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Report No. PA- 119

This report is for official use only by the Bank Group and specifically authorized organizationsor persons. It may not be published, quoted or cited without Bank Group authorization. TheBank Group does not accept responsibility for the accuracy or completeness of the report.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF

A COFFEE PROCESSING PROJECT

ETHIOPIA

December 29, 1971

Agriculture Projects Department

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CURECY .$QUIVALESTS

US$1.00 t 2..30 Ethiopian dollars (E$)E$ 1.o0 - US$0.43E$ 1 million 5 US$435,000

VEIGS AND MEASURES

Metric S ytem

21 sq meter ( 2 10.8 ),8sq feet1 sq kilometer (mi ) - 0.386 .q miles1 kectare (ha) 2,47 acres

-1 millimeter (mm) - 0.0394 ines1 .oentimeoter (cm) - 0.394 inches1 meter (m) - 3.28 feet1 kilometer (km) - 0.62 miles1 liter - 0.264 US gallons1 kilogram (kg) - 2.205 pounds1 metric ton (ton) - 2,205 pound

'MARS

Unless otherwise stated, the year 1969/1970, for example,meas the year running from September It, 1969 :throughSeptember 10, 1970, which is the E-thiopian Era .calendaryear 1962. This "year" corresponds closely -to the"coffee year" for International Coffee Agreement quotapurpoes (October 1 through September 30), and starts -atabout.the-same time as the Ethiopian coffee harvesting-- aon (mid-September).

IY.indicates IDA's fiscal year from July 1through June 30.

GLOSSARY OF AR3EVIAYWS

AIDS - Agricultural and Industrl dve t kin1 - Institute of Agriculturil esearchIG - Imperial Ethiopian Government"IR - Inperi*l HiSIway Authority

CeB - National Coffee JoardPIU - Project Implemntation Unit (of the NCB)

ETHIOPIA

APPRAISAL OF ACOFFEE PROCESSING PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ................................. i-ii

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

II. BACKGROUND .............................................. 1

A. General ........................................ 1B. The Coffee Sector .............................. 2C. The National Coffee Board ...................... 3D. Research ....................................... 3E. Agricultural Credit ............................ 4F. Cooperatives ................................... 4

III. THE PROJECT AREAS ....................................... 5

IV. THE PROJECT ............................................. 6

A. General Description ............................ 6B. Detailed Features .............................. 7C. Cost Estimates ................................. 10D. Financing ...................................... 12E. Procurement .................................... 13F. Disbursement ................................... 14

V. ORGANIZATION AND MANAGEMENT ............................. 14

A. General ........................................ 14B. The Project Implementation Unit (PIU) .... ...... 14C. The Agricultural and Industrial Development

Bank .......................................... 16D. NCB Licensing .................................. 18E. Accounts and Audit ............................. 18

VI. PRODUCTION, MARKETS, PRICES AND FINANCIAL RESULTS ....... 19

A. Production ........... I .......................... 19B. Markets and Prices ............................. 19C. Financial Results .............................. 20

This report is based on the findings of an IDA mission in September/Oc-tober 1970, composed of Messrs. Eccles, Huas (IDA), Cheriyan (FAO/IBRD Coop-erative Program), Gardiner and Schluter (Consultants).

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Page No.

VII. BENEFITS AND JUSTIFICATION ..... 2......................... 21

VIII. AGREEMENTS REACaED AND RECOMMENDATION .... ............... 22

A_NEXES

1. Coffee Types and Processing Methods2. Quality Deficiencies in Production of Ethiopian Unwashed Coffee3. The National Coffee Board4. The Banking System and the Agricultural and Industrial Development

Bank5. Project Phasing6. Road Design Standards and Construction Methods7. Typical Washing Station8. The Project Implementation Unit9. Project Cost Estimates10. Estimated Schedule of Quarterly Disbursements11. Credit Policies and Procedures12. Washed Coffee Production Forecasts13. World Outlook for Coffee14. Markets and Prices for Ethiopian Export Coffees15. Cash-Flow Projections and Financial Return Calculations16. Economic Rate of Return Calculations

MAP S

1. Existing ar!d Potential Coffee Growing Areas2. Project Area: Sidamo Province3. Project Area: Kaffa Province

ETHIOPIA


SUMMARY AND CONCLUSIONS

i. This report concerns the appraisal of a coffee processing projectin Ethiopia to improve the quality of the coffee produced and thus increaseexport earnings. It fits into the Government's agricultural strategy ofconcentrating resources on regions or crops of high potential and wouldbenefit both the private and cooperative sectors in Sidamo and Kaffa Prov-inces.

ii. The project involves construction of about 100 coffee washingstations 1/, improvements to about 100 existing stations, construction ofabout 400 km of access roads and technical assistance activities. Thelatter comprise the preparation of follow-up projects; coffee research bythe UNDP/FAO-assisted Institute of Agricultural Research (IAR); and a sur-vey of the Ethiopian coffee economy by the Government's National CoffeeBoard (NCB). The International Coffee Organization would actively assistin the survey and would probably finance it.

iii. Construction would be phased over 3 years, with technical servicesand coffee research extending over 5 years and the build-up of incrementalworking capital over 6 years. By full development in 1977/78, an addition-al 11,000 tons per annum of coffee, now processed by traditional sun dryingmethods, would be washed, which would raise its export value by about US$2.6million. The economic rates of return of the proposed investments wouldaverage from 17% to 21%.

iv. About 70 of the proposed new washing stations would be initiallyowned and operated by the Project Implementation Unit (PIU), an operationallyindependent unit of NCB to be established specifically for this purpose. ThePIU stations would be transferred to cooperatives of coffee farmers as soonas they can be promoted and achieve adequate management levels. Theremaining washing stations involved in the project would be owned by existingcooperatives, private merchants and private estates. Credit would bechannelled to waslhing station owners through the recently created Government-owned Agricultural and Industrial Development Bank (AIDB). PIU would bestaffed to be responsible for all road construction, to provide technicalservices for all washing station owners under the project and to preparefollow-up projects.

v. Total cost of the project is estimated at US$10.3 million. Theproposed IDA credit of US$6.3 million would cover 61% of the total cost, in-

cluding about US$2.3 million of local currency financing, as well as the

1/ For an explanation of "washing" and other technical terms used in thisreport, see Annex 1.

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foreign exchange component of US$4.0 million, which represents some 39% oftotal costs. Remaining finance would come from coffee washing station owners,AILDB and Government.

vi. The foreign exchange component of the project includes coffeeprocessing machinery, road construction equipment, expatriate personnel andpersonnel vehicles. Almost all machinery, equipment and vehicles would beprocured through international competitive bidding procedures. Roads inSidamo would be constructed by PIU in the absence of suitable alternatives.Roads in Kaffa and washing stations would be constructed by local contractors,following local competitive bidding under PIU's supervision.

vii. The project constitutes a suitable basis for an IDA credit ofUS';6.3 million. Some US$2.8 million of the proceeds of the IDA creditwould be passed on to AIDB for lending to washing station owners, includingNCOB (for PIU washing stations). The remainder would be passed directlyby Government as grants to NCB (for use by PIU) and IAR for road construction,PIU headquarters establishment, technical services, project preparation andresearch. It is proposed that up to US$100,000 of the IDA credit be disbursedretroactively to cover some preparatory work - staff advertisements; prep-aration of bid documents; and preliminary surveys - which have already beensta.rted.

ETHIOPIA


I. INTRODUCTION

1.01 The Imperial Ethiopian Government (IEG) has requested an IDA creditof US$6.3 million to assist in financing a coffee processing project, in thecooperative and private sectors, to improve the quality of current exportsand thus to increase export earnings. The project involves construction of

about 100 coffee washing stations, improvements to about 100 existing sta-

tions, construction of about 400 km of access roads, and technical assistance

activities. The project would eventually increase Ethiopia's export earnings

by some E$6.0 million (US$2.6 million) per annum.

1.02 This would be the fourth IDA credit for agricultural development in

Ethiopia, and small amounts for agricultural credit have also been provided

under two fully repaid Bank loans, totalling US$4.0 million, made in 1950 and

1961 to the Development Bank of Ethiopia. The first two IDA credits were

made in FY 70 for the Wolamo and Humera Agricultural Development Projects

(169-ET, US$3.5 million, and 188-ET, US$3.1 million, respectively); both are

progressing satisfactorily. A third IDA credit was signed on August 30, 1971

for the Addis Ababa Dairy Development Project (269-ET, US$4.4 million); but is

not yet effective.

1.03 The project was identified in October 1969 by staff of the Perma-

nent Mission in East Africa, who subsequently assisted the Ethiopian National

Coffee Board (NCB) in its preparation. This report is based on the findings

of an appraisal mission comprising Messrs. Eccles, Huas (IDA), Cheriyan

(FAO/IBRD Cooperative Program), Gardiner and Schluter (Consultants), which

visited Ethiopia in September/October 1970.

1/II. BACKGROUND

A. General

22.01 Ethiopia, with an area of about 1.2 million km , has a populationof 25 million, which is increasing at approximately 2% per annum. While

92% of the people live in rural areas, urban population is rising rapidly.

GDP grew at about 4.5% per annum during 1961-69. Per capita income, atabout US$65, is one of the lowest in the world.

1/ For further information on the Ethiopian economy, and the agricultural

and coffee sectors in particular, see: "Economic Growth and Prosperity

in Ethiopia", IBRD Report No. AE-9 of September 22, 1970; and "Current

Position and Prospects of the Ethiopian Economy", IBRD Report No. AE-21

of November 18, 1971.

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2.02 Ethiopia's economy is dominated by subsistence agriculture. Theaverage farm size is estimated at 3.3 ha, but about 80% of the 5 millionfarmers cultivate less than 2.2 ha. Agriculture generates about 60% of GDPand about 97% of total exports, and provides a livelihood for about 90% ofthe population. Gross value of agricultural production has increasedrecently at about the same rate as population, i.e. 2% per annum. Thislow growth rate reflects the minimal extension services; the absence ofinstitutional credit for the majority of small farmers; the land tenuresystem, which often involves inequitable share-cropping; and the lack offeeder roads, with consequent marketing problems. In attempting to correctthese deficiencies, IEG has decided to concentrate its resources on regionsor crops of high potential and to encourage the growth of cooperatives. Theproject fits in with this strategy, providing rapid returns by increasing thevalue of an existing crop.

B. The Coffee Sector

2.03 Ethiopia is probably the center of origin of Arabica coffee. How-ever, although its production is important to the Ethiopian economy, gene-rating some 60% of total export revenue (1969: E$174 million, or US$76million), little is known about the coffee economy, particularly local tradeand consumption. Production estimates vary from 160,000 to 200,000 tons/annumi.e. about 5% of total world production. About 10,000 tons are now washedcoffee, with the remainder unwashed. Legal exports are about 80,000 tons,i.e. about 2% of world trade, with some additional coffee smuggled out toavoid export duties. Practically all the washed coffee produced is exported.Existing and potential coffee growing areas are shown in Map 1.

2.04 About 60-65% of production is harvested from wild coffee growingunder natural forest cover in western Ethiopia. A further 30-35% comesfrom small plots around dwellings, principally in Sidamo Province ("garden"coffee), and the remainder from plantations in Kaffa Province. With no prun-ing, fertilizing or disease control, and with only minimal weed control(mainly to facilitate picking), yields are very low -- some 250 kg/ha forgarden coffee and 700 kg/ha for better plantations, or about half of theyields achieved in Brazil. Yields per ha of forest coffee depend on treedensity; yields per tree are probably even lower than for garden coffee.However, there is little firm information and these quoted yield figures arequite tentative.

2.05 While the intrinsic quality of Ethiopian coffee is good, the low,but slowly improving, standards of harvesting, on-farm drying and subsequenthandling of unwashed coffee result in low prices. Further improvement inthe quality of unwashed coffee is likely to be slow because of inadequatecommunications and extension staff and because low-density forest coffeeappears to be uneconomic to harvest properly, resulting in high proportionsof over-ripe and unripe cherries; Annex 2 gives further details. Thewashing process provides a means for controlling quality since farmers arerequired to deliver fresh cherry for processing and unsuitable cherry can

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be rejected. High prices have been obtained for Ethiopian washed coffee(on average better than for Kenya or Colombia), despite some primitivewashing stations and substandard quality control on cherry ripeness. Washedcoffee production has, therefore, been stimulated in recent years, mainlyby exporters with close links with the Federal Republic of Germany -- amajor importer of quality coffees. However, further development isconstrained by availability of access roads (washing stations must be nearfarms if cherry is not to spoil), adequate water for processing, andsuitable coffees (not all types respond sufficiently well), and by theeconomics of proper harvesting in the large areas of low-density forestcoffee.

C. The National Coffee Board

2.06 The coffee industry is regulated by the National Coffee Board (NCB),an autonomous body set up in 1957 with particular responsibility for improvingthe quality of export coffees. In 1962, it assumed responsibility for im-plementing Ethiopia's obligations under the International Coffee Agreement,under which exports to major markets are limited. Further information onNCB and its operating methods is given in Annex 3.

2.07 NCB has had some minor success in improving quality, such as re-ducing shipments of defective coffee and encouraging washed coffee produc-tion. Although on-farm improvements would be difficult to effect withoutmassive, and probably uneconomic, staff inputs, some improvements could beinduced in processing and handling facilities through more effective use ofits existing powers to license and regulate them. In January 1972, NCBproposes to initiate a coffee exchange in Addis Ababa, through which allcoffee brought to the capital would have to be traded; it would includea voluntary auction system.

2.08 Ethiopia's coffee export quota is now about 75-80,000 tons/annun.However, although there was no particular shortage of coffee in the country,Ethiopia failed to fulfil permitted quota exports in 1965/66, 1968/69 and1969/70 by about 10,000, 7,000 and 5,000 tons, respectively. IEG is nowconsidering giving NCB additional powers to deal with this situation --which is discussed in more detail in Annex 3 -- in particular broad powersto control and regulate all aspects of coffee production, processing andmarketing (including pricing).

D. Research

2.09 Agricultural research is being increasingly centered in the Insti-tute of Agricultural Research (IAR), an autonomous body set up in 1966under the chairmanship of the Ministry of Agriculture. Since its inception,IAR has been assisted by UNDP/FAO, and a 3-year follow-up program was ap-proved in January 1971. Among the UNDP project experts are a coffee processingengineer and a coffee agronomist, working out of the Jimma Coffee ResearchStation. The agronomy program is currently restricted to station trials of

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various types of coffee, while the processing program has concentrated onwashing. Much useful work has been done in selecting coffee types and pro-cessing methods that best fit Ethiopian conditions, an essential prerequi-site for this coffee processing project. The Jimma Research Station has anexperimental washing station which is also used for training purposes.

E. Agricultural Credit

2.10 Three commercial banks -- the state-owned Commercial Bank ofEthiopia and two private banks -- make short-term advances to thecoffee industry, principally for crop finance. Exporters' needs are gen-erally adequately provided for, since export paper can be rediscountedwith the central bank -- some E$40 million (US$17 million) were outstandingas of November 30, 1971. Less than one-quarter of processors' needs aremet from these sources, however, chiefly because of insufficient collateral,and only about E$12 million (US$5 million) were outstanding on the same date.Part of the remaining needs of prpcessors are supplied by exporters, butmost is obtained from money-lenders. Institutional short-term interestrates range from 7-1/2% to 9-1/2%, but non-institutional rates sometimesrun more than four times as high.

2.11 The only institutional source of medium- and long-term credit forcoffee in Ethiopia is the state-owned Agricultural and Industrial DevelopmentBank (AIDB), which is to be the credit channel for the project. Establishedby decree dated August 1970, AIDB took over most of the assets and liabilitiesof two existing institutions (the Development Bank of Ethiopia and theEthiopian Investment Corporation) which were operating in the same fieldsand competing for scarce financial and managerial resources, with unsatis-factory results for both. AIDB has wide powers to make loans (includingshort-term loans) and equity investments in virtually any commerciallyviable development projects. As of December 10, 1971, AIDB's loan portfoliofor coffee amounted to some E$3.4 million (US$1.5 million), of which someE$2.2 million (US$1.0 million) assumed from predecessor institutions wereinactive and at court. Of the active portfolio of E$1.2 million (US$0.5million), some E$0..5 million (US$0.2 million) had maturities exceeding4 years, some E$0.2 million (US$0.1 million) had maturities between 1 and 4years and the remaining E$0.5 million (US$0.2 million) were short-term.Some E$0.5 million (US$0.2 million) of this active coffee portfolio resultedfrom new commitments by AIDB during the past year, the remaining E$0.7million (US$0.3 million) having been assumed from predecessor institutions.A preliminary assessment of AIDB's first year's operations, and furtherinformation on the Ethiopian banking system are given in Annex 4.

F. Cooperatives

2.12 Cooperative development in Ethiopia is recent, with the basicCooperative Law dating from 1966 and supplementary Regulations from 1968.By July 1971, some 55 societies had been registered with some 17,000 members,and another 80 societies were in various stages of promotion. Five of the

six registered coffee cooperatives are in the project areas. The two inKaffa Province are well-established and would move into washed coffee productionunder the project. One of the three in Sidamo Province is well-establishedand already has a washing station; the other two are relatively undeveloped.IEG policy is to support cooperative development as an essential vehicle forreaching the smaller farmer but a shortage of trained cooperative staffrestricts promotional and developmental activities. The Department ofCooperatives in the Ministry of National Community Development, headed bythe Registrar of Cooperatives, has a staff of only 50 and an annual budget ofabout E$0.3 million (US$0.1 million). Cooperative training is currentlyavailable as part of village level worker courses offered by the AwasaCommunity Development Training and Demonstracion Center. Eight-monthcooperative courses were scheduled to begin in September 1971 for 30 trainees,to be later expanded to 60.

III. THE PROJECT AREAS

Location and Communications

3.01 The project areas are the coffee growing parts of Sidamo andDeressa Awrajas (sub-provinces) of Sidamo Province (Map 2) and Limmu andJimma Awrajas of Kaffa Province (Map 3). The provincial capitals (Awasaand Jimma) are connected to Addis Ababa by all-weather roads of 250 kmand 350 km, respectively, and there is an ample supply of 10-ton trucksto transport coffee. From Addis Ababa, coffee for export is sent by railto Djibouti (French Territory of Afars and Issas) or by road to Assab (Map1). Feeder roads within the project areas are practically non-existent, however,which is hindering development generally and of washing stations in particular(paras 2.05 and 3.05).

Population and Land Tenure

3.02 Sidamo Province has a population of about 2.1 million, some 1.1million of whom live in the project area. Kaffa Province figures are about1.1 million and 0.6 million, respectively. About 96% of the economicallyactive population of both areas are engaged in agriculturally related occu-pations and only 3-4% of the total are literate. Available information onland tenure is fragmentary. Much of the land is leased under a bewilderingarray of different tenancy conditions, and sharecropping is common, withthe landlord's share varying from one-third to one-half.

Topography, Climate, Soils and Agriculture

3.03 Project areas are hilly, with many streams and rivers, and alti-tudes of 1,500-2,000 m. Rainfall data are lacking, but annual rainfall isestimated to be 1,300-2,000 mm. Wettest months are July-September whendry-weather roads are generally impassable. The dry season runs from mid-October through January/February, coinciding with the coffee harvestingseason. Soils are generally red laterite clay loams, slightly acid, deepand well-drained. These conditions are ideal for growing and drying coffee,

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which is the most important cash crop. Other important crops, mainly forlocal consumption, are enset (or "false banana" -- a starchy staple foodwhich also supplies local needs for fiber), maize, sorghum, barley and teff(a popular local grain). Spices and honey are also produced, and there aresubstantial livestock herds.

Coffee Production

3.04 The project areas contain garden coffee in Sidamo and forest and

plantation coffee in Kaffa, generally cultivated to the minimal standardsdescribed in paragraph 2.04, except that the forest coffee, being in arelatively developed area, has usually been improved by in-filling of nat-ural gaps between "wild" trees. Total annual production is unknown butthought to be about 40,000-50,000 tons for Sidamo and 50,000-65,000 tonsfor Kaffa; amounts marketed through NCB-controlled channels have variedfrom 16,000-26,000 tons and 28,000-42,000 tons, respectively, over thepast five years. About 8,000 tons and 1,000 tons, respectively, are washedArabica; the remainder is unwashed.

3.05 Exporters and IAR have identified the coffees from the projectareas as particularly suitable for the washing process and there is amplewater during the processing season. Development in Sidamo has been rapidand there are now 166 washing stations in operation, one run by a coopera-t:Lve and the others by merchants. Because of the lack of feeder roads andindiscriminate licensing by NCB, these stations are all concentrated at rivercrossings on or near the single main road (Map 2); standards of constructionanid operation vary from atrocious to quite good, but, in most cases, incorrectsiting too near river banks has led to pulp and effluent disposal directlyinto rivers with consequent pollution downstream. There is no room forfuirther development until feeder roads are constructed into the interior.

3.06 Merchants in Kaffa are not so progressive as those in Sidamo andwashing has so far been confined to a number of larger estates and indi-vidual larger farmers, some using hand-operated pulpers and very primitivewashing and fermenting facilities. Interest in the washing process is nowspreading to smaller estate owners and cooperatives.

IV. THE PROJECT

A. General Description

4.01 The project forms part of IEG's program to increase export earn-ings from agriculture by improving coffee-processing methods. It involvesconstruction of 100 new washing stations (each of 100-ton capacity), re-building or modification of 100 existing stations, construction of 400 kmof access roads, incremental working capital and technical assistanceactivities, arranged in sub-projects as follows:

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(a) Sidamo Cooperative Sub-project: construction of about70 washing stations for eventual ownership by the cooperativemovement, with 200 km of feeder and 100 km of access roads,incremental working capital and an experimental drier;

(b) Sidamo Private Sector Sub-project: a survey of 166existing washing stations and subsequent rebuilding ofabout 30 stations and minor modifications to another 70;

(c) Kaffa Cooperative Sub-project: construction of about 20washing stations to be owned by two existing cooperatives,with 40 km of feeder and 60 km of access roads;

(d) Kaffa Estates Sub-project: construction of about 10washing stations; and

(e) Technical Assistance Activities: preparation of follow-up projects, coffee research and a survey of the Ethiopiancoffee economy.

4.02 An operationally independent unit of the National Coffee Board(NCB), to be known as the Project Implementation Unit (PIU), would be setup to construct and initially own and manage the washing stations in theSidamo Cooperative Sub-project, to provide technical services (includingroad construction) for all sub-projects and to carry out the preparation offollow-up projects. Eventually, PIU washing stations would be transferredto the cooperative movement, as and when suitable cooperatives are promotedand established. Washing stations under the other sub-projects would bemanaged by existing enterprises and cooperatives. The survey of the coffeeeconomy would come directly under NCB and research under the Institute ofAgricultural Research (IAR). The credit channel would be the Agriculturaland Industrial Development Bank (AIDB) acting as agent for IEG.

B. Detailed Features

Phasing

4.03 Construction of washing stations and roads would start at thebeginning of the next dry season, in October 1972 and would take 3 years.Technical services and coffee research would extend over 5 years and thebuild-up of incremental working capital for the operation of PIU washingstations over 6 years. Further details are given in Annex 5.

4.04 To meet the target for starting construction, planning and surveystaff would have to be recruited for the project no later than March 1972and invitations to bid on the necessary road construction equipment wouldhave to be issued by the end of April 1972. Some preparatory work - staffadvertisements, preparation of bid documents and preliminary surveys - hasalready been started and it is proposed that this be financed retroactivelyout of the IDA credit up to a limit of US$100,000.

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Sidamo Cooperative Sub-Project

4.05 Road Construction. The proposed 200 km of feeder roads would formloops off the main Awasa-Dilla road into the interior of the coffee-produc-ing areas. The proposed washing stations would be linked to these feederroads by minimal standard factory access roads averaging about 1.5 km perwashing station. Potential washing station sites and road alignments havealready been identified from aerial photography, as shown in Map 2; theywould be confirmed by project technical staff, first by aerial inspectionand later by ground survey.

4.06 Roads would be constructed for dry-weather operations only, sincethe harvesting season is mostly dry. The early processed crop, harvestedbefore the end of the rainy season, would be stored temporarily at thewashing stations. Since the Imperial Hlighway Authority (IIIA) is not currentlystructured to handle minor roads of this type and since neither local authori-ties nor contractors are capable of building them on the proposed scale,main construction would be carried out by PIU, using imported equipment,with river crossings constructed by local contractors. There would be nofinal design stage, but center lines would be laid out by ground surveyteams and construction teams would apply general design standards as theyproceeded. Design standards, construction methods and maclhinery andstaffing needs are described further in Annex 6.

4.07 Only about 40% of the useful life of the imported equipment wouldbe used up by the project. It would then be available for maintenance ofproject roads or further road construction (including that required in anyfollow-up projects). Assurances have been obtained during negotiationsthat arrangements for maintenance of project roads, and post-project useof the imported equipment, would be satisfactory to IDA.

4.08 Washing Station Construction. Washing stations would be sitednear rivers with adequate water flow for the washing process. They would beconstructed by local contractors to a standard design adapted by project tech-nical staff to the particular site. Each would have a capacity to processabout 100 tons of coffee per season and would cost some E$58,000 (US$25,200),including about E$10,000 (US$4,300) worth of simple machinery. Experienceshows that this capacity station could be handled by a manager without so-phisticated training or education. The proposed number of stations wouldbe sufficient to process about 20-30% of the coffee produced within areasonable distance and is appropriate for a first-stage development. Sites,averaging 1 ha each, would be acquired by the local administration andleased to PIU. Further details are given in Annex 7.

4.09 Establishment of PIU Headquarters. With office buildings andhousing expected to be available for rent in the project areas, establishmentof PIU headquarters involves mainly staffing costs and personnel-carryingvehicles to enable it to carry out technical services for all sub-projectsduring the development period. A mechanical drier, such as is used in othercountries but not as yet in Ethiopia, would be provided for trial purposes.Further details are given in Annex 8.

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4.10 Since PIU is a new institution, the incremental needs of workingcapital for crop purchase and washing station operating costs are consideredas project costs.

Sidamo Private Sector Sub-Project

4.11 Because of generally poor siting and construction (para 3.05), asurvey of each of the existing 166 washing stations in the Sidamo projectarea would be carried out by PIU technical staff. The survey would recommendmodifications, principally concerned with hygienic pulp and effluent disposal,which would be required for a station to retain its NCB operating license(see para 5.13 for related assurances); and other optional modifications toimprove efficiency and quality control. The project would include creditfor complete rebuilding of 30 stations, at an average cost of E$58,000(US$25,200), and for minor modifications of 70 stations, at an average costof about E$4,000 (US$1,700). About 56 stations would probably close downbecause it would be impractical to modify or rebuild them to the requiredstandards. The remaining 10 stations would probably need no modifications.

Kaffa Cooperative Sub-Project and Kaffa Estates Sub-Project

4.12 Some 35 washing station sites have been tentatively identified by

two well-established Kaffa cooperatives (Map 3) and more than 50 Kaffa estateshave expressed interest in the washing process. However, present cooperativemembership could adequately supply only about 13 stations and only one ortwo estates individually produce enough to adequately supply a station.The project would include credit for 20 washing stations for the coopera-tives and 10 for the estates, thus allowing for some expansion in coopera-tive membership and for several estates to come together.

4.13 Estates likely to be involved in the project are already con-nected to the road network. For each cooperative station, however, itwould be necessary to upgrade an average of 2 km of existing dry-weatherroads to the feeder road standards for the Sidamo Cooperative Sub-project(Annex 6) and to construct about 3 km of factory access roads. Theseshort stretches of road would be constructed by local contractors, undercontract to, and under the supervision of, PIU. Assurances have beenobtained during negotiations that no cooperative station would be constructedunder the project which requires the construction or improvement of morethan 10 km of road.

Technical Assistance Activities

4.14 Preparation of Follow-Up Projects. A project preparation teamwould be established within PIU to prepare follow-up projects, involvinghigh priority investments in the coffee sector and diversification inSidamo Province to take advantage of the road construction program anddevelopment of a cooperative structure.

4.15 Coffee Research. IAR's existing coffee research activities (para2.09) would be augmented to investigate:

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(a) different methods of grading Ethiopian coffee in orderto maximize returns from exports; and

(b) current forest coffee management practices and possibleimprovements.

The first is a two-year program, the second, a five-year first stage of aprcbable ten-year program. Both would be supervised by UNDP/FAO expertsalready in the field. Agreement was reached during negotiations that nodisbursements would be made from the IDA credit for the research componentof the project prior to IDA approval of a detailed research program.

4.16 Coffee Survey. The proposed survey of the Ethiopian coffee econ-omy would have three objectives: to find out more about the current coffeeeconomy; to develop a permanent information and planning unit within NCB; andto recommend how NCB should regulate marketing under the InternationalCoffee Agreement export quota system. A pilot survey, in the Sidamo andKaffa Provinces, started with the 1971/72 coffee season with FAO staffassistance. The International Coffee Organization is expected to play aleading role in financing, planning, staffing and supervising the survey.During negotiations, assurances have been obtained that the survey would beconducted by consultants satisfactory to IDA, employed under terms ofreference satisfactory to IDA.

C. Cost Estimates

4.17 Total cost of the project is estimated at E$23.6 million (US$10.3million). About E$18.9 million (US$8.2 million), or 80% of total projectcosts, would be expended during the construction period through September1975. Remaining expenditures, through December 1977, relate to technicalservices, research and incremental working capital. The foreign exchangecomponent, E$9.3 million (US$4.0 million), represents about 39% of totalcosts and includes coffee processing machinery, road construction equipment,expatriate personnel and personnel vehicles. Cost estimates are summarizedin the following table. Details are in Annex 9.

- 1 1 -

E$'000 US$'000 ForeignLocal Foreign Total Local Foreign Total Exchange


Washing StationConstruction 1,665 2,017 3,682 724 877 1,601 55

Road Construction 884 2,064 2,948 384 897 1,281 70PIU HQ Establishment 1,461 1,060 2,521 635 461 1,096 42Incremental WorkingCapital 6,313 - 6,313 2,745 - 2,745 -

10,323 5,141 15,464 4,488 2,235 6,723 33

Sidamo Private SectorSub-Project

Washing Station Rebuilding 714 864 1,578 310 376 686 55Washing Station Modifica-

tion 38 214 252 17 93 110 85

752 1,078 1,830 327 469 796 59

Kaffa Cooperative Sub-Project

Washing StationConstruction 476 576 1,052 207 250 457 55

Road Construction 258 376 634 112 163 275 59

734 952 1,686 319 413 732 56

Kaffa Estates Sub-Project

Washing StationConstruction 238 288 526 103 126 229 55

Technical Assistance Activities

Preparation of Follow-upProjects 170 350 520 74 152 226 67

Coffee Research 531 77 608 231 33 264 13Coffee Survey 540 360 900 235 157 392 40

1,241 787 2,028 540 342 882 39Contingencies 1,059 1,020 2,079 460 444 904 49

TOTAL PROJECT COST 14,347 9,266 23,613 6,237 4,029 10,266 39

- of wlhich import duties 266 - 266 116 - 116

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4.18 Estimates are based on prevailing prices in Ethiopia, taking intoaccount recent changes in various rates of foreign exchange. For importedmachinery items, a contingency allowance has been made for a 5% annual risein prices, with no allowance for quantity increase. For road construction,an additional physical contingency of 15% has been allowed for, in view ofthe imprecise estimate of total lengths of road involved. For all othercategories except incremental working capital, a combined contingencyallowance has been made for possible increases in price and physical inputs,averaging 9%. This is in line with the relative price stability in Ethiopiain recent years and the straightforward nature of proposed coffee washingstation construction.

D. Financing

4.19 Estimated project costs would be financed as follows:

IDA ContributionTotal Project Cost Channelled Through

CoffeeProcessors AIDB IEG Total AIDB IEG Total

…--------------------E$ 000.---- .-_________


Washing Station Construction - 3,682 - 3,682 3,682 - 3,682Raad Construction - 2,948 2,948 - 2,861 2,861PIU HQ Establishment 56 - 2,465 2,521 - 2,345 2,345Incremental Working Capital - 6,313 - 6,313 - - -

Other Washing Stations 1,074 2,334 - 3,408 2,334 - 2,334KafEa Road Construction - - 634 634 - 634 634Pre]paration of Follow-upProjects - - 520 520 - 510 510

Coffee Research - - 608 608 - 568 568Coffee Survey - - 900 900 - - -

Contingencies 116 871 1,092 2,079 607 959 1,566

Total (E$'000) 1,246 13 200 9 167 23 613 6 623 7 877 14,500

Totial (US$'000) 541 5,739 3,986 10266 2880 3,420 6

% oE Total 5 56 39 100 28 33 61

Total (Net of IDA Contribution)(US$'000) 541 2,859 566 3966 - - -

% of Total 5 28 6 39

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4.20 The proposed IDA credit of US$6.3 million (E$14.5 million) wouldfinance about 61% of estimated total project costs. US$4.0 million, or 63%of the credit, would finance foreign exchange expenditures, while US$2.3million, or 37% of the credit, would finance local currency expenditures.

4.21 IDA's contribution would cover 100% of the costs of washing stationconstruction in the Sidamo Cooperative Sub-project; about 70% of the costsof washing station construction or modification in the other sub-projects;and 100% of the costs of road construction, establishment of PIU headquarters,preparation of follow-up projects and coffee research; all net of importduties on vehicles and of land purchases. IEG's contribution (net of DA'scontribution) of about E$1.3 million (US$0.6 million) would cover importduties on vehicles, land purchases and the coffee survey; although it isexpected that IEG would be able to recover the costs of the latter from theInternational Coffee Organization's Coffee Diversification Fund. AIDB'scontribution (net of IDA's contribution) of about E$6.6 million (US$2.9million) would cover the incremental working capital needs of the PIU washingstations; this contribution would be provided out of AIDB's own resources.The coffee processors' contribution of about E$1.2 million (US$0.5 million)would consist of down-payments averaging 30% of the costs of washing stationconstruction or modification, except for PIU whose only contribution wouldbe its purchases of vehicles in 1975/76 out of its accumulated earnings.

On-Financing

4.22 IDA's contribution for coffee research (US$0.2 million) would bepassed on to IAR as a grant. Similarly, IDA's contribution for roadconstruction, preparation of follow-up projects, and the establishmentof PIU headquarters (US$3.2 million) would be passed on to NCB as a grant,for use by PIU.

4.23 IDA's contribution for washing station construction or modification(US$2.8 million) would be made available to AIDB, acting as agent of IEG,for on-lending to processors, under a Project Financing Agreement describedin paragraph 5.08.

E. Procurement

4.24 Contracts estimated to cost over US$20,000 for road constructionmachinery and equipment (US$0.8 million CIF value, including contingencies),machinery and equipment for coffee washing stations (US$1.3 million) andpersonnel-carrying vehicles for PIU (US$0.1 million) would be let followinginternational competitive bidding procedures organized by PIU. Contractsestimated to cost between US$4,000 and US$20,000 for machinery, equipmentand vehicles, and all contracts for the construction of PIU washing stations,for roads in Kaffa and for bridges and river crossings in Sidamo would belet following local competitive bidding because they would be too small tointerest foreign bidders. Contracts estimated to cost between US$1,000 andUS$4,000 would be let after at least three quotations had been obtained andevaluated. Assurances have been obtained during negotiations that the

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above procurement procedures would be followed and that draft biddingdocuments, proposed contract awards, etc., for contracts expected to exceedUS$?50,000 in value, would be sent to IDA for prior approval.

F. Disbursement

4.25 The IDA credit would be disbursed against:

(a) 100% of AIDB disbursements of loans under the projectfor washing station construction or modification, netof import duties;

(b) 70% of the costs (if any) of locally procured machinery,vehicles and equipment for road construction and othervehicles; and

(c) 100% of the costs, net of import duties and land purchase,of directly imported machinery, vehicles and equipment;of other road construction items; of PIU headquarterestablishment; and of research.

Disbursement requests would be accompanied by full import documentationfor items procured under international competitive bidding procedures and bycertificates of disbursements or expenditures from AIDB, PIU or IAR, asappropriate, for other items. A schedule of estimated disbursements, byquarters, is given in Annex 10.

V. ORGANIZATION AND MANAGEMENT

A. General

5.01 An operationally independent unit of the National Coffee Board(NCB), to be known as the Project Implementation Unit (PIU), would be setup to construct and initially operate the coffee washing stations in theSidamo Cooperative Sub-project and to stimulate the development of primarycooperative societies of coffee farmers to take over these stations in duecourse. Washing stations under the other sub-projects would be managed byexisting enterprises and cooperatives, to which PIU would provide technicalservices. PIU would also carry out the road construction program andprepare follow-up projects. Funds for washing station construction wouldbe chaninelled through the Agricultural and Industrial Development Bank(AIDB), as discussed in para 5.08.

B. The Project Implementation Unit (PIU)

5.02 PIU would be established by a resolution of the NCB Board as aunit operationally independent from NCB's existing staff organization (headed

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by its Executive Secretary), so as to have an adequate separation betweenNCB's regulatory and promotional activities and PIU's commercial operations.As NCB does not presently have the powers to engage in commercial operations,such a resolution cannot be adopted until Parliament approves additionalpowers for NCB. The granting of these additional powers (which IEG intendsto seek at the same time as it seeks Parliamentary ratification of theDevelopment Credit Agreement), and the adoption of the NCB resolution in aform satisfactory to IDA, would be conditions of effectiveness of the IDAcredit.

5.03 PIU would be headed by a chief executive and administrative officer(Project Manager) responsible to the NCB Board and, between meetings of theBoard, to an Executive Committee. The NCB Board comprises the Ministersof Commerce and Industry (Chairman), Agriculture, Finance and Interior; thePresident of the Addis Ababa Chamber of Commerce; and the Managing Directorof AIDB. The Executive Committee - which would be established by the NCBBoard resolution establishing PIU - would comprise a representative of eachmember of the NCB Board, as well as NCB's Executive Secretary and the Headof the Cooperatives Department in the Ministry of National Community Develop-ment and Social Affairs. In addition to providing PIU with overall policyguidance and control between meetings of NCB's Board, the Executive Committeewould act as coordinator of other ministries and governmental agencies in-volved in the project. As an additional coordination measure, the ProjectManager would be authorized to appoint local advisory committees in each ofthe project areas.

5.04 Day-to-day management of PIU would be in the hands of the ProjectMIanager. He would be in charge of four specialized Sections and the teampreparing follow-up projects. The Coffee Development Section woulddesign, construct and operate the PIU washing stations and experimentaldrier; carry out the survey of existing private washing stations in Sidamo;assist the Kaffa cooperatives and estate owners in selecting sites andequipment; and appraise the technical features of all non-PIU washingstation construction and modifications to be financed by AIDB under theproject. The Roads Development Section would survey all roads; constructthose in Sidamo; and supervise their construction by contractors in Kaffa.In consultation with the Cooperatives Department in the Ministry of NationalCommunity Development, the Cooperative Development Section would stimulatethe formation of primary cooperative societies of coffee farmers and traintheir staffs so that they can take over PIU's washing stations. TheAccounts and Administration Section would keep PIU's accounts and arrangefor the sale of its coffee to exporters. Further details of PIU aregiven in Annex 8.

5.05 Due to the shortage of experienced and qualified managers andtechnicians in Ethiopia, it is likely that the Project Manager, the headsof all Sections except the Cooperative Development Section, and threeother technicians (Annex 8, para 17) would need to be recruited abroad.Assurances have been obtained during negotiations that the qualificationsand experience of all appointees to the posts of Project Manager and Sectionheads and to all professional posts in the project preparation team would

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be subject to prior IDA approval. Appointment of the Project Manager andthe heads of all Sections would be a condition of effectiveness of theIDS, credit.

5.06 It is IEG's intention that, as soon as suitable cooperativesof coffee farmers can be promoted and established for this purpose in theSidamo project area, PIU's washing stations would be transferred to them.In its operation of its washing stations, PIU will therefore followpolicies and procedures designed to facilitate this objective, includingthe keeping of separate accounts for each such washing station. It isexpected that it will take some years to promote and develop thesecooperatives to the point where they will be capable of handling all as-pects of technical operation, marketing and financial control; and PIUwill probably need to follow a staged approach whereby responsibility isgradually transferred to the extent made possible by the standard ofmanagement available to each individual cooperative. Thus, a first stagemight be for a primary cooperative society of farmers delivering crop toa particular washing station to receive payment for the processed coffeeen bloc and to assume responsibility for individual payments to itsfarmer members; while PIU retained ownership, responsibility for stationrnianagement and marketing, and debt repayment obligations to AIDB. Thefinal stage might be for a primary cooperative society to assume ownershipand management of the individual washing station, and for a union of suchcooperatives to take over the marketing and, with AIDB's prior approval,any outstanding debts to AIDB which might remain on the station involved.A statement of PIU operating policies and procedures would be adopted by aresolution of the NCB Board, which would undoubtedly need modification fromtime to time in the light of actual experience with the development of thecooperative movement. The adoption of such a resolution, in a form satis-factory to IDA, would be a condition of effectiveness of the IDA credit;and assurances have been obtained during negotiations that any modifica:ionsto it would be subject to IDA's prior approval.

C. The Agricultural and Industrial Development Bank

5.07 The state-owned AIDB would be the credit channel for the project.As indicated in para 2.11, AIDB is a recently established institution.However, it already has well defined investment policies contained in anAIDB Board statement described in Annex 4 and which provide a generallysound basis for project financing. AIDB's portfolio of loans and sharestaken over from predecessor institutions has now been conservatively valued.AIDB's organization and staffing appear to be sound, although somestrengthening will probably be necessary before AIDB can expand its opera-tions to any great degree. AIDB's first year of operations shows a goodbeginning. IDA is in the process of appraising AIDB for a credit tosupport AIDB's medium- and long-term investment program in the industrialand agricultural sectors. However, since negotiations for this proposedAIDB project have not yet taken place and several issues have not yet beenresolved, it has been agreed during negotiations for the coffee processingproject that, while all IDA funds for its credit aspects would be channelledthrough AIDB, those funds would be handled by AIDB in the name, and on behalf

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of IEG, along the lines of AIDB's involvement in the Addis Ababa DairyDevelopment Project approved in August 1971.

5.08 IEG would open an account (the Project Account) in the NationalBank of Ethiopia in AIDB's name, and through which all credit transactionsunder the project would take place. In particular, IEG would deposit intothe Project Account, quarterly in advance, such amounts as are estimatedby AIDB to be required to allow AIDB to make disbursements on its loans underthe project in the quarter immediately following. The terms and conditionsof these loans are described in the following paragraphs. IEG would bearthe credit risk on the subsidiary loan which AIDB will make to IEG's NationalCoffee Board for use by PIU for the construction of its washing stations (para5.10). However, in respect of AIDB loans to other private and cooperativeowners of washing stations (wlhere AIDB is required to appraise the potentialborrowers - para 5.11), AIDB would take the credit risk. AIDB would financeits appraisal and supervision costs, and would cover its credit risk underthe project by retaining the excess over 7-1/4% of all interest payments madeby its borrowers (including NCB), giving AIDB a spread of at least 2-1/4%.These arrangements would be incorporated into a Project Financing Agreement,execution of which, in a form satisfactory to IDA, would be a conditionof effectiveness of the IDA credit.

5.09 A senior AIDB officer, whose qualifications and experience forthe post would be satisfactory to IDA, would supervise all lending opera-tions under the project under the general supervision of AIDB's ManagingDirector. His appointment would be a condition of effectiveness of theIDA credit.

5.10 AIDB would make a loan to NCB, for use by PIU, for washing stationconstruction under the Sidamo Cooperative Sub-project, based on this appraisalreport and such other investigations as AIDB might deem necessary. SincePIU would be a new organization, without equity, no down-payment would berequired and interest would be paid out of the proceeds of the loan duringthe construction period (but not longer than for 4 years). The term ofthe NCB loan would be 15 years, including a grace period of 4 years; in-terest would be not less than 9-1/2% but not more than 12% per annum.Execution of a subsidiary loan agreement between AIDB and NCB, in aform satisfactory to IDA, would be a condition of effectiveness of the IDAcredit. AIDB would keep in constant contact with PIU's performance underthe NCB subsidiary loan agreement since the Managing Director is a memberof the NCB Board and would nominate a representative on the ExecutiveCommittee (para 5.03).

5.11 In providing credit to washing station owners under the SidamoPrivate Sector and both Kaffa Subprojects, AIDB would rely on PIU forteclhnical appraisal of loan applications. AIDB's own staff would determinethe financial prospects and managerial capabilities of potential borrowers.Any loan under these sub-projects which would bring the cumulative amountcomiitted to a single borrower above E$100,000 (US$43,000) would be subjectto prior IDA approval. Loans for constructing complete washing stationswould average 70% of total costs (excluding interest during construction),and would have a term averaging 10 years, including one year of grace.

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Loan.s for washing station modification would average 50% of total costs(excluding interest during construction), and would have a term averaging3 years, including one year of grace. All loans would carry annual interestof not less than 9-1/2% and not more than 12%. AIDB would enter into aloan agreement with each borrower, the form of which would be satisfactoryto IDA. Assurances have been obtained during negotiations that AIDB wouldfollow these policies and procedures, as described in more detail in Annex 11.

5.12 Assurances have also been obtained that AIDB would provide itsborrowers under the project (including NCB on behalf of PIU, but excludingestates) with short-term finance for crop purchase and, in the case of NCBon behalf of PIU, for washing station operating costs; or would arrange forcoTmercial banks to provide it, with AIDB's guarantee where necessary.

D. NCB Licensing

5.13 Assurances have been obtained during negotiations that NCB wouldpromptly issue licenses for all facilities to be constructed under theproject; that, to avoid repetitions of problems that have already arisenfrom indiscriminate licensing (para 3.05), NCB would not issue a licensefor any coffee washing station within 5 km of the site of a station to beconstructed or modified under the project, unless specific demand for addi-tional capacity had been established; that NCB would withdraw operatinglicenses from stations that failed to make suitable arrangements for hygienicpulp and effluent disposal within one year of recommendations made as aresLlt of the proposed survey in Sidamo (para 4.11); that NCB would publishits requirements for the granting and renewal of licenses for the operationof coffee washing stations, including provisions requiring maintenance ofquality control standards and the disposal of pulp and effluent withreasonable regard to ecological and environmental effects; and that,whenever it should find it necessary to deny an application for, or with-draw, a license to operate a coffee washing station, NCB shall give itsreasons therefor in writing.

E. Accounts and Audit

5.14 NCB's accounts are audited by Russell and Company and AIDB'saccounts by Mann Judd and Company, both international firms of good standingwith branches in Addis Ababa. IAR's accounts have to be submiitted to theAuditor-General. Assurances have been obtained during negotiations thatAIDE, NCB and IAR would have their accounts (including, in NCB's case, thoseof l'IU) audited by independent auditors acceptable to IDA; that AIDBand NCB would forward to IDA, within four months of the close of theirrespective financial years, certified copies of their respective auditedfinancial statements and of the auditors' reports thereon; and that IAR wouldforward to IDA, within four months of the close of its financial year, copiesof i.ts audited financial statements.

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VI. PRODUCTION, MARKETS, PRICES AND FINANCIAL RESULTS

A. Production

6.01 The 100 new washing stations to be constructed under the projectwould each produce 100 tons of washed coffee per annum by full developmentin 1977/78. The net effect of rebuilding and modifying private sectorstations in Sidamo, and cancelling some operating licenses, would be anannual increase in washed coffee production of about 1,000 tons. Increasedproduction of washed coffee from the project would thus be some 11,000tons/annum by 1977/78, by which time overall Ethiopian production of washedcoffee is expected to reach some 27,000 tons (compared to about 10,000 tonsin 1969/70). Further details are given in Annex 12. Production of unwashedcoffee would be correspondingly reduced, except that, in Sidamo Province,the proposed road network is likely to bring forth some additional produc-tion, perhaps amounting to 1,000 tons/annum by 1980/81, representing about2% of current production in that province.

B. Markets and Prices

6.02 A brief note on the world outlook for coffee is presented inAnnex 13. In recent years, coffee prices on world markets have experiencedsharp fluctuations. Prices began to rise substantially in late 1969 asthe market reacted to widespread frost damage in the dominant Braziliancrop in July 1969. However, prices declined again in late 1970 as Brazilianoutput increased due to favorable weather conditions. On the basis of ananalysis of future supply-demand relationships (discussed in Annex 13),coffee prices may be expected to decline over the long-term from the highlevels of 1970; but they are expected to keep somewhat above the averageprices obtained in 1969.

6.03 Ethiopia's traditional market for its unwashed coffee - the US,whichi takes 70-80% of total exports - is not a major market for its washedcoffee, since the US demand for this type of coffee is generally satisfiedfrom Central America. Ethiopian washed coffee exports resulting from theproject would need to be marketed in the Federal Republic of Germany andother major markets for quality washed coffee. This should not presentundue difficulty in view of the generally high quality of Ethiopian washedcoffee, demand for which is higlh. Exports to date - principally toGermany - have been restricted by lack of production rather than marketingconstraints, and Ethiopian washed coffee production has been actively en-couraged by exporters with close German ties - to the point of their makingfinance available to processors. Further details on markets and pricesfor Ethiopian export coffees are given below and in Annex 14.

6.04 The financial and economic results of the project are particularlysensitive to the differential in prices between Ethiopian washed and unwashedcoffees, as indicated in paragraphs 6.07 and 7.02, respectively. A prob-ability analysis has therefore been carried out based on probabilities

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assigned to the future prices for these coffees, as explained in detail inAnnex 14. The principal projections used for illustrating the financialresults of the project are as follows:

Washed coffee: Average prices declining from about51 US cents/lb, CIF New York, in 1972/73, to about 45US cents/lb by 1978/79 (i.e. in line with projected pricesfor Kenyan washed coffee and about 1 US cent/lb aboveprojected prices for Colombian washed coffee).

Unwashed coffee: Average prices declining from about 43US cents/lb, CIF New York, in 1972/73, to about 38 UScents/lb by 1978/79 (i.e. about 2 US cents/lb below proj-ected prices for Brazilian Santos 4 unwashed coffee).

Since the above projections were made, there has been a general currencyre-alignment. The Ethiopian dollar has retained its value in terms ofgold while it is proposed to devalue the US dollar. Should the pricedifferential between washed and unwashed coffee expressed in US dollarequivalent follow the proposed value of the US dollar (a decline of some 8%in terms of the Ethiopian dollar), the financial and economic rates ofreturn mentioned in paragraphs 6.06 and 7.02 respectively would drop by about2-3%. However, since the main market for Ethiopian washed coffee is Germany(and therefore the price of washed coffee in Ethiopian dollar equivalentwill probably increase because of the revaluation of the German mark) whilethe! main market for unwashed coffee is the USA (and therefore the price ofunwashed coffee in Ethiopian dollar equivalent will probably decline becauseof the proposed devaluation of the US dollar), it is possible, although othersellers may be attracted to the German market, that the price differentialbetween washed and unwashed coffee and the resulting rates of return willincrease. The rates of return would therefore be at least equal to and couldbe higher than those mentioned in paragraphs 6.06 and 7.02.

6.C05 The switch in annual production of some 11,000 tons from unwashedto washed arabica, and the possible overall annual increase in productionof some 1,000 tons, are unlikely to have any measurable effect on Ethiopia'sability to comply with its obligations under the International CoffeeAgreement, nor on world market prices for these products, as they representless than 1% of world trade in either product. The International CoffeeOrganization has been consulted on this matter and a statement of its viewsis included in Annex 14.

C. Financial Results

Washing Station Owners

6.06 To encourage farmers to supply their coffee to project washingstations, it will be necessary for washing station owners to compensatefarmers for the additional costs of transporting the heavier ripe coffeecherries to the station and to pay them a premium over the price theywould otherwise receive for their traditional dried coffee. In the caseof PTU and the Sidamo private merchants it has been assumed that this

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premium would be about E$40/ton. In the case of the well establishedKaffa cooperatives, where it is the practice for most of the headquarters'management to be carried out by farmer members at no cost to the cooperatives,a premium of E$100/ton has been assumed. Kaffa estate owners, of course,retain all the increased value of their own crop. Assuming these variouspremiums and the principal price projections made in para 6.04, financialrates of return on the proposed investments are about 21% for PIU, 17%for the Sidamo private merchants and Kaffa cooperatives, and 24% for theKaffa estates. Should PIU choose to double the premium paid to farmersto E$80/ton, the rate of return drops to about 15%. If the Sidamo privatemerchant considers his own salary drawn to compensate him for supervisingthe operation of his own washing station as part of his benefit, the rateof return rises to about 25%. Cash flow projections are given in Annex 15and show reasonable returns after taxes and debt service obligations.

6.07 In accordance with the probabilities assigned to the principaland other price projections (para 6.04 and Annex 14, Chart 1), there is onlyabout a 10% probability that the differential between washed and unwashedcoffee would be insufficient to enable washing station owners to meet theirdebt service obligations.

VII. BENEFITS AND JUSTIFICATION

7.01 The principal benefit from the project is the rapid increase inforeign exchange earnings, expected to average about E$6.0 million (US$2.6million) by full development in 1977/78. The project would also providereasonable investment opportunities for washing station owners in theprivate and cooperative sectors and modest increases in cash incomes forsome 33,000 farm families. During the operational phase, an additional 200permanent and 1,000 seasonal workers would be employed, after making allowancefor reductions in employment at existing hulleries. The improved roadnetwork and establishment of a cooperative structure in Sidamo Provinceshould permit improvements in Government services generally, and provideopportunities for further investments. The switch of 11,000 tons of coffeefrom the traditional dry process should relieve pressure on presentlyoverloaded, and often antiquated, hulleries, perhaps leading to an improve-ment in the quality of dry processed coffee.

7.02 Economic rate of return calculations, shown in Annex 16, onlytake into account the direct benefits of increased FOB value of washed overunwashed coffee and of the possible 1,000 ton/annum increase in overallproduction (para 6.01). Unskilled labor has been costed at going rates ofE$1.00/day during most of the year, and E$1.25/day for seasonal labor.The opportunity cost of land used by washing stations has been taken as itsrental value of about E$600/ha. Assuming the probabilities of variousworld market coffee prices for Ethiopian washed and unwashed coffees asindicated in paragraph 6.04 and Annex 14, Chart 1, and a 50% probabilitythat the overall increase in production referred to above would occur, theeconomic rates of return on the sub-projects are as follows:

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Probability thatMean Rate Rate of Return

Sub-Project of Return would exceed 10%(M) (M)

Sidamo Cooperative 17 85Sidamo Private Sector 21 95Kaffa Cooperative 18 95Kaffa Estate 21 95

The! relationship between the various price assumptions and rates of returnfor the Sidamo Cooperative Sub-project is shown graphically in Charts 1,2 and 3 to Annex 16. The rates of return for the cooperative sub-projectsare generally lower than for the private sector because only the formerinvolve investments in road construction. The relatively high overheads forthe Sidamo Cooperative Sub-project, compared to other sub-projects, are largelyoffset by the increase in production expected to be brought about by roadcoristruction in that area.

7.03 Although there are some risks that price differentials may notbe sufficient to provide satisfactory economic rates of return, they arelow compared to the mean rates of return expected. Its relativelylarge and rapid foreign exchange earnings, and the opportunity to economi-cally construct a feeder road and cooperative network in Sidamo Province,make this a high priority project in line with IEG's strategy for agricul-tural development.

VIII. AGREEMENTS REACHED AND RECOMMENDATION

8.01 During credit negotiations, agreement was reached on the followingprLncipal points:

(a) arrangements for road maintenance and post-projectdisposal of road construction machinery (para 4.07);

(b) appointments to certain PIU senior management andtechnical posts (para 5.05);

(c) policies and procedures to be followed by AIDB andprovision of working capital to borrowers (paras 5.09thru 5.12); and

(d) NCB licensing of washing stations (para 5.13).

8.02 Conditions of effectiveness of the credit would be that;

(a) PIU had been established in a form satisfactory toIDA (para 5.02);

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(b) the Project Manager and heads of all Sections of PIUhad been appointed, all with qualifications and ex-perience satisfactory to IDA (para 5.05);

(c) NCB's Board had adopted a resolution, in a formsatisfactory to IDA, concerning PIU's operatingpolicies and procedures (para 5.06);

(d) a Project Financing Agreement, in a form satisfactoryto IDA, had been executed, covering provision of fundsto AIDB for making loans under the project (para 5.08);

(e) AIDB had appointed a senior officer, with qualificationsand experience satisfactory to IDA, to supervise lendingoperations under the project (para 5.09); and

(f) a subsidiary loan agreement between AIDB and NCB, in aform satisfactory to IDA, had been executed (para 5.10).

8.03 The proposed project constitutes a suitable basis for an IDA creditof US$6.3 million.

December 28, 1971

ANNEX 1Page 1

ETHIOPIA

COFFEE PROCESSING PROJECT

Coffee Types and Processing Methods

Introduction

1. Most of the world's commercially exploited coffee belongs to oneof two species (coffea arabica and coffea robusta), which are usually pro-cessed in one of two basic methods (wet process or dry process) to produceclean, unroasted coffee beans -- "green" beans. The green beans are thenroasted and ground or further processed into "instant" (or soluble) coffees.Exports from producing countries are usually in the form of green beans,and this Annex describes processing methods only to that stage. However, agrowing, but still insignificant, amount of coffee is now being exported infurther processed form -- usually as freeze-dried instant coffee.

Coffee Species

2. Arabica and robusta coffees account for about 99% of the coffeebeing commercially exploited. Arabica is grown at higher altitudes thanrobusta, is more subject to pests and diseases, is generally considered a"better" coffee and traditionally commands a higher price. Robusta is astronger tree, contains little acidity, and has a good "body" to its taste;its high solids content makes it ideal for instant coffees. The variouscoffee types, produced in various countries by various methods, are custom-arily blended together, before reaching the consumer, in different propor-tions for purposes of taste and price, often according to national drinkinghabits.

3. Arabica coffee grows wild in Ethiopia and arabicas in othercountries are thought to have been brought from there. In Africa, it isnow grown in Ethiopia, Kenya, Tanzania, Rwanda and Burundi, which togetherproduce for export about 4 million bags per annum 1/. However, it is prin-cipally grown in Central and South America from which some 36 million bagsare exported per annum, led by Brazil with about 20 million bags andColombia with about 7 million bags. Robusta grows wild in forests acrossthe equatorial belt of Africa. Commercial production did not start untilthe 1920's (Indonesia and Angola), and its production and trade has onlybeen quantified and statistically separated from arabicas since the late1940's. Principal producers are in Africa, with exports of 16 million bagsper annum, led by the Ivory Coast (3 million bags), Portuguese possessions(almost 3 million bags) and Uganda (about 2-1/2 million bags). Indonesiais mainly a robusta producer (at about 1-1/2 million bags). India growsboth arabica and robusta (about 1/2 million bags).

1/ A "bag" of coffee is the standard measure, containing 60 kg of greenbeans.

ANNEX 1Page 2

Processing Methods

4. The object of processing is to separate the green coffee beansfrorn the ripe cherry which is harvested from the coffee tree. A coffeecherry generally contains 2 coffee beans, eachi covered by a parchmentskin, and surrounded by a layer of pulp (mucilage) beneath the outer cherryskin. The cnerry's moisture content, ripe on the tree, is about 65%. Thefinal green bean should have a moisture content of about 10%.

5. The Dry Process. The whole cherry is dried, in the sun or arti-ficially, and the outer and parchment skins are removed in one millingprocess, usually called hulling. Drying can be done on-farm or centrally,but hulling is usually done in a central hullery. Coffee produced by thedry process -- the process mainly used in Brazil and Ethiopia -- is usual-

ly .iown as unwashed coffee to distinguish it from coffee produced by thewet or washing process. In East Africa and Ethiopia unwashed coffee isalso known as hard coffee or mbuni.

6. The Wet Process. The ripe cherry is put through a simple machine(pulper) which mechanically separates the outer skin and mucli of the pulp

from the beans with the aid of running water. The remaining mucilage isbrokeln down by fermentation (sometimes under water, sometimes not), overone or two days, before being washed off with water. The resulting bean --still enclosed in its parchment skin and thus often known as parchmenitcoffee -- is then dried, either in the sun or artificially. The factorywhere this process is carried out is known as a washing station orpulpery 1/. In a second process, often much later, the parchment skin isremoved by a milling process, known as curing or peeling and polishing.Coffee produced by the wet process -- the process mainly used in Colombia,Central America and Kenya and increasingly being used in Ethliopia -- isknown as washed coffee.

7. There is a comparatively rare third processing method -- the sunfermenting or semi-waslhing process -- whichi is a combination of the wet anddry processes described above. It is confined mainly to Rwanda and Burundi,with some experimentation now being undertaken in Ethiiopia. Ripe clherryis pulped, as in the washing process, but usually using less water. Theresultant mucilage-coated beans are then fermented and dried in the sun,withiout being waslhed, producing a parchment-like coffee. As with trueparchments, the coffee is then cured to produce the green bean. Coffeeproduced in this manner is usually known as sun-fermented or semi-washiedcoffee.

8. The process used in any particular instance depends on a varietyof factors:

1/ A typical washing station, such as would be constructed under theproject, is described in more detail in Annex 7.

ANNEX 1Page 3

water availability;

sunshine reliability during the processing season;

suitability of the particular coffee. For example,wasning seems to enhance the quality of certainEthiopian coffees, such as those from the proposedproject areas, while it seems to add little tocoffees from some other areas of Ethiopia;

availability of feeder roads, since washing stationsmust necessarily be near the coffee farms, if the ripecherry is not to spoil before processing can begin;

availability of finance for washing station construc-tion.

December 13, 1971

ANNEX 2Page 1

ETHIOPIA


Quality Deficiencies in Production of Ethiopian Unwashed Coffee

1. It would not be an exaggeration to state that, although Ethiopiagrows some of the best coffea arabica in the world, it exports some of theworld's worst unwashed arabica coffee. This is principally due to variousmaltreatments that the coffee receives at various stages of its harvesting,processing, storing and handling, as described briefly below.

On-farm

2. The best coffee results from coffee cherries harvested when redripe, but not over-ripe nor green. Particularly in the case of forestcoffee -- which grows wild under natural forest cover and provides some60-65% of total Ethiopian coffee production -- there is a tendency to har-vest all the cherries from the coffee trees in one, or at most two, pick-ings. The reasons are the lack of communications, low yield per tree andlow density of coffee trees per hectare, all of which make it uneconomicto pick more often. The result is that all available cherries are removedfrom a tree at the same time, which invariably means a mixture of over-ripe, ripe and under-ripe cherries. Since the majority of coffee is har-vested in this way, it has become the tradition to harvest it in a similarfasliion even where the economic constraints do not apply; for it is diffi-cult to distinguish good coffee from bad coffee, once it is dried and untilit is roasted and tasted, so that traders tend to offer a standard pricefor all dried coffees, and to mix them together before sale to exporters.

3. Coupled with the above, harvesters often gather fallen cherriesfrom the ground, where they pick up taints and molds and have often de-teriorated microbiologically.

4. Wlen drying coffee in tne sun, farmers sometimes lay out thecoffee on the ground, where it can pick up more taints. (This practicetias been officially denounced and considerable success has been achievedby the local administrations and NCB in persuading farmers to dry theircoffee on mats.)

5. Incomplete Drying. Witlh only visual means of measuring moisture,and probably in ignorance of the importance of proper drying, farmerssometimes pack half-dried cherry in bags and transport it on mules, some-times for many days, to the nearest factory or market for sale. Secondaryfermentations result with consequent deterioration of quality.

ANNEX 2Page 2

6. Storage. In the absence of banks or credit unions many farmersstore their dried coffee on-farm for extended periods, taking enough outof store to provide cash when required. The cherry can be stored formonths, often under-dried, in mud huts or even underground.

Hulling

7. Coffee is often hulled at too high a moisture content, becausefew hulleries have any means of artificially drying coffee purchased from

farmers or, indeed, of even measuring moisture. Machinery is often anti-quated and over-worked. Storage after hulling is often poor. This stan-dard of hulling tends to cause even further deterioration in the low qualitycoffee purchased from farmers. Moreover, the antiquated hulling practicesin the provinces result in the need for re-cleaning and double-handling inAddis Ababa by exporters.

December 13, 1971

ANNEX 3Page 1

ETHIOPIA


The National Coffee Board

Estabi.shment and Duties

1. The National Coffee Board (NCB) was established as an autonomousagency of the Imperial Ethiopian Government (IEG) by Decree No. 28 of 1957,later slightly modified by Parliament and reissued as Proclamation No. 178of 1961. Its principal duties were defined as:

-- to enforce coffee cleaning and grading regulations,originally issued by IEG in 1952, and to take suchother steps, in consultation with the coffee industry,as might be necessary to improve the quality ofEthiopia's export coffee;

-- to make recommendations to the Minister of Commerceon coffee legislation;

-- to take steps to improve cultivation and harvestingmethods, by educational and experimental schemes,publicity, or otherwise;

=- to collect and publish such market information andstatistics as may be useful to the coffee trade; and

-- to stimulate cooperative production and marketing ofcoffee.

Since 1962, NCB has also been responsible for ensuring that Ethiopia's ob-ligations under the International Coffee Agreement are fulfilled.

Powers and Regulations

2. Proclamation No. 178 gives NCB all the powers of a corporationto own assets, borrow money, employ staff, carry out research, operate andcontrol markets and establish a coffee exchange in Addis Ababa. The Proc-lamation also makes provision for the Council of Ministers to empower NCB,under exceptional circumstances, to enter directly into coffee tradingthrough buying, cleaning, decorticating, processing, storing, selling andexporting coffee, and through lending against coffee warehouse receipts is-sued by NCB. These powers were granted to NCB for one year from December,1966 -- following an undershipment of Ethiopia's quota by 14% in 1965/66 --but they were not renewed.

ANNEX 3Page 2

3. Regulations have been issued concerning:

-- cleaning and grading of coffee for export. These regu-lations limit moisture content of all export coffee to

11-1/2%, define 8 quality grades in terms of the numberof defects in a sample, require statements of origin andforbid the export of coffee unless it is free of mould,noxious fermentation and thie effects thiereof.

-- licensing. All exporters, local traders, pulping or dryingstation operators, hullers, cleaners, graders, warelhouse-men and vehicle operators wiho wish to handle coffee (otlherthan retailers and growers) must be licensed annually with

NCB.

-- lhandling of coffee. Growers are required to maintain theircoffee trees and harvest only ripe chierries; and are for-bidden to dry coffee on the ground, use artificial heatfor drying without NCB's approval or store coffee undersub-standard conditions.

-- inspectors. NCB may appoint inspectors with powers toenter premises of all NCB license holders, and may directthat any coffee be delivered to NCB for inspection ortreatment.

4. Draft legislation is now under consideration whicih would giveNCI, additional powers, including the powers to control marketing anid pricesof coffee. Separate additional legislation would be required to allow the

proposed NCB Project Implementationi Unit to market the coffee processed iTl

project waslhing station, as described further in Annex A.

Board

5. The Board presently consists of six members appointed by the Em-peror upon the recommendation of the Ministers of Commerce and Industry,Agriculture, Finance and Interior; the President of the Chamber of Commerceof Addis Ababa autd tihe !1anagi4ng Director of the Agricultural and IndustrialDevelopment Bank.

Organization and Staffing

6. Under the Executive Secretary, there are currently 5 Departmentswithl 135 staff: Administration (with 28); Marketing, Research, Inspectionand Classification (with 45); Coffee Production (with 56); Planning (with4); and Public Relations (with 2).

7. NCB headquarters are in Addis Ababa, with regional inspectioncenters at Jimma, Gimbi, Lekempti, Mattu, Awasa and Dire Dawa.

ANNEX 3Page 3

Financing

8. NCB's operations are financed by a cess, initially set in 1958at E$1.00 per quintal (100 kg) of coffee exported from Ethiopia. It nowstands at E$3.00 per quintal, out of which the NCB pays a levy to the Inter-national Coffee Organization's Coffee Diversification Fund amounting toUtSSO.60 (E$1.40) per bag of 60 kg exported from Ethiopia, over and abovetile first 100,000 bags exported each year. Consideration is now beinggiven to raising the cess to E$3.00 per bag of 60 kg, instead of per quintalof 100 kg, which higher rate has been assumed in calculations in this re-port. This cess is adequate to finance all NCB recurrent expendituresand to allow it to make donations to IAR's Jimma Coffee Research Station.

Present Activities and Possibilities for Improvements

Inspection and Grading for Export

9. All unwashed coffee for export is inspected and graded in AddisAbaba immediately prior to shipment to the ports of Djibouti or Assab, tosee that it meets the minimum export requirements of the coffee cleaninganid grading regulations (para 3). At present, only the first 5 of the 8designated grades are allowed to be exported. About 90% of all exportsof unwasthed coffee fall in the lowest permissible grade -- Grade 5: 46 to100 defects -- with almost all the remainder in the next highest grade --Grade 4: 26 to 45 defects 1/. A sample of each export shipment is takenby NCB and the defects are physically counted. Compliance with the regula-tions concerning moisture content (maximum: 11.5%) and freedom from moldand noxious fermentation is tested by sight only. Washied coffee is cur-rently not inspected or graded, since it would normally contain few, ifany, defects.

10. This inspection and grading system could be improved in a numberof ways, some of whicli could be implemented immediately, while others wouldhave to wait on research results:

a. Grading by defect count and moisture content alone is notan adequate measure of coffee quality. Other factors, suchas liquor, homogeneity of bean size and appearance, are moreimportant. Although NCB has a coffee liquoring laboratory,it lhas no qualified staff to operate it; and the heteroge-neity of coffee beans in Ethiopia is probably greater thanelsewhere since Ethiopia is considered to be the center oforigin of arabica coffee and many different types arehiarvested, particularly from the wild, forest coffee.Research into an improved grading system would be carriedout under the project and liquoring tests would be intro-duced as part of the auctioneer's functions.

1/ A "defect" is defined in the Regulations. Examples are: each blackbean counts as 1 defect; a piece of wood up to approximately 20 mm inlength counts as 10 defects.

ANNEX 3Page 4

b. The defect count system of grading needs to be tightenedup as there are consistent reports of coffee exports belowGrade 5. One means of doing this would be to have a week-ly cross-check of a random selection of samples taken duringthe preceding week, to be selected and counted under thepersonal supervision of a senior NCB official.

c. Moisture content limits should be reduced from a maximumof 11.5% to a maximum of 10%, and checking stations shouldbe equipped with moisture meters.

d. A start should be made to inspect and grade washed coffeeexports, and minimum standards should be laid down. (Interms of the present grading system, probably nothing belowGrade 2 should be allowed to be exported, with a maximummoisture content of 10%.) While the present small produc-tion of washed coffee, under careful scrutiny of exporterswith close and continuous ties with importers overseas,would probably not justify NCB inspection, allowance mustbe made for rapidly increased production of washed coffee,and a resultant tendency to lowering standards.

Licensing

11. Although NCB's powers to grant (or revoke) licenses on an annualbasis give it considerable opportunities to effect improvements in the in-dustry, they are not used to maximum advantage. Licenses have generallybeen granted on request and possible revocation is seldom used as a regula-tory tool. There are no published criteria for the granting of licenses orfor their revocation, these matters being at the entire discretion of theNCB. One recent result of this policy has been the largely uncontrolleddevelopment of coffee washing stations in Sidamo Province, leading tosevere overcrowding and river pollution.

12. Apart from using the license system to prevent sub-standard con-struction of new processing facilities and to induce owners of out-datedfacilities to modernize them, it could also be used as a tool to improveoperatin ng procedures. For example, washing station owners who consistentlyaccept unripe or over-ripe cherry for processing or dispose of station ef-fluent directly into rivers should be subject to license revocation.

13. The licensing system could be improved by:

a. increasing inspection staff to appraise all license ap-licants and to monitor existing license holders;

b. publication of reasonably specific criteria to be appliedin appraising license applications, both initial and forannual renewal; and

ANNEX 3Page 5

c. institution of a regular system for granting licensesand appealing decisions. Decisions to grant, deny orrevoke licenses should initially be taken at the provin-cial level (or by a designated officer in headquartersfor Addis Ababa-based enterprises), with provision forappeal in writing to the NCB Executive Secretary, whoshould be obliged to give his reasons, in writing, forupholding or denying the appeal.

Extension Services

14. There are grave deficiencies in existing harvesting and handlingmethods, as described in Annex 2, and it is NCB's duty to correct thesewherever possible, through its extension services. For the reasons ex-plained in that Annex, it is not surprising that NCB has had little successin this field to date in regard to unwashed coffee. The general low levelof literacy (over 95% of coffee farmers are considered illiterate), lackof communications and the economics of forest coffee harvesting all militateagainst rapid progress in quality improvements for unwashed Ethiopian cof-fee. One means for reaching the farmer, whicih has not been sufficientlyexploited to date, is through the cooperative movement. The decree settingup NCB gives it specific responsibility for stimulating coffee cooperatives,and it may be advisable for NCB to devote more of its attention to this as-pect.

15. Hlowever, there is no doubt that the most effective way of deploy-ing such extension staff as NCB now has is on the processing side, as NCBis now doing. But it is essential that these staff are better trained inproductioni methods so that they can effectively advise hullery and pulpingstation owners. Arrangements should be made for senior NCB extension staffto visit othler producing countries where standards are higher and wheremodern techniques for the dry process have been introduced.

16. The introduction of washing stations on a sizable scale gives NCBthe opportunity to make a very meaningful contribution with its extensionstaff. First, washing stations can control growers' harvesting by refusingto accept over-ripe or green cherry. Although this is also a matter wllichcan be cihecked into by NiCB's inspection staff (para 12), it should be tihetask of the extension staff to persuade owners of the wisdom of applyingstrict controls over incoming cherry. Second, the standards of processingin thic washiing process have a much larger effect on the final quality oftlle clean coffee thian do standards of hulling in the dry process. So muchgreater returns can be obtained by concentrating extension services onwashing station operators than elsewhere. But, again, it is essential thatthe extension staff are well-trained and can give meaningful advice. Ad-vantage sihould be taken of the technical expertise which is to be providedunder tile project, and is already available at IAR's Jimma Coffee ResearchStation, to upgrade the quallty of extension staff for washing stations.

ANNEX 3Page 6

Export Control

17. NCB currently lacks effective powers to control the marketin,Q ofcoffee, except for quality aspects, which control is needed as a result ofthe International Coffee Agreement (ICA). It hopes to get these powersunder proposed new legislation (para 4). In the meantime, NCB has had todivide the quota between exporters, in as fair a manner as practicable, to

prevent over-shipment of Ethiopia's coffee in any one coffee year (October 1through September 30) while, at the same time, trying to avoid -- or keepto a minimum -- any under-shipment of quota. NCB has not been wholly

successful in this operation; Ethiopia under-shipped its quota in 1965/66,1968/69 and 1969/70 by 14%, 10% and 6%, respectively, which representedlosses in foreign exchange amounting on average to about 6% of Ethiopia'searnings from exports, although there was no particular shortage ofcoffee in Ethiopia during those years.

18. All exporting is currently carried out by exporters in the privatesector. Restricting exports to the quota has not been difficult to arrange,since no coffee can be exported without an export license and ICO "stamps",but applying these restrictions in a fair manner has been more problematic.The initial system was to grant export licenses on a "first come, firstserved" basis, which had obvious imperfections. The present system is amulLi-stage arrangement, reasonably fair (if somewhat arbitrary) and effec-tive. Each quarter, NCB announces to the trade the available quota for thatquarter (which is the ICA quota for that quarter, plus any carryover ofunused quota from the previous quarter, except that no carryovers are al-lowed from one coffee year to the next). The trade then puts in its appli-cations for that quota, with a commitment to NCB that each exporter willexport, within that quarter, the amount of the allocation that he has re-quested. If the total applications are less than the available quota, NCBwould normally agree to the trade's proposals and allocate the quota ac-cordingly, but allow exporters to ask for increases during the quarter (ona "first come' first served" basis) until the quota is used up; any unusedquota, except in the last quarter, is then transferred to the followingquarter. If the total applications exceed the available quota, NCB usuallyallocates the quota on a pro rata basis in proportion to applications butsub-ject to the following:

a. Past performance of exporters. An exporter requestinga substantially higher allocation than his historicalperformance indicates would be reasonable suffers alarger cut in his requested allocation.

b. Encouragement of new exporters.

19. Since exporters are committed to NCB to export the allocationsof quota that they have requested, the above system, in theory, should en-sure that only minor under-shipment of quota could occur, unless exception-al circumstances arise whereby exporters do not, over the coffee year,apply for all the available quota. However, this discounts two importantfactors which were instrumental in bringing about the shortfalls in quota

Iments indicated in paragraph 17:

ANNEX 3Page 7

a. Ethiopian merchants, wno bring most of the coffee from theprovinces to Addis Ababa, are notorious speculators. Ifthey think that by holding on to their crop a little longerthey will obtain a higher price, they refuse to sell to ex-porters. Irrespective of any commitments the exporters mayhave given to NCB, it is clearly impossible for them toexport coffee which they do not have, and NCB does not havethe powers to force merchants to sell.

b. From time to time, and most often towards the end of acoffee year, the world market for coffee goes dead. Thishappened, for example, in the last few months of 1969/70and exporters were left with stocks which they had com-mitted themselves to export but for which they could findno market at a reasonable price.

While NCB could penalize exporters in some way for entering into commitmentswhich they cannot keep, this does not bring about the required shipments ofcoffee and is not an effective deterrent when large numbers of exportersare involved. When small numbers of exporters are involved, penalization,by fine or by withdrawal or restriction of exporting license, might behelpful, but it is understood that in the past such suggestions have runinto political obstacles.

20. NCB's suggested solution to these problems is to enter directlyinto coffee trading and exporting. It feels that it could counter thefirst factor mentioned in the preceding paragraph by buying up stocksof coffee in times of plenty, which it could then release to exporters asthe need arose. This suggestion is worthy of detailed analysis but itsuffers from the usual drawbacks of such schemes -- investments requiredfor storage facilities, finance for buying crop and difficulties in estimatingthe amounts of coffee to be bought and stored. The present lack of informa-tion about the Ethiopian coffee economy (para 2.03 of the main report) makesit particularly difficult to put this suggestion in proper perspective.The results of the coffee survey to be carried out under the project shouldbe very useful in this respect.

21. The second factor mentioned in paragraph 19 is more difficult tocounteract. One suggestion is that NCB itself should enter directly intoexporting, first, to take up any slack in the private sector's quota exportperformance and, second, to spearhead entry into new, non-quota, markets.It is, however, difficult to see how NCB could improve on present exportersin terms of selling when markets generally are dead, except by selling atvery low prices or by shipping on consignment, both of which might havenegative effects on Ethiopian coffee prices generally. And there would bea risk that the private sector's confidence would be severely affected bysuch a move, which many would interpret as a first step to a state monopolyof exporting, as has happened in other countries.

ANiNEX 3Page 8

22. Another possibility for minimizing under-shipments should beexamined. NCB might modify its present system of allocating quotas to ex-porters only for a single quarter at a time, in order to encourage advanceselling. In other cofee-exporting countries, experienced and financiallystrong exporters sell coffee for August/September shipment back in March/Apriland do not leave such sales till June/July when financial risks are less(for prices can then be more closely foreseen) but when the market is usuallysluggish and buyers go on holiday.

?farket Information

23. One of NCB's duties is to provide the trade with marketing information.This duty has been largely neglected because NCB rightly feels that most,if not all, exporters already have access to marketing information throughtheir own information channels. On the other hand, most of the speculationindulged in by the traders who bring the coffee from the provinces to AddisAbaba is based on inadequate, and often inaccurate, information as to thestate of world coffee markets. NCB could do more to temper this speculationby regular reports on world market conditions and future prospects.

Auction

24. The present means of bringing together the exporters and the mer-chants who bring coffee up from the provinces is most inefficient, relyingon a number of small and generally inadequate brokers. Therefore, NCBproposes to initiate in January 1972 a Coffee Exchange in Addis Ababa,through which all coffee traded in Abbis Ababa would have to pass. Itis hoped that this system will be more efficient and will lead to moreinformation becoming publicly available about current prices. The CoffeeExchange would include an elementary auction system which would be on avoLuntary basis, at least initially, since a compulsory auction systemwould interfere with some exporters acting as source of crop finance fortraders and processors in the provinces. Eventually, it is hoped tlhat mostcoEfee will be sold across the auction floor with a more sophisticatedgrading system than presently in use (see para 10(a) above).

?5. To make this proposed Coffee Exchange and auction trulv effective,and to avoid double handling, it would be necessary for coffee to becleaned and graded in the provinces to a standard suitable for direct export,without further cleaning and grading in Addis Ababa as is now necessary.NC1I should use all its powers and persuasion to try and improve the qualityof coffee as it comes out of the provinces, if necessary by withdrawinglicenses from unsatisfactory provincial processors. In addition, theauctioneer should set up a liquoring service as soon as possible to giveadvice to growers and processors.

December 22, 1971

ANNEX 4Page 1

ETHIOPIA


The Banking System and theAgricultural and Industrial Development Bank

1. The State Bank of Ethiopia, created by Imperial Charter in 1942,soon after the cessation of military operations in the country, carried outthe dual functions of central and commercial banking till the end of 1963,when it was wound up and replaced by two new institutions, namely, theNational Bank of Ethiopia and the Commercial Bank of Ethiopia. The formerfunctions as the central bank of Ethiopia and the latter took over all bank-ing business with the public previously carried out by the State Bank (ex-cept its credit mortgage activities, which were taken over by the MortgageCompany of Ethiopia, a fully-owned subsidiary of the Commercial Bank ofEthiopia). The National Bank of Ethiopia exercises powers for licensingand inspection of commercial banks. It imposes the requirements for main-tenance of reserve balances and liquidity ratios as well as a ceiling oninterest rates on deposits accepted by the banks. It also offers rediscountfacilities to banks for eligible paper covering export of goods and advancesfor agricultural production.

2. The interest rates and ceilings on savings deposits were raisedwith effect from August 1, 1970, from 5 to 6% and E$10,000 to E$20,000,respectively. Interest rates on time deposits of 30 days to 6 months wereincreased from 3 to 4%, of 6 to 12 months from 4 to 5%, and of over 6months from 5 to 6%, with effect from the same date. The rediscount rateof coffee export bills of commercial banks was raised during the currentyear from 5 to 6%, the facility being provided ordinarily for a period of3 months.

3. The Commercial Bank of Ethiopia (CBE). Incorporated as a fullyGovernment-owned share company under the commercial code, the CommercialBank of Ethiopia had, as of December 31, 1969, share capital and reservesamounting to about E$41 million, deposits of about E$274 million and a loanportfolio of about E$228 million. Of the total loans, about E$90 millionwere for financing exports and imports; E$49 million for financing domestictrade, including movement of agricultural produce; E$44 million for finan-cing industrial activity; E$22 million for agricultural production; andE$23 million for financing building construction and other miscellaneousactivities. CBE does not generally advance medium- or long-term loans.

4. CBE's advances to coffee merchants stood at about E$8 millionas of November 30, 1971, of which some E$1.5 million were to coffee mer-chants in Kaffa Province and some E$0.9 million to coffee merchants inSidamo. As of the same date, CBE's advances to coffee exporters stoodat some E$31.9 million. The advances to coffee merchants for local trade

ANNEX 4Page 2

carried interest of 9-1/2% per annum, while those to exporters were at7-1/2%. CBE also makes advances for coffee production to cooperatives,at 8-1/2% interest, on the guarantee of the Agricultural and IndustrialDevelopment Bank which retains 1% margin.

5. CBE's net profits for 1969 amounted to about E$7.0 million and itsdividend was increased to 8% from the level of 7% it had been maintainingfor some years. As of the end of 1969, CBE had 5 regional offices, 6 payoffices and 62 branches, and a total staff of 1,292, of whom 66 belonged tothe managerial and senior supervisory cadre. CBE has 3 branch offices inthe project areas, at Jimma (Kaffa Province) and at Awasa and Dilla (SidamoProvince).

6. The Addis Ababa Bank. Established in 1964 as a share company,the Addis Ababa Bank has a paid-up share capital of E$5 million, of which40% is held bv the National and Grindlays Bank Ltd., and the rest by indi-viduals. The net earnings after tax in 1969 amounted to about E$0.8 mil-lion, out of which a dividend of 7.5% was paid. Management is vested in aBoard of eight directors of whom two are representatives of the Nationaland rrindlays Bank. At the end of December 1969, the Addis Ababa Bank hada staff of 276 and 15 branch offices, one of which was in the project areaal: Jimma (Kaffa Province).

7. As of December 31, 1969, reserves amounted to some ESl.l million,deposits to some ES37.2 million and loans and advances to some ES25.3 mil-lion. Some 9% of these loans and advances were for agriculture, 41% forindustry, 24% for local trade and the rest for building construction andother miscellaneous activities. Loans to coffee merchants as of November3fl, 1971 amounted to some E$3.7 million, mostly in the project areas. Loansto coffee exporters amounted to some E$7.0 million as of the same date.Advances to merchants and growers carried interest of 9-1/2% per annum,while those to exporters were at 8 or 9-1/2%, the lower rate being chargedwhen the bills were rediscounted with the National Bank of Ethiopia.

8. The Banco di Roma. Established in 1967 as a share company, thisbank is the successor to the branch office of the Banco di Roma (Italy),which had been operating in Asmara since before World War II. The Banco hasa share capital of E$4.0 million and reserves of about ESO.5 million. Itsdeposits as of December 31, 1969 amounted to some EA36.3 million and loansand advances to some E$32.2 million. As of November 30, 1971, the Bancohad some E$1.2 million outstanding with coffee merchants in Addis Ababa.No financing is currently being done in the project areas, as there are nobranch offices in either Kaffa or Sidamo Province.

9. Neither of two other credit institutions in Ethiopia - thepr:Lvately-owned Banco di Napoli and the state-owned Mortgage Company ofEthiopia - make advances for agricultural purposes.

ANNEX 4Page 3

The Agricultural and Industrial Development Bank (AIDB)

10. AIDB was established by Imperial decree dated August 28, 1970 asa share company under the Commercial Code of Ethiopia, basically by mergingthe state-owmed Development Bank of Ethiopia (nRE) and the EthiopianInvestment Corporation (EIC). ATDB's initial paid-up capital was E$50,000,which was subsequently raised to F$35 million after completion of thevaluation of its loan and equity portfolio inherited from DBE, EIC andthe MIinistry of Finance. Its sole shareholders are the Imperial EthiopianGovernment or its representatives.

11. AIDB's constitution provides for a Board of not less than five, normore than seven members. There are currently six members, headed by theMlinister of Finance; the other members are the Minister of Agriculture,the '!inister of Commerce and Industry, the Minister in charge of the PlanningCommission, the Governor of the National Bank of Ethiopia and AIDB's ManagingDirector. At a future date it is IEG's intention to appoint to the Boardrepresentatives of commercial banking and the private sector.

12. Loan applications are considered by a staff loan committee. Loansinvolving less than E$5nO,000 in a single project are approved by theManaging Director, except that the Board is informed of any differencesbetween the loan committee recommendations and the Managing Director'sdecisions.

13. AIDB's Board has issued, in August 1971, a Statement of GeneralPolicy which provides a generally sound basis for project financing. ThisStatement requires that AIDB shows a profit from its operations, aftercovering operating costs and making provision for reserves; that it keepsa satisfactory balance between the maturities of its own obligations andthose of the loans which it makes to borrowers; and that its debt/equityratio should not exceed 3:1. The Statement allows AIDB to increase itscapital by selling its equity investments in other companies and toencourage the growth of the share market in Ethiopia. Provided they areeconomically and financially sound, AIDB is permitted to participate in thefinancing of both private and public projects in the agricultural and indus-trial sectors by making equity investments and short- and long-term loansor by acting as guarantor.

14. The Statement of General Policy provides guidance on the terms ofAIDB's lending. In general, AIDB provides about 50% of the cost of theproject being financed, including up to a 30% share in the equity; lendson terms up to 1n years; requires procurement by international competitivebidding, wherever appropriate; and does not disburse any funds until aftersignature of a satisfactory loan agreement. AIDB's short-term (up to oneyear maturity) lending rate is in the range of 9-11%, currently at thelower figure. Its longer term lending rate is 8-1/2%. While this latterrate is 1% higher than that charged by its predecessor institutions, it isstill lower than that charged by local commercial banks, i.e. about 9-1/2%.The general level of interest rates charged by AIDB is a matter under

ANNEX 4Page 4

review in the context of the proposed AIDB project. In the meantime, forlending under the coffee processing project, AIDB proposes to charge a ratenot lower than 9-1/2%, but not greater than 127.

15. By August 1971, AIDB had recruited some 90 staff members, abouthalf of them professionals. This staff is generally well qualified buthas only limited previous banking and investment experience. This deficiencyhas been recognized and efforts are being made to overcome it. In particular,AI'DB intends to recruit a small number of senior advisers from abroad.

16. AIDB is divided into four main Departments, Agriculture, Industry,Finance and Banking and Evaluation and Research. Although it inherited 9branch offices from DBE, only 2 of these are presently functioning, mainlyto facilitate collections and project supervision. Lending under the coffeeprocessing project would be handled by the Agriculture Department, whichhad 22 graduate staff in August 1971. It is divided into two divisions,one for appraisal and the other for supervision and follow-up.

17. At the end of its 1970/71 financial year (July 7, 1971), AIDB hadapproved 150 loans for a total of E$16 million, of which 136 (ES13.2million) xere for agriculture, mostly to commercial farmers. As of December10, 1971, AIDB's coffee loan portfolio was as follows:

Short term Medium term Long term Total(less than (1-4 years) (over 4

1 year) years)…----------------…E$'000…--…-------------

Acl:ive loans taken over fromt:he Development Bank ofEthiopia: 70 168 424 662

Act:ive loans taken over fromt:he Ethiopian Investment(Corporation: - 8 - 8

Loan commitments by AIDB:- disbursed: 304 40 - 344- undisbursed: 88 - 50 138

462 216 474 1,152

Inactive loans and loans at court: 2,272

Total portfolio: 3,424

18. AIDB's provisional balance sheet at the end of its firstfiscal year (July 7, 1971) and its income and expenditure statement forthat initial operating period are summarized in the Tables of this Annex.

December 22, 1971

EO'LITOPIA

COFFEE P.iOCESSING PZiOJECT

AGRH&CULTIRAL AND INDUSTRIAL DEVELOPMENT 3ANK (AIDB)

Provisional Balance Sheet as of July 7, 1971,$ mi llion)

ASSETS LIABILITIES

Cash and Balance with banks 1.87 Current Liabilities 2.89

IEG Treasury Bills 2.45

Bills and notes receivable 2.4? Deposits 7.07

Accounts Receivable and Prepayments 0.68

Stocks and on hand 0.74 Guarantees, Acceptance & Lettersof Credit issued as Der contra 6.79

Loans 49.04Less provisions 12.70 36.34

Long-term loans 17.83Guarantees, Acceptance &letters of Credit issued 6.78

Less provisions 2.83 3.55Ministry of Finance 10.79

Investments 4^.28Less provisions 12.81 30.47

chare Capital 35.00

Government Bonds 1.03(DJ

Fixed Assets 1.50 Reserves and Retained earnings 1.09 H

81.406 81.46

December 22, 1971

ANNEX 4Table 2

ETHIOPIA


AGRICULTURAL AND INDUSTRIAL DEVELOPMENT SANK (AIDB)

Profit and Loss Statement (Aug. 28, 1970 - July 7, 197l)(E$ Million)

INCOME

Interest earned 2.lyLess: Interest Expenses o.84

Net Interest Income 1.75Service Charges 0.07Dividends 0.27Profits from Farm Operations 0.13Sundry Income 0.08 1.90

EXPENSES

Staff' Service 0.75Office Overheads 0.23Sundry Expenses 0.12Fees 0.04Auditors' emoluments 0.01Depreciation 0.04 1.19

Profit before tax 0.71

Taxation 0.07

Profit after tax o.64

Add: Profit of Ethiopian InvestmentCorporation less taxation 0.57

Profit of Ceres Co. Ltd. - 0.57

1.21

Deduct: Transfer to legal reserve 0.07Capital registration fees 0.12 0.19

Retained profits 1.02

December 22, 1971

A'IVCIPIA

COFFEE PROCESSINUK PP.OJECT

Phasing

1972/73 1973/74 1974/75 1975/7 TotalsA. Sidamo Cooperative Sub-Project

1. iioad ConstructionFeeder roads (km) 90 110 - - 200Factory access roads (km) 35 65 - 100

2. Washing Station ConstructionSites connected to road network 29 41 - - 70Sites on which construction would start during year 25 35 10 - 70Stations completed during year 15 35 20 - 70Cumulative no. of stations in operation - 15 50 70

3. Sidamo Private Sector Sub-ProjectStations rebuilt during year 5 15 10 - 30Lesser modifications effected 20 35 15 - 70Cumulative no. of rebuilt stations in operation - 5 20 30

C. Kaffa Cooperative Sub-ProjectStations constructed during year 2 12 6 - 20Cumulative no. of stations in operation - 2 14 20Feeder roads constructed (km) 10 30 - - 40Factory access roads constructed (km) 6 36 18 - 60

D. Kaffa Estates Sub-ProjectStations constructed during year 1 6 3 - 10Cumulative no. of stations in operation - 1 7 10

ANNEX 6Page 1

ETIHIOPIA

COFFEE pRnCESSITN PROJECT

Road Design Standards and Construction Methods

Introduction

1. The project calls for the construction of loops of feeder roadsinto the interior of the coffee-growing areas of the Sidamo and DeressaAwqralas of Sidamo Province, to which prospective washing station siteswould be linked by short stretches of factory access roads. In the Jimmaand Limmu Aw-rajas of Kaffa Province, it calls for the up-grading of severalshort sections of existing feeder roads and the linkina of pros,pectivewashing station sites to these up-graded roads or to existing feeder roadswhich are already of a satisfactory standard. These roads are necessary tobring processing machinery to the washing station sites and to allow sub-sequent extraction of parchment coffee. The tentatively identified align-ments of the roads to be constructed or up-graded under the project areshown in Maps 2 (Sidamo) and 3 (Kaffa). The total lengths of roads are asfollows-

Sidamo Province: about 200 km of feeder roads and 100km of access roads.

Kaffa Province: about 40 km of feeder roads and 60 kmof access roads.

The proposed phasing of this road construction is indicated in Annex 5.

2. As described below in more detail, it is proposed that thesefeeder and factory access roads be constructed only to dry-weather stan-dards initially. The Imperial Highway Authority (IHA) does not currentlyconstruct roads of this type, confining itself to the construction and main-tenance of all-weather and trunk roads. Local administrations haveneither the staff, equipment or experience necessary to construct the roadsin the time available. Local contractors would not be suitable forconstructing the roads called for in the Sidamo Province since the natureof that part of the construction program would call for the letting of, atmost, 2 large contracts, for which they do not have sufficient experience.On the other hand, the contracts would be too small to attract contractorsfrom overseas. It is, therefore, proposed that the Sidamo road construction,other than the construction of river crossings, would be carried out by a"oads Development Section to be set up specifically for th-ts purpose withinthe Project Implementation tJnit (PITT),

ANNEX 6Page 2

3. Nevertheless, it is in the general interest of developing con-tractual capability in Ethiopia for as much of the road construction pro-gram as possible to be put out to contractors. The road construction pro-gram for Kaffa Province lends itself to this more readily than that forSidamo. For the Kaffa program calls for a large number of short stretchesof road (see para 1 and Map 3), each of which should be within the capabil-ity of local contractors using existing expertise and equipment. Localcontractors would, therefore, be used for all road up-grading and construc-tion work under the project in the Kaffa Province, under the supervision ofPIIJ's Roads Development Section. They would also be used for constructingall river crossings, in both Sidamo and Kaffa Provinces. However, shouldlocal contractors prove inadequate or too expensive, the Roads Developm2ntSection could be expanded to carry out the work presently proposed for thosecontractors.

Background Information

4. Detailed maps of the project areas are not available but an exam-ination of photo-mosaics of the Sidamo area (which formed the basis forMap 2) shows the topography to be hilly, with many intersecting streamsflowing mainly in an east to west direction. The topography appears tobecome steeper and hillier in the easterly and southerly extremities ofthe area. Visual observation of the topography in the Kaffa project areainclicates its similarity in most respects to the Sidamo project area. Thegeeneral land form in both areas appears to present a reasonable network ofricdges on which the feeder roads would be constructed. The washing stationaccess roads would lead down from these ridges to station sites near, butnot: on, river banks.

5. The vegetation cover in the project areas is mainly coffee, withscattered indigenous forest trees left to provide shade for the coffee.None of the project areas appear to present any difficulties for the clear-ing necessary for road construction.

6. The soils in the coffee areas are mainly red clay loams whichare deep and well-drained. An examination of existing dry-weather roadsin the area indicated that these red soils are relatively well-suited todrY weather road construction and provide adequate bearing strengths. Insome of the Sidamo areas, however, these red soils are underlaid by a softsandstone-like formation which could be easily broken; this material is un-suitable for surfacing because of its deterioration when exposed to water.

7. Rainfall in the project areas is in the range of 1,300 mm to2,000 mm per annum. This rainfall is distributed over most of the year,with monthly minimums in November/December (the principal period of use ofthe roads for extracting the washed coffee) and maximums in August/September.IHA and local contractors indicate that the normal construction period isabout 8-9 months per annum, starting about October 1. All the estimatesmacle in this report are based on this restricted construction season.

ANNEX 6Page 3

Design Standards

8. The roads to be constructed under the project are basically re-quired to move washed coffee from washing stations to the existing trunkroad network from where it can be sent to Addis Ababa, ports and then over-seas. The vehicles generally used for this purpose are 10-ton trucks.The harvesting season begins towards the end of September and goes onthrough the dry season, October/January. Washing stations are to beequipped with suitable storage facilities so that initial throughput canbe kept at the station until roads are dry. The project roads would, there-fore, be built only to dry-weather standards initially. It must be ex-pected, however, that these roads, particularly the feeder road loops,would be subjected to increasing traffic loads resulting from additionalagricultural and other developments which would probably follow within thenewly accessible areas. It is, therefore, proposed to construct thefeeder roads, in anticipation of this development, to the standards recent-ly suggested in a UNDM study for uniform adoption in Ethiopia, namely;

Roadway width -- 5.5 metersDitch depth -- 1 meterClearing width -- 20 metersMaximum gradient -- 12 percent

Roads of this standard could readily be up-graded to all-weather feederroads by the later addition of surfacing material over a 4-meter width ofthe roadway.

9. Traffic on the short, 1.5 km access roads linking the washingstation sites to the feeder road loops would generally be limited to initialdelivery of processing machinery and, subsequently, to about 12-15 10-tontruck loads of coffee each year, with minor traffic for servicing, includingsupervision of station operation. These roads would, therefore, be construc-ted to absolute minimum dry weather standards:

Roadway width -- 4.5 metersDitch depth -- 60 centimetersClearing width -- 10 meters (minimum)Maximum gradient -- 14%

(In practice, this means a bulldozed track, following ground profile butprovided with drainage ditches and crowning for the roadway surface.)

Construction Technique

10. For feeder roads of the proposed standards, it would not be ap-propriate to go through a detailed design stage. Alignments and profilelevels would be determined as indicated in the following paragraph, whichwould then be followed by construction gangs applying the proposed designstandards as they go.

ANNEX 6Page 4

11. A survey crew would survey a center line to assure the most effi-cienit alignment and correct location, following an initial helicopter survey.These surveys would be undertaken with a transit and chain, with the centerline marked by means of stakes at a maximum of 30-meter intervals. Clearinglines would be marked at 10 meters on either side of the center lines. Pro-file levels would only be required where indicated by topographic conditionsor critical grade lines. During the initial construction stages, however,it rnay be desirable for the survey crew to establish construction slopestakes to acquaint construction crews with the road standards required.

12. Following this initial control survey, the road gradients andstandards would be judged and maintained by the construction supervisor,who would need to be experienced in constructing roads in this manner.The feeder roads would be located on well-defined ridges and would general-ly follow the contour of the ground, thus keeping requirements for largeembankments or excavations to an absolute minimum. With no haulage offill material required, all basic construction work could be accomplishedwith, bulldozers. The following construction techniques would probably befollowed:

(a) The road right-of-way, 10 meters wide on either side ofthe surveyed center lines, would be cleared of all treesand bushes by use of bulldozers and hand labor as required.

(b) Vegetation and topsoil would be stripped from an area ap-proximately 7 meters either side of the center line andabout 20 centimeters deep, and wasted to the side of theright-of-way.

(c) Ditches would be excavated, and the excavated materialsused for an elevated road embankment, to form road cross-sections to the required standards.

(d) The embankment would be shaped and compacted to designstandards.

(e) Small bridges and minor drainage structures would be con-structed and/or installed, as required.

This method of construction in the project area should present no seriousproblems.

Construction Organization

13. As indicated in paragraphs 2 and 3, the Roads Development Sectionof the PIU (Annex 8) would be responsible for planning, design and construc-tion of all roads envisaged under the project. It would actually carry outthe construction of the roadway for the Sidamo areas, and would superviselocal contractors in the construction of the roadway for the Kaffa areasand of river crossings in all areas. The Roads Development Section wouldbe headed by a Senior Roads Engineer, assisted by a Roads Engineer.

ANNEX 6Page 5

14. All surveying needed for the project would be carried out by twosurvey teams within the Roads Development Section. Each team would consistof a surveyor, assisted by about 5 laborers, and would be equipped withsurvev equipment and a 6-passenger, 4-wheel drive vehicle.

15. Construction of the Sidamo road network would be carried out bythree construction units within the Roads Development Section. Two ofthese units would carry out basic construction, each self-contained andwith a capability of constructing about 50 km of feeder roads and 25 km ofaccess roads in each 8-9 month construction season. Each of these unitswould be headed by an experienced road construction supervisor, assisted byvehicle operators, a mechanic, a gang leader, laborers and camp helpers.They would each be equipped with three 125 hp bulldozers (one of which wouldhave a ripper attachment); one 125 hp motor grader; one 10-ton capacityself-powered pneumatic compactor; one 6-8 cu yd capacity dump truck; onemobile workshop trailer; one 20,000 liter capacity trailer-mounted fueltank; two 10-pnssenger 4-wheel drive vehicles; tentage; explosives; androck equipment. The third unit would carry out miscellaneous work, suchas factory site clearing, culvert construction and road maintenance duringthe construction period. It would be equipped with a bulldozer, a motorgrader and a dump truck.

16. The construction units would be backed up by a permanent workshop;-14 m 4r'kq tr n s.4table equipment), a 25-ton capacity low-loader and astock of spare parts (the initial purchase of which would represent about107 of the original value of the construction machinery itself). A mechan-ical Superintendent would be appointed to devise and supervise a preventivemaintenance program for the construction equipment, and to supervise theworkshop and parts warehousing. Four-wheel drive personnel-carrying ve-hicles would be provided for the Senior Roads Engineer and the MechanicalSuperintendent.

17. Local contractors in Kaffa Province would be supervised throughperiodic visits to that area by the Senior Roads Engineer or the RoadsEngineer. They would be assisted by an experienced road construction su-pervisor permanently stationed in Jimma, who would be provided with a4-wheel drive vehicle.

18. It is likely that the Senior Roads Engineer and the MechanicalSuperintendent would have to be recruited abroad. All other staff couldprobably be located within Ethiopia. IHA would assist the PIU in selectingthe expatriate and local technical staff, some of whom might be temporarilyseconded from THA. IlA would also assist the Senior Roads Engineer infinalizing the staff and equipment requirements for the Roads DevelopmentSection, in drawing up the contract documents for the purchase of roadconstruction equipment and in determining the road design standards to beapplied.

Cost E;stimates

19. The costs of constructing the roads in the Sidamo Province areshown in detail in Table 1 to this Annex, with some supplementary data in

ANNEX 6Page 6

Tables 2 and 3. Capital and operating costs of equipment were derivedfrom information supplied by local equipment dealers, with an allowance forprice increases averaging 5% per annum. In addition, the number of hoursthat equipment wqould need to be utilized assumes the need for reserve capa-c:Lty, and a physical contingency of some 15% has been added. Taking intoaccount the residual value of road construction machinery and equipmentoni completion of the project, the total cost of constructing these roadsis estimated to be E$2.0 million (US$0.9 million), or about E$6,500(IJS$2,800) per km, which is reasonable.

2(0. The cost of constructing roads in Kaffa Province would be some-what higher because of contractors' profits and the piecemeal nature ofconstruction there. Based on sample quotations from prospective local con-tractors, it is estimated that feeder roads would cost some E$9,800(US$4,300) per km, and washing station access roads some E$5,400 (US$2,300)per km, to which must be added an average of about ES440 (US$200) per kmfor river crossings 1/.

Mbaintenance

21. During the construction period, the Sidamo roads would be main-tained by PIU's Roads Development Section (para 15). Thereafter, roadmaintenance arrangements would depend on whether the present project wouldbe extended -- which would seem to be a high probability. In that case,maintenance would continue to be carried out by PIU through the extendedconstruction period. If no further construction would be done, road mainte-nance could either remain with PIU (the costs of which could be reimbursedby IEC grant) or by the local administration. In either case, residualmachinery from the present project would probably be used. Assurances havebeen obtained during negotiations that project roads would at all times beproperly maintained; and that, on completion of the project, PIU woulduse or dispose of the road construction vehicles, machinery and equipmentin accordance with a plan mutually acceptable to IFr, and IDA.

December 22, 1971

1/ For comparison purposes, it may be noted that by weighting these costsin proportion to the lengths of road proposed for the Sidamo area --200 km of feeder roads and 100 km of access roads -- the average costwould be about E$8,500 (US$3,700) per km.

AdNEX 6Table

ETHIOPIA


Road Construction Costs (Sid4ao Cooperative Sub-Project)(in E5'OOOI

1971/72 1972/73 1973/74 1974/75 Total Foreign Import Residual ValuesErchange Duty Total ImportComponent Component Duty

A. Machinery and Equipment /

7 x 125 h.p. bull-dozers - 715 _ _ 715 633 5 5643 o 125 h.p. motor-graders - 270 - _ 270 243 - 214 -3 x 6-8 cu. yd. dump-trucks - 126 - 126 90 23 102 192 c Compactor - 66 _ _ 66 59 - 53 -4 o4 wheel drive (10 passenger) - 68 _ - 68 37 24 55 195 o 4 wheel drive (5 passenger) 28 42 - - 70 38 25 57 201 x 25-toe low-loader - 96 _ _ 96 71 15 87 132 x worikhop trailers - 24 - - 24 22 - 12 -Equipment for workshop trailers - 24 _ _ 24 22 12 -2 x 20,000 1-liter fuel tanks _ 30 - - 30 27 - 15Equipment for main workshop - 100 _ _ 100 90 - 50Tentage _ 6 - _ 6 5 -Survey equipment 7 7 - - 14 12Excplosives - 8 7 - 15 14 - - -

Sub-total 35 1,582 7 - 1,624 1,363 87 1,221 71Spare parts j/ - i62 82 - 244 220 - -Workshoh building - 40 - - 40 8 - 32 -

Sub--otal 35 1,784 89 _ 1,908 1,591 87 1,253 71Zontionenci ee (. O) 1 356 18 - 382 318 17 250 14

T'otal 4' ,14o 107 - 2,290 1,909 104 1,503 85

Other (Botto 1/

'ainrie- .oo Wa,e 3/ 45 232 232 - 507 187Machinery operatingf coto 4/ 2 183 18 368 246Helicopter Sunny '2/ 3 - - 5 4Fridgeo and crossings h/ - 72 88 - 16o 36

Sub-total 47 490 503 - 1,o4o 473Contingencies (209) 10 98 100 _ 208 94

Total -'7 588 603 _ 1,248 567

Grand Total 100 2,728 710 - 3 ,538 2 ,476

Deduct: Import Coty Component 12 93 - - 105Residual Values (less Import

Duty Component) - - - 1,418 1,418Costs allocated to Kaffa

Sub-Project j - 39 23 - 62

Economic Costs for SidamoSub-Project 88 1,596 687 (2,418) 1,953

i/ Secludes futl cost of surcey for, and supervision of, the road construction program for the Kaffa Sub-Project,which will be carried out by the PIU on behalf of IE;. The amount involved (some R$62,000)

has been deducted from these costs in the economic analysis.J 10 of the total cost of machinery and equipment in 1971/72, and a further 5, in 1972/73,3/ See -able 2 of this Annex for further details./ See Table 3 of thin Anne. for further details.j/ Cost of hiring helicopter and pilot for 40 hours at E$130/hr.t/ Conatruoted by contractors: 11 bridges at E$12,000 ach and 93 crossings at E9300 each.

See footnote 1/ above.

ETHIOPIA


Road Conatruction Coats; Sidamo Cooperative Sub-ProJect

(in E$'OOO)

Annual 1971/72 1972/73 1973/74 Total Foreign

Unit Exchange

Cost Component

Salaries and Wages (other than vehicle operators)

1 senior engineer I/ 6o 30 60 60 150 112

1 mechanical superintendent 50 - 50 50 100 75

1 assistant senior engineer j 16 8 16 16 40 -

2 unit supervisors (Sidamo) 12 - 24 24 48 _

1 unit supervisor (Kaffa) 12 - 6 6 12 -

2 gang leaders 4.5 - 9 9 18 -

3 mechanics 9 - 27 27 54 -

2 surveyors 6 3 12 12 27 -

30 laborers (construction) o.6 - 18 18 36 -

10 laborers (surveyors) o 0.6 2 6 6 14 -

6 camp helpers o.6 - 4 4 8 -

TOTAL - 43 232 232 507 187

j Will also be in charge of supervising Kaffa Sub-project roads.

/ Will also carry out survey of Kaffa Sub-project roads.

.1t I9'3

ETHIOPIA


Road Construction Costs: Sidamo Cooperative Sub-Project(in E$'000)

1971/72 1972/73 1973/74 Total ForeignExchangeComponent

Machinery Operating Costs

7 x Dozers 2/ 83 83 166 1063 x Motor graders 3/ -40 40 80 543 x Dumpers 4/ 14 14 28 192 x Compactors 5/ 1 22 22 44 279 x 4-wheel drive passenger vehicles 6/ 2 19 19 40 341 x low-loader 7/ - 3 3 6 4

Rock equipnent 8/ - 2 2 4 2

TOTAL 2 183 183 368 246

1/ Excluding spare parts.2/ 1,080 hrs/yrAnit at E$11.00/hr; of which fuel and oils E$8/hr and labor E$3/hr.3/ 1,080 hrs/yr/unit at E$12.30/hr; of which tyres E$1.30/hr, cutting edges E$0.20/hr, fuel and oils E$7.80/hr

and labor E$3/hr.4/ 500 hrs/yr/unit at E$9/hr; of which tyres E$1/hr. fuels and oil E$6/hr and labor E$2/hr.3/ 1,080 hrs/yr/unit at E$10/hr; of which tyres E$l/hr, fuels and oil E$6/hr and labor E$3/hr.3/ 500 hrs/yr/unit in 1972/73 and 73/74 at E$4.20/hr; of which tyres E$0.20/hr and fuels and oil E$4/hr. In C <

1971/72 two vehicles will be used for 250 hours each. ON

7/ 250 hrs/yr at E$11/hr; of which tyres E$3/hr, fuels and oil E$6/hr and labor E$2/hr./ Includes local hiring charge; rock equipment is available locally and none will be purchased specifically

for the project.

ANNEX 7Page 1

ETHIOPIA


Typical Washing Station

Introduction

1. A general description of the washing process has been given inAnnex 1.

2. Each washiing station to be constructed under the project would beable to process, at full production, about 600 tons of ripe cherry per annuminto some 120 tons of parchment coffee, equivalent to 100 tons of clean coffeeor green beans. (lHereafter, all weights refer to clean coffee equivalentunless otherwise stated.) This capacity would be reached in the secondyear for washing stations in the Sidamo Private Sector, Kaffa Estates andKaffa Cooperative Sub-projects, since their crop supply is assured; but, forthe first year, throughput is assumed at 80 tons to allow for teething problemsand inexperienced staff. For the Sidamo Cooperative Sub-project, where mostcrop would come from farmers who have not previously delivered coffee forwashing because of transport restrictions, it is assumed that only a 40 tonsthrougihput would be achieved in the first year, with 80 tons in the secondyear and 100 tons thereafter.

3. Harvesting of ripe cherry takes place over a period of four months,from September to December, the main crop being harvested in October and No-vember. The main rains continue through September and into early October,after which dry weather is normally experienced. The expected deliveriesof coffee through the season to each washing station would be about as fol-lows 1/:

September October November December

Tons 20-25 35-40 30 10

The typical washing station to be constructed under the project, which isdescribed in detail below, would be capable of producing some 40 tons ofclean coffee equivalent in a 25-day pulping period, with maximum daily intakeof 10 tons of ripe cherry (tlhe equivalent of about 1.6 tons of clean coffee).The proposed design is based on improved washing stations in use in Kenya,with modifications for Ethiopian conditions made as a result of observationsof existing stations in Ethiopia and of experiments by the Jimma Coffee Re-search Station.

1/ These estimates are based on each washing station serving an area fromwhich all coffee is delivered for washing, as ought to be the case forall sub-projects except Sidamo Cooperative sub-project. In this lattercase, with a "catchment area" of a larger size, it is possible thatthroughput could be kept nearer the October figures for other months.

ANNEX 7Page 2

Design and Operation of Principal Items

4. Farmers would bring their cherry to a Reception Area -- a 5x5meter roofed concrete area, equipped witlh a spring balance -- whlere cherrywould be examined, sorted and stacked pending processing. Green unripe, andover-ripe cherry would be rejected. No more ripe cherry would be acceptedthan could be processed the same day.

5. Accepted cherry would then be placed in a syphon tank filled withwater. Cherries which float in this tank ("floaters") are inferior -- amix of diseased or insect-attacked beans, plus some cherry containing onlyone cherry bean instead of the normal two -- and are processed separately.The remaining cherries are carried hydraulically into the pulping shed -- asimple structure with concrete floor, corrugated iron roof and open sides --where the station's machinery is housed. The cherries would first passthrough a 3-disc pulper, where the outer skin and most of the pulp is re-moved as the cherries are forced to pass between the revolving pulper discsand fixed knife edges. (The pulper is a straightforward piece of machinerybut the accurate setting of the distance between the pulper discs and theknLfe edges needs some experience and is crucial to efficient operation.This setting would be one of the principal tasks for the technical super-visory services.)

6. The pulp is carried away hydraulically along a channel linking thepu:Lping shed to a pulp pit. This pit must not be too near the edge of theriver, which is the source of water for this and other washing stations,in order to avoid pollution; and it must be some distance away from thepulping shed (to avoid any odors coming from its decomposition tainting thecol-fee being processed) in a downhill direction (since otherwise unpressur-ized hydraulic means of carrying pulp to the pit could not be used). Thepulp makes a useful mulch for coffee trees and other crops and is widelyused by farmers in Kenya coffee growing areas, for example. With the gen-erally low standards of cultivation in the project area, a considerableside benefit to the project might be achieved if local farmers could bepersuaded to make proper use of this pulp. But so far, in areas wherewashing is already going on, no use is made of it.

7. The de-pulped cherries, with some skins and whole cherries whlichinevitably get through the pulper, are then passed into a mechanical/hy-draulic pre-grader, which separates heavy coffee from the whole cherries,lighter coffee ("lights") and skins. All but the heavy coffee are thenpassed through a re-passer, which is, in effect, a 1-disc pulper.

8. The good coffee -- which is now in the form of individual coffeebea,ns covered with a thin layer of mucilage -- is passed into concretefermenting tanks. The coffee stays in these tanks for up to about 3 dayswhile the mucilage is broken down by fermentation. Two tanks --about 0.90 mdeep, 3.00 m long and 1.50 m wide -- would be required for each day's

ANNEX 7Page 3

production, so that 6 such tanks would be required in all for the goodcoffee. The second-grade coffee -- "floaters" and lights" --would befermented separately, for which 3 smaller tanks would be required, eachabout 0.90 m by 3.00 m by 0.75 m.

9. Once fermented, the coffee would pass into a concrete washingchannel where the broken-down mucilage is readily washed off with water.The coffee is then placed in drying trays and set out in the sun for anaverage period of about 7 days. Each day's production would need about 100trays so that each station would need to have about 800, allowing for asmall excess drying capacity. These trays consist of a wooden frame witha mesh-wire bottom, cover about 2 m2 eachl and can adequately hold about20 kg of parcliment coffee. For drying, they are placed out on woodentressels. Whenever it rains, these trays are placed in piles of about 10,with the top tray covered with a piece of corrugated iron, some 30 of whichwould be needed for this purpose for each washing station.

10. The coffee should be dried to about 10% moisture content. Eachstation would, therefore, be equipped with a small hand-huller, whichwould remove the parchment from small samples to produce clean coffee, anda inoisture meter, which can be used only on clean coffee.

11. Each washing station would also be provided with a store with aconcrete base and corrugated iron roof, sufficient to store about 60 tons ofparchment coffee (i.e., half the anticipated seasonal production), sincethe access roads may not be passable by the 10-ton trucks that would beused to transport the parchment coffee to Addis Ababa, until early October,normally, and sometimes later than that. The store would be equipped witha platform scale.

Ancillary Items

12. A 6 hp diesel engine would be provided to run the pulper, pre-grader and re-passer. It would also run a 2.3 kilowatt generator for thestation's lighting installation, since pulping of the proposed daily through-put could not be completed in daylight, and there is no public electricitysupply to washing station sites.

13. Adequate water supply is essential for the washing process, upto 20,000 liters per hour being required at peak times. Water would bebrought to the station by an earth furrow and gravity fed through the sta-tion. A header tank of 22,500 liters would be provided, In some cases,however, it may prove impossible to choose a site which allows this gravityfeed while, at the same time, permitting gravity disposal of pulp (para 6);and a pump and engine would need to be installed.

14. A small office building would be Provided, equipped with simpleoffice furniture and equipment, including a small safe since farmers wouldneed to be paid for their crop in cash as it was delivered.

ANNEX 7Page 4

Cost Estimates

15. The capital cost of a typical washing station to be constructedunder the project is estimated to be some E$58,000, including some E$1O,000worth of machinery. Piping, drying trays and support tressels would have tobe replaced about once every five years, at a cost of some E$11,000. Ma-chinery, electrical wiring and sundry equipment would have to be replacedabout once every ten years, at a cost of some E$18,000. The buildings andwater supply should have a 20-year life. Further details are given inTable 1.

16. Table 2 shows estimated operating costs for a washing stationwithin the Sidamo Cooperative Sub-project. This assumes that most account-ing work and technical supervision would be provided by PIU headquarters,but that the individual station would be responsible for maintaining itsstretch of factory access road. Operating costs for the other sub-projectswould be somewhat higher, as detailed in the relevant financial and economicanalysis Annexes, because overhead expenses have to be included.

December 13, 1971

ANNE 7

E T H I O P I A


Capital Cost of Model Washing Station

(Annual Capacity: 100 MT)

Total Cost Foreign Exchange EconomicCaponent Life

(Amount) i (,) (years)

A. FACTORY BUILDING ------------------- E$-------------

Reception area 500 125 25 20Sypbon tank 1,000 250 25 20Pulping shed 2,000 500 25 20Pulp channel & pulp pit 2,000 500 25 20Fermenting tanks, 9 units 5,000 1,250 25 20Washing channel, collecting tank 3,000 750 25 20Effluent channels & seepage pits 1,500 375 25 20

Sub-total 15,000 3,750 25

B. FACTORY EQUIH6ET

Pulper - 3 discs 3,700 3,330 90 10Pregrader 2,800 2,520 90 10Repasser 800 720 90 10Diesel engine, 6 h.p. 1,200 1,080 go 10Alternator, 2.3 kw 600 540 90 10Wiring & lighting 300 270 90 10InternMa piping, gutter, draining plates 1,800 1,620 go 10Plastic pipes & tools 700 630 90 5Installation 1,000 250 25 10

Sub-total 12,900 10,960 85

C. WATER SUPPLY

Furrow - 600 m 300 - - 20Headertank, 22500 liters 500 150 30 20External piping 300 270 90 20Sundries 900 450 50 20

Sub-total 2,000 870 44

D. DRYING APEA

800 trays at E$10 8,000 6,40o 80 5Wooden supports 1,200 - - 5Corrugated iron sheets - 80 300 270 90 10Perimeter fence 1,200 600 50 10

Sub-total 10,700 7,270 68

E. OTHER BUILDI3GS

Office 1,000 4oo 40 20Main store 8,oOO 3,200 40 20Bag store 400 160. 4O 20

Sub-total 9,400 3,760 40

F. SUNDRY EQUIRdENT

Spring balance (reception) 100 90 90 10Platform scales 300 270 90 10Safe & filing cabinet 800 720 90 10Office furniture 200 40 20 10Moisture meter, hand huller 1,200 1,080 90 10

Sub-total 2,600 2,200 85

TOTAL 52,600 28,810 55

Add Contingencies (10%) 5,300 2,890 55

57,900 31,700 55

Replancsent Requirements (incl. contingencies)

After 5 years 10,900 7,700 71After 10 years 17,900 14,800 82After 20 years 29,100 9,200 32

57,900 31,700 55

E'IHIOPIA


Operating Cost of Model W&BhiOg Station (Project Implementation Unit)

Year of Operation 1 2 3 Onwards

Crop throughput (MT of clean coffee equivalent) 40 80 100

A. Land Rent 600 600 600

B. Staff

Factory manager g 4,200 4,200 4,200Clerk 2/ 600 600 600Watchman 730 730 730Seasonal labor 2 2 1,800 3,600 4,500

7,330 9,130 10,030

C. Supplies

Fuel and oil 240 4 80 600Bags 400 800 1,000Stationery and postage 400 500 600Other 200 200 200

1,240 1,980 2,400

D. Services

Maintenance and repairs 4/ 500 1,000 1,250Factory access road maintenance 2/ 700 700 700

1,200 1,700 1,950

TOTAL 10,370 13,410 14,980

g Full time.E 120 days per annum only./ 12 laborers in Year 1; 24 in Year 2 and 30 in Year 3.

Eccluding major replacements considered as capital investments/ Average of 1.5 km/factory, at E$450/km per annum.

ANNEX 8Page 1

ETHIOPIA


The Project Implementation Unit (PIU)

A. Introduction

1. The Imperial Ethiopian Government (IEG) hopes that the cooperativemovement will be able eventually to assume responsibility for the 70 washingstations to be established along the roads which are to be constructed underthe project in the Sidamo and Deressa Awrajas of the Sidamo Province.However, in these two Awrajas, as elsewhere in Ethiopia, the cooperativemovement is new and undeveloped. There are three existing primary societiesin the coffee sector there, one of which runs its own hullery and washingstation and is doing quite well; the other two are still in the early stagesof their development and as yet only act as agents for their members formarketing and in obtaining the services of a private sector hullery. Itwould not be realistic to expect that adequately managed primary societiescould be formed in time to take over responsibility for the proposed 70washing stations as soon as they are built. An operationally independentunit of the National Coffee Board (NCB) - to be known as the Project Imple-mentation Unit (PIU) - would therefore be established with strong centralmanagement and control, to build and operate all 70 washing stations. Atthe same time, PIU would attempt to stimulate the formation of primarycooperative societies of coffee farmers. When such societies have beensufficiently developed, they would be encouraged to take over washingstations from PIU, whose central services they would continue to use formarketing, accotnting and technical advice, until a Cooperative Union ofsuch societies could be established to assume responsibility for thosecentral services as well.

2. In the absence of suitable alternative organizations, PIU wouldalso be used to carry out the road construction program in Sidamo Province,supervise road construction in Kaffa Province, provide technical servicesto all sub-projects (including the survey of existing private sectorwashing stations in Sidamo Province) and carry out the proposed preparationof follow-up projects.

3. As the NCB does not have the powers to engage in commercialactivities, PIU's establishment (by Resolution of the NCB Board) will haveto await Parliamentary approval of such powers, which will be sought at thesame time as Parliamentary ratification of the Development Credit Agreement.PIU's establishment, in a form satisfactory to IDA, would be a condition ofeffectiveness of the IDA credit.

ANNEX 8Page 2

B. Policy Guidance and Control

4. Overall policy guidance and control over PIU would be exercisedby the NCB Board, whose membership, powers and responsibility are describedin detail in the first five paragraphs of Annex 3.

5. Since NCB's Board cannot normally meet sufficiently frequently toprovide effective policy guidance and control over PIU during the projectconstruction period, the NCB resolution establishing PIU would also establishan Executive Committee of the NCB Board for this purpose. The ExecutiveCommittee would comprise one representative of each member of the NCBBoard - i.e. representatives of the Ministers of Commerce and Industry,Agriculture, Finance and Interior; of the President of the Addis AbabaChamber of Commerce; and of the Managing Director of the Agriculturaland Industrial Development Bank - as well as the Executive Secretary ofthe NCB itself and the Head of the Cooperative Department in the Ministryof National Community Development and Social Affairs.

6. As part of its overall policy guidance and control over PIU, theExecutive Committee would in particular:

(a) review the annual plans and budget of PIU for submission tothe NCB Board;

(b) acting upon the recommendations of PIU's chief executive andadministrative officer (the Project Manager), appoint ordismiss the chief officers of each of PIU's Sections (whichare described below);

(c) coordinate the activities of Ministries and Agencies participatingin the project;

(d) approve proposals from the Project Manager to incur financialobligations with a maturity longer than one year; to dispose ofany PIU washing station (including transfer to a cooperativesociety); or to initiate the construction of any washingstation.

7. The NCB would adopt by resolution a statement of PIU OperatingPolicies and Procedures which would provide the framework within which PIUwould operate, in particular in regards to the conditions under which PIUwould transfer its washing stations to the cooperative movement. The presentproposals in this regard have been briefly described in paragraph 5.06 ofthis report, but it is probable that considerable changes would have to beintroduced during the project in the light of actual experience in the pro-motion and development of the cooperative movement. If, for any washingstation, it should prove impractical to develop a suitable cooperative, IEGwould eventually be faced with the decision whether to allow PIU to contineits existence indefinitely as a self-financing government service agencyor to allow it to dispose of the washing station to the private sector. Thein:Ltial statement of PIU Operating Policies and Procedures would be adopted

ANNEX 8Page 3

in a form satisfactory to IDA as a condition of effectiveness of the IDAcredit; and assurances have been obtained during negotiations that anysubsequent changes would be subject to prior IDA approval.

8. In addition to the coordinatory functions given to the ExecutiveCommittee (see para 6(c) above), the Project Manager would be authorizedunder the resolution establishing PIU to appoint advisory committees inthe project areas, as he finds necessary. In this way, PIU will be able tokeep in close contact with the farmers in the Sidamo Cooperative Sub-projectarea prior to the formation of the cooperatives; with the local administra-tions; and with the project participants in the other sub-projects.

C. Day-to-Day Management and Operation

9. The resolution establishing PIU would provide for day-to-daymanagement to be exercised by a chief executive and administrative officer(Project Manager) responsible only to the NCB Board and, between meetingsof that Board, to the Executive Committee. The Project Manager would bea highly qualified and experienced officer capable of overseeing anintegrated washing station and road construction program and the stimulationof cooperative development at the farmer level.

10. Under the Project Manager would come four operating sections andthe project preparation team, each of which is described further below. Anorganizational diagram is shown in Chart 1 to this Annex.

11. Coffee Development Section. This Section would be primarily res-ponsible for designing, constructing (with local contractor assistance) andoperating the 70 washing stations and the experimental drier to be ownedinitially by PIU; and for training operating staff. It would also carry outthe survey of existing private sector washing stations in Sidamo Province,assist Kaffa cooperatives and estates in selecting suitable sites andequipment; and carry out a technical appraisal, on AIDB's behalf, of allrequests for credit under the Sidamo Private Sector, Kaffa Cooperative andKaffa Estate sub-projects.

12. The Coffee Development Section would be headed by a Chief CoffeeEngineer, who would be principally responsible for PIU's own stations,assisted in this task by two Processing Assistants, a Chief Mechanic, twoMechanics and laborers, and equipped with four 4-wheel drive vehicles.Under the Chief Coffee Engineer, the technical services for the other sub-projects would be the responsibility of another Coffee Engineer, assistedby two Processing Assistants and two Mechanics (one of each for the SidamoPrivate Sector Sub-project and the Kaffa Sub-projects, respectively), andequipped with three 4-wheel drive vehicles. Following the developmentperiod, the Coffee Development Section would be reduced to supervising theoperation of PIU's own stations, with particular emphasis on quality controland machinery maintenance.

ANNEX 8Page 4

13. The Roads Development Section would be responsible for actualconstruction of the roadway for the roads in Sidamo Province and for super-vising construction by contractors of the Kaffa Province roads and bridgesand crossings in both provinces. After the development period, this Sectionwould be disbanded unless needed for road maintenance purposes. Staffingand other details of the Section are included in Annex 6: "Road D)esign

Standards and Construction Methods".

14. In consultation with the Cooperative Department of the Ministryof National Community Development and Social Affairs, the CooperativeDevelopment Section would be responsible for stimulating development ofprimary societies among farmers delivering their coffee to PIU washingstations to the point where they can take over ownership of these washingstations. The Cooperative Development Section would be headed by aCooperative Leader, assisted by 18 Cooperative Field Assistants, i.e.,about one for each four washing stations. It is expected that one primarysociety could eventually manage four washing stations and that the CooperativeField Assistant would then become its Secretary/Manager.

15. The Accounts and Administration Section would handle all PIUaccounts and the dispatch of washed coffee to the Addis Ababa auctions.Provision would be made during establishment of PIU for the separation ofits accounts from other NCB accounts. PIU's accounting system would be setup as if each washing station was independently operated; this would achievetwo objectives:

(a) to facilitate the eventual handing over of a station toa primary society; and

(b) to enable farmers delivering their crop to a particularwashing station to be paid according to the value ofthe crop they have delivered, rather than have this averagedout over the whole of PIU's washing stations.

The Section would be headed by a Project Accountant, assisted by a ChiefClerlc, an Assistant Accountant, clerks and bookkeepers.

16. The Project Preparation Team would be attached to PIU for adminis-trative reasons and to ensure close contact with the results of the project.It would be responsible for preparinig follow-up projects in the coffeesector, not necessarily restrict:ed to the present project areas, and fordiversification within the Sidamo project area to take advantage of the

roads and cooperative structure being set up. The Team would be headecdby an Agricultural Economist, assisted by a full-time Agriculturalist,

part-time specialist consultants as required and support staff. It wouldhave two 4-wheel drive vehicles.

17. Staff Availability. The shortage of experienced and qualifiedmanagerial and technical personnel within Ethiopia makes it probable that

ANNEX 8Page 5

the following initial staff would have to be recruited abroad: the ProjectManager, the Chief Coffee Engineer, the Coffee Engineer, the Senior RoadsEngineer and Mechanical Superintendent for the Roads Development Section(see Annex 6), the Project Accountant, the Agricultural Economist, theAgriculturist and most of the part-time consultants. The Imperial HighwayAuthority would assist in the recruitment of the staff for the Roads Devel-opment Section and would probably be able tc second some of the middle-echelon technicians. The Cooperative Leader would be seconded from theCooperative Department of the Ministry of National Community Development,as would the 18 Cooperative Field Assistants, who would probably be recentgraduates from the Awasa Community Development Training and DemonstrationCenter (see para 2.12 of the main report).

18. After the development period, it is expected that the ProjectManager, if expatriate, would be replaced by an Ethiopian member of thestaff (probably the Cooperative Leader). Similarly it is expected that theChief Coffee Engineer, if expatriate, would be succeeded through promotionof the most promising Ethiopian Processing Assistant. The other postslikely to be filled by expatriates would be abolished following the develop-ment period.

19. Assurances have been obtained during negotiations that thequalifications and experience of appointees to the posts of Project Manager,Section heads and all professional members of the Project PreparationTeam would be subject to prior IDA approval.

Financing

20. As PIU would be a new institution, without equity, it would benecessary for it to be 100% externally financed to begin with. Washingstation construttion would be financed 100% by loans from AIDB, whichwould also supply working capital to meet washing station operating costsand to allow the washing stations to purchase crop from farmers. Untilsuch time as PIU receives sufficient operating income from its washingstations (expected to be after three years), IEG would meet PIU's headquartercosts 1/ through grants, and it would continue to meet any PIU expenses onexpatriate staff and seconded Cooperative Department staff for a further twoyears. Thereafter, all PIU expenses could be met from self-generated funds.Further details of PIU headquarters costs (other than for road construction,project preparation and the experimental drier) are given in Table 1 tothis Annex. Operating results for PIU as a whole, including the washingstations, are shown in Annex 14.

21. No financial provision has been made for the costs of officebuildings or of houses for staff. It is expected that PIU headquarterswould be in Dilla or Awasa, Sidamo Province. In both places, suitablebuildings are already available, or would be readily made available, forrent, and PIU should not need to construct any such buildings.

1/ Including services which PIU will provide other sub-projects, roadconstruction, construction of the experimental drier, and the preparationof follow-up projects.

E T H I O P I A

COFFEE ?ROCESS5IG 9ROJEC7

Projct ,evieeetatfo Unt edsusntc Costa(in E$ 0OO)

(excluding c-sts of road cocotruction nd project preparation tern)

1971/72 6/1972/732/ 1223L79 12974/751/ 1975/76 1976/77 1977/78 1978/79 1979/8 19780/SI7

r. Cash Costs

A. Stff

ProJect Manager (preanned expatriate) 15 60 60 60 40'L7A/

ft.j..t Acuoutant (pr-soedeparte 13 50 50 50 5so2J 376/ --

Deputy Project Manger (becowing Hawager is 1976/77) - - - 16 20 24 24 24 24 24

Coffee Processing Efigieera (Pre.uxed eXpatriate) 3/ 50 100 100 100 50!/ - - - - -

Coffee Processing Engineer 6/ _ - - 1- 18 18 18 18 18

Cooperative Leader 4/ 6 12 12 12 l2o/ 12i1 12 12 12 12

Proesaing A.ai.t t. 25/ 9 36 36 36 18 18 18 18 18 18 18

Chief Mechnic 9 9 9 9 9 9 9 9 9 9

Chief Cianc 2 7 7 7 7 7 7 7 7 7 7

Assistant Accoontant 2 6 6 6 6 6 6 6 6 6 6

Cooperatice Field Assistants 6/ 15 60 90 108 108_/ 109i/ 108 108 108 108 lo1

Clerks 7 7 7 11 51 11 71 11 11 11

Bookkeepers 4 8 8 13 13 13 13 13 13 13 13

Mechanics 7/ 20 20 20 10 10 10 10 10 10 10

Tnpaists 3 6 6 6 6 6 6 6 6 t

Laborers 2 4 4 2 2 2 2 2 2 2

D, _riv 1 4 4 4 4 4 4 4 4 4 4

Messenger 1 1 2 2 2 2 2 2 2 2 2

Sub-total 124 385 421 444 369 283 250 250 250 250 234

B. 5ehicles

6-Dasseager. 4-heeld4rive hi 1e|-oin1t1 l -ost d vehcles Z8 168 70 70 56.6/ - 140 70 70 42 - _

- omerating costs 8 42 57 72 75 72 72 72 72 72 c9

Sub-total 36 210 127 142 131 72 212 142 142 114 692/

C. Other

Office Furcit-re end Equiprent - 23 1 5 - - - 3 3 3 3

Other operating co-ts 4 13 19 19 24 24 24 24 24 24 24

Sub-totel 4 36 20 24 24 24 24 27 27 27 27

TOTAL 164 631 568 610 524 379 486 419 419 391 3342/

CoctSogencies 6 29 42 50 56 41 44 41 41 39 3(2/

3211D TOTAl 170 66D 610 660 580 420 530 460 460 430 3(02

SII Pinsc,ncd ByIT. fj-ed BY 1~~~~~~~~70 460 615 600 300 170 - - - -

PIo Grtr 1p-_ tin6 incoss6 -23°- 280 750 530 460 460 b3. 37o

170 660 610 660 580 420 530 460 460 430 370

I/ Considered as capital Co-Ms2/ O.s wold dal with the Sid-m Coopevotive Sub-Project, the other kith the other -ub-proj-cto it Sid--o -cl Kaffa provin-ce

3/ Pro-uced to be pro-oted fron one of thl Pr c.s...ig Assistant po-tt.4/ S0ecoodd fron the Coop.r-tiv- Dspariexnt through 1976/77; theferfter paid fotr by PIU. -A.r L- -- Id b. epoy.d f- 72173 throush 74175 L. hmdl. th. oher -b-p-j-t in Sid -d K.ff. P-i-

3/ T-oI t he .secon.d half of 1971/72 end thorrofter to deal etth the Sidec CoOPer-tivo Scr. Prole-. Acorrortocudh rhlydio 27 hog 47 ohni h tx o-rjct cfAesdCfa oios

37 5 to thr erond halt of 1971172 10 to 1972173, 15 in 1973/74 sod 10 th-rcftOt Secoded by the C tr4ivo DoptcOct f-r 5 po,ther-ot-r paid for by PT0.

2/ 2 from 1972/73 occards to handle th.e Sido f1m 1970/73 th-;rou 1C974 75 t ,hcilo tie te,p Ou-p-j-t,

9/ 28 vehicles icitia11y, of E14,000 cool, i-clodisc 05,000 -t-on dotY; -c -!,h fur the Soje-t Hoosie. the ProJect A--ootant, tho Coffee Proo.... in9Egin--o the Coopo...ti-o Lo-der. tshe Process,i

the Chief Mlechnic end rho C.opec-tis A-sinLotS. Th. 23 -chiclee ceodod by 0IU- on- indeficlit busic or r-pOS-d every 5 y-ar..o eitlc

9/ The repI-Oe-oOt cost of vehicles in ,epooed e--oy five yeers theoreftef t

10/ Coveriog a11 PlU hendqnnter- ecpecdittrne through 1974/75 sod .sp.triuto -od o-conded -coycrhtivo st f br-ogh 1976/77.

ETHIOPIA


ORGANIZATION CHART: PROJECT IMPLEMENTATION UNIT

NATIONAL COFFEE BOARD

MINISTER OF COMMERCE AND INDUSTRY (CHAIRMAN)MINISTER OF AGRICULTUREMINISTER OF FINANCE EXECUTIVE SECRETARY,MINISTER OF INTERIORNAIALCFEBORPRESIDENT, CHAMBER OF COMMERCE OF ADDIS ABABAMANAGING DIRECTOR, AGRICULTURAL AND

INDUSTRIAL DEVELOPMENT BANK

EXISTING STAFF OF THE NATIONALCOFFEE BOARD FOR REGULATIONAND CONTROL OF THE ETHIOPIAN

EXECUTIVE COMMITTEE COFFEE INDUSTRY

REPRESENTATIVES OF EACH MEMBER OF THENATIONAL COFFEE BOARD

EXECUTIVE SECRETARY, NATIONAL COFFEEBOARD

HEAD OF THE COOPERATIVE DEPARTMENT,MINISTRY OF NATIONAL COMMUNITYDEVELOPMENT AND SOCIAL AFFAIRS

l~~~~~~~~~~~~~~~~~

ACCOUNTS AND ADMINISTRATION ROADS DEVELOPMENT COFFEE DEVELOPMENT COOPERATIVE DEVELOPMENT PROJECT PREPARATIONSECTION SECTION SECTION SECTION TEAM

PROJECT ACCOUNTANT SENIOR ROADS ENGINEER CHIEF COFFEE ENGINEER COOPERATIVE LEADER AGRICULTURAL ECONOMISTCHIEF CLERK MECHANICAL SUPERINTENDENT COFFEE ENGINEER COOPERATIVE FIELD ASSISTANTS AGRICULTURALISTASSISTANT ACCOUNTANT ASSISTANT SENIOR ENGINEER PROCESSING ASSISTANTS CONSULTANTS (PART TIME)CLERKS CONSTRUCTION UNIT SUPERVISORS CHIEF MECHANIC COUNTERPARTSBOOKKEEPERS GANG LEADERS MECHANICS

MECHANICS LABORERSSURVEYORS, LABORERS 9

THE PROJECT MANAGER ALSO ACTS AS SECRETARY TO THE D

EXECUTIVE COMMITTEE AND TO THE NATIONAL COFFEEBOARD ITSELF WHEN THE LATTER IS DEALING WITH PROJECTMATTERS.

IBRD - 5475(R)

E T H I O P I A

COFFEE PSOCESSINI PROJECT

Project Cost Estieates( in E$' 000)

1971/72 1972/73 1973/74 1974/7) 1975/76 1976/77 1977/78 TotLI - of which foreign exchange componert

I. Sidamo Cooperative Sub-Project 3/

Washing Station Constrmotion - 1,052 1,841 789 - - _ 3,682 2,017 55

Road construction ./ 82 2,274 592 - - - _ 2,,,8 2,o64 70

PTU I'Q 9/ 164 631 568 610 331 157 _ 2,nnl 1,032 42

Exbperimental Drier - - 60 - - - - 60 28 47

Incremental working Capital 2/ - 142 371 306 105 29 953 - -

Increametal Crop Finance /- - 519 1,6o0 1,911 1,102 228 5,360 - -

;3UB-TOTAL 246 3,957 3,722 3,370 2,348 i,364 257 15,464 5,141 33

II. Sidamo Pricate Sector Sub-Project

Washing Station Construction / 263 789 526 _ - - 1,578 864 55

Washing Station Modification / - 72 126 54 _ _ - 252 214 85

SSB-TOTAL - 335 915 580 - - - 1,830 1,078 59

III. Kaffa Cooperative Sub-Project

Feeder Road Construction l _ 82 246 - - 328 200 61

Factory Access Road Construotion 2 27 162 81 - - - 270 162 60

Minor river crossings LO/ - 6 24 6 _ - - 36 14 40

Washing Station Consirtction g/ - 105 631 316 _ _ - 1,052 576 55

SUB-TOTAL - 220 1,063 403 - _ - 1,686 952 56

IV. Kaffa Estates Sub-Project

Washing Station Construction - 53 316 157 _ _ - 526 288 55

SUB-TOTAL - 53 316 157 _ _ _ 526 288 55

V. Technical Aani.tance Activities

Project Preparation Tesso - 100 210 2910 5 9 520 350 67

Research 24 18o 116 96 96 96 - 608 77 13

Coffee Survey 150 300 300 150 - - - 900 360 40

SB_-TOTAL 174 580 626 456 96 96 - 2,028 787 39

VT. Contingencies 42 515 664 497 264 84 13 2,079 1,020 49

TO0

AT 462 5,660 7,306 5,463 2,908 1,544 270 23,613 9,266 39

US $o0o0 Equivalent 195 2,264 2,922 2,185 1,163 618 108 9,445 3,706

3/ Including PTU technical services to other Sub-Erojects.

3/ For cost of construction of a single washing station, see Annex 7 Table 1.

For further details, see Anoes 6 Table 1.

7 Fur further details, see Anne- 8 Table 1.

F/ _or washing station operating costs.

To finance payment to farmers on delivery of crop at approximateiy 80CT of filat v-lu-.

7/ Average amo.unt of E$3,600 per each station.

40 km L E$8,200/km.9/ 6o k.0 Ce F4,500/km.

33/ For butt feeder and factory acress roads

ANNEX 10

ETHIOPIA


Estimated Schedule of Quarterly Disbursements(in US$'000)

Disbursements Undisbursed

3RD/IDA Quarter during Quarter Of Quarter

1971/72 4 6,300

1972/73 1 50 6,2502 50 6,2003 920 5,280l4 510 4,770

1S73/74 1 600 4,1702 250 3,9203 1460 3,14604 730 2,730

1974/75 1 910 1,8202 330 1,4903 220 1,27034 320 950

1975/76 1 470 14802 180 3003 50 2504 50 200

1976/77 1 40 1602 140 1203 30 904 3) 60

1977/78 1 30 302 30

ANNEX 11Page 1

EHiIOPIA


Credit Policies and Procedures

General

1. Assurances have been obtained during negotiations that, unless IDAagrees otherwise, the Agricultural and Industrial Development Bank (AIDB)would follow the policies and procedures set out below in carrying out themedium-term and long-term credit aspects of the project. AIDB would determinesucal further policies and procedures, not inconsistent with those set outbelow, as amended from time to time with the agreement of the Bank, as itmay feel necessary for the orderly conduct of its business in accordancewith sound banking practices.

Loan Appraisal Procedures

2. Loan applications would be subject to individual appraisal.Decisions to lend under the project, or to reject an application, would betaken by a nominated senior AIDB official, whose experience and qualificationswould be satisfactory to IDA, on the basis of written reports on the technicalaspects of the proposed investment (includinz its estimated net incomegeneration) and on the financial position and prospects of the potentialborrower, provided that decisions to lend taken by thie nominated officialmay be subject to prompt review at other levels of AIDB management.

3. The Project Implementation Unit (PIU) would provide AIDB with thewritten report on the technical aspects of all proposed investments, otherthan those to be made by PIU itself. Such report would, inter alia, reviewthe proposed washing station site, design and equipment, with specificreference to hiygienic pulp disposal; the management capability of thepotential borrower as evidenced by his existing involvement in coffeegrowing or processing; arrangements made for tecinical training of thepotential washing station manager, wherever necessary; and whether thewaslhing station could be constructed by the owner or would need to be con-structed by contractors supervised by PIU. In the case of a loan applicationfrom a Kaffa cooperative for the construction of a washing station, theteclnical report would include a review of the potential supply of cropto that station from existing members of that cooperative. In the caseof a loan application from a Kaffa estate or group of estates for theconstruction of a washing station, the technical report would include areview of the potential supply of crop from that estate or group of estates.No application, except from PIU itself, for a loan to construct or modifya washing station in Sidamo Province would be considered unless the applicationresulted from the survey of existing stations to be carried out under theproject.

ANNEX 11Page 2

4. The written report on the financial position and prospects ofpotential borrowers, other than PIU, would be prepared by AIDB stafffollowing investigation and would include recommendations concerning thetern of the proposed loan (including grace period, if any), the down-paymentto be made by the potential borrower and the security to be taken.

5. No technical or financial report would be required in the case ofproiposed investments by PIU, since the loan agreement with NCB (on PIU'sbehalf) would need to be entered into prior to the final selection ofwashing station sites, and prior to its entry into business. The decisionto lend would be taken on the basis of IDA's appraisal report and suciother investigation as AIDB considers necessary.

Security on Loans

6. Mortgages and other security as may be reasonably available wouldbe taken to cover loans. However, in the absence of legal provision forchattel mortgages in Ethiopia, the uncertain land tenure arrangements underwhich farmer members of cooperatives hold their land, and the need to pledgemost of the crop to obtain working capital for crop finance, the inabilityof a potential borrower to provide security for the wlhole of a proposedloan would not of itself be considered a bar to lending. Rather, emphasiswould be placed on the estimated net income generation of the proposed iil-vestment and the general financial situation and management capability ofthe potential borrower.

Loan Agreements

7. AIDB would enter into a loan agreement or loan agreements witheach borrower. The loan agreement to be entered into with NCB(on PIU'sbelhalf) would be subject to prior approval by IDA. The loan agreementsto be entered into with other borrowers would be in a form satisfactoryto IDA.

8. Notwithstanding paragraphs 2 and 6 above, AIDB would not enterinto any loan agreement with any borrower, other than NCB (on behalf of PIU),which would raise the total amount committed under that, or any other AIDBloao agreement under the project with that same borrower, to more thaiiE$100,000, without first obtaining thle approval of IDA.

Loan Terms, Grace Periods and Down-PAyments

9. Loan terms, grace periods and down-payments to be made by borrow-ers would be determined by AIDB in the light of its apTraisal of loan ap-plications, subject to the following limits:

(a) NCB (on behalf of PIU): term not exceeding 15 years,including a grace period not exceeding 4 years, withno down-payment necessary;

(b) Owners of existing washing stations in Sidano Provinceborrowing for minor modifications: term averaging 3

ANNEX 11Page 3

years including grace period of one year, subject tomaximum term of 4 years, including grace period of oneyear; down-payment averaging about 50%, with minimumof 40%;

(c) Other borrowers: term averaging about 10 years, includinggrace period of one year, subject to maximum term of 12years, including grace period of one year; down-paymentaveraging about 30%, with minimum of 25%.

Interest

10. All loans would carry interest of not less than 9-1/2% and notmore than 12% per annum. Interest would be paid out of the proceeds of theNCB loan during the construction period, subject to a limit of 4 years.

Procurement

11. AIDB would ensure that procurement of items to be financed by itsloans under the project would be in accordance with the provisions of theDevelopment Credit Agreement between IDA and the Imperial Ethiopian Govern-ment.

Disbursements

12. W4herever feasible, loans would be disbursed in kind, followingbulk procurement using international competitive bidding procedures, or bypayments direct to suppliers and contractors.

Repaynents of Principal and Interest

13. Repayments of principal and interest due in any year runningfrom September through August would be made in two or more installments asdetermined by AIDB, provided that the first installment falls due not laterthan December 31 and the last installment falls due not later than March 31.

Supervision

14. AIDB would arrange for PIU to supervise construction andinitial operation of borrowers' washing stations. In addition, AIDB'sown staff would make on-site inspections during construction suffi-ciently frequently to ensure that each loan was being used for the intendedpurposes, and at least twice each processing season thereafter until theloan had been repaid.

15. AIDB would ensure that borrowers kept satisfactory accounts tobe audited annually in a manner satisfactory to AIDB, and that such auditedaccounts would be made available promptly to AIDB.

16. AIDB would ensure that borrowers maintain the equipment financedby its loans in accordance with sound engineering and financial practices.

ANNEX 11Page 4

Transfers of Property

17. AIDB would ensure, througlh its loan agreements or otherwise,thatt no washing station constructed with the proceeds of an AIDB loani wouldbe transferred from the borrower's direct ownership while the borrower re-mained indebted to AIDB, except as AIDB should otherwise agree.

December 22, 1971

E T H I O P I A


Washed Coffee Production Forecasts (in MT)

1969/70 170/7 1971/72 1972/73 1973/74 1974/75 17/76 1976/77 1977/788idamo CooperativeB

Existinlg stations - 100 100 100 100 100 100 100 100 100PIUt stations 1 0 - - - 600 2,600 5,100 6,600 7,000

Sub-total 100 100 100 100 700 2,700 5,200 6,700 7,100

Sidsmo Private Sector

Existing stations, without the project 2/ 7,500 10,300 11,200 11,200 11,200 11,200 11,200 11,200 11,200Incremental effect of project a/ - - - - - 200 1,000 1,000

Sub-total 7,500 10,300 11,200 11,200 11,200 11,200 11,400 12,200 12,200

Kaffa Cooperatives #/ 200 1,200 1,900 2,000 2,000

Kaffa Estates / )/ - - - 100 600 900 1,000 1,000

Otheri/ 2,400 2,600 2,900 3,200 3,500 3,900 4,300 4,700 4,700

Totals 10,000 13,000 14,200 14,500 15,700 19,600 23,700 26,60o 27,000

j Constructed as per phasing shown in Annex 5, each washing station producing 40 MT in its first year of operation, 80 MT in the second yearand 100 MT/annum thereafter.

2J Assuming that none would be closed down; and that no new stations would be licensed. Large inerease of 1970/71 production over 1969/70level is due to coming-into-operation of new stations built during 1969/70.

3/ Through 1974/75 it is assumed that increased capacity from proposed modifications and rebuilding would be about equally off-set by cloa-ures of inadequate facilities. The overall increase in production is expected to be about 1,000 M1T/annum eventually.

Constructed as per phasing shown in Annex 5, each washing station producing 80 MT in its first year of operation, and 100 MT/annum there-after.

5/ Only including those borrowing under the project.§ Outside the project areas, and some Kaffa Estates not borrowing under the project./ Preliminary estimates based on available capacity of washing stations for the 1970/71 season. Because of severe speculation in

coffee during the harvest season (last quarter of 1970), it appears that only about 3-4,000 tons may have been delivered to washingstations for processing,

ANNEX 13ETHIOPIA Page 1


World Outlook for Coffee

Intro duct ion

1. Arnbica, primarily growm in the Western Hemisphere and parts of EasternAfrica, and ;bbusta, grown mainly in Africa, are the two principal varietiesof coffee. Arabicas Pre, however, further divided on quality grounds into"iColombian M4ilds", "Other Milds" and "Unwashed Arabicas". Although coffee isgrown entirely in developing countries, a relatively small proportion of thecrop is consumed there, the rest being exported. About 90< of total coffeeexports generally go to the developed countries, 5, to the centrally plannedcountries and 5.9 to non-producing developing countries. Further informationon coffee types and processing methods is given in Annex 1.

Present Trends

2. In recent years coffee prices have experienced sharp fluctuations. Thisis rimarily due to rapid changes in the world supply/demand situation forcoffee. During the last five years the world production of coffee was belowworld consumption. However, these shortfalls have caused little concern and,indeed, are regarded ns beneficial, because of the availability of more thanample stucks mainly held by Brazil. Prices consequently remained weak untilthe market reacted to widespread frost damage to the Brazilian crop in July1969. Prices declined again in late 1970 as favourable weather conditionsled to a sharp recovery in Brazilian output (Table 1). Nbrld output in 1971/72,expected to be about 72 million bags (Table 2), should match projected con-sumption requirements. Present world stocks now amount to about nine monthsof export demand, which stock level is considered somewhat on the low side.Thus, for the first time since the early 1950's, world production and consump-tion of coffee are in approximate balance within the context of a manageablestock position.

Fature Outlook

3. It is expected that, world coffee production will reach about 851 illionbags in the mid-seventies, and is expected to rise sharply thereafter- .This projection was derived by aggregating country estimates and by takinginto account country policy plans submitted to the International Coffee Organi-zatioji (I.C.O.), and assuming that some 600 million trees will be planted inBrazil by 1975, as planned. It also assumed thrt another major frost willnot occur in Brazil for the next few years and that expansion of coffee produc-tion elsewhere in the world will remain within reasonable limits of the goalsestablished by the I.C.O.

I/ For further details see: "aimmaries of Medium-Term and Long-Term PriceForecasts for Selected Individual Commodities by the Bank Staff", IBRD,SecM71-92 - February 22, 1971.

ANNEX 13Ptmfe 2

L. The annual rate of increase in the world demand for coffee is decliningand is expected to continue to decline - the 1965/70 average rate of inerecisewas about five per cent; the rate of increase is expected to be only about twoper cent in the next few years. The decline in the growth rate of demand forcoffee in most of the West European countries is explained to a lerge extentby declining income elasticities of demand es confirmed by a regression analysisof per capita consumption of coffee and total consumption expenditure. Forinstance, between 1955-1962 and 1960-1968, the income elasticity of demandfor coffee declined from 0.90 to 0.51/in the Federal Republic of Germany andfrom 0.75 to 0.53 in the Netherlands- . The future total demand for coffeein t'he United States does not appear likely to change significantly. This isdue to institutional and socio-economic factors and competition from colddrin'ks. The per capita consumption of all hot beverages in the United `tateshas declined in recent years. Fewer people now drink coffee and those whodrink it take less coffee than before. Young people prefer cold drinks.Furthermore, as the number of working wives increases, they drink less coffeethan they did as housewives. However, the decline in per capite consumptionTn the United States is expected to be offset by the increase in the population.The recent rapid rate of growth in Japan's consumption is expected to continuefor some years since the absolute level is still relatively low; however, therate of growth is expected to decline somewhat as per capita consumptionincreases. In the centrally planned countries, Government import policieslargely determine the pattern of coffee consumption. Although some LatinAmerican and African countries have entered into bi-lateral contracts withsome of the centrally planned countries to enlarge their markets there, nosignificant increase is foreseen. In view of these developments, it is expectedthat by the mid-70's about 63 to 65 million bags/would need to be exported tomeet demand at the prices forecast(see Table 1) - 'compared to some 57 millionbags in 1971. Thus, annual production by the mid-70's is expected to beabout 20 million bags above export demand. Some of these surpluses w.uuld beconsumed in producing countries and some go to building up stocks to moreappropriate levels.

5. The mid-70's equilibrium level is projected to be below the price levelof 1'370, when the full effects of the Brazil frost reached the market, butsomewrhat above the average price obtained in 1969, when the supply/demandsituation was somewhat similar. By the end of the 70's, the increasinfv presslureof fresh surpluses, unless successfully curtailed by the International CoffeeAgreement, would force prices to decline further. The Bank's projection ofequilibrium prices for 1975 and 1980 are given in Table 1.

6. In the intervening period, 1972 - 197h, tl market is expected to remainuncertain, with a tendency for prices to fluctuate between the 1970 and themid-T'O's level. This reflects the approximate balance between supply anddemand, which would cause prices to be sensitive to changes in the Braziliancrep and Brazilian export policies.

1/ For further details see: "Summaries of Medium-Term and Long-Term PriceForecasts for selected Individual Commodities by the Bank Staff", IBdD,/ecM71-92 - February 22, 1971.

n teras of the pre-devaluation US lollar. It is too early to say .h?t

efFect the devaluation of the US dollar wTill have on these proif)fl'-.See paragraph 6.0l1 of the mailn report.

ANNEX 13Table I

ETHIOPIA

COFFEE PROCESSDIG PLOJECT

Coffee Prices by Types, 1960 to 1971, and Projections to 1980

(US Cents per Pound, Spot New York)

GuatemaLa BrazilColombian Mams Prime Washed Santos Anola Ambriz 2AA

(Washed Arabica) Washed Arabica)(Unwashed Arabica) (Robusta)

1960 44.9 4L.3 36.6 25.3

1961 43.6 37.5 36.0 19.9

1962 !4o.8 35.8 34.0 21.6

1963 39.5 35.4 34.1 28.7

l960" L 8.8 47.2 46.7 36.4

1965 48.5 45.5 4L.7 31.6

1966 Li7.I4 42.2 40.8 34.0

1967 4i.9 39.2 37.8 33.8

1968 42.6 39.4 37.4 3

1969 45.0 40.1 40.8 33.6

1970 56.4 51.9 5h.6 L2.0

1971 (Jan-Mov.) 48.7 44.9 44.8 42.2

In 1971 rbllars./

1975 46.o - 48.o 43.0 - 45.0 42.0 - 44.0 38 - 40

1980 44.0 - 46.0 41.0 - 43.0 40.0 - 42.0 36 - 38

Source: 1960-1970 - Pan American Coffee Bureau, Ifew York.

1/ Projected by the Trade Policies and Export Projections Division,Dcononiics D2partment, IBhD.

ANNEX 13T'abie 2

ETHIOPIA

COFFEE PROCE3SflG PROJECT

.Tor'd Harvested Production oi Coffee

(Thousands of 60 kg bags)

Continent 1967/68-1969/70 1967/68 1969/70 1970/71 1971/72Averag (Estimated)

Ilorth Aiaerica 11,443 11,667 11,921 11,U42 12,304

South Amierica 30,527 34,021 30,189 20,501 3h,729

Africa 18,773 18,444 11,659 19,279 19,459

Asia an6. Oceania 4,695 4 'l80 b,866 5,758 5,193

Total-World 65,438 68,612 66,635 56,980 7L,1_5

source: Economics Department, I3RD, Wiashington, D.C., December 1971.

AINNEX 14Page 1

ETHIOPIA


Markets and Prices for Ethiopian Export Coffee

Introduction

1. A brief analysis of world coffee markets, including a projectionof coffee prices in general is presented in Annex 13.

2. The incremental output of coffee that may result from the project(some 1,000 tons per annum) is small, about 1% of the current Ethiopianshare of exports to quota markets (some 75-80,000 tons per annum). Thepartial switcli in the techlnique of crop processing from dry to wet process,whicih is the main result of the project, would have little bearing on mar-ket shares because the global annual export quotas declared by the Inter-natiolial Coffee Council are allocated to exporting members on a pro ratabasis established under the International Coffee Agreement, irrespectiveof the type of coffee produced by thiem.

3. The projected increase in the proportion of washied coffee inEthiopian output (rising from the current 10,000 tons to some 27,000 tonsby 1977/78 - some 11,000 tons of which increase would be due to the project -

see Annex 12) would be unlikely to affect significantly the prevailingrelationship between world market prices for washed and unwashed coffees,since the resulting increase in world output of washed arabica would bemarginal, less than 1%. More important, wlhile the historical price different-ial between these types tended to change at different levels of coffeeprices, tney have not been significantly distrubed by shifts in the marketsnares of the two types, even in periods when the market sihare of washedcoffee was rising more rapidly than is expected in the foreseeable future.

MIarkets for Etliiopian export coffee

4. The destinations of Ethiiopian coffee exports since 1965-66 aregiven iii Table 1. A detailed break-down between washed and unwashed coffeeis not available. The United States has taken some 70-80% of Ethiopia'stotal exports, almost exclusively in thie form of unwashed arabica. Onlyabout 7% of total exports have been washed coffee during this period,withl the major importer being the Federal Republic of Germany, which tooksome 5,000 tons in 1969/70. Other known importers of Ethiopian washedcoffee are Norway, Sweden, Finland, France, Italy, Yugoslavia, Belgium,Denmark and Switzerland, probably in that order of importance after Germany.

5. As the proportion of washed coffee in Ethiopian production in-creases, there would be a corresponding shift in Ethiopia's export marketsaway from the United States (whose washed arabica needs are already being met,

ANNEX 14Page 2

mainly from Central America) to the traditional importers of high qualitywashed arabica, such as the Federal Republic of Germany. Such a shiftshould not present any undue difficulties since the principal constraintin exporting washed arabica to date has been the small Ethiopian production,rather than any reluctance to buy on the part of importers. Indeed, thedemand for Ethiopian washed arabica - which is of a high quality, despitesome shortcomings in production methods - has been so strong, partictularlyfrom Germany, that premiums have been paid for it (see below) and exportersin Addis Ababa with close German connections have been actively encouraging'its production, to the point of financing the construction of some washinrstatiions and the purchase of crop from farmers by washing station operators.

6. German imports of Ethiopian washed arabica reached some 5,000tons in 1969/70, representing about 2% of Germany's total imports of suichcoffee in that year of about 230,000 tons. German imports of washedarabica are expected to reach 275,000 tons by 1977/78. Thus the increasein Ethiopian production of washed arabica resulting from the project woulldrepresent less than a quarter of the expected increase in demand fromGerrmany alone.

Prices for Ethiopian export coffees -/

7. The financial and economic analyses of the proposed investmentsin the project depend largely on the differential which might be expectedbetween Ethiopian washed and unwashed arabica prices, and are only marginallyaffected by their absolute levels.

8. Historical data are available (see Table 2) on prices obtained forthe principal export grade of Ethiopian unwashed arabica (known as "Jimma 5),which show that these prices are usually below the prices obtained forBrazilian Santos 4 - the principal grade of unwashed arabica on world mar-kets and for which the Bank has made price projections (see Annex 13). Thediscount has varied from about 7 US cents/lb, CIF, New York, in 1957 tozero in 1968, but has mostly been in the narrower range of 1-3 US cents/lb.,averaging about 2 US cents/lb. This discount has been principally due tothe inferior methods of processing Ethiopian unwashed coffee (see Annex 2),rather than because of any inherent quality inferiority - which statementis st'mnorted by the very high prices which can be obtained for this samecoffee when washed under reasonahly well controlled conditions; and it ispossible that Ethiopian unwashed coffees would sell at a premium overBrazilian Santos 4 if it were consistently well processed. Hlowever, thedifficulties involved in improving the average quality of Ethiopian unwashedcoffee are substantial and achievement of improvements of such a magnituideas to bring about premiums over Brazilian Santos 4, on a national averagebasis, is not considered probable. On the other hand, accotunt has to betaken of the efforts being made by the Ethiopian National Coffee Board toimprove quality and of its intentions to intensify its efforts. For the

1/ In terms of the pre-devaluation US dollar. It is too early to deter-mine what effect the devaluation of the US dollar will have on coffeeprices. See paragraph 6.04 of the main report.

ANNEX 14Page 3

purposes of the financial and economic analyses made in this report,therefore, it has been assumed that Ethiopian unwashed coffee would continueto suffer an average discotnt of about 2 US cents/lb below Brazilian Santos4 through 1974 but that, thereafter, there are about equal probabilities(40% each) that the average discount would remain at that level or thatit would be halved to about 1 UIS cent/lb. It has also been assumed thatthere are minor probabilities (107 each) that the average discount wouldwlden to 3 UJS cents/lb or that it would disappear altogether by 1985. Theseprojections are shown graphically in the Chart to this Annex.

9. For Ethiopian washed coffee, there are no reliable historicaldata on export prices and it is not quoted on New York or other coffee mar-kets. This is because production is so small and recent and most trade isbetween closely linked export houses in Addis Ababa and import houses inEurope, mainly Germany. Ilowever, the exporters and the National CoffeeBoard claim that premiums are obtained over Colombian and Kenyan washedcoffees, some major German importers have confirmed that they would beprepare(1 to pay these premiums in the future to obtain Ethiopian washedcoffee (but probably at lower levels when production is larger) and indepen-dent tests of Ethiopian washed coffee confirm its intrinsic quality anddesirability. For the purposes of the financial and economic analyses madein this report, thereFore, it has been assumed that Ethiopian washed coffeewould most probably sell at prices equivalent to those obtained for Kenyawashed coffees (which are themselves generally at a premium of about 1 UScent/lb above Colombia coffees - the principal grade of washed arabica onworld markets and for which the Bank has made price projections - seeAnnex 13) or at a premium of about 1 US cent/lb above Kenyas (i.e. about2 US cents/lb above Colombians). Probabilities of 40% have been assignedto each of these assumptions, while 10% probabilities have been assignedto each of two outside assumptions: that Ethiopian washed coffee would sellat a premium of 3 US cents/lb over Colombians and that it would not obtainany premium at all. These projections are also shown graphically in theChart to this Annex.

10. As noted in paragraph 7, it is the differential between the variousprices that is most important in the analysis of this project; and thevarious probabilities predicted in the two preceding paragraphs are to beinterpreted solely as probabilities of relative, rather than absolute,price levels.

Statement by the International Coffee Organization (ICO)

11. The ICO has been consulted on this project. It feels that, dueto the lack of basic data and the consequent uncertainty in regard to thecoffee situation in Ethiopia, it is not possible to predict the specificimpact of the project on coffee production in Ethiopia. For this reason, theICO intends to assist in financing the survey of the Ethiopian coffeeeconomy to be carried out with technical assistance from the Food andAgriculture Organization of the United Nations (and which forms an integralpart of this project). The ICO considers it desirable that the World BankGroun continues to inter-relate its activities in Ethiopia with those of

ANNEX 14Page 4

the ICO or other international institutions and the Imperial EthiopianGovernment, in order to ensure that this coffee processing project specific-al:Ly, and the coffee economy of Ethiopia in general, conform with the coulntry'spertinent international commitments regarding coffee.

December 22, 1971

ANNEX 14Table 1

ETHIOPIA

OOFRE PROCESSING PROJECT

ETHIOPIA's COFFEE EXPORTS(in tons)

Destination 1965-66 1966-67 1967-68 1968-69 1969-70 1970-71

1. U.S.A. 48,609 60,412 60,330 56,168 62,727 63,1652. Italy 2,783 2,451 3,034 2,412 1,451 1,2673. Germany 2,522 1,1734 4,161 3,975 5,708 3,6184. France 1,477 1,594 1,695 2,041 1,182 1,2865. Norway 950 1,028 895 1,005 866 6336. Spain 999 250 - 500 -7. 3weden 748 760 585 459 1,389 9748. Israel 668 465 396 447 277 280iv. Holland 273 350 495 549 348 160

10. Finland 143 353 638 733 1,424 40211. Yugoslavia - - - 1,199 500 632

12. U. K. 262 328 301 318 217 22313. Greece 227 191 160 245 193 18814. Aden 246 147 106 24 -15. Belgium 95 129 126 279 152 4216. Denmark 44 95 138 142 111 5017. Australia 17 65 73 72 34 3818. Lebanon 37 44 46 51 67 7719. Cyprus 14 24 24 18 12 1820. Switzerland 14 16 24 481 171 33221. Djibouti - 3 60 - -22. Libya - 2 5 10 - 523. Malta - - - 3 3 324. Hong Kong & Egypt - - - - 9 1925. Singapore - - 1 - -

26. China 400 820 401 512 205 93227. Saudi Arabia 1,343 741 1,009 1,750 1,308 3,00828. Canada - - 4 8 -

29. Gibraltar 5 - 3 - -

30. Japan 1,192 1,649 2,347 2,865 2,094 1,87831. U.S.S.R. 1,262 1,400 300 3,000 - 2,000'2. Hungary 249 200 - - -

33. Jordan 9 144 - 6 34. Kuwait - - 5 - - 25

Total 64,585 75,745 77,862 79,263 80,448 81,255

Source: National Coffee Board, Addis Ababa.

ANNEX 14Table 2.

ETHIOPIA

COFiEE PROCESSING PROJECT

UNWASED ARABICA - COMPARATIVE PRICE DATA(in U.S. cents per pound - spot New York)

YEARS BRAZIL ETHIOPIASa.ntos 4 Jinni

1952 54.4 50.71953 57.9 52.71954 78.7 72.51955 57.1 50.51956 58.1 55.71957 57.0 49.91958 48.4 44.91959 37.0 36.61960 36.6 34.81961 36.0 34.71962 34.0 32.71''63 34.1 32.71964 46.7 43.71965 44.7 42.81966 40.8 40.41967 37.8 36.81968 37.4 37.51969 40.8 37.81970 54.6 50.0

ETHIOPIA: COFFEE PROCESSING PROJECT, PRICE PROJECTIONS(SPOT NEW YORK, IN U.S. CENTS PER POUND)

60 ,

S5 5 ....................... ETHIOPIAN WASHED ARABICAS:

A.ASSUMPTION-A(10% PROBABILITY)

I I * B.ASSUMPTION-B(407 PROBABILITY)

I I .: *. C.ASSUMPTION-C(40% PROBABILITY)

50 _________*___*._ OD.ASSUMPTION-D(10% PROBABILITY)

4 5 % 1 S~~~~~~~~~~~~~~~~~~~~ .. ,... ........................ ................. .......... . ............... A

/; ~~~~~~~~~~~~~~~~~~~... ...- *---"". -- ! ". .. .................. [......................i

1. >.X '>, I~~% COLOMBIAN MILDS

I X, ~~~~~~~-___ _ /~~~~~~~BRAZILIAN SANTOS 4

40

-* _ 1_ . . _._ . . . . . . . . . . . . .._ ._ . . . . . . . . .. . . . . . . . _.'i

I.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.

35

- . . . ETHIOPIAN UNWASHED RABICAS:

I .ASSUMPTION-1(10O% PROBAB ILITY)

1, :ASSUMPTION-11(40F, PROBAB ILITY)

} III~~~~~~~~~~~~~~~~~~~.ASSUMPTION-111(40T, PROBABILITY)

O I I I I I I } ~~~~~~~~~~~~~~~~~~~~~IV.ASSUMPTION-IV(1 OT, PROBABILITY) II

19 69 70 ` 71 '7 2 '73 7 4 75 's7 6 ' 77 '7 8 7 9 '8 0 '81 '8 2 '8 3 '8 4 '85s a '86 7T '88 '889 '90(

* _b_ *~~~~~~ PROJECTED -

ACTUAL

WORLD BANK - 5364(R)

ANNEX 15Page 1

ETHIOPIA


Cash-Flow Projections and Financial Return Calculations

Introduction

1. The price projections for Ethiopian washed coffee and unwashedcoffee which have been used for the calculations presented In this Annexare those indicated in Annex 14, Chart 1, as Assumptions C and III, res-pectively, i.e.:

Washed Coffee: price per lb, CIF New York spot,descending from 51 US cents in 1972/73 to 45 UScents in 1978/79 and thereafter.

Unwashed Coffee: price per lb, CIF New York spot,descending from 43 US cents in 1972/73 to 38 UScents in 1978/79 and thereafter.

The financial results indicated below for the various sub-projects dependlargely on the differential in prices between washed and unwashed coffeesince, generally speaking, washing station owners would have to purchasecrop from farmers at prices equal to, or higher than, the prices farmerscould obtain by selling their crop for processing into unwashed coffee.Assuming the probabilities assigned to the variouis price forecasts inAnnex 14, Chart 1, it can be shown that the probability of financial resultsbeing as good as, or better than, those indicated below is about 70%. Itis estimated that there is abotut a 107 probability that the differentialin prices would be too small to allow washing station owners to meet theirdebt service obligations. 1/

2. The relationship between various New York CIF prices for washedcoffee and the prices exporters would be prepared to pay producers in AddisAbaba is shown in Table 1 to this Annex; Table 2 shows the relationshipbetween variouis New York CIF prices for unwashed coffee and the equivalentfarm-gnte prices.

1/ As noted in paragraph 6.04 of the main report, these projections andcalculations assume that coffee prices will not be affected adverselyin terms of the Ethiopian dollar by the recent devaluation of the IUSdollar. Therefore, all conversions from prices in US dollars havebeen made in this Annex at the pre-devaluation rate of E$2.50 = US$1.00(rather than the present rate of E$2.30 = US$1.00). Should the presentrate be used for such conversions, the various rates of return esti-mated in this Annex would drop by 2-3%, and the probability mentionedin the last sentence of paragraph 1 of this Annex would increase toabout 20%.

ANNEX 15Page 2

3. The projections also assume an increase in export duties onwashed coffee. At present, both washed and unwashed coffees bear a baslcexport duty of E$150/ton and a surtax dependent on New York spot pricequotations for Brazilian Santos 4 (an unwashed coffee), equal to E$10/tonfor each US cent by which the Brazilian Santos 4 price excee(ds 29 UScents/lb. This system has proved inefficient, especially at times (suchas late 1970) when Brazilian Santos 4 was in short supply and its New Yorkquotation sky-rocketed above corresponding washed coffee prices 1/. IEG isnow giving consideration to modifying the surtax system, to separatewashed and tnwashed coffee. Although no decision has yet been taken, ithas been assumed for the purposes of these projections that the exportduty surtax would remain as at present for unwashed coffee, but would bechanged to be dependent on New York price quotations for Colombian Mamns(a washed coffee of high quality) for washed coffee, eqcual to ElO/ton foreach US cent by which the Colombian Mams price exceeds 33 US cents/lb.The effect of this assumption and the price assumptions indicated in para-graph 1 above is that washed coffee would pay an additional export dutysurtax of E$10/ton over unwashed coffee.

The Sidamo Cooperative Sub-project

4. Table 3 contains a cash-flow projection for the Project Implemen-tal:ion Unit (PIU). Tn view of the uncertainty as to the precise timingof the transfer of coffee washing stations from PTIJ to individual primarycooperative societies, this Projection assumes that all 70 washlng stationsto be constructed under this sub-project would remain indefinitely as partof PIU.

5. It has further been assumed that the price to be paid to participat-ing farmers would be E$40/ton above the farm-gate price they would havereceived for their coffee from hullers, after making allowance for the factthat it is more expensive for the farmer to take his ripe cherry to thewashing station than for him to take his lighter, dried cherry to thehullery. On this assumption, the financial rate of return on PIU's invest-merts in its washing stations - after meeting all PIU's headquarter expendi-tures after the initial construction period - would be about 21%; and PIUwouild accumulate considerable profits after meeting its debt serviceobligatfons to AIDB. These accumulated profits would be used to financereplacement machinery and to assist in the building up of savings fundsfor the proposed cooperatives. However, the precise mix between retainingsuch profits and making higher crop payments to farmers cannot be predictedat this time. Should it be decided, for example, that farmers should bepaid E$80/ton above the farm-gate price they would have received for theircoffee from hullers, rather than E$40/ton, the financial rate of returnon PTU's investments in its washing stations declines to about 157.

The Sidano Private Sector Sub-project

6. Being in the same general area of operation as the Cooperativesub-project, it is expected that the private sector washing station owners

1/ Particularly since little, if any, Brazilian coffee was actually tradedat the quoted prices.

ANNEX 15Page 3

woulrd pay the farmers about the same premium for their crop as indicated inparagraph 5 above. Table 4 shows the cash-flow projection for a typicalstation being completely rebuilt under this sub-project. If the salary

which the owner might expect to draw for supervising the station's operation

is included as an expenditure, the financial rate of return on the invest-

ment is about 17%; if it is not included, but considered as part of the

owner's return on his investment, the financial rate of return on the in-

vestment is about 257.

7. Investments in lesser modifications than complete rebuilding could

be expected to bring higher financial rates of return, particularly in those

cases where the choice is between making such a lesser modification and

complete closure of the station.

The Kaffa Cooperative Sub-project

8. It is the established practice of the two cooperativeg of large

farmers which would borrow under this sub-project, for most of the headquar-

ters' management to be carried out by farmer members at no cost to the

cooperative. Its overheads are, therefore, less than for other sub-projects,

enabling these cooperatives to pay their members a premium of about E$lOO/ton

over the equivalent dry-processing price, while still leaving the cooperative

a reasonable return. A cash-flow projection for a typical washing station

is shown at Table 5, which indicates a financial rate of return of about 17%.

The Kaffa Estates Sub-project

9. The financial analysis for the Kaffa Estates Sub-project is

virtually identical to that for the Sidamo Private Sector Sub-project,

except that the incentive payment which the latter must make to farmers

(E$40/ton) accrues to the estate owner himself. The financial rate of

return is thus somewhat higher, estimated at about 24%.

December 22, 1971

ETHOPIA


Washed Ethopian Coffee: Projected Prices Paid by Exporters in Addis Ababa

vE$/MT clean coffee equivalent unless otherwise stated)

1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79-onwards

Sales RevenuesNew York Price (US cents/lb) 51.00 148.00 47.00 46650 46.oo 45.50 45.00

Equivalent FOB Djibouti (US cents/lb) 48-50 45.50 4450 44.400 43.50 43.00 42.50

Equivalent FOB Djibouti (E$/MT) 2,673 2,508 2,-453 2,425 2,398 2,370 2,342

Handling and Operating CostsAddis Ababa to FOB DjiboutiSundries l/ 151 1142 139 137 136 134 133

Packing and -ispatching 88 88 88 88 88 88 88

Brokerage, transport, handlingand cleaning 77 77 77 77 77 77 77

Sub-total 316 307 304 302 301 299 298

Duties, Taxes and Other ChargesNCB Cess 50 50 50 50 50 50 50Export Duty 150 150 150 150 150 150 150Surtax 2/ 180 150 14C 135 130 125 120

Transaction Tax 3/ 40 36 35 35 314 33 32

Sub-total Th20 370 375 370 364 358 352

Prices Paid by Exporteqs ill ,cuis Ababa 1,937 1,815 1,7771 1,753 1,733 1,713 1,692

1/ Insurance, commission, finance and foreign exchange charges at about 5.66% on IOB Djibouti.

2/ Based on expected prices for "Colombian milds" E- 10/M'? for each US cent/lb by which the spot @ S

price exceeds US cents 33/lb.

3/ Paid bv the exporter to the Treasury, at A rate o-I 2;-% of the purchase price in Addis Ababa.

a! See footnote 1/on page 1 of this Annex.

ETHIOPIA


Unwashed.Ethiopian Coffee: Projected Farm-Gate Prices a/(in E$/MT unless otherwise stated)

1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79

OnwardsSales Revenues

New York spot price (US cents/lb) 43.00 41.00 40.00 39.50 39-00 38.50 38.ooEquivalent FOB Djibouti (US cents/lb) 40.50 38.50 37.50 37.00 36.50 36.oo 35.50Equivalent FOB Djibouti (E$/MT) 2,232 2,122 2,067 2,039 2,012 1,984 1,957

Handling and Operating Costs 1J 497 491 488 486 485 483 482

Value of Production at Farm-Gate 1,735 1,631 1,579 1,553 1,527 1,501 1,475

Duties, Taxes and Other Charges

Part of NCB Cess 2| 25 25 25 25 25 25 25Export Duties 150 150 150 150 150 150 150Surtax 3 160 140 130 125 120 115 110Transaction Tax 4 31 30 29 29 28 28 28Municipal Tax 5 13 13 13 13 13 13 13

Sub-Total 379 358 347 342 336 331 326

Farm-Gate Cash Price 1,356 1,273 1,232 1,211 1,191 1,170 1,149

1 See Annex 16 Table 2.v That part of NCB cess passed on to ICO: Us$0.60 per bag of 60 kg (equivalent to E$25/MT).

Based on expected prices of "Santos 4",see Annex 14 : E$10/MT for each cent (US)/lb by which the spot price of"Santos 4" exceeds 29 US cents/lb.

Paid by the exporter to the Treasury, at a rate of 2%o of the purchase price in Addis Ababa. X

/ Paid by the huller in the project area, at a rate of 1% of the purchase price to the producers. e

a/ See footnote 1/on page 1 of this Annex.

COFFEE P51OCE0020 PROJECT

Cash-FlowPoeto-PoetIpesoto nt(n0 000) (En-loden Road Conairntion and ProJect Prep-Ftioc team coats)

1971/72 1972/73 197(3/74 1974/75 1975/76 1976/77 1977/78 0978/79 1979/80 1980/61 1981/82 1982/53 1983/84 196~4/85 1985/86 1964/07 196 7/86 1988/02 1909'19, 19,:791) 19931/00 1992/99 1993/91 1,941/95

0 CapItal Ite-

Washig Stat-cs C-cts-oto-and replaceasn It-a j/ - - (-I)i- L158 2026 869 - - 164. 381 2806 433 1000 576 - 64 381 218---

Int-tet dorieg Co..atroctioc 55 011 399 - - -- - - - - - --- -------

Sot-Total -- ~1213 227 2390 016 381 211- 77 41 3-- - I0-n 947 Slarer Tecca -ee Co-e-t--c-l-n - - 6 - - - - - - - --- 227 -8 - -6 -7 - --

,ihta i-rtt ti-pnpntre / 10 60 8i 66 90 17 - - - - - - - -------- - - -6

Total - - - 1T70 17 219 99 8 7 11 91 0T 7 m c 37- C1 Th20 7-z 77 -m1--

n. Fiaaa-d byIEGCra-t 170 660 676 640 300 170 --------

AIDB L.a - 1213 2237 1298 - --3-6 - - --------

PM' 0'Raoa-n-ss-c-- - 2) -- - - - 164 _381 210 433 10052 576 - -. 64 381 218-----

Tctal - - -170 1873 391 1090 900 170 T0 0 9 - - 1733 1002 Th578( - -2 31 30177-

II Sec-ret Stea

Isles of Crop ts.p-rter--- (3- - 1009 4:617 8940 11490 11991 11844 11041 11044 L1044 11844 ijOlo, 11844 i86 14411844 118. l4l 94 ni864 t1844 11864 i'8) 9394 3184

Prtass of Crop 9/ - - 0n 9424 6Cio 0422 8785 0638 8630 8638 8638 8638 86398 0638 8638 86j8 8638 0038 0038 8638 8636 8698 6787 2468

Waahiag Station Op-eti,,g Coa- 5/ - - 158 964 901 1717 1049 i4 1049 16 49 16 49 10 49 16 49 1049 1 049 lOn g 1049 09 1049 iO4b 1049 1649 1649 825 300

Rap-riasatal Dryer Opertto-- - 10 12 12 12 12 12 12 12 12 1l --- -----

SQ Operting Owpecditcr 9/ - - - - 280 250 530 467 462 4}0 370 524 647 447 418 370 524 887 447 4i6 370 370 200 100

MarketIng Costa to Addis Ababa 4/ - 4 187 387 475 491 697 49o 490 490 491 691 490 491 491 491 490 490 690 490 490 3805 ion

Sob-Total … (4-)--- -- O-56( 8105 9I770 -101-76 1-0073 10651 1 T 9 -10619 05937 013)7 10636 10624 10597 19167 1071 901) '5907 109 007107 7237 7

0. -trnlog Toc- )73) - (4_7 - - (5)- - 74 427 770 164 ii18 1188 1195 1225 1900 1131 1200 1220 1231 1297 11.43 1220 1220 1251 1290 1297 1019 376

Roo:Clclto -/75 - 7 ()- - - - (:158) (4952) ):,47) 770 1262 954 907 977 1225 1,285 698 206 646 1251 1797 919 809 1002 1251 1237 1297 1019 376

d. Debt Derice FnnIlFt fPtr 1

RePaYttet of 0TB1-0ke 9/ - - - (6:- - - - 644 703 705 75 705 70 5 705 70 5 705 791 75 7315 (05 -----

.Net Os-o

(after debt esei-c),T)-s)) -(7 - 74 421 075 557 413 489 491o 520 500 424 909 515 544 592 1143 1220 1270 1Ž51 1297 1297 151,~ 376

Cash inn 9/ -d7/7-(217 - - 74 427 325 55 P4,9 102 272 990 o8n (7, (491) (nl) 540 592 979 839 1002 1251 1291, 1297 1019 376

Co-lttee Cast Pibsito . 74 501 826 1303 1632 1734 2064 2526 9104 314c '691 5359 965 367 464e 5495 6497 7748 9045 10341 1136t 11237

17 71 W-shigOoto; atiI ttpt-,ty of100 M.7T.; se A..w. 7 Tbhle I for dettle of costs per station.7/ 7cr a detailed hresk-dce, seAnne,- Talel 1.3/ Oee Atsc 15, ToOls Ifor prices nod A-te 12 for P-odneti- -tti

At 418677 oe the ao 0 t pric for tni-l-et aenoe f Fdrttd cherr, Floe aln1-- of 045/9T for Caner tra..sp-rt I thc -nhito tItScc 1eeAne 15, 7t-le 2 fe-1 tce2

o pexSdOs- ct-c7, Tblc2f-rdelti1scf 2otLs peretatOct

7/ het o oeansoe i eprernIcAdisAhbo --clesnonpoleat eil tIe Pr-iet tre (E$15-18/MT, Ot 1% cf p-rha- prite fC orpFetCrer-o -ex t Ox dL- AbohaI55 I

8/ 0~hs epectd cOt ett -. 2 ntes- coh-CI- -eoryiecw d be sitter disltibxte t, Caera as inceasd crp ayc-tte -r haednd -c to ecprevtneaenntoltv:, cd en e-tabliohox. It II also e-ycted thne PIC cAl

oetc::.t en Cleave (thr-ng: A110 -r ste-ite) .apital -op-d,t--r foe rl teee. .less so an Ic sei::, n-t ehe -htfl-Cl

EIlHIOPSA

COFFEE PROrOS TNC PFROl--

Cash Flowr Projection: ldeso Private Sector -i lb-Project l Et)(Based on .odel washing siatton of 100-too cacacityJ

1978'79 l983/84 1981/991972/73 1973/74 1974/75 1975/76 1976/77 1977/78 I: 1951/1 19h23 then ig63/8 1987/88 then 1992193

I Capital Itetsa) Expenditures 1/

Washing Station Construction 57 900 - - - - - 109Rplaent tn-- yar lif - 10,900 10,900 - 10,90-

"--10 ye, life ( Total 57,900 _ - - _ lO,iOO - 1,900 10,900

b) Financed by 2/ o19mT;T= - , -10 17,900 -

Washing Station Owner (2 1tr 5,900 - 10,900 - 02 bO 10,900

If. R-ecurrent Itet

a) I o n o - 145,200 177,400 175,300 173,300 171,300 169,200 169,200 169,200 169,200 169,200Sl of crop Eto eporters -

h) O a Exedl5/ - 108,600 131,700 129,600 127,600 125,500 123,400 123,400 123,400 123,400 123,400Washing Station ocerating Costs 61 - 23,500 24,9o0 24,800 24,800 24,800 24,800 214,800 24,800 24,800 24,100Iherketing Cost. to Addis Abab. 77 - 5s,10 7,200 7,200 7,100 7,100 7,000 7,000 7,000 7,000 7,000T coma e Tig 8C ( 200o) - 300 400 400 400 600 600 600 800 BOO

n _ Total (T2T0 137,900 164,000 162,000 159,900 157,hO0 155,600 155,oO0 155,hO0 156,000 15b,000

)Oserating Income (3) 1,0(after ta, before depreciation and debt service) 200 7,300 13,400 13,300 13,400 13,500 13,400 13,400 53,4oo 13,200

d) Debt Senrtic 1,900 6,800 6,800 6,800 6,800 6,800 6,800 800 5,600 - -Re-payment-of- AIDB loans ,90 680 ,o ,o

e) Net Inoome (4)(after taxes and debt service, occluding depreaiation) (1,700) 500 6,600 6,500 6,600 6,700 6,600 12,600 7,800 13,200 13,200

III. Saturn on Cital (aftrn t1a) ) (57,700) 7,300 13,400 13,300 13,400 2,600 13,400 (15,400) 13,400 2,300 13,200

IS, Cash Plow ,0 3 120Lile (4) less line (2) (19,100) 500 6,600 6,500 6,600 (4,200) 6,600 1,700 7,800 2,300 13,200

Rate of Retorn = 17% If the owner's smcal rates of E$ 4,200 is ecludod from costs, the rate of return rises to 251

NOTE: Financial acelysis for haffa Estate Stb-Project is Virtually the scme, iththe invcntive psyel1 f-or the crop (E$ 40/MT) e-cioded. The rate of return is then 24%.

1/ See A-oem 7, Table I f- further defails.

2/ Covering 701 of initial cocstriltion cost and 1005 of the ocst of replacing 10-year life itecs inl 1982/83.

3/ Co-ering 309 of iciti&] con-tructto. cyst and 1005 of the cost of re-la-iOg 5-year life itens in 1977/71, 19H2/M3 a,d 19817'PP.

4/ Using Assumtion C (see dnnex 14) for world -rices of washed coffee: after adju,st-tnn for o r-tecs' costs and -otion s:lh most (see h:eol5 , able 1

5/ At E$ 40/MT ever thoe far ,ate crice for eqoivalest an:,!: of dried ch-ery, don allowance of E$ 45/M- for far-ec trratiport to the wasting station (c- sverage): usicg Asn-wtion III (see A-ses 14) for world -eLves of dry-mrcce-ned coffee

6/ See footnote 2/ to Annex 16, T.hle 4 for further details: includes iscome for owner of Et l4,200 per a,nnuc

7/ Costs an far an sale to occort, es in Addic Ababa: is.olv. sc 1- icipal tames in the rojeot areas (E$ 15-17/MR", at l of purchase -rice of croc from fa-cers) and transcort to Addle Ababe (Et 51Mt) h

8/ At these levels of income - 90 of set oceraticg i-rome after depreciatio- (averaging E$ 5,500 per ann-sn) and itereni cn loans inl 1972'1 owner as write-off intercet asid cn AIDS loan agai-nt iccome fret his erlsticttaior

9/ At 9-1/2r interect, the isnitia lo.n cepaid over 10 y-nrs incluling 1 yYonc of gn.ce. ubhseq-Cft loon repaid o-co 5 ye, InClwiiy, 1 c yea of g,r.c.

E T H I C P I A


Cash-Flow Projection Kaffa Cooperative Sub-Project (in i$)

(Based on model washing stations of 100-ton capacity)

1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1982/83 1983/84 1987/88 1988/89through through through1981/82 1986/87 1992/93

I. Capital Items

a. Expenditure /

Washing Stations Construction 57,900 - - - - - - - _ - -

Replacement itens - 5-year life - - - - - 10,900 - 10,900 - 10,900Replacement items -10-year life - - - - - _ - 17,900 - -

(1) - _ _ _ - 10,900 _ 28,800 - 10,900 _

b. Financed by

AIDB loans 2/ 410,500 _ - - - _ - 17, goo - -Cooperative / (2) 17,4o00 - - - 10,900 _ 10,900 - 10,900

57,900 - - - - 10,900 - 28,800 - 10,900 -

II. Recurrent Items

a. Incone

Sale of crop to exporters 4/ - 145,200 177,400 175,300 173,300 171,300 169,200 169,200 169,200 169,200 169,200

b. Operating Expenditures

Purchase of crop 5/ - 113,400 137,700 135,600 133,600 131,500 129,400 129,400 129,400 129,400 129,400

Washing Station Operating Costs 6/ - 17,700 19,300 19,300 19,300 19,300 19,300 19,300 19,300 19,300 19,300

Marketing Costs to Addis Ababt 77 - 5,800 '7,200 7,200 7,100 7,100 7,000 7,000 7,000 7,000 7,000

- 136,900 l64,200 162,100 160,000 157,900 155,700 155,700 155,700 155,700 155,700

c. Operating Income (3) - 8,300 13,200 13,200 13,300 13,400 13,500 13,500 13,500 13,500 13,500

d. Debt Service

Repayment of AIDB loans | 1,900 6,800 6,Soo 6,8oo 6,8oo 6,0oo 6,8oo 800 5,600 - -

e. Net Income (after debt service,excl-ding depreciation) (4) (1,900) 1,500 6,4oo 6,400 6,500 6,6oo 6,700 12.700 7,900 13,500 13,500

III. Seturn on Capital

Line (3) less line (1) (57,900) 8,300 13,200 13,200 13,300 2,500 13,500 (15,300) 13,500 2,600 13,500

aRte of Retorn - 17%IV. Cas6h flow

Line (4) less line (2) (19,300) 1,500 6,4oo 6,4oo 6,500 (4,300) 6,700 1,800 7,900 2,600 13,500

/ lee Annex 7 rable 1 for further details.i/ Covering 70% of initial constiuntioui cont a-d 100% of the cot of replacing 10-year life items in 1982/83.

3/ Covering 30% of initial cons tretio,l cost and 100% of the cost of replacing 5-year life items in 1977/78, 1982/83 and 1987/88.Slsing Ass=mption C (see Annem 14 ) for world prices of washed coffee after adjustments for exporters costs and duties and taxes (see Annex 15 Table 1 ).

2/ At E$l0Q/MT over the farn-gate price for equivalent anonoit of dried cherry, plus allowance of E4$5/YT for farmer transport to the washing station (onaverage); using Assmption TIT (see Annex i4 ) for world prices of dry-processed coffee.

i/ See Footnote 2/ to Akter 16 Table 5 for further details; includes allocation of Cooperative IIQ expeses.

LI Costs as far as sale to exporters in Addis Abaha; involves municipal taxes in the project ares (5715-171MT, at I( of purchase price of crop from farmers) L

end transport to Addis Ababh (Ft55/MT). I x3/ Et 11/2i% interest; the initini leo1n renaid ove 10 years, including 1 year of *race. Flu,equent luon repnid yvov D rS cluIiu- ye -c 0 ee.

ANNEX 16Page 1

ETHIOPIA


Economic Rate of Return Calculations

principal Assumptions

1. Benefits. In the absence of specific plans to develop the areasto be opened up by the roads to be constructed under the project, otherthan the proposed construction of coffee washing stations, benefits fromthe project included in the economic rate of return calculations have beenrestricted to the increased value of coffee exported as washed coffee overcoffee exported as unwashed coffee; and to the possible increase in coffeeproduction that the project might encourage, namely, some 1,000 MT of un-washed coffee per annum eventually (para 6.01 of the main report). Inview of uncertainties whether such increased production would, in fact,occur, it has been assumed, for the purpose of this analysis, that there isa 50% probability that it would result, and an equal probability that itwould not.

1/2. Coffee Prices. - Four projections of world market prices have beenmade for Ethiopian washed coffee, and a further four for Ethiopian unwashedcoffee, and probabilities of their occurrence have been assigned to each, asexplained in Annex 14 and shown graphically in Chart 1 to that Annex. TheProbabilities assigned to the two sets of projections are largely, thoughnot completely, independent of each other and are to be interpreted asrelating to the price differentials between washed and unwashed coffee,rather than to absolute values. Table 1 to this Annex shows the variousFOB Djibouti prices of washed coffee, and the various costs of handling itfrom washing station to FOB, which correspond to the various projectedworld market prices for Ethiopian washed coffee.

3. Table 2 shows various "economic values" of sun-dried coffeeat the farm-gate, corresponding to the various projected world marketprices for Ethiopian unwashed coffee. These "economic values", which areequal to FOB unwashed coffee prices, less dry processing and handling coststo FOB (net of taxes and duties), are used in the economic return calcula-tions as the "economic cost" of the ripe cherry used in the washing process.

1/ As noted in paragraph 6.04 of the main report, these projections andcalculations assume that coffee prices will not be adversely affected(in terms of the Ethiopian dollar), by the recent devaluation of theUS dollar. Therefore all conversions from prices in US dollars havebeen made in this Annex at the pre-devaluation rate of E$2.50 - US$1.00(rather than the present rate of E$2.30 - US$1.00). Should the presentrate be used for such conversions, the various rates of return estimatedin this Annex would drop by 2-3% and the probabilities mentioned inparagraph 7 of this Annex would drop by about 10%.

ANNEX 16Page 2

For it is estimated that it takes the farmer as much time to prepare hissun-dried coffee (involving only one or two pickings, but requiring constantatl:ention during the drying process), as it does to harvest only ripe cherry(perhaps in 7 or 8 pickings).

4. Labor. Unskilled labor is available in the project areas at aboutE$1.00 per day outside the coffee season, and E$1.25 per day during thecof'fee season, which figures have been used for the opportunity cost ofunskilled labor utilized in the project.

5. Land. The opportunity cost of land occupied by washing stationsit:es, about one hectare each, has been taken as its current rental value,namely, about E$600/ha per annum.

Rates of Return

6. Table 3 shows the rate of return calculation data for the SidamoCooperative Sub-project for one of the assumptions of world market pricesfor washed and unwashed coffee. The rates of return for the 32 combinationsof prices, with and without the increased production mentioned in paragraph1 above, are shown graphically in Charts 1 and 2 to this Annex. Applyingthe probabilities assigned to these various assumptions, Chart 3 shows theresult of the calculations in the form of a curve from which can be readoff' the probability that the rate of return would exceed a certain figure.For the other sub-projects, only the rate of return calculation data areshcown in Table 4 (Sidamo Private Sector Sub-project 1/ and Kaffa EstatesSub-project) and Table 5 (Kaffa Cooperative Sub-project), respectively, butthe data is given to cover all. the assumptions made about world prices.

7. The results of the calculations can be summarized as follows:

Probability thatMean Rate Rate of Return

Sub-Project of Return Exceeds 10%(%) (%)

Sidamo Cooperative 17 85Sidamo Private Sector 21 95Kaffa Cooperative 18 95Kaffa Estate 21 95

1/ Calculations for the Sidamo Private Sector Sub-project only apply tocases where stations are completely rebuilt. Rates of return for minormodifications should normally be higher, very much so when thealternative to a small investment might be closing down completely.

ANNEX 16Page 3

The rates of return for the cooperative sub-projects are generally lowerthan for the others because only the former involve investments in road con-struct:ion. The relatively high overheads for PIU in the Sidano CooperativeSub-project compared to other enterprises and cooperatives, are largelyoffset in these calculations by the increases in production which are likelyto result from the heavy road investments in Sidamo Province.

December 22, 1971

ETHOPLA

COFFEE _ROCESSINO IRJECT

Washed EthoPian Coffee! Cost from Factory to FOB Djibouti Corresponding to Various New York Spot Prices(in EW .clean coffee equivalent unless otherwise statedJ

Sales RevenuesNew York Spot Price (US cent/lb) 53.00 52.00 51.00 50.00 ° 9.00 48.50 48.00 47.50 67.o00 46.50 46.00 45.5o 45.oo h4.50 44.0oEquivalent FOB Djibouti (US cent/lb) 50.50 49.50 48.50 47.50 46.50 46.00 45.50 45.00 44.50 44.00 43.50 43.oo 42.50 42.00 41.50Equivalent FOB Djibouti (EV/MT) 2,783 2,728 2,673 2,618 2,563 2,535 2,508 2,480 2,453 2,425 2,398 2,370 2,362 2,315 2,287

Cost from Factory to FOB DjiboutiSundries 1/ 158 154 151 148 145 143 142 140 139 137 136 136 133 131 129Part of NCB Cess 2/ 25Packing and Dispatching fromAddis Ababa to Djibouti 88 - 2L5 2L5 265 265 245 245 265 245 245 245 245 245 2h5 245Brokerage, transport, handfing andcleaning in Addis Ababa 77.Transport to Addis Ababa 55

Total 403 399 396 393 390 388 387 385 384 382 381 379 378 376 374

1/ Insurance, comission, fimnce and foreign exchange charges at about 5.66% on FOB Djibouti.

2/ That part of NCB cess devoted to NCB's direct costs: ESl15Oper bag of 60 kg out of a total cess of E$I3.Oper bag (E$ 25/14T).

a/ see foutnotc 1/on page ' this .nne. : c

ETHIOPIA

COFPEE PROCESSING PROJECT

Unwashed Ethiopian Coffees: Value of Production at Farm-Gate

Corresponding to Various New York SpotPrices a/

(in E$/MT unless otherwise stated)

Sales Revenues

New York spot price (US cents/lb) 43.00 41.00 40.00 39.75 39.50 39.25 39.00 38.50 38.00 37.50 37.00

Equivalent FOB Djibouti (US cents/lb) 40.50 38.50 37.50 37.25 37o00 36.75 36.50 36.oo 35.50 35.00 34.50

Equivalent FOB Djibouti (E$/MT) 2,232 2,122 2,067 2,053 2,039 2,025 2,012 1,984 1,957 1,929 1,901

Handling and Operating Costs

Sundries 1/ 126 120 117 116 115 115 114 112 111 109 108

Part of NCB Cess 25Packing and Dispatching from Addis

Ababa through Djibcuti 88Brokerage, transport, handlinlg and ) 371 371 371 371 371 371 371 371 371 371

and clearing (Addis Ababa) 56

Transport to Addis Ababa 45

Processing in project areas / 107Transport to prccessing factory j/ 50

Sub-total 497 491 488 487 486 486 485 483 482 480 479

Value of Production at Farm-Gate 1,735 1,631 1,579 1,566 1,553 1,539 1,527 1,501 1,475 1,449 1,422

LI Insurance, commission, finance and foreign exchange charges at about 5.66% on FOB Djibouti.

That part of the NCB cess devoted to NCB'sdirect costs: E$150per bag of 60 kg out of a total cess of E$3.00 per bag (E$25/MT). (As per Table 1).

Hulling, hand-picking, storing and bagging.i By mule, for an average distance of 10 km.

_ ;ee footnot'e '" orn r-Ag9 'of thi s Annoy. (

ETHIOPIA

COFFEE PROCESSIrNC PROJECT

Ecenoaj Rate of Retur A-a1yai.: Sidao Cooperative Sub-Poj-ct'(Is E$ IIIvoice erheseils statd)

1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1979/79 1979/8I 1980/81 1981/82 1982/93 1983/04 1984/85 1985/86 1906/87 1987/RH 8988/89 1989/90 1990/91 1991/92 1997/93 1991194 1994/95

I. caste

Wee 2~~~~"t'"/ - HH 58 2,026 869 - - 164 301 218 - -433 1,002 576 - -164 381 218 - - ---

Wh:ieo etettoo`ti.o-_rort1oe-2,596 607 (1,410) -

PSI H! 840 462 473 523 542 420 475 433 433 413 370 469 479 400 399 378 469 420 420 399 370 379 880 100

Wsahig IrficoopertOOorest- - 156 504 901 1,017 10,49 1,049 1,049 1,049 1,049 1,049 1,049 1,049 1,049 1,049 1,049 1,049 1.049 1,049 1,049 1,049 933 300

Paeerred sa.ter....e 67- - 134 134 134 134 134 134 134 134 134 134 134 134 134 134 034 134 134 134 134 lo 40

ATDBHC-teC7/ 10 0 20 21 15 11 10 11 10 10 10 1I 5 5 5 - -- --- -

TrespHet HE rherYs to Wautivo vcttov 2" - - 27 117 730 297 315 315 314 215 315 315 215 315 315 313 315 315 315 315 315 315 .IF9 90

Rob-torl. 230 4,236 3,309 009 1,922 1,870 2.147 2,322 2,159 1,921 8,870 2~410 2,922 2,499 1,902 1,073 2,131 2,799 2,136 1,897 1.868 1,868 1,978 530

V~~~~~J-t ~ ~ ~ ~ ~ ~ ~ ~ - - 97 ,15 7,21 1,10 1057 0,2 1,25 1,35 10,325 10,325 10.325 10,325 10,325 10,322 10,325 10,325 10,325 10,325 10,322 10,325 8,113 2.950

OhH.I 10/t F- - 233 1.001 1,940 2.515 2,653 2,646 2.646 2,646 2,646 2,646 2,646 2.646 2,646 2,646 2.646 2,646 2,646 2,646 2.646 2,646 2A079___756

006-total1 - 1,212 2,106 9.060 12,593 13,160 12,971 12,971 12,971 12,971 12,071 12,971 12,971 12,971 12,971 12,971 12,971 12,971 12,975 12,971 12,971 18,192 3,706

.tota (1) 230 4,230 4,601 5.915 11,690 14.471 15,307 11,293 15,130 14,092 14,149 15,301 15,896 15,470 14,873 14,144 12,102 15,275 15,102 14,068 14,039 14,839 11,670 4,236

II. Benefits

FOB Value oI eehed Coffee Pr.odution - - 1,571 6,148 12,368 15,027 16,590 16,394 16,394 16,394 16,394 16,394 16,394 16,394 16,304 16,304 16,394 16,304 16,3e4 16,3964 16,396 16.394 12.881 4,604

Net valu ofOcrae dyp-pro..eeaed coOffe - - 116 727 332 432 633 044 1,055 1.155 1.955 1,155 1.055 1,152 1,055 1,055 1.051 1,155 1.055 1,055 1.055 1.0155 1,055

Total (2) - - 1,521 6,546 12,595 16,159 17,022 17,027 17,230 17,449 17,449 17,449 17,469 17,449 17,449 17,449 17,449 17,449 17,449 17,449 17,449 17,149 13,036 5,739

1171. Net Cost/BO..eOil t Itre [7I' - 17 (230) (4,236) (3,080) 649 905 1,600 1,715 1,734 2,100 2,557 2,600 2,068 1,553 1,979 2,576 2,605 2,347 2,179 2,342 2,581 2,610 2,610 2,366 1,503

tonmolte of holt- 19*

NOTE. fvor differeo Prior Proivoteiv fo oIolohd vd nv-acte coffl hove hee. -cdv Aue -4e 14, chart). joi-oo, for Ito Poopole offthie.aoocto,p14i Proje-tto -IfTO ad for -vostd and nuttd -off-c r-p-ctrly hove - -rold.Graphicrepreectathoc ofth r_e frtrtoartlh Itooterprac_lvec -t-l about pri-e of -ahod cad o-oaehd oufCe Ir -- H i. ~hatt 1, 2 sad 3 of ro-e

1/ For sashed .. f fee aely, -aladis9 the propoerd i ... etreent teeer e tal irc.t2/ Inldspeidcrpleremen of depreiated itree; see Aunee 7, TehIs 1 for detaile of costs pee etati-7/ See Acne 6, Table 1.4/ teetdts sdvleo sele rvde nehrIe-ejaehaehs alded feo the total roh rest i-c ic Accec 0, Tahle 1.3/ trldeeteajetdr-ere of -ac -np pree-ids.i h,.bptj.~b-b.

6/lfiree tcros incude is roe, d-cratrucior 00-1 th-oogh 197/(2/. At E1n70/ho,/Yr, iacliodio deP-eojtlc- Ifco-enot--eo-dj -eot

71 Hoe ppertioeUect of ... ete of AID1 credit .,it neded for project.0/ Al averos rost of R$45/efT a clean eoffsquvler

3/floe alor of0Cc crp yr the far-ovte h- btrot eaten tL itc 72,1 vale l dr p...e... coffee, mo rctiondncel-eot c(.o.oonvltnoodGm a ot-

10/ other -tdy to ,, --e ooot n l cj- b-e (< of Ute FtB uto- oC the harne orp se -oo 1/, Tbtlo 1I

32/ ericee adlftnal . trtlot ofdew oc-ooe..el zoffe- of 107 dl tod 1074/75, pot of i. 1975/t/ 300 Ifi ion 1976/77, 40ot 1r n q7/fA, /37 0ev i)0/'o, 002 7~ in l`)100t on 0_,2 P or 17/Rt vd tthreftvr Net -a1o 41 tk-et

- nfcr-g'tt coo (tpr te 16, shlv 2) teoc coo of p-od-tn- no fuv-oto,' nooedo f$9I2/17T

EThiICP1 A

CO'FEE PkOCESSING PROJEC-

Economic Rate of Return Calculations: Sidwno Private Sector Sub-Project

(bancd onandel -ruttlb suatlon ox 100-ton capacity)1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/ 1981/82 1982/83 1983/84 1984/85 1987/88 1988/89

thrug tFhFough Thog1980/81 1986/87 1992/93

S Costs

Washing Station Construction i/ 57,900 - - - - 10,900 - - 28,8oo - - 10,900 -

Washing Station operating Costs g/ - 23,500 24,8cc 24,8oc 24,8cc 24,8cc 24,8cc 24,800 24,8cc 24,800 24,8oc 24,800 24,800Value of crop at farm-gate %/

Assmption I - 133,300 161,4oo 158,800 157,400 156,200 156,200 157,400 158,800 16o,loo 161,4oo 161,400 161,400Assumption II _ 133,300 161,4oc 158,800 157,4cc 156,21c i56,20c 156,200 156,200 156,2oc 156,2oc 156,2o0 156,200Assumption III - 133,300 161,4oo 158,800 156,200 153,600 151,000 151,000 151,000 151,000 151,ccc 151,000 151,000Assumption IV - 133,300 158,800 153,600 148,4oo 145,700 145,700 145,700 145,700 145,700 145,700 145,700 145,700

Transport to washing station 2' - 3,600 4,500 4,500 4,500 4,5co 4,5oc 4,500 4,500 4,5o0 4,5cc 4,500 4,500

Other costs to PUB srrAsrsption A - 31,400 39,000 38,800 38,700 38,500 38,4cc 38,4cc 38,4c0 38,4cc 38,4cc 38,400 38,4ooAssumption B _ 31,200 38,700 38,500 38,4oc 38,200 38,100 38,100 38,100 38,100 38,100 38,100 38,100Assumption C _ 31,c00 38,4cc 38,200 38,100 37,900 37,800 37,800 37,800 37,800 37,800 37,800 37,800Assumption D - 30,700 38,10c 37,900 37,800 37,6co 37,400 37,400 37,400 37,400 37,4cc 37,4c0 37,400

AIDB costs 2 1,700 800 500 500 500 500 300 300 300 -- -

PItU costs 7/ 3,ccc 1,Dcc 500 - - - - - - - - _ _

II. Benefits

FOB value of crop 2Assumption A - 209,4cc 256,300 253,500 250,800 248,ooo 245,300 245,300 245,300 245,300 245,300 245,3cc 245,300Assumption B 205,000 250,800 248,ooo 245,300 242,500 239,8cc 239,800 239,800 239,800 239,800 239,800 239,800Assumption C - 2cc,6o0 245,300 242,500 239,800 237,000 234,2cc 234,200 234,2cc 234,200 234,200 234,200 234,200Assumption D _ 196,200 239,800 237,000 234,200 231,500 228,700 228,700 228,700 228,700 228,700 228,700 228,700

ITT, Net Cost Benefit Stress (Demonstrationexample o y)

Using Price Assumption ITT for drycoffee and Price Assmption C forwashed coffee: (62,600) 7,400 15,200 15,700 15,700 4,800 15,800 15,800 (13,000) 16,100 16,100 5,200 16,100

Rate of Return = 19%.

NOTE : The analysis of a model washing station on an estate in the Kaffa Estate Sub-Project is almost identical to the above.

12' Including replacement of depreciated items. b,or further details see Annex 7, Table 1.2/ As per ?_J stations, see Annex 7 Talle 2, plus the following itens:

(a) depreciation and running costs forhalf of a persosnel carrying vehicle - E$ 2,500 per annum

(b) office machinery - F$ 150 " (c) secretary - F$ 2,400(d) audit - E$ 6co(d) proportio. of ownerls time - f " "

TOTAL - 089"f"So that operating costs are about 1;23,500 in the first year 980 MT throu..hput) and E$24,800 in subseqolet years (100 toes lhru-hrst t ).

3/ Value per ton as per Adnes 16 Table 2 , for the varying assumption regarding world prices of dried coffee (see Annex ; except that deduction for transport to the factoryis only EP15/1iT, based on average d.sttance from farm-gate to washing station of 3 km for the Sidamo Private Sector sub-project.

4/ At E$45/MT, since C MT of red cherry required lo prod:ce 1 MT uf cleai coff-ee eqivale,ct, as opposed to 2 MV of dried cherry.5/ As per Annex 16 Taile 1 for varyin-g assumptions regarding world prices of washed coffee (see Andex 14).5/ Appraisal of, loan, applicatiol and subsequceu,t supervision.7/Survey of site, adaption of stanldard desirn to suit site characteristics and s-pervision of construction and initial operation.

E T H I O P I A


Economic Rate of Return Calculations: Kaffa Cooperative Sub-Project(in E8

(Based on model washing station of 100-ton capacity)

1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1981/82 1982/83 1983/84 1984/85 1987/88 1988/89through tfhrough - through

1980/81 1986/87 1992/93

I. Costs

Washing Station Construction 57,900 - - - - 10,900 - - 28,800 - - 10,900

Washing Station Operating Costs - 17,700 19,300 19,300 19,300 19,300 19,300 19,300 19,300 19,300 19,300 19,300 19,300

Road Construction tean38,000 - - - - - - - - - -'

Feeder Road Maintenance i/ - 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,4ool100 1,400 1,4oo 1 1,400

Value of crop at farm-gate 1,o ,o ,o 14o 14o I,o

Assueption f a 133,300 l61,4oo 158,800 157,400 156,200 156,200 157,400 158,800 160,100 161,400 161,400 161,4oo

Assumption II - 133,300 161,4oo 158,800 157,400 156,200 156,200 156,200 156,200 156,2oo 156,200 156,200 156,200

Assumption III V 133,300 161,400 158,800 156,200 153,600 151,000 151,000 151,000 151,000 151,000 151,000 151,000

Assumption IV - 133,300 158,800 153,600 148,400 145,700 145,700 145,700 145,700 145,700 145,700 145,700 145,700

Transport to Washing Station | - 3,600 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,5oo

Other costs to FOB Z/Assumption A _ 31,400 39,000 38,800 38,700 38,500 38,400 38,400 38,400 38,400 38,400 38,400 38,400

Assumption B - 31,200 38,700 38, 500 38,400 38,200 38,100 38,100 38,100 38,100 38,100 38,100 38,100

Assumption C - 31,000 38,400 38,200 38,100 37,900 37,800 37,800 37,800 37,800 37,800 37,800 37,800

Assumption D - 30,700 38,100 37,900 37,800 37,600 37,400 37,400 37,400 37,400 37,400 37,400 37,400

ATDB Costs 8/ 800 400 300 300 300 300 100 100 100 - _ - _

PIU costs |/ 2,000 2,000 2,000 300 - - - - - - - - -

II. Benefits

FOB value of crop 7/

Assumption A - 209,400 256,300 253,500 250,800 240,000 245,300 245,300 245,300 245,300 245,300 245,300 245,300

Assumption B - 205,000 250,800 248,000 245,300 242,500 239,800 239,800 239,800 239,800 239,800 239,800 239,800

Assumption C - 200,600 245,300 242,500 239,800 237,000 234,200 234,200 234,200 234,200 234,200 234,200 234,200

Assumoption D - 196,200 239,800 237,000 234,200 231,500 228,700 228,700 228,700 228,700 228,700 228,700 228,700

III. Net Cost/Benefit Strewn (Demonstration example

only )Using Price Assumption III for dry coffee and

Price Assumption C for washed coffee (98,700) 11,200 18,000 19,700 20,000 9,100 20,100 20,100 (8,700) 20,200 20,200 9,300 20,200

Rate of Return: 16%

1/ Including replacement of depreciated items, For further details see Anne- 7, Toble 1.

As per 'I' stations, see Annex 7 Tablu 2 p;us the following items

(a) depreciation and running costs for quarter

of a personnel carrying vehicle - FS 1,200 per annum

(b) office machinery - E$ 100 "s H

(c' proportion of HQ staff (inclunding audit) - E 3,000TOTAL *- __ __

So that operating costs are about E$17,700 in the first year(80 MT throlghpuQ) and absout EP1o,300 in subsequent years (100 tons throughput).

3/ On average involving 2 kn of t'eeder roads (_ E$c,q00/kc, 3 kmo of factory access roads (G It9,4oo/k) and minor river crossings ().$2,200) for a total of E$3?,000.

i/ 2 kI n E$700/km/year.5/ Value per ton as per Annex 1G Tahle 2 , for the varyi_ assumpti-s reg-arding world prices for dried coff.. (see Annex 14 ! except that the deduction for transport

to the factory is only E$15/MT, hased on average distance from fas-gate to washing stations of 3 ki for the Kaffa Cooperative Sub-Project

6/ At E$45/MT, since 6 MT of red cherry required to produce 1 MT of clean coffee equivalent, as opposed to 2 MT of dried cherry.

As per Annex 16 Table 1 , for varying assumptions regardilng world prices for washed coffee (see Annex 14¾

j Appraisal of loan application and subsequent supervision.

a/ S,r-ey of site, adaption of standard design to suit site characteristics and supervision of construction and initial uperation.

ETHIOPIA: COFFEE PROCESSING PROJECTRATE OF RETURN FOR SIDAMO COOPERATIVE SUB PROJECT(ASSUMING NO INCREASE IN COFFEE CROP)(RATE OF RETURN) 25_

ASSUMPTION A (l0o- PROBABILITY) ^

20% -20%

ASSUMPTION B (4096PR BABILITY) t*s'Iss *gs

15% 15%

ASSUMPTION C (40% PROBABILITY) ssS o S oos

10% --" - -10%

ASSUMPTION D (10j% PRO BABILILTY go*

5% %0 IIs'-'5%

0'~~~~~~1L ~~~~~'''' toot%O0 _ _0

-5% -- 5% >ASSUMPTION I ASSUMPTION 11 ASSUMPTION III ASUMPTION IV I z

(10% PROBABILITY) (40% PROBABILITY) (40% PROBABILITY) (10r PROBABILITY) - X

NOTE: ASSUMPTIONS A,B,C AND 0 REFER TO ETHIOPIAN WASHED ARABICA PRICES AND ASSUMPTIONS 1, 11,111 AND IV

REFER TO ETHIOPIAN UN-WASHED ARABICA PRICES. SEE ANNEX 14 FOR DETAILS. IBRD - 5387

ETHIOPIA: COFFEE PROCESSING PROJECTRATE OF RETURN FOR SIDAMO COOPERATIVE SUB-PROJECT(ASSUMING INCREASE IN COFFEE CROP)

30% (RATE OF RETURN) 30%

30%~~~~~~~~~~~~~~~ASMTO A (10 PRB_IIY 30%

ASSUMPTION B (40% PR ILIT)ASSuMPTION A (10PRoBATBI LITY)

25 % l,,, " -1 2 25%

ASSUMPTION A (40% PROBABILITY) \ 0-- "'IlS20%

20% 2,,,,,, lit '. I - '"' . _ _ 20%ASSUMPTION C (40% PROBABILITY)\, go

ASSUMPTION D (I1O0, PROB, EILITY) _go _^|_

15% .UIj**11- 15%

10% _o10%

5%- 5%

ASSUMPTION I ASSUMPTION 11 ASSUMPTION 111 ASSUMPTION IV(10% PROBABILITY) (40% PROBABILITY) (40%, PROBABILITY) (10% PROBABILITY) n >

I z

NOTE: ASSUMPTIONS A,B ,C AND D REFER TO ETHIOPIAN WASHED ARABICA PRICES AND ASSUMPTIONS I, 11,111 AND IV m m

REFER TO ETHIOPIAN UN-WASHED ARABICA PRICES. SEE ANNEX 14 FOR DETAILS. x

I BRD - 5386 6d

ANNEX 16

CHART 3

ETHIOPIA: COFFEE PROCESSING PROJECTRATE OF RETURN FOR SIDAMO COOPERATIVE SUB-PROJECT

(PROBABILITY DISTRIBUTION)0

20

- 40

I-0

0

60

80

Note:Curve showing probability that rate of return exceedsa certain figure.For example,there is about an 85%probability that the rate of return would exceed 10%.

100 1 I I0 10 20 30 40

RATE OF RETURN %

I BRD-5385

MAP I

I / _*r ETHIOPIA

.1 . ~~~~~~~COFFEE AREAS

k{ -° rJl' @ \ X X \ AcAtIat Coffee Aros

EE Patenfiat Coffee Arecs AFRCA

s S / \ rI.,n V X v _ _ _ _Afiw eothe roads E op

d : < . s 1

00 - oJ

0 i / % 'rxdirz° TendelboX O f 0

S.~~~~~~~~~~~~~~~~IE

-- RObin O~~~.eOcO Door Il TA Go ulf5 20 n

AJ-

S-- T E--

G ~ ~ ~ ~ ~ ~ G-

-E~~~~~.ELE~GA VO

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~9,1

C) OOA ....o,e,

._ _ _ ,

U~~~~~~~~~i G1

AA

1i t2e N -- ° i

/ -.uART T. BRD328

G E00 90 A ~

UGANDA~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

OE8RUARY 971 ORD 7286~~~~~~~~~~~~~D

MAP 2

820Id o ci , Addis Aba 840

S H / ETH/OPIA

COFFEE PROCESSING PROJECT - _ _SIDAMO SUB-PROJECT L Awosa

Tornic rood Awrsa

Existing oil weather rods

…Exsotmg dry weatherroad sn process ofbeing vp-graded to oll weather stondards =. 7I

Coffee lone ' -. ~•L…______ Proposed dry weather feeder roads -

Proposed factcryaccess roads

I Proposed pOlping station sites

Peronn,oi rivers

Province boundar,es Lk.

..... SOb-pro-inc bo-ndary (Awrajo')

0 5 in~~~

IILES

U 200 400 Miles

SdiUt D I AD R A I A

...........~ ~ ~ ~ ~ ~ ~ ~ ~ ~~t .

t AnAs~~~t 0t.

WononS.d

- fl~~~t.-Coffee offZeZnee'D~~~~~~~~~~~~~~~~~~~ < /a

SA~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ _Mir,HDECEMHER O1r97 I-3

5 AA 'S

Ch dotrhiea rkrinrn

rMary s-. ae

T. K.W b..nd.,..~~~~~~~~~~~~~~~~~~~~~~~ saWod38-20'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~g,ebfr

DECEMBER 1970 IBRD-3255~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~OI

MAP 3

ETHIOPIA

COFFEE PROCESSING PROJECTKAFFA SUB-PROJECT AREAS tLE5

Eitrng atll weather roads suntvE-isrirgdryweather rood n process of be-g uP-gnoaed.rad 0 weather stndrds I

- Other satisfactory dry weatner roads…__ _ _ Dry weather ro-ds ahich mght be ipnroded to feeder rood srandrrds under the projetI

--- --- Other dry weathne roads

Factory -oess roads which mighf be constructed under the protest

* Potentiol w-shig sihes for J -mo Coopeatue

* PotentIal as,hihg sites for Gdmo C-oper-leet

.7oc, - Perentat riOes I

Sub-proun-e boundary ('AwtojI )

Ambuyet

I w l X X m~~~~~~I m ( k w r a aJ

ThB.a60e ~ ~ ~ ~ ~ B.

'-#G--- ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 1 ----------

. - ' ' / a

. .~~~~~~~~~~~~~~~~~~~~~~~~~~.. "",".."'''''"''-.

< / / Pr g; KENYA l / f A t

\~~~~~~~~~~~~~~~~~ rOSnto a B w 61s r

tO AdacAbode

A / a~u~ ashM.

FE9RUARY~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 197 IBR A 5287

'Addir Abaro "

- Oh'~~~~~~~~~~~~~~~~~~~~~~~~~~~~'

FEBRJARY 1971 80RD- 3287

a coffee processing project ethiopia · b. the coffee sector 2.03 ethiopia is probably the center...

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