interest received. Forthe various funds entrusted to its administration, the BNA receives a fixedrenumeration of about 2 percent. Further, the BNA obtains dividends on itsinvestments and various remunerations on operations of liquidation of formercredit institutions.

Although no precise income and expenditure statements are availableon operations made on behalf of the government and on agricultural loans, anestimate indicated that with a 2 percent remuneration on the funds, expendi-tures to carry out these operations are covered.

Financial Situation

Confronted with the low interest rates in agriculture fixed by thelaw-i (1.5 - 6 percent), and on the other hand desiring to make both ends meet,the BNA expanded from the very beginning in the commercial credit field andrestricted its agricultural credit to short-term operations which allow a6 percent interest rate. In order to maintain its low interest rate policyto agriculture and also not to bring BNA in a permanent deficit, the Governmenthas set up funds to be administered by the BNA - paying a commission of about2 percent to cover administrative costs and some of the risks. Within thisframework, the BNA has managed rather satisfactorily and has shown a profitand built up some reserves.

Profits have been sufficient to enable the payment of a 5 percentdividend to the shareholders, and to build up reserves. These reserves mayappear adequate for past ordinary operations, but should be increased if thebank develops its lending activities without any government guarantee. Con-densed balance sheets and profit-and-loss accounts as of December 31, 1960,to December 31, 1965, are given later.


BANQUE NATIONALE AGRICULE

Comparative Balance Sheets(in Dinars)


Assets 1960 1961 1962 1963 1964 1965

Cash in hand - Central BankPostal checks 410,210 222,688 681,191 808,261 1,353,998 470,583Banks and correspondents 369,812 477,554 1,366,349 4,952,301 741,050 1,168,785Government Development bonds 4,140,201 5,177,270 9,189,642 13,867,145 13,553,924 18,222,429and Portfolio

Current accounts 518,720 1,198,804 2,046,855 1,964,040 3,525,064 2,634,124Guaranteed advances 170,744 411,954 81,780 462,529 369,090 394,011Miscellaneous advances and 51,078 92,474 187,329 245,782 382,449 655,364

accounts receivableInvestments 10,640 32,370 85,240 143,907 154,907 206,407Suspense accounts and 266,269 229,948 1,086,773 1,938,928 1,729,122 1,685,416miscellaneous

Fixed assets 26,561 279,595 292,306 311,667 312,417 355,243Guarantee Deposits - 757 851 1,065 1,095 1,124

Sub-total 5,964,235 8,123,414 15,018,316 24,695,625 22,123,116 25,793,486

Loans on Special Funds

Special agricultural fund 981,142 1,229,814 1,437,454 1,516,319 1,423,308 1,305,044Refinancing of debts 225,157 379,198 347,913 289,475 252,389 218,192Medjerda board 35,565 26,613 22,359 19,839 - -DLF - - 148,394 505,429 1,755,336 1,652,950Cereal campaign 1962/63 _ - 1,476,466 1,132,874 1,007,205 944,053Farming Cooperatives - - 19,771 368,143 465,086Cereal campaign 1963/64 - - 216,267 209,522Special fund for agricultural - - - - - 1,231,204

deve'lopment -Sub-total 1,241,864 1,635,625 3,432,586 3,483,707 5,022,648 6,026,051Total 7,206,099 9,759,039 18,450,902 28,179,332 27,145,764 31,819,537

Government credits to cover 4,688,721 4,754,411 4,580,491 4,370,079 4,015,060 3,825,279

Grand Total 11,894,820 14,513,450 23,031,393 32,549,411 31,160,824 35,644,816

Liabilit ies 1960 1961 1962 1963 1964 1965Der-osits anr current ;ccrunts 2,721,909 3,477,254 7,948,536 14,810,502 11,455,255 11,414,233Banks and corres9oncents 9 2,490 1,375,706 2,307,837 1,797,836 1,503,427 1,800,688Bills demosited for collection 75,276 132,364 197,364 312,303 293,613 717,301Sundry creditors 361,033 394,661 571,247 855,011 1,066,024 1,548,272Dividends to be paid - 33,617 36,074 28,004 39,588 50,454Bonds and term deposits 76,784 139,312 603,002 2,314,719 1,491,006 3,169,880Suspense accounts and misc. 761,052 1,713,664 2,214,660 2,208,912 2,690,196 3,662,437Payment received againstcurrent.commitments 261.743 443.738 592.079 729.205 814.294 837.828

Sub-total 5,250,277 7,710,316 14,470,799 23,056,492 19,353,403 23,201,093

Special Funds

Government agriculturalspecial fund 1,054,304 1,154,304 1,664,287 1,671,789 1,678,429 1,698,651Government advance fordebt refinancing 400,000 360,000 320,000 320,000 320,000 320,000Special fund Medjerda board 39,423 30,668 26,414 26,414 - -Special fund for assistance towine growing industry _ - 150,000 150,000 150,000 150,000DLF _ - 75,590 247,239 2,229,224 2,382,396Funds for cereal loans 1962/63 - - 1,161,000 1,161,000 1,161,000 1,161,000Srecial fund for promotingservicing cooperatives - - 850,000 700,000 660,000Funds for cereal loans 1963/64 - - - 218,380 213,742Special funds for develo?mentof agriculture - - - - 500.000 1.037.828

Sub-total 1,493,727 1,544,972 3,397,291 4,426,442 6,957,033 7,623,617

Owned Resources

Capital 400,000 400,000 400,000 400,000 400,000 400,000Reserves - 67,232 147,274 268,998 366,989 471,008Social fund - - - 35,000 85,000Profits carried forward - 36,519 35,538 27,400 33,339 38,820Profits (before distribution) 62.095 - -

Sub-total 462,095 503,751 582,812 696,398 835,328 994,828

Government credit accountsto collect 4,688.721 4.754.411 4.580.491 4,370.079 4o015o060 3.825.279

Grand total 11,894,820 14,513,450 23,031,393 32,549,411 31,160,824 35,644,817 m =2:(D \

COOPERATIVE FA.RM PROJECT

BANEUZ NATIONALE AGRICOLE

Comoarative Statement of Income and Exoenditures

1960 1961 1962 1963 1964 1965A. Income

Intere-.t and commission receivedand other income 354,690 423,967 480,843 588,199 652,950 698,381

B. ExrendituresInterest and discount oaid;Administration ex',enditures 277,989 341,421 380,005 453,725 493,132 517,992

-- DeDreciation 14.6o5 - - _

Total 292,594 341,421 380,005 453,725 493,132 517,992

C. Net Income (A-B) 62,o96 82,546 100,838 134,474 159,818 180,389

D. Balance carried forward - 28,102 35,631 35,539 27,400 33,339

E. Disposable Income (C + D) 62,096 110,648 136,469 170,013 187,218 213,728

F. Distribution of Disnosable Income

Dividend 20,000 20,000 20,000 20,000 20,000 20,000__ Legal Reserve 3,105 4,128 5,041 6,724 7,990 9,019-- Extraordinary Reserve 10,000 50,000 75,000 115,000 90,000 95,000

Social Fund - - - 35,000 50°000__ Carried forward 28,102 35,631 35,539 27,400 33,339 38,820__ Board 889 889 889 889 889 889

Total 62,096 110,648 136,469 170,013 187,218 213,728

,23

COOPEEATIVII FAI tPROJ3C?

BNA Eqeity Inveet,ant Situation as at Mlarch 31. 1966

BNA Share inan Results Dividends PaidDate of in Capital Jobs Held by Oranted by (in D) (in %)

Nam af Corporation lish- Capital BRA Officials 35kmnt (in D.) Date Evolution 1962 1963 1964 1965 1962 1963 1964 1965

(in D.) _ _ _

1) Ccporatios SOCIET TVgISIEhNE DE L'INDUS- 27.5.61 50,000 27.4.61 9,430 MHnnging Direo- 887,000 * 13,100 * 35,650 + 49,718 + 58,875 7% 8% 10% 10%brdw TRI LTIfI I 'S.T.I.L.' 150,000 4.12.6. 51,000 tor. *

B a SDC DIPRTATI5 & D_ S 216.1.62 100,000 17.2.62 25,000 sMaging Diree- 18,000 + 6,659 + 8,74b t 11,453 * 13,735 6% 8% 10% 10%

70IC1DX 03 ODUITS ALUBT&1I0mr& DlXm >

SDCt3Th 'UNISIE-0Lh030' 26.6.62 25G,DO _ _ 57,000 - ' 10,316 - - _ _ _

SOCIHTB TUNISE4NNE D'INDUSTRIE 23.2.61 150,000 9.3.61 10,000 Beard Memr _ * 17,3D 10,CS3 t t0, 559 . _ 5S AVUTI BIZBS -S. T." I

MDCI ETiOXN TUNIIIUNIDN CU1 W.D,T.c.0 G9$ 1JD ,2GWO0 28.8.62 50 _ i2 - 655,369 -1,267.5 _ - - _

SoCMT TV 0U 1 _ 1 700.000 17.1.60 10,O00 Board lMr 105,V -1A,072 +479,840 51l,170 558,000 5% 5%

SDaCT TUXIII DS H- 23.7.62 4,,20O,D 21.7.62 38,0 G O _ _ a _ ._RmIn AL MADH

SOCIrBT MDUS8Th CRDqIQUS 23.3.62 l1OD000 .U.63 9 10,000 B_d llAbr _ _ _ _ _ _ _ _

SDC)30 DE fh8FATMB DE 6.1.60 100,00 9.12.63 29,IE90 * _ - . _ _ _ _ _&*c3AWAlt & DES MJIMDm s.RIDCI.3 *35CK*

SDCIZTE TDNISIZSNB DBB BTh0TIO1N & BB RMPARATICOS !WN I- 6.2.64 100,000 9.12.63 2,000 _ 24,634 - 213Sv1 - _ _

SCIISS INOEXIEHR ZI BOTELIMN 31.5.60 350,000 30.12.63 4,050 _ _ _ - 26,000 44,000 _ _ . _ _KASS *

2) Olthers 50CI3B0 INTNNATIaOAL HARVESTER 16.6.64 210,000 8.1.64 5,000 _ _ 12,800 14,660 _ _

SOCIrTS MCD350 RlZ DE3S PO- 23.9.6b 80,000 28.8.64 3,000 Board Mlnb.r _- -_ _ _D3urTs DE LSIOIVIER

SOCI0 TUBSUH 30.10.64 50,000 22.10.64 2,000 28 ,D000 _ _ _ 2,b48 _ _ _ _

SOCnIR DES HARBZSS CHRtU 8.9.65 150,00D 10.2.65 5,000 . _ _ _ _ _ _ _ _

SOCIZTZ qIFATURES DU SAHKL-b% M_d - X1.AP6) jdth 11.7.60 200,000 4.4.61 2,000 -_ _ _ _ _ _ _ _

SOCIlT8 GENEUALE DIM lD¶R11COTO=753 OSQlI0.COTIjT. 17.12.61 885,000 - 2,00 - -_ 47,459 *135,000 264,000 "2,000 D

SOCIS VURAFRICAINX INZOBT0ILIE -_ P. 250, 000 6.12.63 532 - - - - _ _ _ _

SDOCIETE IURARICAIN3 ODMIIRCA1 F.750,000 6.12.63 1,595 - - - - - _ _ _ _

SOCIETE TIJNIS CDNSULT 9.1.60 10,000 2.2.60 140 - - - - - _ _ _ _

SOCIB11 DE TRUSPCRT LT MALVSOAU 4.3.65 14 000 8.10.65 500 - - - - - _ _ _ _AEREMJ

SOCIETE L'ACTION D'EDITION ET 29.1.65 250,000 10.11.65 7,O - __ _ _ _ _ _ _ _DE FRSSSE

)CIOETE DZ1VBSTISSZMT T 4.6.65 100,000 23.11.65 5,000 - _ _ _ _ _ _ _ _RIONSAL 0E BIZETE -EL10IDDIKAR"

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - Ii ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I

ANNEX 6

TABLE b


BANQUE NATIONALE AGRICOLE

Repayment Records 1961 - 1965

(% of loans due)

Situation as at December 31, 1965

1961 1962 1963 1964 1965

Type of Loans

Short-term (BNA resources) 93 98 98 95 79

Special short-term Loan(1962/63 Fund) - - 45 6 -

Medium-term 92 89 87 83 40

Long-term 87 89 85 44 26



Total Loans Granted by BNA(in D thousands)

1959 (7 mos.) -- 1 9 6 o -- 1 9 6 1 -- -- 1 9 6 2 - 1 9 6 3 -- 1 9 6 4 -19 6 5 -Number Amount Number Amount Number Amount Number Amount Number Amount Number Amount Number Amount

Agricultural 1,453 959 3,081 1,835 3,165 2,058 119,745 3,873 26,133 3,829 28,797 4,420 5,257 6,610Commercial 176 1,200 1,129 17.464 878 10.234 653 12.748 835 11.522 567 10.650 599 18.036

2,159 19,299 12,292 16,621 15,351 15,070 24,646

% Agricultural 44.4 9.5 16.7 23.3 24.9 29.3 26.8



BNA Loan Ooerations by Type of Borrower and Origin of Resources(in D thousands)

Type of Borrower Origin of Resoauces 1962 1963 1964 1965

Agricultural Loan

a) Coop Societies BNA own resources-/ 6 713 5 74O 5 2,853 12Funds & DLF Loan 43 39 1.515 _ 1.709Total Coops 49 2 1,110 29 2,255 51 4,562 E

b) Individual Ifarmers BNA own resources 1792 11 1,865 12 1,594 10 1,654 8

Funds & DLF Loan 5 - 424 _ _24 _ 394 _Total Indiv.

Farmers 2347 60 2,289 60 1,941 44 2,048 31

Special short-term loans 1476 38 - 430 11 224 s

Total Agricultural Loans 3873 100 23 3,829 100 25 4,420 100 29 6,610 loo 27

Co=ercial Loans BNA own *resources-J 12,748 11,522 10,650 18,036

Total Commercial Loans 12.748 11.522 75 10.650 _71 18.036 73

Total Loans BNA 16,621 100 15,351 100 15,070 100 24,646 100

*/ For which the BNA assumes full responsibility and guarantee.

O\ iC

ANNEX 7


List of Goods

Amounts inUS$ Equivalent

1. For Existing Cooperatives

a) Construction of farm buildings 2,100,000

b) Farm machinery 1,100,000

c) Small-scale irrigation equipment 1,000,000

2. For New Cooperatives

a) Construction of farm buildings 1,400,000

b) Farm machinery 6,300,000

c) Small-scale irrigation machinery 2,400,000

d) Imported bulls of dairy breeds 100,000

3. For OTD

a) Fanm machinery 2,200,000

4. For Technical and Advisory Services

a) For the preparation of feasibility studies 700,000

b) For organizing & supervising the managementof cooperatives 700,000

Total 18,000,000


Cashflow Projection of a Cooperative of 1,000 ha

(in Dinars)

Year: 1 2 3 4 5 6 7 8 9 10 11 12 13 11 15

CASH OUTFLOW

A) InvestmentBuildirgs 2,000 2,000 2,000Farm machinery 25,600 -- - 11,700 13,900 11,700

irrigation equipimnt h,000 5,700 -- 2,000 - 2,000

Tree crops I 1,500 1,500 1,500 1,500 -- --

Pasture (rangeland) 1/ 1,370 1,370 1,370 1,370 --

Sheep 750 750 -- -

Cattle 1,200 1,46o -- __ __ __ __

Subtotal 12,780 7=,870 2,70 13,700 37,900 13,700

B) Operating Costs 17,250 18,280 18,600 18,580 18,480 18,620 18,620 18,650 18,680 18,700 18,770 18,770 18,770 18,770 18,770

Labor 1,000 4,000 L.OQ li200 5500 5500 7500 7,700 7700 7,700 7,700 7,700 7,700 7,700 7;700

Subtotal 21,250 22,280 22,600 22,780 23,980 28,10 26,120 26,350 26,380 223tI7 22 ft, 7 26, b,7U 0 2, 7

C) Repaymernts on Loans + InterestInterest on loans 3,000 b,ooo 4,,300 1,4L00 3,900 3,900 3,300 2,500 2,500 2,1400 2,500 1 100 1 000 1,000 1,000

Repayments of loans __ -- - 4 4,1o 7,220 __ 8,990 1,.870 _ 7,680 -- 15'270 -800 __

Subtotal 3,000 1,,000 8T,300 11,120 3,900 12,290 7,370 22,500 t2,50 6,oOO 1,Q00 1,000

Total A+B+C 60,670 39,060 31,770 34,4160 35,100 h1,720 38,1410 33,720 1h2,780 36,1480 4,2,670 12,8140 33,270 27,1070 27,1L70

CASH INFLOW

A) Gross income 20,560 25,650 31,050 34,,60 38,1410 38,410 33,410 37,950 38,550 38,750 4,0,400 42,840 43,820 45,800 h5,230

B) Loan withdrawal 1,0lio 13,410 720 -- -- -- - -- -- -__-- -- _

C) Self-financing -- -- -- -- -- 3.310 __ _ h.230 -- 2.270 - -- --

Total A+B+C 60,670 39,o60 31,770 314L,L60 38,1410 Ll,720 38,1410 37,950 142,780 38,750 142,670 42,8140 4,3,820 415,800 45,230

Suirplus reserve - -- -- -- 3,310 - - ,230 -- 2,270 - -- _ --

Profit -- - - -- -- - -- -- - -- - - 10, 550 18,330 17,760

1/ No labor has teen included as a cost item in tree crops (D 6,DOO) neither in pasture (D 1,1U1,0). This represents the cooperative members' contribution.

2/ A value equivalent of D 700 has been deducted for consumption of wheat in the cooperative (200 kg/year/member).

ANNEX 9


Gross Receipts

(in dinars, for a hypothetical unit of 1,000 hectares)

A. Cereal Rotation

The following proportion of cereals in the use of land has beenassumed:

Hard wheat 50%Soft wheat 35%Barley 15%

and the respective prices of the products have been estimated at:

Hard wheat D 4.20/quintalSoft wheat D 3.h5/quintalBarley D 2.50/quintal

Since the average yield will rise from 10 q/ha in the first year to 13 q/hain the fifth year, the average income per hectare of cereal will increasefrom approximately D 38 in the first year to about D 50 in the fifth year.

Considering that the average yield of pulses (peas and chickpeas)will vary from 5 q/ha in the first year to 6 q/ha in the fifth year, andassuming a price of D 4/q, the income per hectare of pulses will vary fromD 20 to D 2b.

The gross income for the proposed land-use in cereal rotation willthus amount to:

Year: 1 2 3 4_ h 5Area Income/ Area Income/ Area Incoim7e Area Income/ Area Income!(ha) ha (D) (ha) ha (D) (ha) ha (D) (ha) ha (D) (ha) ha (D)

Cereals 447 x 38 432 x 1 17 x 44 02 x 47 38 7 x 50Pulses 83 x 20 78 x 21 73 x 22 6 8 x 23 63 x 2

Total D 18,646 D 19,350 D 19,954 D 20,458 D 20,862

The decrease in area planted with cereals from year one to five, is due tothe development of tree plantation. From the fifth year on, the source ofincome will remain constant.

ANNEX 9Page 2

B. Olive Tree Plantation

It is assumed that all land suitable for plantation will be plantedwith olive trees and that the yields per hectare will amount to:

-Y e a r--------------1-5 6-1o 11-15 16 on

..... ........ '.in kg).

Existing plantations 1,000 1,500 1,500 1,500

New plantations -- 250 1,000 2,200

Considering that the price per ton of olives is estimated at D 30, and thatno new plantations will be started in the first year of operation, the totalincome accruing to the Project from olive production looks as follows:

Area Year 1 2 3 4 5 6 7 8 9 10(in ha)

Existing 30 900 900 900 1,000 1,200 1,350 1,350 1,350 1,350 1,350New 30 -- -- -- -- -- -- 225 225 225 225New30 -- -- -- -- -- -- -- 225 225 225New30 -- -- -- -- -- -- -- -- 225 225New30 -- -- -- -- -- -- -- -- -- 225

900 900 9001 , 1,00 1,200 1,535 I77 Too 2,025 2,250

Area Year 11 12 13 14 15 16 17 18 19 20(in ha)

Existing 30 1,350 1,350 1,350 1,350 1,350 1,350 1,350 1,350 1,350 1,350New 30 225 900 900 900 900 900 1,980 1,980 1,980 1,980Ne;. 30 225 225 900 900 900 900 900 1,980 1,980 1,980New 30 225 225 225 900 900 900 900 900 1,980 1,980New 30 225 225 .225 225 900 900 900 900 900 1,980

0 2,925 3,600 4,275 ,9O 6,030 7,110 8,190 9,270

C. Intercropping

Intercropping, which will produce exclusively soft wheat at a priceof D 3.45/q and wi-th an average yield of 12 q/ha, provides the followingincome:

Year 1 2 3 4 5 6 7 8 9

Area (ha) -- 10 20 30 40 40 30 20 10

Income (D) -- 420 840 1,260 1,680 1,680 1,260 840 420

ANNEX 9Page 3

Irrigated Crops

Six hectares of vegetable production will produce an average incomeof D 300/ha, i.e. D 1,800.

In the first year of operation, however, while the soil will beprepared, the land will be planted with soft wheat; this will generate anincome of D 500. In the second year of operation the income generated byirrigated crops will amount to D 900 only.

E. Livestock

Livestock income will originate from three sources:

1) Cross-breeding of the local cattle will lead to the productionof meat and milk. The price of meat has been estimated atD 60 to D 65 per calf, depending on the degree of improvementin the cattle, and at D 70 to D 80 per adult cow, dependingon the age of the animal. Marketable milk production willincrease from 200 liters per cow in the second year of oper-ation to about 2,200 liters in the tenth year. The milk pricehas been estimated at D .0h5 per liter.

2) In the early years of operation (years two to twelve) thesurplus fodder production will be used for cattle fattening.Calves will be bought in the local market at D 30 and soldafter nine months of fattening at D 85; this will providefor a net income stream of D 55 per calf.

3) Gross income per sheep has been estimated at D 8. This willprovide for an income of D 640 in the second year of opera-tion, increasing to D 2,520 in the fifth year and remainingconstant in all subsequent years.

ANNEX 9

TABLE 1


GROSS RECEIPTS

Total Gross Income for a 1000 ha. Unit

(in Dinars)

1 2 3 4 5 6Cereal Tree Inter- Irrigated

Year Rotation Plantation Cropping Crops Livestock Total

1 18,650 900 500 - 1,210 21,260

2 19,350 900 420 900 4,780 26,350

3 19,950 900 8h0 1,800 8,260 31,750

4 20,450 1,000 1,260 1,800 10,650 35,160

5 20,850 1,200 1,680 1,800 13,580 39,I10

6 21,000 1,350 1,680 1,800 13,280 39,110

7 21,000 1,575 1,260 1,800 13,475 39,110

8 21,000 1,800 840 1,800 13,210 38,650

9 21,000 2,025 420 1,800 14,005 39,250

10 21,000 2,250 1,800 14,400 39,4h50

11 21,000 2,500 1,800 15,800 41,100

12 21,000 3,000 1,800 17,,740 43,5h0

13 21,000 3,600 1,800 18,120 44P520

14 21,000 4,200 1,800 19,500 46,5oo

15 21,000 4,900 1,800 18,230 45,930

16 21,000 5,500 1,800 20,660 48,960

17 21,000 6,000 1,800 18,560 7,360

18 21,000 7,100 1,800 19,240 49,9140

19 21,000 8,200 1,800 20,500 51,500

20 21,000 9,300 1,800 18,890 50,990

1/ First year. The soil is prepared and the land is planted with soft wheat.

ANNEX 10


Decree No. 67-2 of January 2, 1967 Concerning theNational Agricultural Cooperation Commission

HAVING REGARD TO:

Law No. 63-19 of May 27, 1963 (4 Moharrem 1383) relative to cooperationin the agricultural sector;

Decree No. 64-251 of August 7, 1964 (29 Rabia I 1384) relativeto the Regional Agricultural Cooperation Commissions; The opinion of theUndersecretary of State for Finance and Development and the Undersecretaryfor Agriculture;

The recommendation of the Secretary of State for the DevelopmentPlan and the National Economy,

NOW THEREFORE, WE, HABIB BOURGUIBA, President of the Tunisian Republic,hereby decree as follows:

Article 1: A National Agricultural Cooperation Commission is herebyestablished, the composition, duties and rules of operation of which shallbe determined by the articles below.

Article 2: The commission mentioned in Article 1, headed by the Secretaryof State for the Development Plan and the National Economy, or in hisabsence by the Undersecretary of State for Agriculture, shall have thefollowing composition:

- The Undersecretary of State for Finance and Development, orhis representative;

- The Undersecretary of State for Agriculture, or his represen-tative;

- The Governor of the Central Bank of Tunisia, or his represen-tative;

- One representative of the Parti Socialiste Destourien;

- One representative of the Union Nationale des AgriculteursTunisiens;

- The President of the National Agricultural Bank, or hisrepresentative;

- The Director of the Tunisian Central Farmers' Cooperative, orhis representative;

ANNEX 1 0Page 2

- The Chief of the Bureau of Control of the Unites de Productiondhi Nord.

Article 3: The Secretary of State for the Development Plan and theNational Economy may invite to meetings of the Commission any agenciesand perscns deemed competent or concerned in the matters on the agenda.

Article 4: The Commission shall meet not less than once each quarterand shall also meet whenever called by the Chairman or by four of itsmembers whenever they think it advisable.

For that purpose, the members of the Commission shall be sent aninvitation stating the date, the place and the agenda of the meeting. Thedecisions shall be adopted by majority vote of the members present; in theevent of a tie the vote of the Chairman shall be decisive. Four membersshall constitute a quorum.

Article 5: The functions of the Commission shall be:

- To consider questions concerning cooperation in the agriculturalsector and the opinions and suggestions of the regional cooper-ative commissions;

- To determine the programs for establishing agricultural coop-eratives;

- To determine the needs of the agricultural cooperatives and themeans to be used to carry out the program of development ofcooperatives.

Article 6: The Secretary of State for the Development Plan and the NationalEconomy shall be responsible for implementing the present Decree, whichshall be published in the Official Journal of the Tunisian Republic.

ANNX 1]1


Ministerial Circular of December 22, 1966

SUBJECT: Establishment of a Bureau of Control for the Unites de Productiondu Nord (UPN)

There is hereby established within the Undersecretariat of Statefor Agriculture a Bureau of Control under the direct supervision of theUndersecretary of State for Agriculture.

This Bureau shall be responsible, to the exclusion of all otheroffices, for carrying out the recommendations of the National Commissionon Agricultural Cooperation, with which it shall work in close liaison.

The duties of the Bureau shall include in particular the following:

a) To furnish assistance to the UPN on technical, ecorlomicand financial matters and to supervise their operations.

b) To establish and organize new cooperatives with due regardto an economic feasibility study prepared by the technicalservices.

c) To participate, with the central technical services, in thepreparation of programs to establish cooperatives, with theright to make any recommendations it seems advisable regard-ing possible modification of the studies. It shall, alsowith the central services, study the needs of the UPN foragricultural supplies; in this connection, the central tech-nical services must keep the Bureau of the UPN informed ofthe progress of the studies and of projects likely to be ofinterest to the UPNo

d) To approve the loans to the UPN.

The head of the Bureau shall have at his disposal the expertsnecessary for the efficient operation of the office.

He shall have the power to issue directives to the staff of thespecial subdivisions (UPN) through administrative channels (see organizationchart).

For the purposes of carrying out its mission, he shall have thepower to call upon the government administrative and technical servicesand on the public agencies that are concerned with the UPN.

ANNEX I

TUNISIA: COOPERATIVE FARM PROJECTORGANIZATION CHART OF THE UNDER-SECRETARIAT OF STATE FOR AGRICULTURE

SECRETARIAT OF STATEFOR THE PLAN

AND THE NATIONAL ECONOMY

UNDER-SECRETARIAT UNDER-SECRETARIAT UNDER-SECRETARIATOF STATE FOR OF STATE FOR OF STATE FOR

FINANCE AND DEVELOPMENT AGRICULTURE INDUSTRY AND COMMERCE

NATIONALI COMMISSION FOR

COOPERATIVEAGRICULTURE I

L -------- -----

I BUREAU OF CONTROL I( (MANAGERIAL UNIT) I

REGIONAL 1 HYDROLOGYCOMMISSARIES DIVISION

COOPERATIVE PRODUCTIONSUPERVISORS DVSO

+ 6 Assistants ] DIVISION

per 20-25 cooperatives RESEARCH ANDEDUCATION

DIVISION

AGRICULTURALDEVELOPMENT

DIVISION

EXISTING

PROPOSED

ER) IBRD -3100


Calculation of Econ-riic iate of Return(in Dinars for a hypothetical unit of 1,000 h1ct:res)

(1) (2) (3) (4) (5) (6) (7) (8) (9)Investment Operating Total Gross Previous Incremental rurrent Value Present Value Present :IfortH

Year Costsa/ Expendituresb/ Expenditures Incomec/ Income Income of Surplus or of 1 at 10% of Surplus or__ _(1) + (2) (4) - (5) (Deficit) Ann. Discount (Deficit)

1 40,260 17,650 57,910 20,362 9,000 11,362 (46,548) 1.000 (46,548)2 13,620 18,680 32,300 25,054 9,000 16,054 (16,246) .909 (1h,768)3 5,710 19,000 24,710 30,503 9,000 21,503 ( 3,207) 826 ( 2,619)4 3,710 18,980 22,690 33,962 9,000 24,962 2,272 .751 1,7065 540 19,180 19,720 37,961 9,000 28,961 9,241 .683 6,3126 13,700 19,320 33,020 38,110 9,000 29,110 ( 3,910) .621 ( 2,428)7 19,320 19,320 38,110 9,000 29,110 9,790 .564 5,5228 19,350 19,350 37,650 9,000 28,650 9,300 .513 4,7719 13,900 19,380 33, 80 38,250 9,000 29,250 ( 4,030) .467 1,882

10 19,400 19,400 38,450 9,000 29,450 10,050 *h24 4,26111 13,700 19,470 33,170 40,100 9,000 31,100 ( 2,070) .386 ( 799)12 19,470 19,470 42,5 4 C 9,000 33,540 14,070 .350 4,92513 19,470 19,470 43,520 9,000 34,520 15,050 .319 4,80114 19,470 19,470 45,500 9,000 36,500 17,030 .290 4,93915 19,470 19,470 44,930 9,000 35,930 1-4,460 .263 3,80316 13,700 19,470 33,170 47,960 9,000 38,960 7,790 .239 1,86217 13,900 19,470 33,370 46,360 9,000 37,360 3,990 .218 87018 19,470 19,470 48,140 9,000 39,140 28,670 .198 5,67719 19,470 19,470 50,500 9,000 41,500 22,030 .180 3,96520 19,470 19,470 49,990 9,000 40,990 19,520 .164 3,20121 13,700 19,470 33,170 49,990 9,000 40,990 9,820 .149 1,46322 19,470 19,470 49,990 9,000 40,990 21,520 .135 2,90523 19,470 19,470 49,990 9,000 40,990 21,520 .123 2,64724 19,470 19,470 49,990 9,000 40,990 21,520 .112 2,410

a/ Includes expenditures for water and soil conservation to be carried by Government, as well as the cost offeasibility studies and technical assistance.

b/ Includes cost of extension services to be borne by Government.c/ The production of hand wheat is valued at a market price of D.38 per ton, not at the domestic support price

of D.42 per ton.

N3

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