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$: Appraisal of Madhya Pradesh Dairy Development Project r · Appraisal of Madhya Pradesh Dairy Development Project r in India 1 OF\T ... AMUL - Anand Milk Union ... Staffing Plan 12$
Report No. 522a-IN FILE COPYAppraisal of Madhya PradeshDairy Development Project rin India 1 OF\T

November 4, 1974 |

South Asia Projects DepartmentGeneral Agricultural Division

Not for Public Use

Document of the International Bank for Reconstruction and DevelopmentInternational Development Association

This report was prepared for official use only by the Bank Group. It may notbe published, quoted or cited without Bank Group authorization. The Bank Group doesnot accept responsibility for the accuracy or completeness of the report.

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CURRENCY EQUIVALENTS

US$1 - Rs 8.00Rs 1 US$0.125Rs 1,000,000 - US$125,000.00

WEIGHT AND MEASURES

Metric System

ABBREVIATIONS

Al - Artificial InseminationAMUL - Anand Milk Union Limited (Kaira)ARC - Agricultural Refinance CorporationCCB - Central Cooperative BanksDCS - Dairy Cooperative SocietyGOI - Government of IndiaGOMP - Government of Madhya PradeshIDC - Indian Dairy CorporationLDB - Land Development Bank (Madhya Pradesh State

Cooperative Bank System)MPDDC - Madhya Pradesh Dairy Development CorporationMPSCB - Madhya Pradesh State Cooperative BankNDDB - National Dairy Development BoardNDRI - National Dairy Research InstitutePLDB - Primary Land Development BanksPSC - Project Supervision GroupRBI - Reserve Bank of IndiaUTC - Union Training CenterVEW - Village Extension Worker

FISCAL YEAR

July 1 - June 30

INDIA

MADHYA PRADESH DAIRY DEVELOPMENT PROJECT

Table of Contents

Page No.

SUMMARY AND CONCLUSIONS ...... .................. i - iv

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

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

A. General .................................. 1B. The Dairy Subsector ...................... 2

C. Government Policies ...................... 4D. Agricultural Credit ...................... 5

III. THE PROJECT AREAS ............................. 6

IV. THE PROJECT ................................... 7

A. General Description ..... ................. 7B. Detailed Features ........................ 8

V. COST ESTIMATES AND FINANCING ..... ............. 13

A. Cost Estimates ........................... 13B. Proposed Financing ..... .................. 14

C. Procurement .............................. 15

D. Disbursements ............................ 16E. Accounts and Audit ....................... 16

VI. ORGANIZATION AND MANAGEMENT ..... .............. 17

A. Madhya Pradesh Dairy Development Corporation 17B. Unions and Cooperatives .... .............. 17

C. Project Implementation ..... .............. 18D. Supporting Activities ..... ............... 19E. Lending Operations ....................... 19

VII. PRODUCTION, MARKETING, PRICES, SUBSIDIES ANDFINANCIAL RESULTS ............................. 20

VIII. ECONOMIC COSTS, BENEFITS AND JUSTIFICATIONS .... 22

IX. RECOMMENDATIONS ................................ 23

This report is based on the findings of an appraisal mission which visitedIndia from March 1974 through April 1974. The mission was composed of lessrs.

C. W. Wolffelt, A. K. Seth (IDA), A. Pursell, C. Percival and J. D. von Pischke(consultants). Mr. N. Krafft (IDA) also contributed to the report.

Annexes

1. The Dairy Sub-sector

2. Lending Institutions

3. Dairy Cooperative Society

Table 1 - Source Datai 2 - Herd Projectioals - Crossbreeding of Local Cowsi 3 - Herd Projectioas - Local Buffaloes" 4 - Investment Projections" 5 - Sales Volume, Income and Cash Flow Projections" 6 - Returns from crossbreeding" 7 - Current Milk Prices

4. Dairy Cooperative Unions

Table 1 - Milk Processing Plants: Investment Projectionsit 2 - Feed Mills: Investment Projections" 3 - Investment in rechnical Services and Administration" 4 - Milk Processing Plants and Feed Mills: Volume and

Capacity Projections5 - Milk Processing Plants: Income and Operating Cost

Projections6 - Feed Mills: Income and Operating Cost Projections7 - Operating Costs of Technical Services and Administration8 - Milk Processing Plants - Assumptions for Computing

Operating Costs9 - Feed Mills: Assumptions for Computing Operating Costs10 - Milk Processing Plants and Feed Mills: Assumptions

for Computing Sales Revenues11 - Staffing Plan12 - Investment Projections Summary13 - Projected Income Statement14 - Projected Cash Flow15 - Breakdown of Consumer Price of Milk

" 16 - List of Equipment to be procured under ICBChart I - Organization Chart

5. Madhya Pradesh Dairy Development Corporation (MPDDC)

Table 1 - Investment Pro:jection2 - Projected Income Statement3 - Projected Cash Flow4 - Corporation Bu'l Breeding Farm, Herd Projection

" 5 - Staffing PlanChart I - Organization Chart

Annexes (Continued)

6. Training and Extension

Table 1 - Summary of Project Training Requirementsi 2 - Project Investment in Training and Extension

Chart I - Training and Extension Activities for DCSImplementation

7. Project Cost and Implementation

Table 1 - Project Cost by Major Investment2 - Project Financing Plan

" 3 - Disbursement Schedule

8. Economic Rate of Return

Table 1 - Economic Rate of Return2 - Sensitivity Analysis: Costs and Benefits

it 3 - Sensitivity Analysis: DCS Formation

MAP

INDIA


SUMMARY AND CONCLUSIONS

Dairying in India

i. This project in Madhya Pradesh will contribute to the developmentof Indian agriculture, which accounts for about 40% of Indian GNP and employs70% of the total work force. Although Government of India's (GOI) emphasisin the sector in recent years has been to increase the output of foodgrains,it is attempting to diversify, where appropriate, with special attention tothe dairy sub-sector. Over the past two decades there has been a markeddecline in per capita consumption of milk, a primary source of animalprotein for the bulk of the population. Efforts are now being made to in-crease milk production from 21 million tons in 1972 to 30 million by 1979.The project and its companion, the Rajasthan Dairy Development Project,appraised at the same time, are the third and second of a series designedto make a significant contribution towards this target. The first was theKarnataka Dairy Development Project presented on June 13, 1974.

ii. A large proportion of the world's bovine population is in India,which has 17% of the world's cattle and 50% of its buffalo. However, indig-enous varieties produce very low milk yields. Their main contribution hasbeen to provide draft power and to support a small livestock industry account-ing for 14% of the total agricultural sector's share of GNP and about 5% oftotal exports. To increase milk production significantly, a large-scaleeffort to develop higher yielding animals and expansion of animal health careand breeding facilities are required.

iii. Crossbreeding of indigenous cattle with exotic varieties to producehigher yielding dairy cattle has been conducted in India for many years, so farwith only limited success. With one rather notable exception, it has not beenaccompanied by adequate institutional support, effective organization of smalland marginal farmers (who produce most of the milk) into economically viableunits, development of adequate milk collection, processing and marketing. Norhas there been adequate provision of animal health care and technical servicesto farmers. Few farmers use their land principally for dairy production, whichis essentially a subsidiary farm activity. If a significant increase in milkproduction is to be achieved, additional feed must be made available or more ofthe available feed must be reserved for high producing animals. The demand forcereal grains as human food and the favorable export position of oilseeds andoilcake preclude any significant increase in the supply of concentrate feed forlivestock. It is, therefore, important to develop animal production systemswhich will result in more efficient use of available supplies and encouragedevelopment of higher quality forages where these are now grown. However, byintegrating leguminous fodder into the existing farming systems, higher overallcrop yields would result which would largely compensate for some diversion ofland to fodder.

.. ii -

V-z. A notable bright spot irT the Indian dairy picture is the successfulexperience over the past 25 years, of the Kaira District Cooperative MilkProducers Union Ltd (AMTUL). AMUL is centered on the formation and operationox hundreds of village milk producers cooperatives (a typical member owns two

Zallov and tills less than 1 ha), The village cooperatives are welded to-Iether into a cooperative Union wiich owns and operates facilities for milkazd feeed processing, collection ard distribution and provides its membersTritn a full range of technical services. The Union is responsible for settingmilk prices and obligated to buy milk in any quantity from members. Thus,thbe farmer is assured of year round outlet for his milk at fair prices. Mem-bers are provided with a package of services which includes artificial insemi-nation (AI) and routine veterinary health coverage, sale of concentrate£eed and fodder seed, and training. The outstanding success of AMUL hasencouraged GOI and several states to foster the establishment of similar?rograms in other parts of the country.

Sztws of Dairy Development in Madhya Pradesh

Madhya Pradesh, land-locked in the center of India, is thecf4"ntryls largest state in size but among the smallest six in population.To is about the size of Italv and its population of 42 million is slightly-re than that of the Philippines. About 78% of the population is engagedln agriculture, which in 1971/72 accounted for 52% of total state income.O3 the 21 million ha. under cultivation, about 1.6 million ha. are irrigated.-mc annual 1962/63-1971/72 rate of agricultural growth during the period was1,0%. The average size of holding; is 3.9 ha.; 60% are 2 ha. or less.

vi. In this agricultural env,ironment dairying, although a subsidiaryactivity, provides many farmers with their only source of cash income.Dairy animals are mainly low yield:ng nondescript native types. Cross-bneeding of cattle through Al was -nitiated in the mid-sixties, but thee£fectiveness of the Al and health services has been limited due to shortageof qualified personnel and facilities.

vii. The feed situation in the state is comparatively better than averagefor 7ndia, but there is, nevertheless, a shortage. There is considerable scopeJor increasing production of high quality leguminous forages by small farmers0h7o"igh the integration of these crops into existing farming systems.

vi4i. Total Madhya Pradesh milk production is about 8 million liters perday or about 190 grams per capita, well above the national average of 112,grams per capita per day. However, dairy processing and marketing arelargely undeveloped, therefore, village milk is mostly converted into gheeaznd on'ly about 40% of the milk is consumed in fluid form. The only dairyplants (Government owned) in the project districts can process only 4% ofthe total milk production in those listricts.

T Projet D

The proposed IDA credit of US$16 million would assist in the develop-mnat of an integrated program for itncreasing milk production in rural areas,

- iii -

involving about 160,000 farm families, most of whom farm less than 2 ha or arelandless, through a six-year program focusing on quality crossbreeding, animalhealth, increased fodder production and the development of milk collection,processing and marketing facilities. Village cattle owners would form DairyCooperative Societies (DCS), which would in turn be grouped into three milkproducers' unions following the AMUL pattern in Gujarat. Each union wouldown and operate dairy and feed plants and would be capable of providing At,animal health, training and extension, milk collection and marketing servicesto the DCS. In addition to the establishment of about 1,200 DCS and theunions, a Madhya Pradesh Dairy Development Corporation (MPDDC) would also beformed to coordinate project implementation and produce purebred exotic breed-ing stock. An extensive training program would also be provided. Each unionwould also operate an extension service involving one trained extensionworker for ten DCS. Consultant services would be provided to assist MPDDCin dairy engineering and plant construction, marketing of milk and dairyproducts, milk processing plant operation, the organization of DCS and fodder/animal production. About 30 demonstration farms involving fodder productionand crossbred rearing would be established.

The Project Implementation

x. The MPDDC would be the main body for implementation and coordina-tion of project activities and would play an essential role in the initialestablishment of dairy cooperative societies and milk producers' unions.MPDDC would build dairy plants and other facilities under the project for theUnions which would operate them once they are adequately capitalized andstaffed and a sufficient number of DCS's organized.

xi. MPDDC would engage the National Dairy Development Board (NDDB) tohelp in recruitment, training and field supervision of each spearhead teamand the union staff. The NDDB would also assist MPDDC in design and cons-truction of milk and feed plants and carry out marketing studies to deter-mine plant product mix capacities, prepare specifications for requestingconstruction bids, and supervise construction.

xii. Total estimated project cost is US$31.2 million equivalent includ-ing duties and taxes and foreign exchange component of US$7.5 million isabout 25%. The proposed IDA credit of US$16.4 million would cover 52%of total project cost. The remaining 49% would be financed by GOI (19%),GOMP (16%), ARC and participating banks (12%) and farmers (1%). IDA fundswould be channelled in two ways. (i) Credit funds for union and MPDDCinvestments in facilities, totalling US$13.65 million, would be made avail-able by GOI to the Agricultural Refinance Corporation (ARC) repayable over15 years at 7.5% annual interest, minimum. GOI would bear the exchange risk.ARC would in turn on-lend the funds to participating banks at a minimumannual interest rate of 8%. The banks would lend to MPDDC and the unionsat 11% per annum minimum. Loans to the unions and MPDDC would have upto 6years of grace and repayment over 9 years. Repayments to ARC would be scheduledto coincide with those by the unions and MPDDC to the banks. The interestrates would be in line with prevailing interest rates, and the margins

- ivr -

reasonable in relation to the need for appraisal and supervision of indivi-dual loans. (ii) US$2.75 million for consultants, importation of exoticcattle, the union training centers and extension programs, would be channelledthrough GOI to GOMP.

xiii. Materials and equipment valued at US$12.3 million or 39% of totalproject cost would be procured on the basis of international competitivebidding in accordance with the IDA Guidelines. Domestic suppliers would beaccorded the usual preference of 15% or the rate of customs duty, whichever islower. Procurement of imported exotic dairy heifers, bulls, and frozen semen(US$0.2 million) would be by requesting quotations from at least three coun-tries free from foot and mouth disease where suitable animals are available.

xiv. Other equipment valued at US$5.6 million would be procured locally dueto the small sizes of individual items and the time spread.

xv. Buildings and civil works (valued at about US$4.8 million) for theMPDDC farm, union dairies and feed mills would be dispersed in time and placeand would be unsuitable for international bidding. They would be constructedby local contractors after local competitive bidding.

xvi. The proceeds of the IDA credit would be disbursed against the fullc.i.f. costs of imported equipment and materials and the ex-factory cost oflocal equipment bid internationally; against the full c.i.f. costs of importedcattle and semen; against the full ex,penditures for consultant services andfellowships; against 70% of expenditures on locally procured equipment and civilworks; and against 80% of the cost of the union training centres and the exten-sion programs.

Economic Benefits

xvii. The project would provide a number of important economic and socialbenefits. The direct economic benefii: would be the increased production ofmilk, estimated at 285,000 tons/year by year ten (10% of state total). Some160,000 farming households, or approxiLmately 0.9 million people, would benefitby raising of their standard of living and providing increased cash familyincome. The project's establishment of 1,200 DCS, three unions and MPDDCwould provide employment for about 6,200 as well as supporting a milk trans-port service, consisting largely of 70 owner-operators. Consumers would alsobenefit from better milk supply. Milk borne diseases, such as TB, woulddecrease significantly. Based on the quantified incremental costs and benefits,the economic rate of return of the project is about 34%.

INDIA


I. INTRODUCTION

1.01 The Government of India (GOI) has asked IDA to help finance a thirddairy development project, this one in the State of Madhya Pradesh. 1/ Theproject was prepared by the staff of the Animal Husbandry and VeterinaryServices Department in Madhya Pradesh along guidelines from the GOI AnimalHusbandry Division of the Ministry of Agriculture. Two Bank Group missionsassisted with preparation in February/March and April/May 1973.

1.02 Bank Group finance for agricultural projects in India totals aboutUS$714 million up to June 30, 1974. Dairy development would help GOI imple-ment its plans to diversify agriculture and provide increased emphasis on animportant food subsector which has so far received relatively little attention.

1.03 This report is based on the findings of an appraisal mission toIndia from March - April 1974 comprising Messrs. C. Wolffelt, A. Seth (IDA)and A. Pursell, C. Percival and J. D. von Pischke (consultants). Mr. N. Krafft(IDA) also contributed to the report.

II. BACKGROUND

A. General

2.01 Madhya Pradesh is in the center of India and is its largest statewith an area of 44 million ha (10% of India's total) and a population of 42million (8% of India's total). The capital is Bhopal with a population of400,000. The state lies under the tropic of Cancer, its elevation ranges from500 ft. to 2,000 ft. and the rainfall from 1,000 mm to 1,800 mm (June-Septembermonsoon). It can be divided into six physical regions of which the MalwaPlateau (Project area) is the most important agriculturally.

Agriculture

2.02 About 78% of the population is engaged in agriculture. Approximately21 million ha (47% is under cultivation and 14 million ha (37%) is covered byforest. About 1.6 million ha (8%) is irrigated. Irrigated crops includerice, wheat, barley, sugarcane, mustard and fodder crops (alfalfa and berseem).

1/ The first dairy development project for the state of Karnataka was approv-ed by IDA on June 13, 1974 (Report 431a-IN of May 21, 1974). The second,for the state of Rajasthan, is presented as a companion to this projectfor Madhya Pradesh.

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Rice, wheat, jowar (sorghum) and gram are the most important crops; wheat islargely grown as a dry (rabi) crop and rice and gram during the kharif season.The annual rate of agricultural growth during 1962/63 to 1970/71 was 2%. Theaverage holding is 3.9 ha.

B. The Da:Lrv Subsector -

The AMUL Model

2.03 The Kaira District Cooperative Milk Producers Union Ltd. (AMUL),headquartered at Anand in Gujarat: State, is a model for dairy developmentwell adapted to India. AMUL is centered on the formation of hundreds of vil-lage milk producers' cooperatives welded together into a cooperative Unionwhich owns and operates its own rilk and feed processing, collection and dis-tribution facilities. The Union now numbers about 225,000 families in 785village cooperatives and processes about 150 million 1 annually. The Unionis governed by a farmer-elected Board and operated by hired market-orientedmanagers responsible for setting milk prices. AMUL members are providedwith a package of services, including veterinary health coverage and trainingfacilities, financed by the Union from milk levies, and concentrate feed andfodder seed paid for by producers through deductions from their milk sales.Five similar Unions have been formed in Gujarat and were recently amalgamatedinto a Federation. The success of AMUL has encouraged GOI and several statesto promote similar programs in other parts of the country. (Annex 3)

National Dairy Development Board (NDDB)

2.04 NDDB was registered in 1965 to step up planning and execution ofdairy develoPment on a national scale. It is located in Anand, Gujarat, andits close association with AMUL has enabled it to build up the most authori-tative expertise in India on dairy technology and the AMUL model.

Livestock and Breeds

2.05 The present bovine population of Madhya Pradesh is about 26 millioncattle (15% of India's total) and 6 million buffalo (11% of India's total).Respectively, 8.1 and 2.5 million represent the breedable milking stock.Around 50% of these are in milk. Most cattle do not conform to any specificbreed. Milk production varies considerably with breeds, feeding and manage-ment practices; it averages about 500 1/lactation for cows and 800 1/lacta-tion for buffalo. Crossbreeding with exotic purebreds mainly Jersey wassuccessfully initiated in the mid-sixties on a limited scale through theState Animal Husbandry Department. There are now seven cattle breeding farmsin the state producing pedigree bulls of the main breeds only one maintainsJersey bulls.

1/ The Madhya Pradesh dairy subsector is described in Annex 1.

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Feeds and Feeding

2.06 The most common cattle feeds are byproducts of agricultural crops,cultivated fodders, perennial pasture grasses and concentrates. Increaseddairy herds and milk production under the project (Annex 3) depend on anadequate supply of high quality forage and balanced premixed feed (Annex 1).GOMP measures to encourage fodder production include demonstration farms forimproved pastures and better management, seed multi-plication farms, distribu-tion of hybrid napier seedlings, loans and grants for pasture improvement andfor fencing of pasture land and subsidies for fodder seed and chaffcutters.However, the largest scope for increased production of high quality forageis by integration of these fodder crops into existing irrigated farms byeffective extension work.

2.07 In 1971-72 Madhya Pradesh produced 11.3 million tons of foodgrains(11% of India's total) equivalent to about 270 kg yearly per capita (Indiaaverage: 190) (Annex 1). This agricultural production comes mostly fromwestern Madhya Pradesh where the project would be sited (3.01). This wouldassure the supply of the balanced feed ingredients required under the project.By year ten, the incremental foodgrain requirements would only representabout 0.3% of total state production.

2.08 The marginal productivity of a crossbreed would be about 1 1 ofmilk per kg. of balanced feed (0.25 kg. foodgrain ingredient). The nutritivevalue of 1 1 of milk would be about 35 g. protein and 750 calories, comparableto 25 g. protein and 850 calories for 0.25 kg. foodgrain (as meal). At thevillage level the cost of milk is about Rs 1 per 1 and the cost of 0.25 kg.of foodgrain only about Rs 0.25; but milk has a higher content of minerals(Ca) and a broader spectrum of vitamins (A, B2, C, D). GOI rightly considersthe trade off fully justified in view of the need for increasing the avail-ability of milk in fluid or powdered form to the Indian population not onlyto improve the diet of infants but also for the large low-income urban popula-tion whose average daily intake of milk and milk products is less than 100 g.Milk and milk products provide the only acceptable source of animal proteinfor the large vegetarian segment of the population.

Milk Production

2.09 Dairying in Madhya Pradesh is largely a subsidiary activity to cropfarming though in many instances it provides a daily cash income. Over80% of the cows and buffalo are kept in villages. The average size herdis 2 - 3 breedable head per family. Milk producers are of 3 categories:(a) the landless who represent 15% of the rural population, keep one totwo animals and purchase all feeds and fodders; (b) the mixed farmer(cropping and livestock) whose main income is from sale of crops surplusto household needs, to whom dairying is a sideline which utilizes crop by-products. He may use a small area of his land for growing fodder (alfalfaand berseem) purchasing small amounts of concentrate, herd size is about twoto five animals; (c) the urban milk producer with herds up to 20 head, whopurchases all the feed and fodder and buys cows at peak production, selling

them when dry. Total milk production in the state is about 8 million 1/dayequivalent to about 190 grams/capita, well above the national average of1.10/115. The urban centers are the natural markets for village milk, butlack of adequate transportation compel distant villagers to convert most ofthat surplus into ghee (butter oil), wasting some of the skimmed milk. Onlyabout 40% of the milk is consuimed as fluid.

2.10 Madhya Pradesh has an undeveloped dairy processing and marketingstructure resulting in severe shortage in the urban centers during the leanseason with marked price escalations. The first milk processing plant was -

established by GOMP in Bhopal in 1958. Government now operates a total of38 plants (mostly small dairies) with a capacity less than 2% of the totalstate milk production.

Government Services, Research, Education

2.11 Government services for animal health and livestock developmentare provided by the GOMP Animal Husbandry Department. It operates 525Veterinary hospitals and dispensaries, and 22 AI centers. Due to lack ofqualified personnel and tzansportati m, Al services are not very effectiveand less than 25% of the semein produced is utilized. Endemic cattle diseasesas elsewhere in India, 2_e rwinerpect foot and mouth, blackquarter, hemorra-gic septicaemia and anthrax. Vaccines are produced in the Biological Produc-tion Institute of Mhow which will be expanded under the Fifth Plan. Thestate has a Faculty of Veterinary and Animal Sciences at Jabalpur andat Mhow; both are constituent colleges of the Jawaharlal Nehru AgriculturalUniversity.

C. Government ?olicies

2.12 The policies followed by the GOMP in the dairy subsector are essen-tially those established by the GOI in its Five-year plans. Allocations forthe dairy subsector in the first three development plans were inadequate.GOI objectives in the Fourth and current Fifth Plan are to attain food grainself-sufficiency and to diversify agricultural production. Within the live-stock sector, dairy development has been given greatest emphasis in GOI's Fifth Plan since milk and milk products provide the primary source of animal I"protein for the large vegeterian segment of the population. The daily percapita availability has however fallen from 120 (1970) to 112 g. (1973). GOIplans for dairy development have been stimulated by the successful AMUL experi-ence and in the Fifth five-year Plar., GOI is encouraging the AMUL model as thebasic means to increase milk production. In addition, animal production, healthand AI facilities are proposed to be improved at state level and more emphasisplaced on increasing crossbred cattle. GOI would provide a crossbred calfsubsidy of Rs 200 per head, in the form of pre-mixed calf feed, to encouragefarmers to adopt better feeding practices and so avoid losses of valuablecrossbred heifers due to malnutrition.

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D. Agricultural Credit

2.13 Institutional agricultural credit is provided directly by cooper-ative banks, commercial banks and GOI indirectly through the Reserve Bankof India (RBI) and the Agricultural Refinance Corporation (ARC) (Annex 2).

Agricultural Refinance Corporation (ARC)

2.14 ARC is an intermediary channel for 15 current IBRD/IDA creditprojects. 1/ It was established in 1963 as a subsidiary of the Reserve Bankof India (RBI) to provide the on-lending agricultural credit institutionswith a supplemental source of medium and long-term finance. With the RBIit sponsors orientation and traini ng programs for management and technicalstaff of banking institutions. Its expanding technical division assistsbanks in appraising the techno-economical feasibility of projects and super-vision of ongoing schemes.

Cooperative Banks

2.15 The cooperative banking system is the villager's most importantsource of institutional credit. The Madhya Pradesh Cooperative Banks, supplyshort and medium-term loans. The state Apex Cooperative Bank has a membershipof about 108, of which there are 43 Central Cooperative Banks (CCB). EachCCB is a federation of about 200-300 primary credit societies. The StateCooperative Land Development Bank, which supplies long-term credit, is afederation of 44 Primary Land Development Banks (PLDB), at least one for eachdistrict. LDB lending has been about Rs 100 M to 125 M annually, with almost90% being for minor irrigation (wells and pumpsets). Credit needs for minorirrigation in Madhya Pradesh in general and the project area in particularhave been assessed under the Madhya Pradesh agricultural credit project (391-IN) and ARC refinance is available to meet these needs. Interest rates to theultimate borrower now range from 11-13% per annum. The on-lending institu-tions generally receive a spread of 2-3%. LDB's have been plagued withproblems of low recoveries and overdues partially related to droughts andcrop failures but largely due to inefficient management. These problems inturn affect their ability to lend.

Commercial Banks

2.16 Since 1969 commercial banks have increased their role in providinginstitutional rural credit. Designated banks were charged with assessinglocal resources and credit needs, mobili2ong capital and improving ruralcredit supply, in specific districts and rehabilitation of weak creditsocieties. Experience to date has been modest. Commercial banks are never-theless attempting to expand into agricultural operations based on soundlending principles with good technical support. Prevailing interest ratesare 11-13% per annum.

1/ Full details of ARC's organization and financial operations are given inAnnex 4 of the Uttar Pradesh Agricultural Credit Appraisal Report No.107a-IN, April 12, 1973.

III. TH_ PROJECT AREAS

General Description

The project would be in western Madhya Pradesh, in the milkshedsaround the district capitals of Bhopal, Indore, Ratlam and Ujjain involvingselected areas of the districts of Hoshangabad, Raisen, Bhopal Sehore, Dewas,Indore, Ujjain, Ratlam and Dahr, located mostly on the Malwa plateau. TheMalwa plateau has considerable potential for growing feed and forage and for.

.,.s, dairy livestock development. The four district capitals are important marketsfor fluid milk and dairy products. These districts are not involved in anyother on-going or proposed IDA project except as mentioned in para. 2.15.

3.02 The June-September monsoon accounts for most of the rain varyingfrom about 700 mm (Indore) to 1,630 mm (Hoshangabad) in the project area.Temperature variations are marked: the minimum temperature is about 5°Cw3thnmaximur over 40C in summer (March - June). Total rural populationin the project districts is about 4.4 million, distributed between 10,300villages, each of about 80 households.

3.03 The project districts cover approximately 5.8 million ha, (13% ofthe state) 3.2 million ha (55%) under cultivation of which 0.1 million haf3%.) is under irrigation. The average holding is 4 ha, with 60% of lessthan 2 ha. The breedable stock is about 1.0 million cows and 0.5 millionbuffalo. The average household owns about 1.6 cows and 0.8 buffalo.

Status of Dairy Development

2'.114 Approximately one fourth of the facilities operated by the Depart-ment of Animal Husbandry (2.11) for animal health services are located inthe project districts. However due to shortage of trained staff and poorcommunications the services lack effectiveness. The milk production in thearea is estimated at 1.1 million 1/day with capacity for processing onlyaoout 4% of this total in five plants. There are about 3,000 crossbreds inthe project districts. The Danish Project Assistance Program will furnisha frozen semen bank at Indore and a bull breeding farm at Bhopal.

Mi'Lk Marketing

3,05 In Madhya Pradesh, as in most of India, there are three main channelsfor milk supply to the urban market: (i) traditional village agents, (ii)citv producers; (iii) cooperative sector (3.08). The traditional villageagent, acting as a collector/middleman for private vendors in the cities isthe main supplier. The supply from city producers is also significant re-presenting about 20% - 30% of the market. There are 12,000 cows and buffaloin Bhopal.

3.06 Milk prices in Madhya Pradesh are not controlled and the urbanmarket price for raw milk varies according to type and season from about

Rs 1.50 to 2.50 per 1. GOMP dairies market pasteurized milk in 1/2 1 bottlesat significantly lower prices: Rs 1.70 per 1 of 3.2% fat (Bhopal), thissubsidy does not permit paying fair prices to the village producers, therefore,procurement volume is low and operating losses result from low throughput.Accordingly, the GOMP milk schemes in Bhopal and Indore accommodate only about10% of the urban demand (presently 110,000 1/day). In addition to the Bhopaland Indore plants (20,000 1/day each), the following GOMP-owned plants arealso in the project area: Ratlam, Ujjain, Hoshangabad, each of 2,000 1/daycapacity. Milk reaches processing plants, in 40 1 cans, by contract truckerwhile at the village level, agent/collectors procure and transport it tocollection points by bicycle or oxcart.

3.07 Most agent/collectors pay the village producer between Rs 1.20 and1.80 per 1; though usually offering an inferior product, they operate fromvillages comparatively close to the urban centers and are serious competitorsto organized milk schemes which have to bear the higher cost of processing.Under the present marketing system, the city producer selling direct to aregular consumer clientele is also very competitive with the agent/collectoreven though the former must buy all his feed supply. To reduce feed costsmany city producers purchase cows in milk and selling them at the end oftheir lactationt they do not therefore generally rear calves.

Dairy Cooperatives

3.08 The Dairy Cooperative movement in the project area came into exist-ence around 1960 with the creation of the government milk schemes to assuresupply for their processing pla nts. Due to the subsidized milk price policyof the GOMP dairies and other organizational shortcomings, the cooperativemovement has lost ground, with many societies existing only in name, lessthan 100 societies supply milk at present to the GOMP plants.

IV. THE PROJECT

A. General Description

4.01 In an area of suitable potential: western Madhya Pradesh, the projectwould provide, over six years, the necessary inputs to develop an enclaveof high milk production. It would not only benefit the area itself butalso generate a significant surplus of milk that would be channeled to otherlarge deficit markets outside the state. It would organize village cattleowners to form Dairy Cooperative Societies (DCS) which would be grouped intounions similar to the AMUL scheme in Gujarat. The unions would employtechnicians and managers, and be controlled by farmers. Each union wouldown and manage its own dairy and feed plant and would provide milk collection,marketing, veterinary, AI and extension services to the member DCS. About160,000 families, most of whom farm less than 2 ha or are landless, would beinvolved. The Madhya Pradesh Dairy Development Corporation (MPDDC) would beset up to coordinate and implement the project through the unions.

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4.02 The project comprises:

(a) Establishment of about 1,200 DCS, three milk producers unionsand the MPDDC,

(b) Importation and multiplicat:ion of purebred exotic breedingstock and an associated AI program of crossbreeding nativevillage cattle with high producing exotic breeds. Provisionof extension programs to encourage production of fodder,mixed farming and improved animal husbandry,

(c) Construction of three union dairy plants and cattle feed mills;and the establishment of milk collection routes and milkchilling centers,

(d) Provision of consultant services to assist MPDDC,

(e) Provision of a training center for each union (UTC), anextensive training program for developing instructorsfor training technical and field staff, and fellowshipsfor key personnel.

The project does not include a farm credit component, as crossbreds are notavailable for purchase. Credit for clug wells for increasing fodder produc-tion would be available through ARC schemes for minor irrigation under theMadhya Pradesh Agricultural Credit Project (391-IN) (2.15).

B. Detailed Features

New Institutions

4.03 The Madhya Pradesh Dairy Development Corporation (MPDDC) to beestablished under the project, would be the center for coordination andimplementation of project activities. It would be the base from which consul-tants and other expertise would schedule and direct the organization of theunions and through them the implementation of the DCS. To ensure that theessential AMUL features are adopted when establishing the DCS and the unions,MPDDC would engage the services of NDDB on a contract basis. NDDB would assistin training the nucleus staff of MPDDC, unions and spearhead teams. NDDBwould supervise the implementation of the DCS during the first year. NDDBwould also assist in effecting a marketing study (4.12) and furnish consult-ing services to the MPDDC in the preparation of engineering specificationsfor the procurement of equipment and construction of the dairy plants andfeed mills as well as for evaluation of tenders (6.10). It is a conditionof credit effectiveness that (i) MPDDC had been established under articlesof association acceptable to IDA, anc! (ii) that MPDDC had engaged NDDBto assist in and training of consultants and MPDDC and union managementstaff, and to provide other consulting services. Assurances were also given

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that about year five, the future role of MPDDC either as a corporation, afederation of the unions, or other, would be reviewed with IDA.

4.04 Three unions 1/ would be established each incorporating about 400DCS implemented over a five year period, making a total about 1,200 DCS.By-laws would be similar to AMUL's (Annex 3). The principal fundtions andresponsibilities of a union would be to: (a) organize and effect the imple-mentation of the DCS; (b) assist the DCS with organization, management, in-spection and auditing; (c) establish and supervise milk and cattle feed trans-portation; (d) process and market the members' milk and operate the feedmills; (e) provide animal health and breeding services; (f) demonstrateimproved mixed farming and fodder production techniques.

4.05 The principal functions and responsibilities of a DCS would beto: (a) act as a center for milk collection (b) effect regular payments toproducers; (c) sell balanced feed; (d) provide AI services; (e) communicatecooperative and technical information to members. Assurances were given byGOMP that the three unions and the 1,200 DCS would be formed under by-lawsacceptable to IDA and no existing society or union would be incorporated withthe project.

Crossbreeding and Milk Production

4.06 Milk production would begin from native cattle and buffalo and wouldbe gradually increased, primarily by upgrading low producing native cows throughan AI program of crossbreeding with high producing exotic breeds (mainly Jersey,although other exotic breeds would also be considered) and by better nutrition.

4.07 MPDDC would own and operate an exotic bull breeding farm near Bhopal,to be financed under the project. The breeding farm would supply bulls (exoticand buffalo) to the three union bull farms (AI centers). Initially a founda-tion herd of about 75 in-calf heifers would be imported for the breedingfarm and 25 bulls to be supplied to the bull farms of the unions. The bullfarms would supply fresh semen that would be delivered daily to the DCS bythe milk collection trucks, following the pattern of the AMUL model.

4.08 The low quality crop residues, which traditionally comprise themain roughage component of the native animal's diet are inadequate to maintaincrossbreds and would be supplemented with high quality green fodder and balancedconcentrate feed in pellet form. Advised by the proposed extension services,farmers with irrigated land would be encouraged to grow fodder for their ownuse and also for sale to other members. Under present conditions productionof alfalfa renders a net income to the farmer comparable to that from wheat.

4.09 The incremental fodder demand of the crossbreedes by year ten, wouldrequire a total 15,000 ha of irrigated land (Annex 1). There are about 80,000

1/ MPDDC would organize the unions which would implement the DCS; MPDDCwould bear the initial cost as the unions could only be legally consti-tuted after at least 25 DCS had been registered.

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wells in the nine districts of the project and about 25%, equivalent to anirrigated area of 10,000 ha would belong to farmers expected to join the DCS.This area would not be sufficient for fodder production, therefore, about25,000 additional wells would be dug (over a 10 year period) allowing formembers with irrigated land who would continue growing other crops. Groundwater is available and assurances were given at negotiations that loanswould be available to eligible DCS members for minor irrigation for fodderproduction from the Madhya Pradesh agricultural credit project (391-IN) andother ARC schemes. Each union would also operate a feed mill of about 75tons per day capacity for producing the premixed balanced concentrate feed.Construction of these mills would be matched to the growth of demand forfeed as projected to year eight when their capacity would be saturated.

4.10 By year ten of a DCS, all native cows would have been replaced bycrossbreds. However mainly due to improved calving rates, the average DCSmember cattle herd would have increased from about 170 Animal Units (AU) inyear three to 220 (30% increase) in year ten. The membership of a typicalDCS would be about 30% (56) of the total village households in the first year,50% (93) in the second year, stabiLizing at 70% (130) in the third year.Based on the experience at AMUL, the DCS would be implemented with the fol-lowing phasing, similar for all three unions: year one: 70 DCS, year two:80; year three: 90; year four: 80 and year five: 80. Thus total projectmilk collection 1/ would only be 72 million 1 in year one, increasing to 127million 1 in year five and 452 mil:Lion in year ten (Annex 4 Table 4). Theincremental milk production 2/ wou:Ld be 71 million 1 (160% increase in a DCS)in year five and 384 million 1 (400% increase in a DCS) in year ten.

Milk Collection, Processing and Marketing

4.11 Milk would be collected i-rom the DCS along defined and economi-cally viable routes involving about: 13 - 15 DCS in each route. Milk fromthe DCS would be picked up daily and transported to the dairy plants by afleet of both owned and hired trucks operated by the union; nine chillingcenters would be provided for pooling milk from distant routes serviced bythree 13,000 1 capacity road tankers for freighting the milk to the plants.

4.12 The project provides for the construction of three milk processingplants each with an initial capacity of 100,000 1/day, which would be expandedin two stages (Year 4 and 5) to 200,000 1/day to match the increase in milksupplies under the project (Annex 4 Table 4). The existing plant at Bhopaland Indore are too small and outdated and assurances were given by GOMPthat they would be phased out or relocated after the new plants come onstream in year 3. General layouts and building design would allow thisexpansion in a functional manner. Due to surplus production, on an average,

1/ Excludes milk retained by farmer for family and calf feeding.

2/ Includes milk retained by farmer for family and calf feeding and assumesthat the present traditional production would remain static.

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plants would be equipped to retail only about one quarter of their volumein the urban market, and three quarters for conversion into milk powder(Annex 4 Table 10). Bhopal and Indore plants would be equipped to meeta comparatively larger urban demand, than the Ratlam plant located insmaller urban center. The NDDB would assist in conducting marketing studiesprior to plant construction to determine the appropriate product mix foreach plant. With these provisions the unions would not have to cut backmilk collections during the life of the project, even in the flush season,for lack of processing capacity. Milk would be retailed both in bulk andbottles (1/2 1), from union owned booths and private foodstores in the majorurban centers.

Technical Assistance, Training and Extension

4.13 The project provides for the following consultants, some expectedto be available in India, to assist MPDDC in implementing the project:

(a) A dairy plant engineer to check plans, layouts, specifications,evaluate tenders and supervise construction.

(b) A dairy processing expert to train union plant personnelin operating the new plants, process monitoring and qual-ity control.

(c) A mass-media communications expert to assist spear head teamsin developing visual and other aids to transmit effectivelythe concept of the AMUL model to the farmers and motivatethem to join the DCS.

(d) A dairy marketing expert to advise on optimization of productionschedules and marketino stratoqv within thp _nntpxt of threedairy plants.

(e) A forage/livestock production expert to select about 30 farmsowned by progressive farmers and set them up for demonstrationpurposes, in applied animal husbandry and milking hygiene andincorporating permanent pasture/fodder crops grown exclusive-ly for milk production.

4.14 Assurances were given by GOI and GOMP that consultants acceptableto IDA, would be recruited for MPDDC. For consultants' terms of referencesee Annex 6.

4.15 Establishment and operation of three Union Training Centers (UTC)with training equipment and staff would be financed under the Project. Eachcenter would provide about 1,000 man months of training annually duringformation of the DCS. Trainees would range from dairy farmers to DCS andUnion staff and Board members. Course content would relate to the AMULmodel, in the case of DCS trainees would involve Al, milk testing and basicrecord keeping, and cooperative principles. The project also provides forintensive extension effort during the development phase involving some 50village extension workers (VEW) per union. The VEW would assist producers inthe application of basic principles of animal husbandry, milking hygiene,

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feeding, fodder production and mixed farm management as directed by thefodder/livestock consultant and practiced on the demonstration farms. TheVEW and UTC instructors, along wLth key union staff, and spearhead teamswould be trained by NDDB and the National Dairy Research Institute (NDRI).Overseas fellowships for three key staff of each union would also be provided.Assurances were given that project funds for training and extension wouldbe channeled to the unions, quari:erly, through MPDDC. Training and Extensionprograms are in Annex 6; timing .nd duration of training and extensionactivities are in Annex 6 Chart I.

4.16 The animal health serv:Lces to be furnished to the DCS by the unionsinclude a mobile veterinary unit for every 35 societies involving a vehicleequipped with animal health and vaccination kits and staffed by a veterinarianand trained assistant which would visit the DCS weekly without charge. Emer-gency service would be available on call, at all times, to members and tononmembers for a fee.

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V. COST ESTIMATES AND FINANCING

A. Cost Estimates

5.10 Detailed cost estimates are in Annex 7, and summarized below:

Rs (thousands) US$ (thousands)Category Local Foreign Total Local Foreign Total

DSC InvestmentsEquipment 2,400 -- 2,400 300 -- 300Establishment Costs 2,310 -- 2,310 290 -- 290Sub-total 4,710 -- 4,710 590 -- 590

Union InvestmentsMilk Processing Plants 57,410 29,710 87,120 7,170 3,720 10,890Feed Mills 12,160 4,250 16,410 1,520 530 2,050Technical Services 11,130 1,520 12,650 1,390 190 1,580Establishment Costs 12,990 -- 12,990 1,630 -- 1,630Sub-total 93,690 35,480 129,170 11,710 4,440 16,150

MPDDC InvestmentsBull Breeding Farm andManagement 1,600 780 2,380 200 100 300

Establishment Costs 770 -- 770 90 -- 90Sub-total 2,370 780 3,150 290 100 390

Training and ExtensionConsultant Services andFellowships 1,020 5,670 6,690 130 700 830

Union Training Center &Extension Services 10,580 360 10,940 1,320 50 1,370

Farmers' Training Camps 1,130 70 1,200 140 10 150Sub-total 12,730 6,100 18,830 * 1,590 760 2,350

Calf Rearing Grant 30,000 -- 30,000 3,750 -- 3,750

Total Before Contingencies 143,500 42,360 185,860 17,930 5,300 23,230

Contingencies:Physical 6.2% 8,440 3,120 11,560 1,060 390 1,450Price 28.1% 38,190 14,120 52,310 4,780 1,760 6,540Sub-total 46,630 17,240 63,870 5,840 2,150 7,990

TOTAL PROJECT COST 190,130 59,600 249,730 23,770 7,450 31,220

5.01 Estimates are based on mid-1974 prices. Establishment costs duringdevelopment are initial operating losses and working capital. A physicalcontingency of 10% has been applied to DCS investments to allow for the failureof some DCS, although the equipment would be recovered. A 10% physical con-tingency has been applied to all milk plant and feed mill investments toaccount for unforeseen building and equipment corresponding to final plantproduct mix. A 5% physical contingency has been applied to investments inMPDDC. No physical contingencies are needed for establishment costs, training

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and extension and the calf rearing grant. Price contingencies have beenapplied to all items, except the callf rearing grant, on the following assump-tions: for civil works, 9% for the second half of 1974, 15% in 1975 and 12%thereafter to 1980; for equipment anl local cost expenditures, 7% for thesecond half of 1974, 11% in 1975 and 7.5% thereafter to 1980.

B. Proposed Financing

5.02 Financing for total projecl: cost of $31.2 m (Rs 249.8m) would be:

DCSMembers GOI GOMP ARC Banks IDA Total

Processing FacilitiesUnions -- 1,000 1,000 1,360 800 5,800 9,960

Other Equipment& Civil Works

DCS -- -- 130 -- -- 310 440Unions -- 1,090 1,090 220 870 7,640 10,910MPDDC -- 30 30 10 20 190 280

Sub-total -- 1,120 1,250 230 890 8,140 11,630

Cattle & SemenUnions & MPDDC -- 20 10 60 10 120 220

Establishment CostsDCS 150 -- 260 -- -- -- 410Unions -- -- 1,710 -- 380 -- 2,090MPDDC -- -- 110 -- -- -- 110

Sub-total 150 -- 2,080 -- 380 -- 2,610

Training & ExtensionConsultant Service & Fellow-ships -- -- 150 -- -- 900 1,050

UTC & Extension Program -- -- 360 -- -- 1,440 1,800Farmer Training Camps -- 200 -- -- -- 200

Sub-total -- -- 710 -- -- 2,340 3,050

Calf Rearing Grants -- 2,500 1,250 -- -- -- 3,750

Total (US$ Thousands) 150 4,640 6,300 1,650 2,080 16,400 31,220

Percent of Total 0.5 14.8 20.2 5.3 6.7 52.5 100

5.02 The proposed IDA credit of US$16.4 M would be to GOI and wouldfinance about 53% of the project costs. IDA financing would cover allforeign exchange expenditures (US$7.5 M) and about 37% of local costs.IDA funds for the purchase of imported cattle, DCS equipment and for trainingand extension services would be channelled to MPDDC through GOI (US$2.75 M).All other IDA funds (US$13.65 M) would be channelled through ARC and parti-cipating banks, to MPDDC and the unions under subsidiary loan agreements

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satisfactory to IDA. Project lending terms and conditions are detailed inAnnex 2, Appendix 1. Details of the financing plan are shown in Annex 7,Table 2.

5.03 GOI-GOMP contributions (US$10.9 M) would finance about 35% of pro-ject costs. They would cover the equity financing for investments (US$4.25 M)of the institutions set up under the project and provide the necessary start-up costs (US$2.1 M) to cover the expected deficits over the first four yearsof operations. In addition, GOI-GOMP would provide funds to support trainingand extension (US$0.6 M) and subsidize the sale of calf rations for rearingof the first crossbred calves (US3.75 M) and provide for local cost financingof technical services and imported cattle (US$0.2 M). ARC and participatingbanks would contribute US$3.75 M, about 12% of project costs, for financinginvestments and working capital of MPDDC and the unions. Farmers' contributionto the project is estimated at US$0.15 M, their minimum capital subscriptionto become DDS members. Assurances regarding GOI, GOMP, ARC and participatingbanks financing commitments were given at negotiations. During negotiations,GOMP demonstrated that it had made substantial progress on training ofproject personnels under a program recommended by IDA. Completion of thisprogram prior to project commencement would be essential and IDA financingfor such expenditures after June 1974, subject to a maximum of $50,000 wouldbe provided.

C. Procurement

5.04 MPDDC would be the sole procurement agent for all items financedby IDA. All major equipment (Annex 4) for the three milk-processing plantsand feedmills (US$12.3 M) would be bulked in accordance with phased con-struction and expansions (Annex 4 Table 4) and subject to international com-petitive bidding in accordance with IDA Guidelines. As most leading manu-facturers of the equipment are well represented in India and are competitive,tenders would be advertised locally, and the representatives of potentialsupplier countries informed. Locally manufactured equipment would beallowed a 15% preference or the prevailing customs duty, whichever is lower.Appropriate assurances were given. Consultants services (US$ 0.7 M) wouldalso be procured according to IDA guidelines. Minor equipment, items forthe plants such as electrical components, equipment fittings, and furniture(US$5.0 M) would not be amenable to bulking and would be purchased over sixyears as phasing requires. Since ready availability of service and spareparts is essential, these would be purchased locally as needed from reputablesuppliers.

5.05 As civil works for the construction of milk processing plants,feedmills, MPDDC and the unions, (US$4.8 M) would be dispersed in time andplace, they would each be too small to attract international bidding andwould be subject to local contracting by competitive tender.

5.06 Equipment for the DCS (US$0.5 M), and for MPDDC and unions suchas farm machinery, irrigation equipment, breeding equipment, trucks, andvehicles (about US$1.4 M) would be purchased following local competitive

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bidding, since these items would be purchased in small quantities over theproject period. For procurement of imported bulls and dairy heifers forthe MPDDC breeding farm and the unions' bull farms (US$0.2 M), assuranceswould be sought from GOI that tenders would be called from at least threecountries free from foot and mouth disease where animals of the requiredbreed, type, and adaptability are available. The remaining project costs(US$6.3 M) would be for union and DCS establishment costs (initial operatingdeficits) training and extension services, working capital and calf rearinggrant.

D. Disbursements

5.07 IDA disbursements are expected to extend over seven years (Annex7 Table 5) and would be against appropriate documentation:

(a) 100% of cif expenditures, or of ex-factory costs, if locallymanufactured of milk an,l feed-processing equipment to be pro-cured under ICB;

(b) 100% of cif expenditures for imported cattle and 100% ofthe cost of consultant services and fellowships;

(c) 70% of expenditures for locally procured equipment andcivil works; including ongineering;

(d) 80% of project expendituLres on local training, uniontraining centers and extension program.

E. Accounts and Audit

5.08 Assurances were given that ARC would maintain project accounts,audited by independent and qualif:Led auditors, the audited accounts to besubmitted to IDA within four months after the close of each fiscal year.Commercial firms audit the accounts of the commercial banks. Accounts ofcooperative institutions LDB, MPSGB, DCS and Unions ) are audited by theDepartment of Audit and Inspection under the Registrar of Cooperatives in amanner satisfactory to IDA. Howevrer, AMUL experience has shown that a singleannual audit of DCS is insufficient. Efficient management of AMUL villagedairy cooperatives called for intensive and continuous audit service involv-ing about 50 field inspectors from the State of Gujarat Cooperative Department.This service has been highly satisfactory and has proven to be a major factorcontributing to AMUL's success. issurances were given that the GOMP Depart-ment of Audit would: (a) audit the accounts of the unions, submitting theaudited accounts to IDA within six months of the end of each fiscal year;(b) provide audit to each DCS, with at least one full audit and two booksupervisions per year; (c) strengthen its staff to carry out the abovefunctions; and also that MPDDC would maintain audited project accounts, sub-mitting accounts to IDA within six: months after the end of each fiscal year.

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VI. ORGANIZATION AND MANAGEMENT

A. Madhya Pradesh Dairy Development Corporation

6.01 GOI and GOMP would subscribe equally to all of MPDDC's initial paidup capital. As a condition of effectiveness, (i) GOI and GOMP would investinitial equity capital of Rs 0.275 M each (Annex 5 Table 3) and (ii) GOMP-would provide redeemable share capital to cover the first year's estimatedstartup costs (Rs 0.5 M). GOI and GOMP would also provide additional equityfinancing to ensure that MPDDC qualifies to borrow funds from participatingbanks for project investments, according to criteria listed in Annex 2Appendix 1. Assurances regarding GOI and GOMP equity financing were given.An assurance was also given that, not later than year six (1980) of theProject, both GOI and COMP would offer for sale their shares in MPDDC tothe unions, at par value, until the unions had attained at least 75% owner-ship.

6.02 MPDDC would be established by GOMP and governed by a fifteen memberboard of directors (Annex 5). A Managing Director with qualifications andexperience acceptable to IDA, would carry out executive duties assisted byabout five Divisional Managers (Annex 5 Chart 1). MPDDC articles of associa-tion would also require IDA approval before incorporation. Recruitment ofthree of the five consultants and three divisional managers of MPDDC would bea condition of effectiveness.

B. Unions and Cooperatives

6.03 Each cooperative milk producer's union would have an eleven memberboard of directors (Annex 4). Initial farmer representation would be six,elected from among and by the chairmen of the affiliated DCS. Once the DCSbecome majority shareholders (year eight-nine) they would acquire the right toappoint the Chairman of the board. A General Manager appointed by the boardand approved by MPDDC for the first year following establishment of the unions,would be responsible for day-to-day management of the union and would also bean exofficio board member.

6.04 GOI and GOMP would finance as equity at least 20% of union invest-ments (Rs 34 M), so as to maintain a suitable debt to equity ratio to ensurethe unions' creditworthiness. GOMP would also provide additional redeemableequity capital to cover the unions' initial operating deficits (Rs 14.6 M).Assurances as to these financial commitments were given by GOMP and GOI. Undercooperative law DCS are required to allocate 25% of their net income to areserve fund and DCS bylaws (Annex 3) would require that 80% of this reservefund be held as union shares. With these funds, DCS would buy out Governmentequity in the unions, expecting to become majority shareholders by aboutyear eight (1982), of the project. Assurances were given that GOMP and GOIwould not later than in year six (1980) of the project and each yearthereafter, offer for sale their shares in the unions, at par value, to

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individual DCS, until the DCS had attained at least 75% ownership. In addi-tion, assurance were given that GOMP share capital subscriptions for initialoperating deficit, would be redeemed once the loans from banks are prepaid.Government equity financing and its acquisition by the DCS is estimatedin Annex 4, Table 14. After debt service, paying dividends and bonuses toDGJS, retained earnings (estimated at about Rs 26 M by year ten) would beused for a further stage of dairy and feed plant expansion.

The Village Dairy Cooperative Societies

6.05 The village dairy cooperative society (DCS) would be the basicorganization unit. Each would be normally managed by a committee of ninemembers, elected for a three-year term. The committee would elect a chairmanand a member who would represent the cooperative and would be eligible tostand for election to the union board of directors. During the first year ofoperation the DCS would be managed by a five member committee. The committeewould appoint a paid secretary who would be responsible for day-to-dayoperations. There would also be one to four helpers to assist the secretary.All would be trained in AI, emergency first aid and milk testing as well asin bookkeeping, at the Union Training Center (Annex 6). They would bepaid from the revenues of the society derived from commission on milk soldto unions and feed sol, to members (Annex 3, Table 5).

6.07 Each DCS would be capitalized by share subscriptions by membersand entrance fees. For each newly formed DCS, GOMP would grant the capitalequipment (Rs 2,000/DCS) and operating deficit in the first year (Rs 750/DCS).Initial working capital needs would be financed by the shares subscriptions.Total cost to GOMP is estimated at Rs 3.2 M for capital equipment and initialoperating deficit. Assurances were given that GOMP would meet this financialcommitment. Similar grants are available elsewhere in India where Governmentpromotes producer cooperatives, including AMUL, and are essential to bringabout a rapid transformation in the rural institutional framework that theAMUL model implies.

C. Project Irplementation

6.08 The project has a defined scope and its implementation would beplanned with each step scheduled in a critical path fashion. The MPDDC wouldbe set up immediately, the three unions within one year, and the 1,200 DCSwould be established progressively over a period of five years.

6.09 The project authority and center of coordination would be the MPDDC.This would be the seat of the hired consultants and other experienced execu-tives (Divisional Managers) who would be coordinated by the Managing Director.The Divisional Managers would each be responsible for carrying out a specificphase of the project. This would be done by working through their respectivecounterparts in the unions, who in turn would be responsible for the samespecific phase within their own unior.

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6.10 Major initial steps in implementing the project would be to organizethe MPDDC, recruit, train and appoint the executive staff of the MPDDC, and thethree unions. In coordination with its respective MPDDC Divisional Manager,each union Divisional Manager woulc letermine the workload of his Division,the schedule, the staff required, including spearhead teams and arrange forits recruitment and training. The participation of NDDB would be essentialin selecting and training staff and supervise spearhead teams and also inassisting in the marketing study and in the preparation of specifications-and evaluation of tenders for construction of the plants (Annex 4 Appendix 1).

D. Supporting Activities

Biological Vaccine Production

6.11 The requirements of vaccine against rinderpest, hemorragic septi-caemia, blackquarter and anthrax as well as foot and mouth disease would beassured on a state-wide basis with the expansion of the Institute at Mhow(Indore) planned under the Fifth five-year Plan.

E. Lending Operations

6.12 ARC would invite all banks operating in the project area to parti-cipate in the project. Based on eligibility criteria agreed to with IDA,ARC would determine the eligible banks. To ensure effectiveness and unifor-mity of supervision the minimum number of banks required to adequatelyserve the four subloans would be selected in consultation with the unions andMPDDC. Suitable assurances were given. ARC would provide at least 80%refinance for the bank's loans. Subloan proposals, on behalf of the unions,would be prepared by NPDDC in consultation with NDDB and submitted to theparticipating banks. It is a condition of effectiveness that (a) a subsidiaryloan agreement between GOI and ARC, approved by IDA, had been executed,(b) loan agreements satisfactory to IDA, between ARC and participating bankshad been concluded.

6.13 Project lending terms and criteria are detailed in Annex 2 Appendix 1.Unions and MPDDC would pay at least 11% per annum, the participating banks,and ARC, 7.5%. These rates are in line with the current rates in the agri-culture sector in India. The participating banks would be required to ope-rate a project supervision group, in consultation with ARC to continuouslymonitor the progress of the project, submit quarterly reports and makerecommendations to the banks, ARC and IDA. The necessary assurances weregiven. Funds for training and extension would not be refinanced through banksas they would be a GOI-GOMP grant.

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VII. PRODUCTION, MARKESTNG, PRICES, SUBSIDIES,AND FINANCIAL RESULTS

Production

7.01 Initially production would be increased from existing native cattleand buffalo by adoption of better mnanagement and feeding practices, but thegreatest increase would come from an intensive program of cross-breedingnative cattle with high producing exotic breeds. The first cross-bred cowswould come into production in year four increasing in significant numbersthereafter (Annex 3). In year three of a DCS (full membership) milk collecteddaily (cows and buffalo) would be about 100 1; in year five, 190 1; and inyear ten, 450 1. In year five the total daily increase in milk productionfrom present levels would be 190,000 1 and 1,050,000 1 in year ten.

Marketing

7.02 Despite growth of the cities in the project area, after year six,project milk production would be far in excess of the urban demand (about220,000 1/day). Allowing for the 1?rivate vendors who would supply about 20%of the urban demand, the remaining 80%, supplied by the unions, would onlyrepresent about one quarter of theLr production. The Union milk sold in thecities, would be about 50% in bottLes (1/2 1) and the balance in bulk formsold at union owned booths and from vending machines installed in groceryshops. The booths would also serve as outlet for union milk (chilled, raw)during the first two years when plants are under construction. The balanceof the milk production would be converted into butter, ghee and skimmed powder,for which there is a ready market Ln big milk deficit centers like Delhi,Bombay, Calcutta and Madras. Marketing and product mix assumptions are shownin Annex 4, Table 10. The marketing study proposed under the project wouldestablish the optimal product mix Eor each plant, before construction.

Prices

7.03 Assurances were given by GOMP that each union would be free toset the sale price of its products, the procurement price of milk and chargesfor services to members, independently of state controls. In view of the costof union services and processing, the project would not be able to supply theurban market with low priced milk 'ut would supply wholesome milk at prices(bottled: Rs 1.70/1; bulk: 1.60) in competition with the private producersand vendors. The average prices ini the urban markets would be expected todecline particularly during the lean season when they are over Rs 2 per liter.Following the AMUL model, village producers would be paid according to butterfat content of their raw milk or about Rs 26/kg butter fat, a price higherthan the average Rs 23/kg under the traditional intermediary system. (Annex3, Table 7). Village producers wouild also increase their purchasing powerfor feed supplies and would retain more of the fodder now sold to urbanproducers.

- 21 -

Grants, Subsidies and Cost Recovery

7.04 The present policy of Government dairies implies a subsidizationof consumer milk prices that would come to an end in the project area when

the unions determine prices in their members' interest. The only non-

recoverable expenditures under the Project are GOI-GOMP startup grants to

the DCS (training, extension and calf rearing), justified to facilitate the

setup of new cooperative organizations and the spread of proven crossbreedingtechnology to rural areas. Loan components under the project are all re-

coverable at commercial interest rates. Farm income and the sale of milk-

are not taxed, but the Government would earn sales tax on processed milk

products and income taxes on MPDDC and the unions.

7.05 To ensure the proper care of the early crossbred calves duringthe critical first three months of their lives and to encourage the spreadof crossbreeding, GOI and GOMP would subsidize the provision of calf starterrations for their first crossbred female calf to members of the DCS up to a

maximum of Rs 200 per member. Assurances were given that the GOMP Animal

Husbandry Department would administer the calf rearing subsidy program.

Financial Results

7.06 All institutions set up under the project would be financiallyviable and would generate a satisfactory rate of return. DCS would earnsurpluses from year two onward. Financial rates of return at the unions'overall activities would be about 20% (see Annex 4, Table 13). NPDDC would

charge a yearly levy from each union to cover the cost of services startingyear five. The MPDDC bull farm would be an independent profit center. Itsfinancial rate of return would be about 13%. The typical smallholder in the

project area now owns one nondescript native cow, yielding about 500 1 ofmilk per lactation. Part of this milk is consumed by the calf and thehousehold, so that cash income from the sale of surplus milk would seldomexceed Rs 100 per lactation. In adaddition to providing for increased domestic

consumption of milk, net cash income from a crossbred cow would be about t

Rs 400 per year (Annex 3, Table 6). As the smallholders in the project area

are predominantly subsistence farmers, dairying would be their main source

of cash income and link to the money economy.

7.07 In addition, the project would afford small farmers the opportunityto adopt a mixed farming system through the integration of a profitable live-stock enterprise (commercial dairying) into their traditional (cropping) system.Since such a change would involve the introduction of pasture/fodder croprotation, it would result in long-term improvement in soil structure and ferti-

lity which would largely compensate for some diversion of land to fodder.

22 -

VIII. ECONOMIC COSTS, BENEFITS AND JUSTIFICATIONS

8.01 The direct economic benefit of the project would be the increasedproduction of milk. The incremen-al annual milk production is estimatedst 285?8O00 tons by year ten. Alt'lough ampLe markets would exist, potentialincrease in milk production after year ten has not been taken into accountbecause additional processing capacity required then is not included in theproject investments.

8.02 The proiect would directly benefit, through increased incomes, about160,000 agricultural households, -nost of Qhom farmless than 2 ha, (15% land-less), or approximately 0.9 million people, which is about 20% of the ruralpopulation in the project area. rhe establishment of 1,200 DCS, three milkunions with their own milk plant 3 and feed mills would provide direct employ-ment for about 6,200 people. It would also support a milk transport serviceof about 70 vehicles mostly owner operated.

8.03 Social benefits would ba derived after the village DCS becomefirmly established with a regular surplus of funds (estimated at Rs 9,000annually by year eight). These f-inds would most likely be used to augmentor initiate village development schemes such as education, health, familyplanning, minor public works and infrastructure (AMUL model). A furtherbenefit would accrue from improvei nutrition due to increased intake of milk,particularly by children and infants. The benefits to the consumers wouldalso come from an improvement in autrition due to increased availability ofunadulterated pasturized milk in the urban areas. Also, as the share ofhygienic pasturized milk to raw milk increases, the risk of milk bornediseases such as TB, Brucellosis and gastrointestinal infections (parti-cularly with infants) will decrease greatly.

8.04 The assumptions for computing the economic rate of return are inAnnex 8. Labor costs for feed and green fodder production are includedat their market price. Skilled and semi-skilled labor for milk plants andfeed mill operations is costed at market price. Incremental family laborrequirements for twice daily milking of crossbreds as opposed to native cowsare minimal (about 10 minutes/day) and would not affect alternative employ-ment and are thus not considered significant. Milk is valued at Rs 1.50/1which is a composite prilce of ex-plant fluid milk and the portion of the farmproduction that would bypass the plants. This price is at the lower end ofthe price range in urban markets. Based on these costs and benefits assump-tions, the estimated economic rate of return is 34%.

8.05 The most significant risk facing the project is the task of creatingDCS and unions to establish a new cooperative controlled production and mar-keting channel for the increased amount of rurally produced milk. NDDB'sexperience in replicating the AMUL pattern in Gujarat and other parts ofthe country indicates that human responses to such a program are varied butthat the obstacles, though many, are surmountable. Intensive training, exten-sion and organizational support are essential in replicating the AMUL model

- 23 -

and the project places considerable emphasis on these critical inputs. Asensitivity analysis to test the effect of higher costs and lower benefitson the estimated rate of return was carried out. If investment and operatingcosts are 10% higher while the benefits due to decreased production are 10%lower, the economic rate of return is estimated to drop to 25%. A sensitivityanalysis to test the effect of slower formation of successful DCS, assumingthat plant investments are not delayed, shows that if successful DCS can onlybe formed at half the rate envisaged, the expected rate of return would stillbe 26% (Annex 8, Table 3).

IX. RECOMMENDATIONS

9.01 During negotiations, agreement was reached on the following majorpoints:

With GOI that:

(a) All major equipment of the milk processing and feed millfacilities would be procured through international compe-titive bidding, in accordance with IDA guidelines (5.04);

(b) Exotic dairy heifers, bulls and frozen semen would be pro-cured on the basis of quotations requested from at leastthree countries free from foot and mouth disease whereanimals suitable to the project are available (5.06); and

With GOI and GOMP that:

(c) Consultants acceptable to IDA would be recruited forMPDDC to assist the unions in the following activities:dairy plant engineering, dairy marketing, dairy processingengineering, mass-media communication expertise, andforage/livestock production (4.14);

(d) They would invest an initial equity contribution in MPDDC ofat least Rs 0.275 M each and they would provide additionalequity financing as required over the project period to ensurethat MPDDC and Unions qualify for loans from participatingbanks (6.01);

(e) They would, for the first time not later than 1980, and eachyear thereafter, offer for sale their shares (i) in MPDDCto the unions at par value until the unions had attained atleast a 75% ownership (6.01); and (ii), in the unions to theindividual DCS, at par value until the DCS had attained atleast 75% ownership (6.04);

- 24 -

With GOMP that:

(f) The DCS and the unions would be formed under bylaws acceptableto IDA and that no existing cooperative societies and unionswould be eligible to part:Lcipate in the project (4.05);

(g) It would finance the start-up costs and initial operatingdeficits of the DCS, unions, and MPDDC; such financing forthe unions and MPDDC woulcd be in the form of redeemableshare capital, to be redeemed once loans are repaid (6.04);

(h) Each union would be free t:o set prices for its products andservices, and for milk procurement from members (7.03).

With ARC that it would:

Mi) Invite all banks operating in the project area to determineinterest in participating and establish a list of eligiblebanks based on criteria agreed to with IDA and lendthrough the minimum number of banks selected in consultation

with the unions and MPDDC (6.12); basic eligibility criteriafor cooperative banks wou].d be that collection rate must beabove 65% and any amount required to reduce overdues as apercentage of demand to 25%, to be financed by GOR by purchaseof redeemable equity; and participating banks to provide anadequate project supervision group to oversee the projectinvestments submitting quarterly reports to ARC and IDA (6.13).

9.02 Agreement was also reached, on the following conditions of crediteffectiveness:

(a) MPDDC had been established under the articles approved by IDAand its Managing Director having qualifications and experienceacceptable to IDA appointed (4.03); and GOI and GOMP hadcontribt,ed Rs 0.275 M each as share capital subscription ofMPDDC and'tQMP had contributed an additional Rs 0.5 M asredeemable share capital for the first year start-up costs(6.01);

(b) MPDDC had made arrangements, satisfactory to IDA, to (i) trainconsultants, executive staff of MPDDC and unions, and spearheadteams, (ii) provide first year field supervision, (iii) furnishconsulting services for effecting a dairy marketing study; and(iv) assist in preparing specifications for tenders for procure-ment of equipment and construction of the dairy plants andfeed mills (4.03);

- 25 -

(c) MPDDC had recruited three consultants (Dairy plant engineer,mass media communications specialist, and livestock/foragespecialist) and the MPDDC divisional managers of institutionaldevelopment, livestock development and engineering (6.02);

(d) A subsidiary loan agreement between GOI and ARC had beenapproved by IDA and executed (6.12);

(e) Loan agreements, satisfactory to IDA, had been concludedbetween ARC and participating banks (6.12).

9.03 Given the above assurances and conditions, the project is suitablefor an IDA credit of US$16.4 M.

Annex 1Page 1

INDIA

MAHDRYA PRADESH DAIRY T)EVELOPMENT PROJECT

The Dairy Sub-Sector

A. Background

General

1. Annex 1 of Report No: 431-IN of Karnataka Dairy Development Project

contains a comprehensive review of the Dairy Sub-sector in India in general.

Agricul ture

2. About 78% of the population is engaged in agriculture which in

1971/72 accounted for 52% of total state income. Approximately 21 million

ha (47%) is under cultivation and 14 million ha (37%) is covered by forest.

About 1.5 million ha (8%) is irrigated. Irrigated crops include rice, wheat,barley, sugarcane, mustard, and fodder crops (alfalfa and berseem). Rice,wheat, jowar, (sorghum) and gram are the most imnortant crops, wheat is largely

grown as a dry (rabi) crop and rice and gram during the kharif season. The

annual rate of agricultural growth durinm 1962/63 to 1970/71 was 2%. The

average holding is 3.9 ha.

3. The production of foodgrains in Madhya Pradesh in 1971-72 was as

follows:Production

Crop '000 Tons % of India's Total

Rice 3,666 8.6

Sorghum (Jowar) 1,282 16.5

Bajra (spiked millet) 130 2.4

Maize 465 9.3Wheat 3,046 11.5Barley 153 6.1

Small Millets 366 23.1

Gram 1,052 20.6Tur 383 24.4Other Kharif Pulses 257 16.4Other Rabi Pulses 518 18.4

11,318 11%

Other Crops Production % of India's Total

Oilseeds 581 6Cotton (1,000 bales) 209 5

Sugarcane 161 1

ANNEX IPage 2

4. Average production of foodgrain per canita is 270 kg/year comparingfavorably with 190 kg/year for all of India. This agricultural Droductioncomes mostlv from western 'Tadhya Pradesh t7here the Pro-ject would be located.

B. Dairv Livestock

Livestock and Breeds

5. The present bovine population of Madhya Pradesh is about 26 millioncattle and 6 million buffalo. This represents 157 and 11% resnectivelv ofthe Indian total. Some 8.1 million cattle and 29.5 million buffalo above 3years of age are breedable milking stock. Onlv about 507 of these femalesare in milk. Most animals do not conform to any snecific breed, the followingbreeds can be identified: cattle: Malwi, Hariana, Gaolao, Nimari, Cir andKankathar. The prevalent buffalo breed is the Murrah for milk nroduction,also the Bhadawi.

6. There are seven government cattle breeding farms in the state Dro-ducing pedigree bulls of the main hreeas, but only one maintains Jersey bulls.Until 1970 the cattle breeding policy in the state was to upgrade the localcattle with bulls of the dominant breeds in the state. However because ofthe slow rate of genetic improvement through selection and the relatively lowpotential for milk production of the indigenous milking breeds of cattle, itis now proposed to introduce exotic breeds of dairy cattle to upgrade localcattle to a level of 2/3 exotic blood.

7. It is only in the last two years that exotic nurebred breeding ofdairy cattle have been introduced into the state for the nurpose of producingbulls for crossbreeding with the inligenous cattle. This will be the breedingmethod used in the project for improving milk Droduction. The Jersey breed,because of its high fat content, low maintenance reouirements (small maturebody size), and availability of high qualitv stock, would be the preferredcross. However other exotic breeds are being tested under controlled condi-tions such as the Brown Swiss under the Indo-Swiss Breeding Project (Kerala)and the Red Dane under the Danish Prolect Assistance Program (Karnataka).Management of exotic stock and crossbreeding in India requires close super-vision. Some important features are:

(a) it takes two to three years to acclimatize exotic animals:

(b) even after such acclimatization the exotic population does notnormally reach the production level which could be expectedin its home country-

(c) it takes time for local management to adapt to the requirementsof the exotic breeds and their cross breds:

ANNEX IPage 3

(d) crossbred heifers show a much earlier maturity than their nativemother but in mating, consideration must be given to their lowerbody weight and measurements as comnared with the exotic animals;

(e) under Indian conditions the proportion of exotic bloodwould be about 2/3. The Indo-Swiss Project is aiming at a 50% dualpurpose (dairy and draught) crossbred where the indigenous parentalstock is a crossbred between Hariana (dairy and draught) andSahiwal (dairy) breeds;

(f) an improved animal can express its higher production potentialonly under adequate management and feeding.

Milk Production

8. Indian native cattle and buffalo mature late, calving for the firsttime around four years of age, with an intercalving period of two years (50%calving) and have low milk production. Cows in milk average 1-1/2 1. per day(500 1. per lactation) and buffalo around 2.5 1. per day (800 1. ner lactation).First cross project heifers by Jersey bulls are expected to produce an average2,300 1 per lactation.

9. The following selected data show the milk yields of crossbredscompared with their indigenous dams:

M,adhya Pradesh, Records of the Bhopal, AI Center:

Jersey Crossbred F1

1st lactation: duration: 9 months2nd lactation: duration: 8 months3rd lactation: 12 l./daydam: 4 l./day

Jersey Crossbred F1

1st calving age: 26 months2nd calving age: 38 months3rd calving age: 49 months

Jersey Crossbreds: F1 F2

1st calving age 28 mo. 22 mo.2nd calving age 40 mo. -2nd lactation (peak) 2.1 l./day 16 l./daydam 6 l./day F1

ANMEX IPage 4

Rajasthan, Records of the State DeDartment of Animal I-Husbandry,

Age of Age of AverageMIaturitv First Calving Milk Production

Breed Months Months Per Lactation: kg

Hallikar 35 44 500

Hallikar x Jersey (F1) 15 25 1,945

Hallikar x Red Dane (F1) 13 27 2,686

Gir -- 48 786

&ir x Holstein Freisian (F1) -- 33 3,150

Hariana -- 48 600

Hariana x Holstein Freisian (F1) -- 33 3,050

Hariana x Jersey (F1) -- 27 2,350

Kerala, Records of the Indo-Swiss Breeding Prolect:

Average of 120 indigenous cows: 650 kg/lactation

Results of first generation crossbreds (x Brown Swiss):

Age of Calving Milk Yield No. ofLactations Month Days in Milk Average Kg Animals

1st 38 301 1,699 122nd 34 301 2,029 773rd 46 299 2,564 574th 59 300 2.700 245th 69 305 4,069 3

C. Feed Requirements

Feeds and Feedin

10. The most common cattle feeds are: byproducts of agricultural crops:straw, sugarcane tips; cultivated fodders: alfalfa, berseem (clover) andhybrid napier; perennial pasture grasses; concentrates from rainfed crops:barley, cottonseed, gram (chickpea): oilcake from groundnut, sesame, rape,cottonseed. The low quality crop residues which comprise the main roughagecomponent of the native animal's diet are inadequate to maintain crossbreds.Therefore increased dairy herds and milk iroduction (Annex 3) under theProject would depend on an adequate: sunnly of high auality forage and balanced

ANNEX IPage 5

Dremixed feed. GOMP measures to encourage fodder production include demonstra-tion farms for improved pastures and better management, seed multiplicationfarms, distribution of hybrid napier seedlings, loans and grants for past~ureimprovement and for fencing of pasture land and subsidies for fodder seed andchaff-cutters. However the largest scope for increased production of highquality forage is by intergration of these fodder crops into existing irriga-ted farms.

11. The comparatively high agricultural production in Western MadhyaPradesh where the Project area would be located, would virtually assure thesupply of the food grain ingredient (25%) and the agricultural byproducts(75%) of the balanced concentrate feed. In view of the need of increasedsupplies of milk for better human nutrition, together with the social impactdairy development has for small farmers, the trade off between increased milkproduction and a greater demand for cereal grains is readily accepted bygovernment, particularly as milk constitutes an important source of proteinfor the large vegetarian segment of the population.

Incremental Feed Demand Under the Project:

12. Indigenous cattle currently consume about 3 tons of straw, 3 tonsof green fodder, and 0.5 tons of concentrates during the year of lactation(500 1 every second year). Crossbred cattle when seasonally well managedrequire an additional 4 tons of green fodder and 1 ton of concentrate mixin a year for producing about 2,300 1 per lactation. The replacement ofindigenous cows by crossbred stock in each DCS is also projected to increaseits member cow herd size from 170 AIT to about 220 AU at maturity. Allowingfor the phased implementation of the 1,200 DCS over five years, the totalnumbers of crossbred cows, in year ten, would be about 120,000.

The total additional feed requirements, by year ten would then be:

Green fodder:

(a) for crossbreds: 120,000 X 4 480,000 tons

(b) for increased milk productionof buffalo and indigenous cows:70 million liters X 2 ton/1,000 1 140,000 tons

Total 620,000 tons

at a yield of 50 tons/ha/year this would require about 15,000 ha of irrigatedland and approximately 25,000 dug wells.

A NN X IPage 6

Prem.ixed feed:

(a) for crossbreds: 120,000 X 1 120,000 tons

(b) for increased milk productionof buffalo and indigenous cows:70 million liters X (l.5 ton/1,000 1 35,000 tons

Total 155,000 tons

The additional requirements of premixed feed would involve about 40,000 tons(25%) of cereal grain or about 0.3% of Madhya Pradesh's total present grainproduction.

13. There are at present about 80,000 wells in the nine districts ofthe Project and about 25% (20,000) would belong to farmers expected to jointhe DCS. As only about 10% have acoess to electric power for pumps, a dugwell of about 20 ft in diameter and 80 ft deep can only irrigate 0.6 haextracting the water with bullock power. The presently irrigated area to comeunder the Project would thus be aboult 10,000 ha. This area would not besufficient for fodder production about 25,000 additional wells would haveto be dug (over a 10 year period) allowing for members with irrigated landwho would continue growing other crops. Ground-water is available, and alsoon-farm credit to eligible farmers, through ARC, for minor irrigation schemesfor fodder production from the Madhya Pradesh Agriculture credit project(391-1N) and other ARC schemes if and when required. Advised by the proposedextension services under the Project, farmers with irrigated land would beencouraged to grow fodder for their own use and also for sale to other members.Under present conditions, production of berseem and alfalfa renders a netincome to the farmer comparable to wheat on irrigated land. In addition, andmost important, long term improvement in soil structure and fertility throughintroduction of leguminous fodders into the crop rotation would increaseyields of other crops grown on the irrigated land.

D. Milk Production and M!arketing

Milk Producers

14. Dairying in Madhya Pradesh is largely a subsidiary activityto crop farming though in many instances it nrovides a daily cash income.Over 80% of the cows and buffalo are kept in villages. The average sizeherd is 2 - 3 breedable head per family. MIilk producers are of 3 categories:(a) the landless who represent about 15% of the rural nopulation, keep1 to 2 animals and purchase all feeds and fodders- (b) the mixed farmer(croDping and livestock) whose maiTI income is from sale of drops surnlus tohousehold needs, dairying is a sideline which utilizes crop byproducts. Hemay use a small area of his land for growing fodder (alfalfa and berseem)purchasing small amounts of concen":rate, herd size is about 2 to 5 animals(c) the urban milk producer i-7th herds up to 20 head, he nurchases all thefeed and fodder and buy the cows al: peak production selling them when dry.

ANNEX IPage 7

Urban milk producers keep about 12,000 crossbreds in the city of Bhopal. Total

milk production in the State is about 8,000,000 1./day equivalent to about190 gr/capita, well above the national average of 110/115.

Dairy Cooperatives

15. The Dairy Cooperative movement in the Project area came into existence

around 1960 with the creation of the G.ONP milk schemes to assure supply fortheir processing plants. Due to the controlled milk price policy of the GONPdairies and other organizational shortcomings, the cooperatives movement haslost ground, with many societies existing only in name, less than 100 societies

supply milk at present to the GOMP plants.

Milk Marketing

16. The urban centers are the natural markets for village surplus milkand in Madhva Pradesh as in most of India there are three main type of

suppliers of milk to the urban markets: (i) traditional village agents, (ii)

city producers; (iii) cooperative sector. The traditional village agent,acting as a collector/middleman for private vendors in the cities is stillthe main supplier. The suDply for city producers is also significant re-presenting about 20% - 30% of the market. Villages that are remote from

main roads and urban centers, due to lack of adequate transportation, arecompelled to convert most of their milk into ghee (butteroil) wasting mostof the skimmed milk. Only about 40% of the milk is consumed in its fluidcondition.

17. Most agent/collectors pay the village producer between Rs 1.20 - and

1.80/1, they operate from villages comparatively close to the urban centers,though offering a poorer product, and are serious competitors to organized

milk schemes which have to bear the higher cost of processing. Under thepresent marketing system, the city producer selling direct to a regular con-sumer clientele is also very competitive with the agent/collector even though

the former must buy all his feed supply. To reduce feed costs many cityproducers purchase cows in milk and sell them at the end of their lactation,they do not, therefore, generally rear calves. Madhya Pradesh has an un-developed dairy processing and marketing structure resulting in severe short-age with marked price escalation in the urban centers during the lean season.The first milk processing plant was established by GOP in Bhopal in 1958.

18. Milk prices of private vendors in Madhya Pradesh are not controlled

and the urban market price for raw milk varies according to type and seasonfrom about Rs 1.50 to 2.50 per 1. The BOTM dairies market pasteurized milk in1/2 1. bottles at significantly lower prices: Rs 1.70 per 1. of 3.2% fat(EhoDal) and this makes them unable to pay village nroducers a competitiveprice. This results in low procurement volume and operating losses due tolow throughput. Accordingly the GOMP milk schemes in Bhonal and Indore accomo-

dates only about 10% of the urban demand. In addition to the Bhopal and Indore

ANNEX IPage 8

plants which have a capacity of 20,000 1./day each, the following governmentowned plants are also located in the project area: Ratlam, Ullain and Hoshan-gabad, each of 2,000 l./day capacity. Mfilk reaches the processing plants,in 40 1. cans, by contract truckers while at the village level agent/collectorsoften procure and transport it to collection points by bicycle or oxcart. Thesefive niants represent a nrocessirg capacitv equivalent to 47 of the total tnresentmilk production in the Project area which is about 1,200,000 1./day.

E. Technical Services

Veterinary Services

19. Disease prevention and control measures in the state are the respon-sibility of the Department of Veterinary Services and Animal Husbandry. Forthe 45 districts the state has 52,5 Veterinarv Hospitals, 22 AI centers and45 Mass Immunization and Mobile V'eterinary Units. The Mobile Veterinary Unitsfunction is to control epidemics and carry out free of charge routine vacci-nations for rinderpest and to a lesser extent for blackquarter and hemorragicsepticaemia. Approximately one fourth of the facilities operated by theDepartment of Animal Husbandry for animal health services are located in theProject area.

Vaccine Production

20. The nresent GOMP vaccirLe production facilities at Mhow (Indore)are insufficient (16 million dosEs/year) and will be expanded during theFifth Plan. Vaccine production is of narticular importance to the exotic andcrossbred animals who are more susceptible to the infectious diseases thatare endemic in the country. The vaccines of importance to the Project arehemorragic septicaemia, blackquarter, anthrax and rindetpest. These areoffered without charge, governmernt bearing the cost. National production offoot and mouth vaccine is currently being reorganized with the establishmentof regional production plants und[er the Danish Project Assistance Program.At present Hioechst operates a small plant in Bombay of a capacity of 500,000doses/year. The vaccine would be sold at Rs 3/dose which includes a 50% GOIsubsidy.

Artificial Insemination

21. Artificial insemination is effected with fresh semen through sixcentral semen stations and 22 Al centres in the state. Due to shortage oftrained staff and poor communications and transport facilities less than 25%of the semen is actually utilizedl. The following statistics on AI in thedistrict of BhoDal tend to confirm the present trend of crossbreeding:

ANNEX IPage 9

Year Exotic Jerse" Thari 'Turrah Total

196f6-67 249 (14%) 391 1, 1 1 4 1,754

1969-70 4,321 (49%) - 4,511 3,832

1972-73 9,505 (53%) - 8,333 17,843

2?. Frozen semen from exotic stoclk is imnorted under bilateral aidprograms (Swiss, Danish, Canadian, and others) in limited auantities and usedmostly for the bull breeding farms. Frozen semen gives low concention rates(25%) with buffalo and this has precluded its use in the AK?TTI, model whereAI services are done with fresh semen delivered dailv on the milk collectingtrucks. Conception rates at AMUL average 45%.

23. The Danish Project Assistancp Program has provided five frozen semenbanks with a capacity of 125,000 doses/year for distribution through 50 Al unitseach. One bank, scheduled for installation at Indore (subject to final GOIdecision), can receive, store and distribute frozen semen and would include aliquid N2 Dlant. An additional nine such units are undler consideration forIndia under a US$40 Il grant bv the Danish government. The first five unitswould operate on imported supplies of frozen semen. The subsequent ninewould include twenty exotic bulls each. The Danish Project Assistance Programalso includes a bull breeding farm at Bhopal with a foundation herd of 100cows and four Jersey bulls, this is independent of the MPDDC bull breeding farmrequired under the project.

F. Government Policies

24. The policies followed, by the GOMP in the dairy subsector are essen-tially those established by the GOI in its five-year nlans. Allocations forthe dairy subsector in the first three development plans were inadequatecausing Government to reconsider its nolicies in the Fourth and current Fifthplan. Together with the oblective of food grain self-sufficiency, livestockdevelopment in India and in Ufadhya Pradesh is now gaining importance as a meansto diversify agricultural production. Within the livestock sector, dairydevelopment has been given greatest emDhasis in MTO's Fifth nlan since, despitemilk and milk products providing the primarv source of animal proteinfor the large vegetarian segment of the population the daily per capitaavailability has fallen from 120 (1970) to 112 g (1973) GOI plans for dairydevelonment have been stimulated bv the successful AMUL experience and inthe Fifth fixre-year Plan GOI is encouraging the AMUL model as the basic meansto increase milk production. In addition, animal production, health and AIfacilities are proposed to be improved at State level and more emphasis placedon increasing crossbred cattle. GOI would provide a crossbred calf subsidyof Rs 200 per head, in the form of pre-mixed calf feed, to encourage farmersto adoDt better feeding Dractices and so avoid losses of valuable crossbredheifers due to malnutrition. The Fourth Dlan provides funds for the construc-tion of a total five dairv plants and six rural dairies in Uadhya Pradesh ofwhich only one rural dairv would be in the Project area.

ANNEX 2Page 1

INDIA


Project Lending Institutions

1. IDA funds for loans to the MPDDC and the Unions would be on-lentby GOI, through the Agricultural Refinance Corporation (ARC). 1/ ARC iswell known to the Bank group, being the intermediary refinancing channelfor 15 ongoing IBRD/IDA credit projects.

A. Agricultural Refinance Corporation (ARC)

2. ARC was established in 1963 as a subsidiary of RBI to provide asupplemental source of medium- and long-term finance for agriculturalcredit institutions and to guide them toward a development-oriented approachin their operations. In support of the latter objective, ARC sponsorsorientation and training programs for management and technical staff offinancial institutions, helps strer.gthen the management and financialoperations of banks, especially the land development banks and, with theexpansion of its own technical division, is increasingly assisting financinginstitutions in appraising the economic and technical feasibility of develop-ment schemes as well as their supervision.

3. During its first ten years of operations, ARC disbursed Rs 2,190 M(US$274 M) against a total commitment of Rs 4,010 M (US$626 M). About 90%of its refinance assistance has been for minor irrigation and land develop-ment schemes. Other minor lending includes farm mechanization, plantationand horticulture, poultry, fishery, dairy cattle, storage facilities andmarket yards. About 90% of ARC's refinance and assistance so far has beendisbursed through Cooperative Land Development Banks, 5% through StateCooperative Banks and 5% through commercial banks.

4. The spread between ARC's borrowing and lending rates is sufficientto meet expenses and after declaring dividends to show a profit of Rs 0.37crores (US$463,000) in 1973-73. ARC is in good financial condition, itsequity position is unimpaired by lcisses, and its assets in GOI securitiesand debentures of land development banks are guaranteed in principal andinterest by GOI and State Governments.

1/ Full details of ARC's organization and financial operations are givenin Annex 4 of the Uttar Pradesh Agricultural Credit Appraisal ReportNo. 107a-IN, April 12, 1973.

ANNFX 2Page 2

5. ARC would be required under the Project to:

(a) establish participation criteria with IDA basedon conditions listed in Appendix 1: invite allbanks operating in the Project area to participatein the Project: and make a list of eligible banks;

(b) channel funds through not more than two banksselected by the borrowing Unions & from the listof eligible banks, providing 90% refinancefor project loans by these hanks and

(c) chair and direct the operations of a ProjectSupervision Group to be established by thebanks (Appendix 1).

B. Cooperative Banks

6. There are two separate cooperative banking systems in Madhya Pradesh--

the Cooperative Land Development Bank (LDR) System which provides long-term

development credit--and the Cooperative Bank System which provides mostly for

crop produiction loans. Hlowever, these svstems are inderendent of each otherthough both are supervised by the GOTP Registrar of Cooperatives.

MIadhya Pradesh State Cooperative Land Development Bank

7. The LDB System is a federation of 44 Primary Land DeveloDment Banks(PLDB) with most districts having at least one PL.DB. The LDB has its head-quarters in Bhopal and six regional offices. Annual lending increased from

Rs 55 million in 1969-70 to 119 million in 1972-73. The emphasis is on

develooment, mainly irrigation wells, pumosets, tractors and implements and

land prenaration. During 1971-72, LDB lending was as follows:

Purnose Total Amount(Rs millions)

New dug wells construction 48.7Pumpsets 14.2Tractors & Machinery 10.8Well Repairs 0.4Land Development 1.0

75.1

8. Principal LDB sources of funds are naid un share capital, reserves

and debentures. PLDB's are required to hold 5% of their borrowings from LDB

as share capital. As of 1973, paid up share capital was Rs 24.7 million, of

which 55% belonged to G0OP and 45% to the PLDB's. Reserves were Rs 386 million.Net earnings improved from Rs 2.0 million in 1970-71 to Rs 3.5 million in

1971-72.

ANNEX 2Page 3

.. ollection nerformance of PLDB's, and, thus the LDB, has continued tohe s o I c to 3 e. e PLDB's overdues Ps a nercentage of demand (arrears plusamountse dee t'at Yea-, have, since 1969-70, been continually above 35%. Ofthe 44 FT.D3s, only S reported overdues below 25%, which is the maximum figurepermisi>Je for participation unde- ongoing IDA credit Projects in other stateso. India. Tnoer the ' formulc, Government must provide redeemable equitycanital te- makae up xor the difference between the actual overdues and the 25%ret1uir en.t in order for LDB to participate in the Project. Conditions forproJect -,articiDation are given in Appendix 1.

Mahya Prd erative Bank

10. ""tie 4adhvea rrdesh Sts.te Cooperative Bank (NPCB) has a membershipof about A4<Ju s.cmpriseel of prinrry societies, central cooperative banks andindividunXs. At the base, there: are 10,000 primary cooperative societiesfederated tmto 43 Central Cooperative Banks (CCR), one for each district. GOIand GOM rovit2je substantial fitlancial assistance as equity capital, by sub-

s'dies, olReio.` of long-term int:erest-free or lcw' interest deposits or bycontribit.on -o a stahblization fund for convertinz short-term uncollectiblesinto n.emd-zo-mtrm crcd! t.

11. The MPSCB loan oortfo.io is about 8Q0 short-term loans and cash credits(a form if revolving credit), 20% medium-term. Borrowings are almost ex-clusive7'v .Prc. the BT,. which annually provides 40-50% of the funds of thecooperattlp han'king sys!em.

12. ?-ofits have been stable at about Rs 4.2 m since 1970. Lendingvolume was Rs 715 million in 1972-73. The ratio of overdues to amounts out-standing for the CCBs is unsati:,factory. Thus, at the end of 1973 overdueswith the CCBs stood at 42% of d&mand with two reporting as high as 93% buttwo below 2.t%. CCB's overdue problems however, do not show on the MPCBbecause c' the 3ignificant non-2CB membership of the MBCB. The MPCB's over-dues, at P.s 23.5 M against a loan portfolio of Ps 572 M in 1972 were about5.0% of demand.

13. FPSC2 given its good financing position would be invited to participateir. the P7rojct. although it has no experience in long-term lending.

C. Commercial Banks

14. DArect financtng of agriculture by commercial banks is a recentdeveloD,me"t, '1e-ginning primarily after the nationalization of major banks in1969. '4o-rowt b;as attempted to set targets for the opening of new branchesin rural areas, of which there are 60 now compared to 16 in 1969. Performanceto date has been rodest with the commercial banks slowly building up expertisefor agricultural lending. Loars to date have been for tractors and pumpsets,with crop l-3an• and short-term credit limited to individuals who have taken

ANNEX 2Page 4

medium-term credit. Commercial bank lendina in agriculture amounts to about7% of the total bank credit outstanding. Collection record in agriculturaloperations is generally similar to that of the LDB.

15. In general, commercial banks are financially sound and are strengthen-ing their agricultural staff capabilities to expand their role in agriculture.However, they lack experience in long--term financing of processing plants, andare reluctant to enter into the field of cooperatives. Civen the change em-phasis following nationalization, it is. however, expected that commercialbanks would be keen to participate in the Project for long-term lending to thecooperative sector for milk processing and cattle feed nlants. Conditions forparticipation are given in Appendix 1. Considering the problems of overduesand management of the LDB and MPCB, the narticipation of commercial bankswould be critical to the implementation of the Project. Assurances would besought that GOI, ARC, and GOMP would facilitate the participation of commer-cial banks in the Project and that GOI, ARC and GOMP would provide guarantees,if necessary, for their project loans to the Unions and MPDDC.

ANNEX 2Appendix 1Page 1

INDEA


Project Lending Teras and Conditions

Borrower: India

Beneficiaries: Madhya Pradesh Dairy Development Corporation (MPDDC)and three dairy cooperative unions.

Relending Terms: For credit for project investments by MPDDC and Unions

(i) From GOI to ARC: repayable over 15 yearsat 7-1/2% per annum, minimum.

(ii) From ARC to Lending Banks: Repayable overa period of up to 15 years at 8% per annumminimum. Grace and repayment terms would beset to coincide with collections from MPDDC andUnions.

(iii) From Lendin; Banks to Unions & MPDDC: Repayableover up to 15 years including up to six yearsgrace on interest and principal, at 11% per annum,minimum.

Conditions for Project Participation by Banks:

In the case of LDB & MPSCB:

(a) Collection rate to be at least 65% and the amount requiredto reduce overdues from the actual value at the end of theprevious fiscal year to 25%, to be financed by purchase ofredeemable equity by the GOMP;

(b) ARC to review the bank's credit management and effectivenessof supervision and to require the appointment of suitablepersonnel and/or training programs, if necessary:

For All Banks:

(c) All banks participating in the Project to jointly organizeand operate within one year of effectiveness a Project


Supervision Group (PSC) consisting of suitable experts1/ andconstituted with ARC approval; the PSG would be chargedwith continuous supervision of the Project, with specialemphasis on the organizational and institutional aspects.

1/ ARC would establish with IDA the composition and qualifications ofthe PSG--basically, adequate staff and a panel of consultants incooperatives, financial management and dairy business. PSG to meetat least quarterly under ARC chairmanship and to provide the banks,ARC and IDA with information and recommendations and other reportsregarding the progress of the project.

ANNEX 3Page 1

INDIA


The Dairy Cooperative Societies

The AMUL Stoy

1. DCS and Unions under the project would be organized along the well

known and highly successful AMUL 1/ cooperatives operating in Gujarat. The

core of AMUL's success was the organizing of thousands of small farmers, each

cultivating an average of three acres, into hundreds of village cooperativemilk producer societies which, in turn, were federated into a union known as

the Kaira District Cooperative Milk Producers' Union Ltd., Anand. The term

"PiUL", an abbreviation for Anand Milk Union Ltd., in the Sanskrit language

means "priceless" and is used as the trade name for all milk products sold

by the Union.

2. The Union was started in 1946 with two village milk producers'

societies. From a handful of producers in two village societies, producing

about 250 1 of milk daily, the AMUTL syster. today is based on some 785village cooperatives with total membership of 225,000 individual milk pro-ducers, all affiliated with the Union, which is now collecting about 150million liters annuallv.

3. Several unique features contributing to the success of the AMULpattern stand out. Its development: was based on self-help: its leadership

bre.w while overcoming strong resist:ance from vested private interests. AMUL

is unique in its ability to provide numerous economic and social benefits to

thousands of small farmers. Some of the more signifcant features include:(a) technical services on animal husbandry and fodder programs; (b) avail-

ability of prompt veterinary health and Al services, (c) concentrate feed;(d) seed and fodder seedlings: (e) training programs for men and women; (f)

continuous supervision of the village cooperatives and auarterly audit:navnent for milk based on butter fat content; (g) suDply of startup equipment

for each new society.

The DCS Model

4. The DCS model (Table 1) is built upon data for the "average village"

in the project area which includes 10,300 villages (137 of Madhya Pradesh's

1/ Also see IBRD report on the Suervey of Successful ExDeriences in assisting

the Smallholder Livestock Producer dated December 1973 by Dr. E. McCauley

(Consultant), and the Karnataka Dairy Development Project Report (431a-IN).

of May 21, 1974.

ANNEX 3Page 2

total) having a population of about 4.4 million (about 13% of the State's ruralpopulation). The Project is aimed at 3,700 villa-es, or approximately 60%of those accessible. The area contains 0.5 million (about 20%) of the State'sbreedable buffaloes and 1.0 million (about 13%) of its breedable cows. Theaverage village in the project area has a ponulation of 430, constitutingabout 80 households. Of these households, about 80% own breedable animalsand approximately 15% are agricultural laborers who own no land or insufficientland to meet their subsistence requirements.

6. The average DCS is projected to reach its maximum membership inthe third year, covering about 70% of the village households and about 70%of the village breedable cattle. In order to obtain the volume necessaryfor viable operations, three average villages would be included in each DCS.The project would consist of 1,200 DCS and at maturity, it would cover anestimated 156,000 rural households, 124,000 breedable buffaloes and 247,000breedable cows (see Table 1).

Milk Collection & Services

7. DCS would collect milk twice daily. The collection point wqould bea building in the society's home village rented by the DCS. Collections wouldbe handled on a first-come--first-served basis and samples for fat testingwould be taken from every batch of milk. The quantity delivered by eachmember would be noted at the time of delivery bv the DOS secretary trainedin milk testing (Annex 6), in a pocket record book carried by each member.The payment according to fat content would be determined and recorded, alongwith the volume delivered, in society records. irilk would be brought to themain collection center from sub-centers in outlying villaaes. At each col-lection sub-center a DCS helper would take a samnle of each member's deliveryand note the volume. These deliveries would be bulked and transported bythe DCS helper to the main collection center, where the samnles would betested and entries made in the WCS records. DCS staff would be trained (Annex6) to provide Al and animal first aid services. Village extension workerswould provide technical assistance in crossbreeding and fodder productionthrough twice monthly contact with DCS members.

p~yment

8. Payment would be based on quantity and fat content. Payouts wouldbe made at regular, frequent intervals as specified by a majority vote ofthe membership. DCS bylaws would not allow payments to be made less fre-quently than once a week. Daily payments would be recommended. Priceswould have to be established in comnetition with the village traditionalagent/collector and improved on to attract Producers to the DCS. Bylaws(Appendix 1) would permit price differential between members and non-membersfor milk as well as feed. This would be in addition to the bonus ofRs. 0.05/liter the DCS members would receive starting year 5.

ANNEX 3Page 3

Transportation

9. DCS milk would be bulked ia 40 liter cans and transported from theDCS collection center initially by uaion owned trucks, later expanding withprivate contractors, engaged by the 'Unions. Each contractor would be requiredto provide tangible security which could be realized by the Union in the eventof breach of contract, which would follow the ANIML format. The maximum timebetween the first pickup on a route <nd the time of delivery of milk to thedairy plant or chilling center would not exceed 4.5 hours. Any spoilage ofmilk would be for the contractor's account. At the dairy plant or chillingcenter each DCS batch delivered woulc! be sampled and tested for fat contentand SNF (solids-non-fat) and the DCS would be naid according to volume, SNFand fat content. Union payments for milk to DCS would be made every otherday for the first five years. Paymerts made in cash would be delivered bythe transport contractor, or else by depositinR in the DCS account at thenearest bank.

Investments and Financial perat_ions

10. The Dhysical investment for a DCS would consist of milk collectionand testing equipment, an AI crate. veterinary first aid equipment and somefurniture. Table 4 shows the projectad investment requirements of a typicalDCS and the total for the 1200 DCS to be formed under the Project. Table 2shows the projections for milk collecl:ion and financial oDerations of atypical DCS. Suppliers who are not DCS members would be charged extra com-mission. The initial year's loss wou!d be covered by Government financingthe salary of staff for four months including two months in training. Equip-ment would be provided. Working capital needs would be minimal as the Unionswould pav the DCS everv other day for its milk (DCS would pay the membersdaily). These requirements would initially be financed from membership feeand share capital and further increases, as the volume expands, would befinanced from surpluses. Application of annual surplus would be governedby the bylaws, with the first 25% applied to a reserve fund, 80% of whichwould be held in Union shares. The typical DCS would be able to declare asmall patronage bonus of about 1 p/lit in year 2 increasing to 5 p/lit byyear 5. At the same time a DCS would be able to purchase, in addition toone share required to become a Union member, additional shares worth Rs. 700in year 2, rising to Rs. 3,100 by year 5, out of the funds allocated toReserves. By year 10, a DCS is expectad to have a Reserve Fund of Rs. 73,000of which Rs. 28,000 would be in the fonm of Union shares, Rs. 9,000 as workingcapital and the balance available for other allocations, including villagedeveloDment, according to membershin decisions.

Accounts and _Aud iting

11. DCS accounts would be maintained by the society secretary, whowould also supervise milk collection, record members' deliveries and computepayments and disburse payments due eacb member. DCS secretaries would he

ANNEX 3Page 4

trained in basic record keeping and other functions at the UTC (Annex 6).Field managerial assistance would also be available to new DCS from the ITnion's

division of institutional development. The accounts of each DCS wzould be

audited at least every four months bv the audit staff of the Registrar of

Cooperatives or the Union's surervisor. Results of each audit would be

communicated to the approoriate Union. The financial position of the DCSwould be communicated to members, along with the auditor's renort, at the

annual meeting. Any significant irregularities would be reported by theRegistrar of Cooperatives to a special membership meeting. DCS would not

be charged for audits for the first three years but thereafter, would becharged according to a schedule of fees to be specified by the Registrar of

Cooperatives.


INDIA

MADHYA PRADESH DArlY DEVELOPMENT PROJECT

DCS By-L;w Highlifhts 1/

1. Objectives: Increase mailk production of members' dairy animalsthrough improved husbandry; sale of balanced feed concentrates- increasefodder production; maintain prof-:table marketing facilities for members' milkproduction through milk producer unions: support and assist member activitiesand maintain profitable operations.

2. Membership: Only milk producers residing in the area, in goodstanding, owning at least one cow or buffalo: not engaged in milk collectionor sale except under society or Urnion ausnices: owning at least one share(Rs. 10 par value); willing to serve in elected or appointed positions:services available to non-members only on terms as specified by majority voteof membership; no bonuses to non-members; and limited liability.

3. Membership Meetings: Supreme authority vested in general meetingof members; review management performance; provide policy guidelines; approveor rejects budgets, new programs: elect management committee; special meet-ings called as needed; one member one vote: malority rule.

4. Mana eett: Delegated by membership meeting to elected managementcommittee, seven to nine members; fixed terms of office: chairman electedannually by the committee; committee employs staff; oversees operations;distributes bonuses; and works to keep society viable, profitable and progres-sive. Registrar of Cooperatives *nay appoint administrator when mismanagementis demonstrated.

5. Funds: Share subscriptLons, donations, loans, deposits; share trans-actions at par value (Rs. 10) only; no member's share to exceed 1/10 ofpaid-up capital; and loan and deposit liabilities not to exceed five timesnet worth. 1/

6. Payments to Members: Daily milk payments unless otherwise specifiedby majority vote of membership, subject to seven-day maximum payment period.

7. Credit: No loans or advances in cash or kind, excepting trade creditextended to the Union of which the society is a member; no undertakings ofany kind with respect to a member's or any other narty's debts.

1/ Subject to the requirements of the State Cooperative Act.


8. Allocation of Earnings: 25% of net profit allocated to Reserve Fund(80% or more of this invested in the Union shares at least for first 10years); 2%, to Cooperative Education Fund: maximum dividend 9% of sharecapital; balance distributed as follows: 65% bonus to members based onpatronage, 10% to the cattle relief fund, 10% to community development fund,10% to cooperative information fund, and 5% bonus to staff.

9. By-Law Changes: Subject to approval by a two-thirds majority andat least 50% of members present at a general meeting called with due notice,approval of Registrar of Cooperatives also required.

INDIA

MADHYA PRADESH DAIRY DEVFLOPMENT PROJECT

Village Dairy Cooperative Society

Source Data

Breedable Buffaloes Breedable Cows

Number Rural Population Households Herd x Per Per Herd x Per Per Village

of Population D per per 1,000 Village Household 1,000 Village Household

Villages i/ Village Village 31 _

Total Madhya Pradesh 76,871 34,869 454 83 2,500 33 0.40 7,850 102 1.23

Project Districts

Dewas 1,148 500 436 79

Dhar 1,571 757 482 88

Hoswangabad 1,553 631 406 74

Indore 662 382 577 105

.. aiz _ ... 1,535 522 340 62

Ratlam 1,072 445 415 .

Sehore 1,671 636 381 69

Ujjain 1,117 556 498 91

Totals and Averages 10,329 4,429 429 78 506 49 0.63 1,012 98 1.26

Livestock per Household J

Mixed Farmers 50 44 89Agricultural l,aborers (15% of all hougeho3ds) 12 5 9

Total 62 49 0.79 98 1.58

Geographical Coverage

Villages accessible by all weather roads(60t) 6,200Number of Villages under Project (60%) 3,700Feasible number of villages covered

by each society: About 3Breedable Breedable

Society Model Percet Farticipation Households Buffaloes Cows

Year 1 30 56 44 88

Year 2 50 93 73 147

Year 3 onwards 70 130 103 206

Total Project

Year 7 onwards (1200 Societies) 156,000 123,600 247,,'00

Source: Directorate of Agriculture, Bhopal, Agricultural Statistics 1972.

The average household is composed of 5.5 persons.'3 Source: State Government./ Assumed 20% of all households do not keep dairy livestock.

I N D I A ANNEX 3Table 2


Typical Village Coopex- 've Society

Herd Projections - Crosabreadino of Local Cows

------------------------------------------------------ Y e a r a ---------------------------------------------------

1 2 3 4 5 6 7 8 9 10 11 12

Cows

Local 74 124 174 175 1X6 140 104 49 9 -- __Crossbred -- -- --- -- 14 36 70 105 140 159 171 181lst Calf Heifers-Local 14 23 32 20 10 -- -- -- -- -- -- --

1st Calf Heifers-crossbred -- -- 14 25 43 48 54 61 63 63 64Total mated v 88 147 206 209 215 219 222 208 210 222 234 245

Less DeathsLess SAles 9 15 22 21 30 36 61 53 45 44 46 49

On hand at end of year 74 124 174 180 176 174 154 149 159 171 181 189

Heifers (2-3 yr.)

Local 15 25 21 10 -- -- _- -- -- __ __ __Crossbred __ __ 15 26 45 50 56 63 65 65 66 71

Less Deaths 1 2 2 1 2 2 2 2 2 2 2 2Less Sales -- -- -- -_ __ __ __ __ ._ __ __ __


Heifers (1-2 yr.)

Local 17 10 11 __ __ __ __ __ __ __ _ Crossbred -- 17 29 48 54 60 66 68 68 70 75 79Les Deaths 1 3 4 3 4 4 3 3 3 4 4 4Less Sales -- __ __ __ __ __ __ __ __ __ __


Calves (4 1 yr.)

Born during year 44 73 113 126 139 146 151 151 157 167 176 184Males- 22 37 57 63 71 73 76 76 79 84 88 92

Less Deaths 5 7 9 9 11 8 8 8 8 9 9 9Less Sales 17 30 48 54 60 65 68 68 71 75 79 83

Females 22 36 56 62 70 73 75 75 78 83 88 92Less Deaths 5 7 8 8 10 7 7 7 8 8 9 9


Total animal units 72 118 166 175 180 186 193 198 205 216 228 243Local Females Milked 44 73 113 117 114 91 68 32 6 -- -- --

Crosabreds Milked -- -- 9 25 55 83 119 151 167 176 184Total Pemales Milked 44 73 113 126 139 146 151 151 157 167 176 184

Parameters

Calving RateLocal Cows 50 50 55 60 65 65 65 65 -- -- -- --

Crossbreds -- -- -- 65 65 70 70 75 75 75 75 75Mortality Rate

Cows 5 5 5 4 4 4 3 3 3 3 3 3Others 1-2 year 10 10 10 8 7 6 5 5 5 5 5 5Calves up to I year 20 20 15 15 15 10 10 10 10 10 10 10

Age at lst Calving (mo.)Local Cows 45 45 45 45 -- -- -_ __ _- __ __ __Crossbred -- -- -- 30 30 30 30 30 30 30 30 30

Milk/Lactation (1)Local Cows 500 610 680 750 750 750 750 750 750 -- -- --

Crossbreds -- -- -- 2300 2300 2300 2300 2300 2300 2300 2300 2300

Milk Production ('000 1)

Local Cows 22.0 44.5 76.8 87.8 85.5 68.3 51.0 24.0 4.5 -- -- --

Crosebreds -- -- -- 20.7 57.5 126.5 190.9 273.7 347.3 384.1 404.8 423.2

T o t a 1 22.0 44.5 76.8 108.5 143.0 194.8 241.9 297.7 351.8 384.1 404.8 423.2

Animal Sold

Cull Cows 9 15 22 21 30 36 61 53 45 44 46 49Mal e Calves 13 30 48 54 60 65 68 68 71 75 79 83

I/ Over Yaez 1 to 3, DCS ame-rhp ±mreaa from 56 bouseholds to 130 households reslting in a corraponding imcruein the nLber of aULa in the DCS hbrd.re

, Mlk Yield v1ould imcrase about 50% tbaogh Improved atrition in the 4th year.

I N D I A


Typical Village Cooperotive Society

Herd Projections - Local Buffaloes

---- ___-___-______------------------------------------------------------__Y-& r *________________________________________________________________________________

1 2 3 4 5 6 7 8 9 10 11 12

Total mated 44 73 103 103 103 103 103 103 103 103 103 103

Total milked 1/ 22 37 57 62 85 85 85 85 85 85 85 85Milk/Lactation (1) 2/ 800 900 1000 1100 1100 1100 1100 1100 1100 1100 1100 1100

Milk Production ('000 1) 17.6 33.3 57.0 68.2 93.5 93.5 93.5 93.5 93.5 93.5 93.5 93.5

1/ Reflects increased calving rate from 50% to 657. in 5 years.

2/ Milk yield would increase about 407 through improved nutrition in the 4th year.

Consolidated Figures - Milk Production

------------------------------------------------------------------------- Y e a r a--------------- ------------- ------------ ------------ ------------ -----------

1 2 3 4 5 6 7 8 9 10 11 12

Milk Production

Local cows: In Milk (no.) 44 73 113 117 114 91 68 32 6 --- ___ ---Yield ('0001) 22.0 44.5 76.8 87.8 85.5 68.3 51.0 24.0 4 5 --- --- ---

Crosebreda: In Milk (no.) --- --- --- 9 25 55 83 119 151 167 176 184Yield ('000 1) --- --- --- 20.7 57.5 126.5 190.9 273.7 347.3 384 1 404.8 423.2

Buffaloes * In Milk (no.) 22 37 57 62 85 85 85 85 85 85 85 85Yield ('000 1) 17,6 33.3 57.0 68.2 93.5 93.5 93.5 93.5 93 5 93.5 93.5 93.5

Totals

Animals in Milk (no.) 66 110 170 188 224 231 236 236 242 167 176 184Milk Production ('000 1) 39.6 77.8 133.8 176.7 236.5 288.3 335.4 391.2 445.3 477.6 498.3 516.7

Calf Milk Consumption ('000 1) 1/ 6.0 10.1 19.8 22.2 34.2 36.0 37.0 37.0 38.2 40.0 41.8 43.4Producers Milk Consumption ('0001)2/ 11.2 18.7 26.1 26.1 26.1 26.1 26.1 26.1 26.1 26.1 26.1 26.1Milk Sales ('000 1) 22.4 59.0 87.9 128.4 176.2 226.2 272.3 328.1 381.0 411.5 430.4 447.2

Milk Sales from non-members 3/ 11.2 17.7 8.8 12.8 17.6 22.6 27.2 32.8 38.1 41.2 43.0 44.7Total Milk Sales 33.6 76.7 96.7 141.2 193.8 248.8 299.5 360.9 419.1 452.7 473.4 491.9

1/ Litres per calf: Years 1 and 2: 120 ; years 3 and 4: 150 1; thereafter 200 1.

2/ Assumed an average 550 grams/day per producer-family (100 grams/capita)

3/ Computed as a 7. of total milk sales from members; 50% in year 1, 30% in year 2, 107 thereafter.

INDIA


Dairy Cooperative Societies: Investment Projections

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

1 2 3 4 Total

Investment Per SocietyEquipment Rs 2000/Society 2 2,000 - - - _ 2,000

Start-up Cost Rs 750/Society 2/ 750 - - - - 750

Working Capital lY 400 300 400 500 500 2,100

Number of Societies Formed 210 240 270 240 240 1,200

(Rs, 000)

Total InvestmentEquipment 420 480 540 480 480 2,400

Start-up 160 185 200 185 185 915

Working Capital 85 160 265 380 500 1,390

Total without Contingencies 665 825 1,005 1,045 1,165 4,705

Physical Contingencies (10) 60 65 75 65 65 330

Price Contingencies 95 205 350 470 650 1,770

Total Investment 820 1,095 11430 1,580 1,880 6,805

1/ DCS-owned equipment for milk testing, first aid and AI service: centrifuge, lactometer and petrometers,

first aid kit, AI crutch, ledgers and office supplies, lantern, etc.

/ Start-up costs are salaries for-Society staff for the first four months paid into the Societies' account

by Government in advance to provide a working capital cushion, and include allowances during two months in training.

/ Working capital equivalent to 4 days' business given a Union payment every 2nd day for the first five years.

These are financed by share capital purchase and membership fees.

i For DCS that would fail, an allowance of 10% is made on equipment aid start-up costs.

I N 1) I A.N 1 3T.hl,.,

MADHYA PIADESH DAIRY DEVElLOFMEFX PROJECT

Typical D0iy Co-perati v Society Produntion. Income and Cash Flow

(Rs)

------------------- _-------------_--------a----- -- _ -- - ------------------------------------ ---------1 2 3 4 5 6 7 8 9

Members' Milk Sales to UCS -

Nan-Members' Milk Soles to DCS 11 14 9 13 18 23 27 33 38 41

Total DCS Milk Sales is 000 litres/year 34 62 97 142 195 249 300 362 419 453in Kg fat/year 1,850 3,450 5,240 7,844 10,225 12,480 14,550 16,930 19,390 20,740

Cattle Feed Sold (tans/vt.) 11 26 32 47 65 83 100 120 120 120

Senc.e Statement

(Rs)

Revenues j/ a-set-et Pri-es ---------------------------------------------------

Com.issiee on Milk @ Rs 1.50/kg fat) 2,770 5,170 7,860 11,770 15,340 18,730 21,820 25,390 29,090 31,110Cqmmission oa Cattle Feed (RD 30/toe) 330 770 960 1,410 1,940 2,490 2,990 3,610 3,610 3.610Letention an son--eebers' deliveries CR.s 1/kg fat)2/ 620 8CR 480 710 930 1,130 1,320 1,440 1,760 1,890

Total Revenses 3,720 6,740 9,300 13,890 18,210 22,350 26,130 30,440 34,462 36,610

Operating Costs

gages 3,000 3,600 3,900 3,900 4,500 4,500 4,500 4,500 4,5/'0 4,500Rent 670 670 670 670 670 670 670 670 67(1 670Milk Testing and First Aid s.pplies 650 1,150 1,800 2,500 2,880 3,050 3,700 3,700 3,700 3,700Repl-a-cest and Misnelleneous 150 250 350 550 550 650 650 750 75l 750

Yotal Ope-atieg Casts 4,470 5,670 6,720 7,620 8,600 8,870 9,520 9,120 9,620 9,620

Sneratiog Sarplus (Dleflaitc (750) 1,070 2,580 6,270 9,610 13,480 16,610 20,820 24,945 26,990

----- _--__---------- ---- ------------------- Current Pri-e ' ------------------------------------- ---------- ----(850) 1,320 3,420 8,930 14,710 22,170 28,680 37,770 49,290 53,700

banns froms UnionrW -- -- -- -- 670 3,700 18,750 15,820 17,220 18,7YO

Net Surplus (Deficit) (850) 1,320 3,420 8,930 15,380 23,870 39,430 3,5390 nO,'], 72,4891

Cash Flow(R.)

Soarnes of _Fuds

Shtre Capitol and Mmb-hersip Fe7 610 410 410Man -aest and Eqnip-ent Crant' I 3,110Net Sarpl-s (850) 1,320 3,420 8,930 13,380 25,870 39,438 35,590 66,511 72,480

Total Sourcea of Fneds 2,870 1,730 3,830 8,930 15,380 25,870 39,430 53,59, 66,510 72,4810

Uses of Fundst6/

Testing sod Collection Equipment 2,260 -- -- -- -- 3,290 -- -- -- --Dividend on Share Capital (at 97 p.a.) -- 90 130 130 130 130 130 130 130 130Banus to Members -- 390 1,620 5,260 9,130 15,420 23,550 32,050 39,820 43,380Res-rne Fned to:

(6) Pur-hase of Unio%9hores Z/ 150 348 760 1,630 3,070 4,370 7,890 9,793 -- --(ii) Working Capita- - 400 300 400 500 500 2,000 600 600 3,000 600

(ii) DCS S.v,ing Account 110 100 100 100 270 100 1,370 3,010 13,630 17,52C

Sub-Totel (Reserve Fund) 610 740 1,260 2,230 3,840 6,470 9,860 13,400 16,630 79-120

Other Appilcatians -- 510 820 1,310 2,280 560 5,890 8,010 9,950 10,850

Tsral Uses of Fueds 2,870 1,730 3,830 8,930 15,380 25,870 39,430 53,590 66,510 72,480

Cumulative Re-erve F-nd 610 1,350 2,610 4,840 8,680 15,150 23,010 38,410 55,04/ 73,160

lJ See Annex6qc 3 Table 3 for conseolidated figures fnr OS3 nilk production ani sales.2/ Non-Imeters pay an addi tiotul cowetesien which is held as a share sapitAl reserve (up to a medi of N 11), giving the no-i_ber an eptien to use it

towards buying a share and beoming a meber ithin oes year.3/ llr for 1974, 131% for 1975, 7,5% for 1976-80 and 5% compounded subsequeltly. All item bele thiMs lim are in current prices.

Total bosne allocatioes are distributed to lEO's in propoi'in to tAlc inusiwes1 here, even distribution anong 400 DCS is &s.ered.j/ The grant covers the cost of equbiprat, plus the salary of staff kdartlg t¢e first fear aDnths, including trairling. Each farmer (Annex 3 Table 1)

purchases 1 share of Rs 1 and pays a memtership fee of Rs 1 on bewoaaIg a meaber.6/ Under DUS bylaws a minimum of 25% of the anmral surpism and the fun ascnt of share capital mut be placed in a Reserve Funi. IMaxm bousse

allocation under DCS bylaws is 80% of the annual surplus after requirid application to Reserve Fund and dewlaration of dividend. 'Other Applications"represents surplsm fundsa over and absoe the statutory minimum. These latter funds cool3 be used for village development, education, etc..

7/ Union shares are purchased at the rate of 80% of the year's application to the Reserve Fund after all allowamnes for adequate working capital.8/ For the first five yearn the Union pays tlm DCS every other day while t'se DCS pays daily, resultirng in raxirs working capital needs of equiavlent to four

-days' busiess; frtn year six the Union pays every third day and from year 9 every Ith day. Working capital needs thus increase.

INDIAMADHYA PRADESH DAIRY DEVELOPMENT PROJECT

Returns from Crossbreeding

1/

Easis: 10 Cow Herd

Native Cdw Chosabrod Cpw

Physical Parameters

Cows 10 10No. Calving and Milked 5 6.5No. dry 5 3.5Calves sold 4 5.5No. of cows purchased 1 1Milk yield/lactation 500 2,300Feeding; tons/year/cow including progeny

Green fodder 3- 3Straw 5 5.0Concentrates 0.2 0.9

Financial Operations'

Costs

Feed Costs 4 2,000 11,400Miscellaneous 100 150

Total Costs 2,100 11,550

Income

Manure 5/ 900 l,500Milk § 1.05 - 1,970 14,330

Total Income 2,870 15,830

Gross Margin

Per 10 cows 870 4,280

6/Per cow- 90 430

1/ For the purpoaes of the model only; a typical project dairy farmer has 1-2 ccva only.2/ Assuming traditional husbandry and a non-upgraded native brood.3/ Concentrates @ Rs 1,000/ton, cost of production inputs for green fodder is akout

Rs 60-80/ton while purchased fodder is Rs 120/ton, and straw is a by-produet ofAgriculture and is free of financial cost.. Part of the fodder requiireaentscould be met from grazing.

4/ Manure @ 30 ton and 50 ton/year respectively 0 Rs 30/ton.,/ Calf consumption is 125 1 for natives and 200 1 for crossbred8.F/ Incremental income per cow is about Rs 340/year as a result of repUace5ent tirough

AI. Most producers currently receive about Rs 0.80/4 for milk, pkrtly in th3 formof ghee. Based on this price, the gross margin for hative cows would be aboitRs 70/cow/year. DCS would pay the higher price.

ANNEX -3Table 7

INDIA

MADHYA PRADESJH DAIRY DEVELOPMENT PROJECT

Cu:rrent Milk Prices

Sales PriceLocation, Source Purchase Price Paid To Urban

To Producer Consumer

% Rs/kgRs/L Butter Fat Butter Fat Rs/l

Bhopal, GOMP Milk Scheme -- -- 1.70(3.2% fat)collector (a) (winter)

(buff.) 1.60 7 % 23.- __(a) (summer)

(buff.) 2.1() 7 % 30.- --bulk price in city (win.) -- -- -- 2.-

U it it " " (summer) -- -- -- 3.-GOMHP AI center -- -- -- 2.25

,i it i, __ __ -- 2.50producer to collector 2.- 7 % -- __

Sehore, producer -- -- -- 2.-if Dairy Coop. -- -- -- 2.-

Cattle Breeders Assoc. 1.4() 6 % 23.- --landless producer 1.5O 5 % 30.- __

Ujjain, private collector 1.25' 6 % 21.- --Indore, producer (b) (winter) 1.50 7 % 21.- --

It if (b) (summer) 2.- 7 % 29.- __producer (c) (winter) 1.- 6 % 17.- __

" " (c) (summer) 1.25; 6 % 21.- --producer 1.25r 6 % 21.- --

Ratlam, producer (e) (winter) 1.- 6 % 17.- __" " (e) (summer) 1.25; 6 % 21.- --

producer (f) (winter) 1.25 6 % 21.- --

"T (f) (summer) 1.75' 6 % 29.- __

Average 23.

ANNEX 4Pag,e 1

INDIA


Dairy Cooperative Union

A. Functions

1. Under the Project, the DCS in each district (milkshed) would befederated into a Union, established according to the State Cooperative law.Once 25 DCS had been formed and onerating in a district, a Union would beformally registered. At full development there would he about 400 DCS ineach Union. The Union, like DCS, would he a farmer service organizationproviding the following services: Al, animal health, cattle feed produc-tion, milk collection, Drocessino' and marketing, institutional developmentand technical extension services in fodder Droduction and mixed farmmanagement.

Artificial Insemination Service--Bull Farm

2. The Union would make a daily delivery of fresh semen to each DCS.Each Union would invest in and onerate a bull farm to produce fresh semenfrom Jersey and Buffalo males, for Al service in the village. Trucks leavingfor milk pickup would collect iced semen packs for delivery to the DCS. TheDCS secretary and helpers would be trained at the Union Training Center toprovide Al services (Annex 6).

Animal Health Service

3. For each route covering about 35 DCS's the Union would operate amobile unit with vaccination and animal health kits and staffed by aqualified veterinarian and helper to provide routine veterinary services tothe DCS. Each society would be visited once weekly on fixed days and ata fixed time. There would be no charge for such routine visits. However,emergency 24-hour service which would also be available, would cost a memberRs 15 per visit, and a non-member Rs 20. A total of 50 mobile units (20Union owned and others hired) by year five would be equipped to provideroutine health services, pregnancy diagnosis, and vaccinations. A unionwould not operate a veterinary hospital as this service is available fromthe GOMP hospitals in the Project area.

Milk Collection and Processing

4. Milk would be collected from the DCS along defined and economicallyviable routes involving about 13-15 DCS each. Milk in 40 1 cans from the

ANNEX 4Page 2

DCS would be picked up daily anC transported to the dairy plants by a fleetof both owned and hired trucks cnerated by the Union nine chilling centerswould be provided for pooling milk from distant rouites services by three13,000 1 capacity road tankers for frei2hting the milk to the plants. Pro-cnssiig plants are discussed in Ap,Dndix 1.

Institutional Development and Technical Extension Services

5. A Union Training Center (UTC) would be operated to cater to thetraining needs of the DCS staff, members of the DCS 'fanagement Committee DCSfarmer membership as well as to Union staff. UTC investment estimates anda description of the various training programs to he organized are given inAnnex 6. A total of 1,100 man months of training is expected to be providedby the UTC annually. Management and organizational support to the DCS wouldbe provided by the Union, through frequent sunervisory visits, by supervisorystaff from the Institutional Development Division. Extension needs of theDCS would be considerable, esnecially during the early years. Union's ex-tensior sorices, described in Arinex 6, provide for one full time villageexirnsion worker duiring the first three months of a T)CS operation, and sub-seqnently, once fortnightly supervision visits by the extension staff. Cross-breeding, calf rearing, animal health, milking hygiene, feeding, fodderproduction and mixed farming management would be the main subiects. Practicaldemonstrations would be provided through the operation of about 10 demonstra-tion farms by each Union. These farms of 2 ha. size would be operated bytneir owners, under close supervision of the Union and the MPDDC livestock/foddercrcnsultant, and would be guarant2ed adequate incomes in order to encouragetheir participation in the progrrn..

FinanciaL Operations

7. Equity capital to enable a Union to borrow for investments in fixedassets would initiallv come almost totally from GovernmTent, except for fundsresulting from the share Durchasfs required from each member DCS. Lendinginstitutions wYould firnance up to 80% of the cost of investments in milk plants,feed mills, technicrl services and, admainistration. Operating deficits (SeeTable 13) w-culd be small in the first two years and are expected to increasein vear three when the milk nlanv comes into operation, all on account ofsmall milk volume. Operating surpluses are expected from year five when themIlk from the crossbreeds starts to increase. Operating deficits, includingfeed mill operations, are expected to total Rs 3.2 X over years one to three.These would be financed by equity-capital subscrintions by GO1-GONP to bereGeemed at rar in equal installnents over vears seven-nine.

8. Union bylaws would require that 25% of the net income in each yearbe automatically transferred to E. Reserve Fund. Up to 80% of the balancecan be returned to the DCS as a patronage bonus effectively increasing themembers' selling price of milk. Cooperative Unions are assessed income taxat 44%. Tax liahilities w.7ould be minimized by declaring the maximum nermissible

ANNEX 4Page 3

bonus while retaining sufficient funds for debt services and future expansions.The unions are projected to reach and, after tax and after bonus, rate ofreturn of about 16.7%. The rate of return including the bonus paid to DCSwould be 20%.

9. Purchases by DCS of GO1-GOMP equity holding in the Unions areshown in Table 14. By year nine, it is expected that DCS, applying 80% oftheir Reserve Fund allocations for the purchase of Government shares in thsunion, would have a 75% interest in the Union. Union's purchase of MPDDCshares would occur from the Reserve Fund allocations in year seven, enablingthe three unions to jointly own 75% of the MPDDC paid-up capital. GOI and GOMPwould hold the remaining 25%. By year ten, when a plant exnansion may bedue, a union is expected to have reserves of Rs 26 M to enable it to raisefunds without Government involvement.

D. Management and Bvlaws

10. Key requiz, ments of the bylaws governing the Union operations aresummarized in Appendix 2. They provide for limited liability of members,one vote per DCS, and the constitution of an 11 member board of directors.The board, to be chaired during majority ownership by the district Collector,would have the following representation: from member DCS, (6); GOMP, (2);MPDDC, (1); and the Union's financin- institution, (2). However, until aUnion has 80 DCS members, there would be only 1 DCS nominee on the Board.Once the DCS have majority shareholdings they would have the right to electthe Chairman of the Board.

11. Operational authoritv and responsibility would be vested in aGeneral Manager aDpointed by the board working through 5 divisional managersresponsible for Institutional Develonment, Livestock Development, PlantOperations, Administration and Marketin' (see Chart 1). The staff of theunion (Table 11) would expand from 100 in year one to about 430 in year five.Union Division managers would work closelv with the MPDDC division managersand consultants in planning and implementing their programs.

ANNEX 4App,eidi2x_1

Page 1

INDITA

MADHYA PRADESH DAIRY DFIELOPMENT PROJECT

Milk ProcessinR Plants and Feed 'fills

A. Milk Processing Plants

Milk Supplv Projections-Plant CapacitUes

1. The fluid milk available to the unions during the initial fiveyears of the project is comnarativelv small because the crossbreds from localcows become productive onlv in the fourth year which is equivalent to yearnine for those societies implemented in vear five. Table 4 shows the Pro-jected milk supplies to the Unions which have served to determine the caDacitiesof the proposed dairy Dlants. To reduce operational deficits during theearly years the dairv plants would be exDanded to match the increased milksupplies. The first expansion from 100,000 lts./dav to 150,000 lts./daywould take place in year 4 and the sezond exnansion to 200,000 lts./day inyear 5. As the Droject would not provide for disbursements beyond year 6,throughputs and overating results have been based on this maximum capacitywhich would be filled in year eight. The milk sunplies expected to continueincreasing beyond year eight would be processed in new Dlants or furtherplant exDansions financed by new or or:her loans.

Urban Market Demand--Product Mix

2. No adequate study has been rTade to determine present and futuredemand of milk and milk products of the urban markets in the Project area.Consequently to determine plant equinnrent requirements a representativeand viable product mix, similar for aLl Plants. was assumed. This isindicated in Table 10.

3. As soon as NDDB had been contracted and the divisional managers ofmarketing of the MPDDC and Unions had been recruited, they would collaboratewith NDDB in making a market study involving the urban centers and the potentialdemand of the regional and national m:Llk grids, if any, to determine theappropriate nroduct mix for each planw: within the project context of threeunions, to avoid installing excess capacitv in any one plant and to minimizefreight of fluid milk.

4. General Desin: The successive expansion of the Plants has beenplanned to defer investment and improvre cash flow. However, general layoutsand particularly building design from the very first phase of construction


would allow for the subsequent expansions to assure a functional flow at alltimes. Civil works, utilities. equipment and dairy processing equipment havebeen detailed on the corresponding investment estimates (Table 1 and 2).Effluent treatment would be of the secondary type either in the form oftrickling filter or anaerobic lagoons. Power would be purchased.

5. All plants would include a milk drying plant for balancing purposesand eventual production of infant food, a triblender for reconstitution of.milk during the lean season, and bottling facilities. For transportation ofmilk from chilling centers to the plants and freighting surplus milk betweenplants, one road tanker of a capacity of 13,000 liters would be provided foreach plant.

6. The Unions are only loosely identified with their respective dis-tricts and milk routes would transverse the district borders as dictated bythe respective milksheds. Existing Government--owned chilling centers in theregion remaining in use would be incorporated as needed into the assets ofthe respective Unions. In addition, the Project would provide for three chillingcenters for each Union for pooling mill: from remote DCS.

B. Feed u_ills

Balance Feed Demand

7. This has been computed on the basis of a rate of 1 kg feed per3 lt of milk, allowing for members that would not nurchase feed. The milksupply projections (Table 4) have served to establish the yearlv require-ments of feed, as well as the peak capacities on a per day basis, for eachof the three plants.

Feed MIill Ca lcities and Constructions

S. The feed mills would not undergo successive expansions but be builtin a phased manner each to its nominal capacitv of 75 tons/day. Accordingly,the first nlant would be built in years one-two, the second in years three-four and the third in years four-five.

Feed Mill_Operations

9. Plants would have facilities for receiving raw materials in bulkby truck and carry inventories for one month's production. TRquipment wouldbe suitable for producing tynical varieties of balanced feed formulas withabout 10 ingredients, sold in iellet form in 70 kg bags. To assure regularsupplied of feed to the DCS, each plant would be equipped with its ownfleet of trucks. Income and operating cost assumntions are shown on Tables9-10.


C. Plant Construction

Engineering

10. The NDDB has developed considerable capability and expertise indairy plant modular design and coordination of all phases of constructionwith contractors. After having effected the recommended market study, NDDBwould assist the MPDDC (Engineering Division) in Dreparing layouts, buildingdesign and specification of equipmert to meet recommended capacities andproduct mix, on which, bids would be requested. Procurement of equipment,installation and construction would be bulked into as few contracts as possible,as NDDB, due to previous commitments, would not be available to handle all theengineering and it would not be justified to build uo the MPDDC EngineeringDivision to do this work considering difficulty in recruiting experiencedstaff. This would also apply to the construction of the feed mills.

ANNEX 4Appendix 2

INDIA


Model Union By-Laws Hiljlights 1/

1. Ob-jectives: Promote village level cooperative dairv developmentthrough improved animal husbandry, supported by an integrated package ofservices for affiliated DCS and their members; increase production and utili-zation of green fodder and feed concentrates.: and provide reliable milk mar-keting channels.

2. Membership: DCS in good standing and Government, subscribing toat least one Union share (Rs 100 per share); limited liability; non-(overnmentmember's holding may not exceed one-fifth of total paid-up share capital.

3. Membership_ Meetings: Each shareholder entitled one delegate. onemember one vote; majority rule; supreme authority vested in membershipmeetings; reviews operations, plans, budgets, expenses, audits, loans, man-agement performance and all union activities: Union directors selected toassure representation of farmers and interested agencies.

4. Management: Ultimate authority vested in membership meeting,as delegated to a 11 member board of directors. Directors appoint and fixremuneration of General Manager and divisional managers. General Managerresponsible to Board for all Union operations as Chief Executive Officer.Directors have one vote each, majority rule.

5. Fundin: Share capital subscriptions, deposits, loans, grants,donations, subsidies- share transactions at per value only (Rs 100); loanand deposit liabilities not to exceed ten times the net worth 2/ of theUnion.

6. Distribution of Earnins: 25% of net profit allocated to reservefund; 2% contribution to the Cooperative Education fund- maximum dividend9% of paid-up share canital and maximum 07 of the balance as bonuses tomembers and staff, credits to funds and other reserves as approved by member-ship changes in distribution of earnings subiect to approval of Registrarof Cooperatives.

7. By-Law Changes: Approval of two-thirds vote of general meeting;with approval of Registrar of Cooperatives.

1/ Subject to the requirements of the State Cooperative Act.

2/ Paid-up share capital plus reserves, less accumulated losses.

I ND IA

ANNEX 4MADHXA PRADESH DAIRY DEVELOPMENT PROJECT Table I

Milk Prcess.ing Plants II

Foreign

Inete t oe,c 2/ Capacity ortota Unit'! Cost For Unit Total Exchange

---------- Years--------1 2 4 5

Total Capacity, Lts/day 3/ - 100,000 150,000 200,000

Fixed Investment '---------000 Re.----------

Land and Infrastructure

L an.d 40,000 2 RE../a2

200 - -- 200 -Site Preparation 70 - - 20 90 -

Sak-total 270 -- 20 290 -

Civil Works

Plant yrards, fencing, inifrastructure 5,000 . 100 Ra./.e2 100 300 - 100 500 -Processing and rafrigeatd storage bldg. 2,000 .2 00 t.x800 ReI-o 400 100 300 1,600 10Adoinintration, lab, dressing-roems, aet. am 2 700 pRo /e2 200 200 60 100 560 5

aaae tr,uxiliary bldgo, 1 000 2 500 RNab2

200 100 100 100 500 -Water Storage tank20 210 R1220 0Secondary affluant treatment syate 500 2'700 R.s/rn

250 200 -- 100 350 -

Staff housing 5 a 120 m2 /ea,. 700 Rs,/m21 120 200 100 -- 420 10

Sub-total 1,670 1,400 360 700 4,130 5.6

U tilIit ie

Water Wells, supply lines, peopa, 3 a 200 Li-./min/"a 150,000 Rs./ea. 250 50 - 150 450 30Power H.T. lice, eabstation, eitcbgear 3 a 200 Kw. 600 Re./Kw. 100 220 - 160 400 30Package stem. generator, foal'tank, acoil. 3 a 7,500 kg./hr. 350,000 Es./"a. 150 530 - 350 1,050 20Riefrigerating squipmt, cooling welts, sasil. 3 o 100 Tons 3,000 R.a./To. 100 500 -- 300 900 70 14/

½6iielins ... s.Istanan..e equipment 4/ lOt - 60 130 -- 90 200 20Instolation 5 1St - 90 210 -- IS 450 -

Sob-c.totl 750 1,660 -- 1,200 3,610 53.0

Macbinery and Eocipoeni

Milk reception and can washing 200,000 Lts./daY 600 Ra./1,000 Lt./hr. 100 600 200 300 1,200 80 14/Milk pasteuri-stion, chilling, CIP. 200,000 Lts./day 200 Rs./l,000 Lt./br. 200 700 200 500 1,400 80 14/Milk storage tkank and silos 300,000 Lts./day 350 R.s./1,S00 It./hr. 150 700 200 300 1.350 30Milk by-product taking equips..nt 10 Tans/day gutter and Gbee --- 350 100 200 650 00 14/Slottllng line and bulk weding units 30,000 Lts./day/ea. -- 200 130 150 500 00 14/Milk condensing and spray drying unit 130 Tons/day 300 2,500 - 1,000 5,800 60 14/0.0. piping and fittings 6/ St 40 250 40 110 440 s0 T4/Chilling cen ters, uneplete 3 x 20,000 Lts.,/". 400,000 Re./ea. --- 4030 900 1,200 60Inetallation 7/ 1St 120 900 150 350 1,400 30Office lak, equipment too0 - 100 70 14/

lob-total 910 6,300 1,420 3,S10 12,040 66.3

Trens.partation Kauipsaet

Ineclted tank trucks 1 x 12,000 Its. 330,000 Rs./ea. -- 350 - 350 50Pick-np trunka, vane 10 a 5,000 Lts./ea. 90,000 E.e.- 630 270 - 900 25Jeeps, cars 2 43,000 p.je/m. 90 -- - -90 39Aluminus cans 5,000 = 40 Lt../-a. 160 Es./es. -- 400 250 250 900 -

Sub-total 90 1,030 670 250 2,240 18.7

Total Fixed lnvestment WIGPties andTaxes I,o am IAbi46 2,670 5[820 22,750 43.4

Import Unties and Taces 2~70t 520 3,640 480 1,650 6,290 -

T.tal Fixed In_.t.-t W/o _ ntiA ... ie -4 320 14,100 3,150 7,474 29,040 34.1

Contlsp.eneies, Physical 19! 430 1,410 320 730 2,910Frice ±1) 620 3.550 1,49 4.42 10_070Sub-total 1,05O 4,960 1,600 5.170 12,000 34.1

Total Flood Iav-tme.nt 5,370 19,060 4,950 12,640 42,020 34.2

Working Capital 12l, 130 - - - 130 -

Cuntingen..tes, Phys 13/ 30 -- - - 0

price X 0- - -- 40Sub-total

Total Peveteent 5,540 19,060 4,830 12,640 42,190 34.0

11 All figures correspond to one plant, all tbrese plants ba- bee ass...umed equal.2/ All eachiosry sod equipment cans. include crating, insurance end freight to cite and their shorn of engineering and overhand contu.3/ plants woud be built in yeses I and 2 en eoperations in year 3 and undergo eapannian in y-ar 4 and 5.Z/ 007, of the four prece.ding items.5/ 1St of the five prc.eding items,6/ 5% fi tke am preceding it."a..ZI 15% o ci h.enight preceding Items; excluding chilling centers.8/ 10 trucks would he purchased initially of a total 50 reqaired. - The balac woul.. d he con tracted oa neaded.0/ Assumed 70% on total coat of items earked 14/ re..alting frt- 220t on etainl-n steel, 707. on mponestn and refrigerating oquipont,

40 on itcen not man.aitsetrd loca.lly and 12t salea tax,lo! Physical ...ntingoscian applied at lOt on all plant ic.satmeote.

11/ In accordance wiih Match 29, 1974 guidalines. costa and prices as of mid, 1914.T1/ Co-repeedo to 1 month expenses in year I and I weak nilk pucobasa.s1~3/ At 5%.14/ Iron considered impottedue.der ICE and subject to import duty.

ANNEX 4L.NLD.I.A Table 2

MADNYA PRADESH DAIRY DEVELOPMENT PROJECT

P e e d M i l l s 1/

Invest-ent Projection

Capacity or C oa 8t ForeignInvestment Items Total Units Per Unit ___- _--- Year- ----- -- - Total Exchange

1 2 3 4 5

Total Capacity Tons/Dyv 2/ -- 75 150 150 375 375 --

Fixed Investment '000 E.--- - - - - --- -- -.-. '00. R --- _-_-_-_-___-_-_-_- __

Land and Infrastrocture

L a n d 20,000 s2 5 REs/. 100 -- 100 --Site Preparation 50 50

Sub-total 150 150

Civil work.

Plant yards, fencing, infrastructure 3,000 n2 100 REs/2

100 200 300 --

Main processing bldg. 800 625 RE/sj 450 50 5iD 5Office, lab, dressing-rooms 300 600 Rs/m

290 90 400 5

Raw material sCorage sheds, weigh bridge 1,200 m2 400 Rs/32 240 240 480 15

Product storage shed, oxs shads, Lac. 400 m2 400 Rs/m 2 80 80 160

Sub-total 90 6 1,1320 6.6

U t i I i t i a a 3/

Wster well, pump, tank 1 a 100 Lts/min 100,000 Rs/as. 100 -- 100 30Power H.T. line, substation, ewitchgear 2 a 200 kw 800 ROEk/ 80 240 320 30Packags st.m generator, fgol tank, a*s' 1 x 1,000 kg./hr. 30,000 Rs/.a. 50 250 300 20Service lines, maintenance equipment 6/ 10% 20 50 70 20Installation 5/ 157 30 90 120 --

Sub-total 280 630 910 22.0

Machinery and Equipment 3/

Raw mat-ril hoppers, conveyore, grinders 4 Tons/hr. 50 170 220 80 13/Ground material bins, conveyors, mire 4 Tons/hr. 100 340 440 80 13/Feed wix bins and bagging scale 4 Tons/hr. -- 100 100 80 13/Pellet mill, cooler and eux. 5 Tons/hr. 50 180 230 80 13/Oust collecting syte 90 90 20Installation 6/ 157, 30 130 160 30Office and laboratory equipsent 60 60 30

sub-total 230 1,070 1,300 67.7

Trnsnportation Equinment

Truck Z/ 9 x 5,000 kg/es. 90,000 Rs/:a. -- 810 810 25Jeeps and care 2 45,000 Rs/ a 90 -- r 90 25

Sub-total 90 810 900 25.6

Total Fixed Investwea t W/O Duties and Taxes 1,710 3,170 4,880 29.0

Duties and Tames 60% 120 470 590

Total Fixed Investment W/o Contingencies: One Plant 1.830 3,640 _ 5,470 25.9

Total Fixed Investment W/o Contingencies: TwO 1,830 5 470 3.640 10_940

Additional Plants

Contingencie: Physical First Plant2

/ 180 360 - - - 540

Physical: Tw Addition Plants - - 180 540 36C 1,08uPrice : Firt Plant/ 270 940 - - 1,210Price Two Additional Platst - - 720 2,720 2,220 5,660

Total Fixed Investment: First Plant 2 2 -_ 7,220 25.9

Total Fiped Investment: Two Additional Plsnt. 2,730 8,730 6,220 17,680 25.9

Working C-Pital U, 650 650 650 1,95012/

Co-tinxencies: Physical 30 30 30 90Prima 150 270 340

Total Investmenti First Plant 2,280 5,770 I _ _ 8,050 16.7

Total Investment: Two Additional Plants 2,730 9,680 7,240 19,650

Total Investment: All Plants 2,280 5,770 2.730 9.680 7 240 27.700 16.7

1/ All three plants have been assumed eqnal2/ Plants would be built as follows: lst years 1-2, 2nd years J-4, 3rd years 4-53/ Cost of machinery and equipment includes crating, insurance and freight to site.4/ 10% of the three preceding items.5/ 151 of the four preceding items.6/ 15% of the five preceding itess.7/ For distribution of feed to village socistids.

8 Asspmed 60% a mont of this equipment is currently munufmctured locally.Physical contingencies applied at 1l% on all mill investments.In accordance with March 29, 1974 guidelines, costs and prices as of mid. 1974.

1 Corresponds to 112 month's operating costs and purchases of raw materials./At eu.~/ Items considered imported under I1B and therefors subject to import duty.

I Nl) LA

MADHYA PRADESH DAIRY DEVELOPMENf PROJECT

Dairy Cooperative Union: Investtment inTechnical Services and Administration

(Rs, Thouwads)

------------ _ _ ----- Year -

1 2 3 4 5 6 Total Foreign Exchange

Artificial Insemination Service 2Land & Roads 141 - 21 7 7 - 176 3Construction: Bull shed & yard 65 20 30 60 30 20 225 10

Lab., office & housing 178 162 80 130 130 - 680 10Equipment 185 25 20 40 20 - 290 44Vehicles (2) 50 - 50 - - - 100 25Livestock: Imported Jersey 60 36 - - - - 96 90

Local Jersey & Buffalo 8 - 68 74 - - 150Engineering 47 24 19 32 19 - 141

Sub-Total 734 267 206 1,858 18Physical Contingencies 36 13 14 17 10 1 91Price Contingencies 110 80 103 181 166 22 662

Sub-Total Contingencies 146 93 m 198 176 -23 753Total 360 5T 382 43 2 ,611 18

Animal nealiLh Se-vjyMobile Units - (6) 150 150 - - - - 300 25Equipment 50 115 - - - _ 165 90

Sub-Total 200 265 - - - - 465 48Physical Contingencies 10 15 25Price Contingencies 27 65 92

Sub-Total Contingencies 37 80 117Total 237 345 - - - - 582 48

Management OverheadBuildings & Furniture 165 375 - - - - 540 10Vehicles (5) 4 100 100 50 - - - 250 25Staff Quarters - 300 800 - - - - 1.100 10

Sub-Total 565 1,275 50 - 1,890 12Physical Contingencies 30 65 3 98Price Contingencies 90 390 17 497

Sub-Total Contingencies 120 455 20 595Total 685 1,730 70 2,485 12

Total Without Contingencies 1,499 1,807 338 343 206 20 4,213Physical Contingencies 76 93 17 17 10 1 214Price Contingencies 227 535 120 181 166 22 1,251

Sub-Total Contingencies 303 628 137 198 176 23 1.465

Total With Contingencies 1.802 2,435 475 541 382 43 5,678 12

I/ AI and Animal Health; Training and Extension for project promotion is in Annex 6 Table 2.

2/ Investments in a Bull Farm for producing about 200,000 semen doses annually in year 4 (300,000 by year 8) to be transported to DCS for Al activity.8 ha of land; construction of 50 bull pens, 500 sq.ft. of collection yard, 1000 sq.ft. of storage sheds, laboratory and office space, and 30 unitsfor staff & labor housing; equipment for laboratory, I set of farm machinery (Rs 80,000) and 2 sets of irrigation equipment (Rs 50,000); Initialherd of 8 Jersey bulls to be imnported, and subsequent requirement nf 15 Jersey to be obtained from the Corporation's breeding farm; 14 buffalo bullsto be purchased locally.

3/ Each route covering 6-7 societies is visited every week, i.e., I unit for 5 routes, plus emergency call units. Additional requirement after year 3would be met through hiring vehicles for this service.

4/ 6 quarters for senior staff at Rs 50,000/unit and 20 others (d Rs 25,000/unit and 30 others (5 Rs 10,O00/unit.

I N D I A

MADHYA PRADESii DAIRY DREVELOPMEN PROJECT

Milk Processing Plants and Feed Mills

Volume and Capacity Projections

-------------------------------------- --- Y e a r s --------------------------------------------

1 2 3 4 5 6 7 8 9 10

Milk Plants

Cooperative societies implemented, each union / 70 80 90 80 80 -- -- -- -- --

Fluid Milk procured, each union, Million Lts. 2/ 2.4 8.1 15.9 27.2 42.4 59.5 77.3 102.8 129.0 150.5

Average daily, 1000 Lts. 6.4 22.1 43.6 74.6 116.1 163.0 211.9 281.7 353.5 412.4

Average daily during flush month, 1000 Lts. 3/ 7.6 26.1 51.5 88.2 134.8 189.2 246.0 321.1 403.0 470.1

Milk processing capacity required, 1000 Lts./day 4/ 10.0 30.0 100.0 100.0 150.0 200.0 200.0 200.0 200.0 200.0

Milk plant yearly voIume, Million Lts. 5/ 2.4 8.1 15.9 27.2 42.4 59.5 69.9 73.0 73.0 73.0

Milk Plant construction/expansion schedule 6/ Constr. or Expasion iExpansioExpansion,of Existing Plant

Feed Mills

Total Yearly Volume, each union, 1000 Tons X1 0.8 2.7 5.3 9.1 14.1 19.8 23.3 24.3 24.3 24.3

Average Daily Demand, each union, Tons/day 2.1 7.4 14.5 24.9 38.7 54.3 66.7 66.7 66.7 66.7

Average Daily Demand, all unions, Tons/day 6.4 22.1 43.6 74.6 116.1 163.0 200.0 200.0 200.0 200.0

No. of 75 Tons/day capacity plants required 8/ -- 1 1 2 3 3 3 3 3

Feed Mill construction schedule 9/ 1Constr. of 1st Plant Constr. of 3rd Plant

Conscr. of 2nd Plant

1/ There would be 3 unions of about 4oo + 50 societies each, however all unions a-e assumed equal for the purpose of this model.

/ Based on model of typical village dairy cooperative society Annex 3 Table 3 .3/ Ratio of milk supply between flush and lean seasons has been assumed to decrease from 1.4 in years 1 - 4 to 1.35 in years 5 - 7

and 1.3 in year 8 and onwards due to introduction of crossbreeding and other inputs.

4/ Determined on basis of average daily volumes during the peak month of the flush period.

5/ Yearly throughput becomes constant after year 6 as project does not provide for further plant expansions after year 5.

6/ The Bhopal and Indore unions would not take over existing government plants.7/ Computed on basis of 1 kg. feed/3 Lts. of milk allowing for members that would not purchase premix feed.

8/ Initially premix feed would be purchased outside.9/ To avoid subsequent expansions feed mills would be built to a capacity of 75 Tons/day and come on stream in a phased manner.

The first and second plants supplying feed to three unions would be run initially by the corporation - Each union would take over

its own plant in year 6.

I N D I A ANNEX 4

MADHYA PRADESH DAIRY DEVELOPMENT PROJECT Table S

Milk Processing Plants

'ncome and Oteratine Cost Proiections 1/

-'-~~---------------------------- Y e a r s ---------------------------------------

1 2 3 4 5 6 7 8 -20

Volume ------------------------------ Million Lts. ------------------------------------

Total Milk Processed 2.4 8.1 15.9 27.2 42.4 59.5 69.9 73.0

Income s ------------------------------ Million Rs. ------------------------- __________

Pasteurized Milk in Bulk (Tankers)- - - -- -- -- -- -- --

Pasteurized Milk in Bulk (Cans) 4.08 13.77 2.70 4.62 7.20 10.12 11.88 12.41Pasteurized Milk in Bottles -- -- 4.29 7.35 11.45 16.06 18.87 19.72

Milk By-products (Butter and Ghee) -- -- 11.69 19.99 31.17 43.73 51.38 53.65

Milk Powder _- ~ _ 11.81 20.20 31.48 44.18 51.90 54.20

Total Sales 4.08 13.77 30.49 52.16 81.30 114.09 134.03 139.98

Operating Cost /

Direct Costs

Cow Milk Purchases ) 3.31 11.18 21.94 36.45 57.24 76.76 88.07 89. 9

Buffalo Milk Purchases)Direct Labor 0.04 0.04 0.31 0.31 0.59 0.59 0.84 0.84

Utilities 0.03 0.09 1.34 2.25 3.49 4.86 5.71 5.96Materials and Retailing Expenses 0.19 0.65 1.18 2.01 3.14 4.41 5.27 5.40Freight 0.43 1.46 1.91 3.26 4.11 5.36 3.50 3.65

Excise Tax 2.35 4.02 6.27 8.79 10.33 10.79

Sub total Direct Cost 4.00 13.4.' 29.03 48.30 74.84 100.77 113.72 116.43

Overhead Costs

Maintenance Labor 0.01 0.01 0.10 0.10 0.14 0.14 0.18 0.18

Maintenance Materials 0.Ql 0.01. 0.45 0.45 0.60 0.60 0.80 0.80Supervisory Personnel 0.01 0.01 0.12 0.12 0.13 0.13 0.15 0.15

Technical Personnel -- -- 0.12 0.12 0.13 0.13 0.14 0.14Administrative Personnel 0.01 0.01 0.06 0.06 0.10 0.10 0.12 0.12

Administration Expenses 0.01 O.01 1.00 1.00 1.50 1.50 2.00 2.00Plant Manager and Assistant -- _. 0.06 0.06 0.06 0.06 0.06 0.06

Sub total Overhead Cost 0.05 0.05 1.91 1.91 2.66 2.66 3.45 3.45

Total Operating Cost , 4 13.47 30.94 50.21 77.50 103.43 117.17 119.88

Net Operating Surplus Z"T (0.45) 1.95 3. 80 10.66 16.86 20.10

1/ All figures correspond to one plant, all three plants are assumed equal.2/ Based on Annex 4 Table 4/ Based on Annex 4 Table 10i/ Based on Annex 4 Table 8

i N b I A ANNEX 4Table 6

MARA1A RAUlMSI DAIRY DEVELOEUXNT PROJECT

F e e d M i 1 1 s :

Income and Operating Cost Proiections I/

---- -- - ------------ Y e a r s --- ---------------------------------

1 2 3 4 5 6 7 8-20

v_e -------------------------------- 1000 Tons --------------------------------------

2TrLl PndAuctiaoi '000 Tons ! -- -- 15.9 27.3 42.3 59.4 69.9 72.9

Inome -------------------------------- Rs. Million --------------------------------------

Total Sales J -- -- 15.9 2743 42.3 59.4 69.9 72.9

Ogerating Oost /

Ditec,t 2osts

Raw Materials -- -- 13.20 22.70 35.10 49.30 58.00 60.50Direct Labor -- 0.17 0.17 0.34 0.51 0.51 0.51Utilities 0.35 0.58 0.91 1.28 1.49 1.55Materials, Freight 0.92 1.58 2.45 3.45 4.05 4.23

Sub Total Direct Cost -- -- 14.64 25.03 38.8 54.54 64.05 66.79

097vie,ad Cag ts

Maintenance Labor -- 0.07 0.07 0.14 0.21 0.21 0.21Maintenance Materials -- -- 0.10 0.16 0.25 0.36 0.42 0.44Supervisory personnel -- -- 0.04 0.04 0.08 0.12 0.12 0.12Technical personnel -- -- 0.02 0.02 0.04 0.06 0.06 0.06Administrative personnel -- -- 0.02 0.02 0.05 0.07 0.07 0.07Administrative Expenses -- -- 0.50 0.50 1.00 1.50 1.50 1.50Plant Manager and Assistant -- -- 0.06 0.06 0.12 0.18 0.18 Qw1

Sub Total Overhcad -- 0.81 0.87 1.68 2.50 2.56 2.58

,roso. OOWXtsgg Ucst 1- i5.45 25.90 40.48 57.04 66.61 69.37

Net Operating Surplus -- -- 0.45 1.40 1.82 2.36 3.29, 3.53

1/ All data is cumulative for the three feed mills together.2/ The first plant commences operations in year 3, the second in year 5 and the third in year 6,

consequently year 3 and 4 data correspond to one plant, year 5 to two plants and years 6 andonwards to three plants in operation. - Sales and costs for each union are obtained bydividing all figures by three.

3/ Based on a sales price of 1000 Rs/Ton delivered at the societies.ij Based on Annex 4 Table 9.5/ No taxation on production or sale of livestock feed.

ANNEX LINDIA Table 7

MADJHYA PRADESH DAITY DEVELOPMENT PROJECT

Dairy Cooperative Union: Operating Costsof Technical Services & Administration

(Rs, Thousands)

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

1 2 34 6 7-20

Artificial Insemination ServiceStaff Salaries CO 70 80 80 80 80 80Al Materials 5 10 15 25 38 30 30Replacement Balls - - - - 'o 8o 80Labor 20 25 40 40 40 40 40Seeds & Fertilizers 5 10 15 20 20 20 20Concentrate Feeds 5 10 15 20 25 30 30Transport & Miscellaneous 3/ °0 LO 40 50 5 50 50

Sub-Total 13 M T 3 325 330 330

Animal Health ServiceStaff Salaries 4/ 65 100 155 260 325 325 325Medicines & Equipment C0 130 270 420 510 510 510Transportation: Union Fleet ',0 75 100 100 100 100 100Hired units Q Rs 30,000/yr. 5 - - 90 240 0 0 330

Sub-Total 2( 307 7 1,000 1,26 1,265

Training & Extension Services 6/Staff Salaries '5 75 75 75 75 400 I0ooTransportation - - - - - 115 115Training Materials - - - - - 60 60Miscellaneous :o 10 10 10 10 10 10

Sub-Total 77 7 7 7 T w w

Organization Services YStaff Salaries O0 70 100 100 100 115 115Transportation 8/ '0 20 20 20 20 40 40Communication Materials - 5 10 15 20 25 25 25

Sub-Total 7;§ 100 0 17 mj

AdministrationSalaries 210 310 390 480 510 510 510Transportation 115 115 115 115 115 115 115Building Maintenance 5 10 10 10 10 10 10Office Supplies, etc. 20

Sub-Total 7q5 b0 O 9'75 m70 ?;A0

Total Operating Costs ofServices & Administration iO 1,115 1,590 2,100 2430

1/ Investments in training and extension for orgarizing new DOS are shown in Annex 6 Table 2.2/ 7-8 replacement Jersey bulls annually from year 5 and 4 Buffalo bulls from MPDDC. (Annex 5 Table 2)3/ Includes cost for 2 vehicles plus cost for mairtenance and replacement.1/ Salaries for mobile unit staff and Animal Husbandry Officer.j/ Route of 20 mi/day for the Union-owned fleet of 6 mobile units; Additional requirements are obtained

as hired vehicles.6/ Operating expenses during years 1-5 are promotional investments (Annex 6 Table 2) borne by Government;

Salaries here are for the Director Extensior, Director Training, Fodder Specialist and Livestock Specialist.7/ Salaries here are for staff other than spearhead team members.7/ Communication materials @ about Rs 50/DCS/year.

I N D I A


Milk Processing Plants J

Assumptions for Computing Operating Costs

------------------------------- __-- -------- Y e a r s -------------------- a-------------------1 2 3 4 5 6 7 8 Price or Cost Per Unit

Rav Milk Average Quality

Cow Milk . 56 57 57 61 60 68 72 76 Fat 47. SNF 8.5%) 26.- Rs./kg butter fatBuffalo Milk 2/ 44 43 43 39 40 32 28 24 Fat 77 SNF 9 7%) paid to SocietiesAverage Price per Lt. 3/ 1.38 1.38 1.38 1.34 1.35 1.29 1.26 1.23

------------------------ ---------------- Y e a r s --------------------------_____________

1-2 / 3-4 5-6 7-20Direct Labor

Unskilled 4 45 80 105 300.- Rs./Man monthSkilled 4 25 50 75 500.- Rs./Mhn month

Utilities

Labor 2 12 16 20 500.- Rs./Man monthFuel, Lubricants, Water Treatment -- ) 0.08 0.08 0.08 Rs./Lt.Electric Power 0.01)

Materials, Freight. Taxes

Materials and retailing of bottled milk -- 0.13 Rs./Lt.Packaging materials for milk products -- 0.05 Rs./Lt.Cleaning and general materials 0.01 Rs./Lt.Freight of milk procured 5/ 0.18 0.12 0.09 0.05 Rs./Lt.Retailing of milk sold in bulk 0.07 Rs./Lt.Freight of milk to Delhi in tankers -- -- -- -- 0.08 Rs./Lt.Excise tax on milk products -- 107, on sales

Overhead

Maintenance labor 2 16 24 30 500.- Rs./Maln nonthMaintenance materials 10,000 450,000 600.000 800,000Supervisory personnel 1 14 16 18 700.- Rs./Mbn soothTechnical personnel -- 16 18 20 600.- Rs./Man monthAdministrative personnel 1 10 16 20 500.- Rs./Man nonthAdm-inistrative expenses 10,000 1,000,000 1,500,000 2,000,000Plant manager and assistant -- 2 2 2 2,500.- Rs./K nonth average

1/ There would be one plant for each union. same as the three unions all plants have been assumed equal for the purpose of this model.

2/ Derived from Annex 3 Table 3.)/ Average price per liter drops due to increasing proportion of cow milk with lower fat content.4/ The Ratlam union would operate a chilling center for bulk sale of its milk in year I and 2 until the plant come on stream in year 3. 5 5/ Based on contracted trucking at 1 Rs./km, and on data from Annex 4 Table 3 and Annex 4 Table 4.

I N D I A ANNEX 4

MADIT PRADESH DADIY DEVELOPMENT PROJECT Table 9

Feetd Mills I/

Assmmtions for Coroputing Operatina Costs

llumber of Unitsor Rates

Represenitative FormulaRaw Matwrils3/ FfV L Spec±Afirtions Price or Cost Per Unit

Maize, Sorghum, Gram, Wheat 20, ) 1100 Rs/Ton at plantRice Polish 25, ) Minimum Crude Protein 20% 500 Rs/Ton at plantWheat Bran, Gram Huska 15, ) Maximum Moisture 10% 500 Rs/Ton at plantMolasses 77 ) Maximum Fiber 20Z 500 Rs/Ton at plantOilcakes (Groundnut, Cottonseed, Sesame, Rape, Niger) 30, ) 1200 Rs/Ton at plantMinerals, Salts, Vitamins 3,, ) 600 Rs/Ton at plant

Balanced Feed 1002 830 Rs/Ton at plant

Direct Labor.

Unskilled 30 men 300 Rs/man monthSkilled 10 men 500 Rs/man month

Utilities

Labor 5 men 500 Rs/man monthFuel, water treatment 20 kg/ton 0.1 Rs/kg. fuel, etc.Electirc Power 60 kwh/ton 0.3 Rs/kwh

Materials, Freight

Bags 70 kgs. each 2.5 Rs/bagGeneral Materials -- 6 Rs/tonFreight -- 16 Rs/ton

Overhead

Maintenance labor 12 men 500 Rs/man monthMaintenance materials, lubricants -- 6 Rs/tonSupervisory personnel 5 men 700 Rs/man monthTechnical personnel 3 men 600 Rs/man monthAdministrative personnel 4 men 500 Rs/man monthAdministration expenses -- 500000 Rs/yearOperating manager and assistant 2 men 2500 Rs/man month average

/ The thiue plants will be identical, however all data cor;:esponds to one plant-plants willnot undergo phased expansions but built directly to theLr design capiaity of 75 Tons/day.

2/ Typical mix of a variety of balanced formulas

I N D I A


Milk Processing Plants and Feed Mills

Assumptions for Computing Sales Revenues

Adopted Averagefor Model Average Yield Sales Price

Milk Processing Plants Bhopal Indore Ratlam

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

4 8 4 8 4 8 1-20

Urban population '000 1/ 441 497 645 725 134 150 --

Milk demand of urban centers '000 Lts./day 3/ 62 94 90 138 19 29 __

Milk Processing Plant average daily '000 Lts./day 75 282 75 282 75 282 --

Volume Mill Lts.

Feasible Product Mix 2/ ------------------ % of Yearly Volutre ----------------

Pasteurized, bulk in urban booths 20% 1070 30% 157% 5% 57. 107. 1.60 Rs./Lt. at Booth

Pasteurized in bottles 5/ 30% 10% 35% 157. 57 5% 15% 1.70 Rs./Lt. at Booth in s Lt.

Milk products: 6/ 507 80% 35% 70% 90% 90% 75% bottles

Year 4 Year 8

Butter ) Kg/1000 Lt. of total milk 17 12 13 ( 0.005% from cows( 0.0357. from buffaloes 15.-Rs./Kg at Plant

Ghee ) Kg/1000 Lt. for milk product3 52 47 48 0.07 Z from buffaloes

Powdered Skimmed Milk 2/ 9% ll.-Rs./Kg at Plant

Feed Mills

Balanced Feed 8/ 1000.-Rs./Ton at Society

1/ From Directorate of Agriculture statistics (1972), urban population assumed increases 3% yearly.

i/ Based on daily intake of fluid milk and products of 140 grams/capita in year 4 and 190 grams/capita in year 8.

3/ Standard quality of milk sold: 3.5% fat - 8.5 S.N.F. - Urban demand assumed to be 80% fluid milk and 20% in products.

Bottled milk would be 30% of the fluid volume in year 4 and 40% in year 8.

i/ Sold in bulk at union booths from 40 Lt. cans. The union would capture 50% of the bulk volume in year 4 and 70% in year 8.

5/ Sold in k Ltk bottles at union booths. T he union would capture 500% of the bottled milk volume. in y

_/ Butter and ghee would be obtained from standardizing fat content at 3.5% and from production of skinmed milk powder.

/ Surplus milk would be converted into powder as plants are too distant from Delhi and Bombay for shipment of surplus fluid milk. o

#/ See Annex 4 Table 6.

3INDIAMAM)HYA PRADWH DAIRY DEiELOPMENT PROJECT

451rv Cooperative Union: Staffing Plan -

I--------------- Years ---------------

1 2 Ionthly Salary7Rs

General Manager 1 1 1 1 1 2,500Administrative Aasistant 1 1 1 1 1 1,200Clerical Staff 1 1 1 1 1 500

Divisions

AdministrationWsnager - - 1 1 1 2,000

Support Staff - 1 1 1 1 500

Director: Msnpowmr 1 1 1 1 1 1,600Personnel Officer - 1 1 2 2 1,200Labor Officers - 1 1 2 2 1,200Clerical Staff 1 1 1 1 1 400

Director. Budget & Finance - 1 1 1 1 1,600Accounts Officer 1 1 1 1 1 1,200Accountants 2 2 3 4 5 800Clerical Staff 1 1 1 1 1 400

Internal Auditor - 1 1 1 1 1,600Audit Assistants 1 2 3 4 5 800Clerical Staff - 1 1 2 2 400

LivestockV.'Ssnag t r1 1 1 1 1 2,000Fodder Specialist 1 1 1 1 1 1,600Livestock Specialist 1 1 1 1 1 1,600

Support Staff 1 1 1 1 1 500

Director: Extension Seryoes 1 1 1 1 1 1,600bctenrion Supervisors a 3 5 5 5 5 1,200Village IxtensiS Workers 2 35 145 55 55 55 450Clerical Staff g/ 2 2 2 2 2 400

Animal Husbandry Officer 1 1 1 1 1 1,600Vet. Officer: Mobile Jnits 3 6 9 12 15 1,200Vet. Field Assistants 3 6 9 12 15 600

Bull Farm Supervisor 1 1 1 1 1 1,600Stock en 3 4 5 5 5 800Livestock Attendants 2 2 3 3 3 400

Institutional evlopentManager 1 1 1 1 1 2,000Spearhead Teem Staff 6 6 6 6 6 1,600

Support Staff 2 2 2 2 2 500

Director: T5Oining Center 1 1 1 1 1 1,600UxTC Staff i 5 5 5 5 5 1,200Trrdning Assist ts Y 4 4 a 4 4 450Clerical Staff Ir 1 1 1 1 1 450

Director: Organizational Services 1 1 1 1 1 1,600Evaluation Officers 1 1 2 2 2 1,200Mass Cinunications Officers 1 1 1 2 2 1,200Member Relations Officers 1 1 2 2 3 1,200Clerical Staff 1 1 1 2 2 400

Plant OperationsManager 1 1 1 1 1 2,000

Aesistant Manager: Milk Plant - - 1 1 1 1,600Administrative Personnel 1 1 10 10 16 500Technical Personnel - - 16 16 18 600Supervisory Personnel 1 1 14 14 16 700Operators & Labor 32 12 96 96 170 500

Assistant Manager: Feed Mill - 1 1 1 1 1,600AdLinistrative Personnel - 4 4 4 4 500Technical Personnel - 3 3 3 3 600Supervisory Personnel - 5 5 5 5 700Operatora & Labor - 55 55 55 55 500

Marketing & ProcurmatManager: Marketing & Procurement - - - 1 1 1,600Market Analyst - - 1 1 1 1,600Marketing Officers - - - 5 8 800Procurement Analyst - 1 1 1 1 1,600Procurement Officers - 1 1 2 2 800

Clerical Staff - 1 1 1 1 400

Refer to Organization Chart (Annex 4, Chart 1,.Operating & investment cost of training extenEicn and organization services during years 1-5 are borne byGovermeent as a prunotional investbent. (Amnex 3', Table 2) After year 5, staff requirments would diminishas new DIS formation slows down. e

2/ A separate diviaion could be established in akout year 4, depending on feed mill establishnent and takeoverof marketing function frae the Corporation. 7ili then, this function is managed by the Manager, Plant Operations.

INDIAM{DHYA PRADESH DAIRY DEBVV_0PM)T_PR0 JKT

Dairy Cooperatives Union: Investment Projections, Suammary

(Rs Thousan:ds)

---------------- Years…-------- ------- …1 2 3 4 5 6 Total ForeiZn Kchanga

Nilk Processing 1/ 4,320 14,100 3,150 7,470 29,040Physical Contingencies 430 1,410 320 750 2,910Price Contingencies 620 3,550 _ 1 480 4 420 10 070

Sub-Total 19,306 0 - 1 2 42,02 0 34.1

Feed Mill 1,830 3,64o 5h470Physical Contingencies 180 360 540Price Contingencies 270 940 1 210Sub-Total 2,2 )4,970 7,220 25.9

Administration and Technical Services3/ 1,500 1,810 340 340 210 20 4,220Physical Contingencies 70 90 20 20 10 - 210Price Contingencies 230 540 120 iSO 160 20 1_250Sub-Total 1,800 2,UO 70 30 m680 12.0

Working Capital 4/ 130 650 780Physical Contingencies 10 30 4°Price Contingencies 30 150 180Sub-Total 170 830 1,000 -

Total W/0 Contingencies 7,780 20,200 340 3,490 7,68o 20 39,510 30.2Physical Contingencies 69o 1,890 20 340 760 - 3,700Price Contingencies 1,150 5,180 120 1,660 4,580 20 12,710

Total Contingencies 1, 8%0 7,070 1)0 2,000 5,3h0 20 164410 30.2

Total Investment 9,620 27,270 480 5,490 13,020 40 55,920 30.2

1/ See Annex b , Table 1 , excluding working capital -- See footnote 4.7/ See Annex 4 , Trble 2 , excluding working capital. -- See footnote )4. Feed mill shown constructed in years 1 and 2,

corresponding to Bhopal; for phasing of feed mills for other unions, see Annex 4 , Table Li. a3/ See Annex 4 , Tpble 3 , Totals have been rounded.

See Annex h , Tables 1 & 2.

INDIA

MADHIA PRA.DESH DAIRY DEVELOPMENT PROJECT

Dairy Cooperative Union: Projected Incomes Statement -

(Million Rie)

-------------------------------------- ---- YearsYear ------------------------------------------------------------------------------------ _--_-__-__--_-___-__-_-__-_-__-_-_-____-__ -__ __ -_ --____- __-_-_- __-_-_- _

1 2 3 14 5 6 7 8 9 1o 11 12 13 14-20------------------- ontaot Prlce… ~~~

R.evemesMilkrocessig D/ 4.08 13.77 30.49 52.16 o1.30 114.09 134.03 139.98Cattle feevd - - 15.9 7.3 7.30 27.30 27.30 2

Total Revwenues4.0v 103.77 16.39 79.146 i(3;T 141.39 161.33 167.28

D%iX7 Plants A/14.0S 13.47 3U.94 50.21 77.50 103.43 117.17 119.88Feed Milla 5/ - - 15.45 25.90 25.90 25.90 25.90 25.90Union Servicee 7 1.12 1.59 2.10 2,49 ) Constant

Total Operatirg Cats t19 MM 1.o 9 Tr9 14, 18fl

Surplus on Feed Mill °45 ' 1.0 1.40 1.h0 1.40 1.40 1.40)Surpluw on other activitieo (0.84) (0.82) (.04) (0.15) 1.1 7.63 1.83 17.07

Operatina Surplus (Deficit) _/ (0.84) (0.82) (1.59) 1.25 2.71 9.03 15.23 18.47

--------------------------------------- Current Price…----------------…------- --- -- ----- ----- ----- -----

(0.95) (1.01) (2.11) 1.78 4.15 14.85 26.30 33.50 35.17 36.93 38.78 40.72 42.75 44.89

Depreciation (5% per anoom) - 1.87 2.14 2.79 2.80 2.80 2.80 2.80 2.80 2.80 7.80 2.80 2.80

Interest (14 9 A;% per annum) - - - 5.76 5.25 4.68 4.07 3.40 2.66 1.85 0.97

-. - v - v z Y 11 . W v,, , 6/ - 0.0 0.13 0 .3 6 0.2 0 .57 0. 62 0.67 0 .67 0.72 0.78 0.814

Levy to Corporation ./ 0.27 0.29 0.30 0.32 0.33 0.35 0.37 0.38 0.40 o.42

Bonr, to DCS 8 - - - 0.27 1.48 4.30 6.33 6.89 7.48 8.12 8.79 9.51 10.27

Cross Ircoae (0.96) (1.01) (3.98) (0.36) 0.79 4.39 13.29 18.8i 20.51 22.28 24.16 26.18 28.29 30.56

less Inonmde Tax d 44% - - 5.36 8.29 9.02 9.80 10.63 11.52 12.45 13.45

Net Income (0.95) (1.01) (3.98) (0.36) 0.79 4.39 7.94 10.56 11.49 12.48 13.53 11.66 15.84 17.11

Funds from Operations 2/ (0.95) (1.01) (2.11) 1.78 3.85 14.43 20.29 2L.37 25.25 26.16 27.11 28.10 29.12 30.18

--------------------------------------- Cont.hat Price------------------------------------------------------------------------ ------------------------

- (0.84) (0.82) (1.59) 1.25 2.51 8.77 11.75 13.43 13.26 13.08 12.91 12.77 12.61 12.62

Financial rate of return after inome taxee and before bonus to DCS -5 - 20.1%.

Financial rate of return after incmme taxes and after bones to DCS L2/ - 16.7%.

Consolidated Operatin t Del for All 3 Urio0eSurplus on Feed tells to 2 2.1 (.12)Surplus (Deficits) on Other Activities 2 _ (2.52 (2.46) o.bS

Total OperatiDg Surplus (Deficit) (2.52) (2.46) (5.67)

4IX a. .-. ona no g.Opl9 uO n with foed mill con tsu ted in Years 1 azrd 2. See footnote 3.j/ See Annex 4, Table 5./ See Annex 4, Table 6. Aams this feed ill continues at this level of produrtion to year 20.

See Annex 4, Table 7./ All items below thin are in current tem-o using the follotiri rates of price contingencies: 1974 (14S); 1975 (11%); 1976-1979 (7.5%), 1980 oward, (5%).

Cooperative Law stipulates the use of 2% of the surplus for specific cooperatire purpoows or institutions.7/ See Annex 5, Tables 3 and 4.1/ Bylaws require 25% of net incoe after tax be allocated to a Reserve Fuod. Pom3 paid to DCS nay not exceed 680 of the rergnltin balance. MaAmoe bonc aLlowable under law

is paid foom year 8 orarards. In years 5-7 the bonus paid is 55-90% of the aximusm.2/ Operating surpluw lees taxes, levy toMPDDC sd statutory applications, later deflated to mid-1974 prieo. Igher interest rate,J r-duce txee nd incroeae thi stream.

10/ Rate of return is calculated on investjento, including physical contingenciea, (Asceo 4, Table 12) and the 11'Fnds from Operaticons (constact). The rat o reof turn beref btondsshows the overall financial implicatioss of the Union inestmaents. Hovever, if tUe Union were in fact not to declare a bonus, the ra'e would be lower (18.7%) sirce all ofthe additional inoose would be liable to incone taoes @ 144.

11/ All Unions would not build their feed mills in years 1 end 2. For consolidated feed mills surplus, sie Anne- 4, Table 6. Thos, connlldW.ted operating deficit Is not equal to3 timnen the operatirg deficit for the nodel Union. -

L2/ Three times the "Surplus on Other Activities" shown abhoe.,

1/ Iftlj1dU0nion bg i ar h p er antnansrateuour wtorene itheoetp %prepaymet prod of i /t2r.tthinr- expe-ac.Id be ahost 16% hither, b.t. muon ta-es would he lower and Lb. overall impact on et Incom_

RAJASTHAN DAIRY DEVELOPMENT PROJECT

Dairs Cooperative Union: Projected Cash Flow -

(RS, millions)

1 2 3 4 5 6S 7 8 9 10 11 12 13 14-35CAvagej

Sources of Punds

Eqvit7 2/Go-es-,naot subscuip,o'. [a fixed Assets - 1.86 5.47 0.10 1.10 0.08 2.21 13.16) (1.:92) (1.91) (1.75) (1.36) (0.72) - -

Govcrnment subscr4ttios for otart-up Costs - 1.05 1.34 1.43 4/- - -

DCS subscription - 3.16 - 1.92 1.91 1.75 1.36 0.72

Sub-totc' 2.91 6.81 1.53 1.10 0.08 2.21 - - - - - -. -

(Equity Strocture: % DCS Ownership) - - - - - - (3I.) (45%) (655.) 180G%) (907.) (100%)

L9asn for fixed asets & working capital 2/ 7.42 21.86 0.38 4.35 0.30 8.8,h - - - - -

Ponds from soeral ions -/

Operating sorpluss - - - 0.73 4.42 13.09 2,,d. 36.50 38.32 40.24 42.25 44.37 46.58 48.91

less Lax, statutory applications and levy 0.20 0.26 5.5S 10.23 11.41 11.96 12.90 13.90 14.95 16.08

Sub-totL1 - - - 0.71 4.22 12.83 20.79 24.27 27.25 2-.28 29.35 30.47 31.63 32.83

Total Source-s of Funds 10.33 28.67 1.1 6.18 4.60 23.90 20.29 26.27 27.25 28.28 29.35 30.47 31.63 32.83

Uses of Funds

In-estrentrsDairy Plants 5.03 18.75 - 4.93 - 11.03Peed Mills 2.28 4.94

Services & AdaniSitr-tion 1.80 2.39 0.48 0.52 0.38 0.04

Working Capital3/ 0.17 1.25 - - - -

Start-up Cost. - _1.0_5 1.34 1.43 _

Sub-total 10.33 28.67 1.91 5.45 0.38 11.07

Debt Service -Interest - - - - - 5.50 5.02 4.48 3.89 3.25 2.54 1.77 0.93

Amortization-- 5.16 5.64 6.18 6.77 .4 81 2 8.89 9.73-

Sub-ttl- t o .6 10.66 10.66 10.66 10.66 10.66 10.66 10.66 -

Dividends & TransfersDividends on *l,are crpita1,- (Go 6%) - 0.88 0.08 0.88 0.88 0.88 0.88 0.88 0.88

B..us to .CI -C S _ 0.52 1.14 4.42 7.18 7.3 8.40 9.07 9.78 10.59 11.13

Redemption of Governsest suhbcriptio- fnr st-rt-up -- 1.27 1.27 1.28 _ - - -

Sob-total 0.52 1.14 4.57 9.3' 9.99 9.21a 9.95 10.66 11.47 12.25

Inrfl ow ITo Statutory Reserve Fund _ _ _ _ 0.39 0.87 1.96 2.99 3.24 3.50 3.78 4.08 4.39 4.72

To purchase of RDDC shares - - 0.11 --- - - -

To other Reserves . _ 0.73 3.31 0.16 0.99 3.29 3.36 6084 4.96 5.34 4.84 15.83

Sub-total - Annual Inflo- _ - _ 0.73 3.70 1.03 3.06 6.28 6is 10.34 8.74 9.42 9.23 20.56

Csmulative Inflow - _ - 0.73 4.41 3.46 8.i2 1(.80 21.40 3174 40.48 49.90 59.13 203.05

Total _ses of Fouds 10.31 28.67 1.91 6.18 4.60 23.90 20.29 26.27 27.25 28.28 29.35 30.47 31.63 32.83

I/ In current prices.2 See Annex 4, Table 12. Loans are for 80 of invest-met in fixed oss-ts and -krbing capital, the balonce being equity capital, all from Government.

3/ Operating deficits (Annes 4 Table 13) in years 1,2 and 3 are shown usder Ive-stments as start-op costs; start up deficirs are fina-ced an Covernmeet equity to be

redeemed at par in equal installments over years 7 tu 9.

4/ See footnote 12, Annex 3, Table 5. DCS funds allocated fCr suhscriptions in Union shares dlring years I - 6 are in the odel assuoed to be held in a

reserve for displacemest of Go-erssest equity. Total DCS subscription is obtained by multiplying individual DCS ollocation for purchase of Union shares (Annes 3, Table 5) with the

phased formation of DCS. The accumulated balance at the end of year 6 (Rs.1.8

5 m) plus further subscriptions would be used fron year 7 onwards until Government equity is

fully bought out by year 12.

5/ See Annes 4 Table 13; operating surplus less in-one tax, otatutory applications and levy to corporation.

6/ Includes price contiogencies, see Tables 1,2, and 3.

7/ Six years of grase with interest -spitaliocd at 9}%. sod eight years to repay principal osd capitalized interest us loans shows above.

8/ See Annex 4 Table 13.9/ A minimum of 25% of set incone (s-e Asoro 4 Table 13) must br plased in a statutory Reserve Fond. In year 7, Rs,. 110,000 of this would be used to purchase 15% oe

total Government equity in the corporation.

ANNEX 4Table t

2[DIA

MADHYA PRADESH DAIRY DEVELOP,MNT PROJECT

Breakdown of Consumer Price 1of Milk

Farner Level Rs/!it- o~~/

Cost of Feeding - 0.65Miscellaneous 3/ 0.05Profit & Reserve - 3 0.50

Fanmer's Effective Selling Price - 1.20 1.20

DCS LevelDCS Services 0.03DCS Reserves 0.0)4 0.07

DCS Effective Selling Price - 1.27

Union LevelTransportation 0.05Technical Services 0.04Processing qf Milk 0.22Overheads 5/ 0.05Interest & Amortization -accise & Income Taxes 0.22Reserves 0.°5

0.71

Consumer Purchase Price for Product /(Rs/Liter) 1.98

I Li constant mid-i971 prices, for year 5 of the Project.Based on balanced cattle feed at Rs 1000/ton, green fodderat Rs 120/ton and straw at Rs `0/ton, all market prices.

3/ Profit and reserve and effective selling price includesRs 0.05/lit bonus paid out by ICS.

)/ DCS effective selling price inclides Rs ,0)4/litbonus paid out; by the Union.

Only for the miLk plants; feed mills are assumed to break even.P/ Total union sales divided by total milk processed to give

an average price for the product line.

AN1KEX bTable 16

MArYA PRADESH DAIRY DEVELOPMENT PROJLXT

IList of Equipment and Materials tobe procured on the basis of

International Competitive Bidding

Q?or Dairy Processing Plants

1. Refrigerating Equipment

2. Milk Reception and Can Wasning I Pqu4ment

3. Milk Pasteurization and Chilling Equipment

4. Milk Storage Tanks

5. Cheese, Ghee and Butter Production Fquipment

6. Filling Equipment

7. Milk Condensing and Spray Drying Units

8. Stainless Steel Piping and Fittings

9. Chilling Center Equipment

10. Insulated Motorized Tankers

11. Steam Generating Equipment

For Feed Processing Plants

12. Raw Material Hoppers. Conveyors and Grinders

13. Ground Material Hoppers, Conveyors and Mixers

14. Mixing Bins andc B3agging Scales

15. Pellet Mill and Cooler

16. Dust Collection System


Dairy Cooperative Union

Organization Chart 1'

BOARD OF DIRECTORS 111l

GENERAL. MANAGE I R'

2/ MAANAGER ANAGER ?/ !ANAGER MANAGER |AAOLGERMANAGER MAAAAM-

PROCUREMENT & MARKETING Pl ANT OPERATIONS INITITUT101AL DEVELOPMENT LIVESTOCK DEVELOPMENT FINANCE & ADMINISTRATION

4,Piocur enet M ii Pioi:ersng Orsa -vv. nai 4ins - ieee2F M Serv es Manpos-er

-leer/ /irccertirieflt v iilectvBs I oin nilleuc I DIJS SSeenre c Tha-ns m.lti,. ne/i. .- deselel- -oeraon,ej police .

OCS. e,, mvcei,ed attn ikrosstE,niC eq L -recruitment orlnttio

-ceordoaets DCS liens dennlopmertR A I sr,icee wars scales - salaries.

nriarion. qenera' DCS sopord employeD relatCons

. ~~~~~~~~~~~~~~- chllingq crori-s & tendor Siire,ii

da~~~~~~~~~~~~~~~~~~~~~-, ROO-s _11 --

11 O,ly f., Wf h, i ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~- Tr.ii.gPrgrm

Marelll92/ Peed, i I oideariir2nrtii E-srnns,o<-Serces - . | Budget oeSFPracee

BelleSalers:; devei,nenCnr lerS ler'Iais |ninrrgrems OF! lieldst |I | 'cdlv . :n.-dqcironnl.... - -tioanizplaniiio.dand

4 ottled M- lk, o eon, -s &a-in-- teiu, |- & Uy v-e-s-rb Ceding hi j. management ' j

Piodeers |n| it distributiOn D(.S | ti.r=erg: ,s ce-ep sytesrme, |'nannooneor. -rl.ecords and reSOrts.

i l l t t/t~~~~~~~~~~~~~~ember Re lationsS ervce | dmes.nnrr'oio l arme ne adres and Cestriol

dcat,ii. . oleormetrion - a a .aIi t

t! Only for rianaqemeor dellt Othe r stanlld, ne, traollin plan . D|zf

2'ViC-,i irirs4oll tnilzed elivFR(idvl CorDr.iatioii rVanaqci Plait: Oee'r,rns to i.rraqe smer. ii 'qh ibiv<'i*- C-li i ii , --

a'I. eioir e,iren i I y- ,i 4 nehru a selinatri Markeing & Prno-eoeem.nl D-:en osniqrld be esrabi seed

1/ Tr. tbe esrnesielied olsein ito.eefCd mill is esiebished ; I

41 Eei- atrrr DCS On , -iii-eii-d e.1-'1 si-icier 'scud ho '- neon,.

5 T,. h« ?Itp*l&"'(l 111 V?' 3 iN. ' S.- H I906

ANNFPX5Page

INDIA

M4ADhYA PRADESH DAIRY DEVELOPTM7NT PRtOJECT

'TadhyaPradesh Dai Development Corporati,on

A. Functions

1. The MIadjya Pradeslh Dairy Develonmient Corporation would be establishedto dlirect and coordinate the implementation of the iproiect, The main func-tions of the corporation would be the followino?

(a) Overall coordination and execution of the Project with assistancefrom NDT1.

(b) Act as the sole procurment agent for -oods and pervicesfinanced under the Project-

(c) Develon and operate a bull breedinc: farn to nrovidequality Jersey 1/ bulls for the nember.unions' Al services.

(d) Direct the construction of the union's plants and feedmills;

(e) Assist the unions in Prenarin!7 reqluests including cystestimates and detailed engineering, for financing byparticipating banks

(f) Provide the Unipns with m4rketfn- services, including amarketing study to determine product mix canabilitv of thedairv nlants to be btillt under the nrnlect.

(g) To engage five consultants acaording to terms of referenceprovided in Annex 6 Appendix 1. to assist in Prolectimplementation;

(h) To coordinate the development of dairy onerations andlivestock productipn in the 4rea of operation of themember Unions.

1 Other exotic breeds would also be considered.

ANNEX 5Page 2

B. Investments

2. MPDDC's main investments would be for a Jersey Bull Breeding farmfor producing good auality Jersey bulls annuallv for sale to the unions.Table 1 summarizes the investment requirements of the MPDDC.

C.- Financing Operations

3. GOI and GOTIP would subscri')e shares of PTDDC to provide 20% of thecost of Project investments. The remaininq 80% would be borrowed from narti-cipating banks. In.addition., the operating deficit exnected during yearsone-three. (Rs 0.93 M) would be fi-nanced as redeemable share capital by GOPT.TM!ain source of MPDDC revenues would be the sale of Jersey Bulls at Rs 9,000/headto the unions. On the operations of the Rull 9reer4ing Farm, >PDDC would earna rate of return of 13% (Table 3). To cover its administrative expenses forservices provided to the unions, t:he !"PTDC would assess a levy on the unions.Table 4 slhows the consolidated ca5:h flow of NPDT)C, indicating that funds Wouldbe aderuate for debt,service and reserves. Table 4 also slhows the purchaseof Government share holdings by the tTnions in .vear six, which w'ould give theUnions a combined 75% interest in the .PDTC. The GOI and CTT jointly wouldhold the remaining 25% of the shares. The redemption of GOMP subscriptionsfor start-up costs would be senarate from. tlhe above and is expected to occurin years six and seven in equal instalments.

D. 14anagement

4. [PDDC would administer the Prolect and would be governed by a 15mnember Board of Directors, with the followin'- renresentation: GOI: (2)Denartment of Planning/Finance and Acriculture: Gn.T (2) Department of AnimalTlusbandrv anid .ecristrar of Cooperatives "TDMB (1); MPDDC's financing institu-ti.ons (2), includino Lead 'ank or Cooperative Bank: University of Veterinarvand Animal Sciences (1): TManaging Director (1) and reDresentatives from theUnions (5). A secretaryT to GOMP daaling. witlb tll.2 Project, would be the chairmanof the 13oard during Government majority ownership. As the Unions progres-sivelv buv out Goverrnnent Ts equitv, Board composition in vear six and there-after would be as follows: GOT and GOM-P renresentatives (4). includingRegistrar of Cooperatives, Denartment of Anim.ial Hlusbandrv. 7nDTT, Universityof Veterinarv and Animal Sciences: financinc instituitions (2)- I¶anagingDirector (1) an.d representatives from the TJnions (8), all Plected by DCS.The .lanaging Director, whose nualifications and experience .Tould. be subjectto TDA annroval, would carrv out executive duties assisted bY about five divi-sional managers (Annex 5, Chart 1), MPDDC articles of association would alsorequire IDA annroval before incorworation. -

ANNEX 5Page 3

5. The MPDDC staff in year three would be about 40 persons (See Table5). In year five, an overall review of the HPDDC functions and staff require-ments would take place with IDA since by then the marketing and engineeringwould cease to be an operational responsibility of MPDDC. However, the MPDDCcould continue to provide advisory sunport in these fields, besides operatingthe bull breeding farm.

ANNEX 5INDIA Table 1

MADHYA PRADESH DrIRY DEVELOPMENT PROJECTDairy Development Corporation: Investment Projections

(Rs, Thousands)

- ------------Years-------_ - - %Foreign

l/ 1 2 3 4 Total ExchangeBull Breeding: Farm

Land (lb haT 320 22 - - 342 8Construction 420 334 - - 754 10Equipment 104 56 - - 160 25Vehicles (1) 50 - - - 50 25Livestock (Imported) 600 - - - 600 90Semen Imported 2 2 2 - 6 90Others 134 6 _ - 170 _

Sub-Total 1,630 o zi 2 - 2,082 3

ContingenciesPhysical 81 23 - 104Price 240 9 1 380

Sub-Total 321 16 1-

Total 1,951 3 -2566 7

Management Facilities ZFurniture and Equipment 50 - - - 50 25Vehicles (5) 250 - - 250 2

Sub-Total 300 - - - 300 -24

ContingenciesPhysical 15 - - - 15Price 40 - - - 40

Sub-Total 5 - -55

Total 35 _ _ _ 25

Total Without Contingencies 1,930 450 2 - 2,382 33

Physical Contingencies (5%) 96 23 - - 119

Price Contingencies 280 139 1 - 420

Sub-Total Contingencies 376 162 1 - 539

Total Investment 2,306 612 2,921 33

1/ A breeding farm producing 27 Jersey bulls annually by year 4. Cattle sheds for105 A. U., 1500 sq.ft. storage; an akninistrative block of 1200 sq.ft.; 20 units ofstaff and labor housing; farm machinery (Rs 80,000) and irrigation equipment;75 heads of Jersey heifers-in-calf; `mported semen for the first 3 years' needs.

2/ Office space to be rented; vehicles here are for management staff.

I N D I A ANNEX 5Table 2

MHADHVA PRADESH DAIRY DEVELOP.WNT PROJECT

Dairy DevelorntCroration: Projected Income Statment

He Trhouands)

-----~~------------------------------Years --------------------------- -~~~~~~-----------

Breedinx Farm 1 2 3 4 5 6 7 8 9 10 11-15---------------------------- Constant Prices ----------------------Revenues

Sale of Jersey Bulls * Rs 9000/hd -- 225 215 245Milk Sales A Rs 1.25/litre 35 200 235 235 Constarntcull cows@e Rs hOoO - 3D e 60 60Heifers in Calf 0 Rs 6000/hd -- 70 40 60

Sub-Total 35 525 550 600 600 600 600 600 600 600 600

Operating Costs I/

Pasture Maintenance G BR 2500/bd 30 45 '5 A5SConcentrate Feed 10 55 (0 60Fuel and Power O Ra 250/hd 20 30 30 30Veterinary Supplies & Semen 5 10 10 10 ) ConstantMaintenance & Replacement of Equipment -- 25 30 30 )Salaries and Wages 50 65 70 70 )Miscellaneous 5 10 10 10

Sub-Total 120 240 255 255

Surplus on Breeding Farm-/ (85) 283 295 345 345 345 345 345 345

Levy on the Unions Al -_ -- 525 525

Administrative Expenses

Staff Salaries 185 255 265 235 215 145Transportation 80 100 100 100 100 60 ConstantOffice Space & Supplies 50 60 70 70 70 50Miscellaneouis 5 10 10 10 10 10

Sub-Total 320 425 445 415 395 265 265 265 265 265 265

SUrPlus on th-eLevy (320) (425) (445) (415) 130 260 260 260 260 260 260ToalOPrain Srpu -l~ 7 - -Total OPerati-ng Surp1us~ (405) (10) (150) (70) 7 605 605 605 605 605 605

C----------- Current Prices ------------------------------------------- -(460) (170) (200) (100) 725 1,000 1,045 1,120 1,175 1,230 1,290

Depreciation V 20 40 AD 40 40 40 40 40 40 40 40

Interest 175 240) 260 285 315 345 320 300 270 245 120

Gross income (655) (450) (500) (425) 370 615 685 780 865 945 1,130

Income Taxes 0 5 -- -- -- -- -- -- -- 235 475 520 620

Net Income (665) (450) (500) (425) 370 615 685 545 390 425 510

y Oonc*ntrate a 1 kg per 3 ltr. of milk; staff of the Breeding Program division (Staffing plan Table 5); 90 hours/ha/yearof tractor operation at Ra 25hAvox; 1 vehicla 0 10,000 miles/year; Yet supplies A Rs 60/A.U. per year and meintename*rd replacement O 15% and 20% per year for equipsert ax vehicles respectively.

V/ Rate of Return on the Preeding Far% is prjoected at 13.5%; the lnvy on the Umitora is set to cover costs of srvices.See Staffin Pan (Table 5) azzIudint the Breedirg Proenram Division.Comrersion frcm constant mid-1974 prices to current Fices at avwage ratems 1974: 14% 1975 11%; 1976-1980 4 7.5% aid5% thereafter.

5/ LUnd ad Livestock am not subject to deoreiatio n; here, only buildings since vehicles and equipment are coveredunder operating costs.V/ Interest fr Yeare 1-5 is capitalized so that loans at and of year 5 are Rs 3.60 -tllon, oi which 1.3 ei3..lion is

apitalzd inxtmet.

I N p I A

MADHYA PRADESH 1161RY DEVELOPMENT PRO0ECT

Dair; Develoessent Cornscration: Froiected Cash Flov

(Rts. Thousends )

--------------------- ^------------~---------- Y e a r * --------------------------------------------- ~~-~ ---- ~1 i 2 _ S 6 7 1 11-t5

Sources of Funds -- - -Current Prices -.----------------- _______________________________

Equity 2/ Eeuity Structure

GOT subscription for fixed assets 230 60 -- -_ ._ (220)) 12.57 C01

GOMP subscription for Eixed sasets 230 60 -- -- __ (220)) 12.57 GC1P

GC2;P subscription for escablishment costs 460 170 200 tOO ,_ -- ) 757 UnionsUnions subscription -- -- -- -- - 440

Sub-Total 920 290 200 100 __ __

Loans

From a bank for fixed assets 1,845 490 3and wosrking capital

Funds from OPerattion9 3

Operating Surplus (Deficit) -- -- -- -- 725 1,000 1,045 1,120 1,175 1,230 1,390

Less Taxes 215 475 520 690

Sub-Total 725 1,000 1,045 905 700 710 700

_ _ _ _ w(0 = 1 Su I J- 5a u i, ullu r <,/ /5 /725 1,000 1,045 905 700 710 700

Uses of Funds

Invest.ents 4/

Fixed assets and working capital 2,305 610 3 -- -- -- _ __ __ _

Establishment Costs 460 170 200 100 -- -- __ _ __ __ __

Sub-Total 2,765 760 203 100 -_ -_ __ __ __ _

Debt Servite 5/

Interest -3 * - 5- - lS 320 300 270 245 120

Amortization 215 250 270 300 325 350

Sub-Total -- 570 570 570 70 570 570

G(CtF SP deastluna for Establishment Gutst -- '- -- -- 270 210 270 270 __ __ __

Annual Inflow __ __ _ 455 160 205 65 130 140 130

Total Uses of Funds 2,765 7_ 0 203 100 , 5 1,00( 1.045 905 700 710 700

(Cum.ulative lnflos __ __ __ __ 455 h15 S20 885 1.015 1,155 1,285

1/ In current prices.2/ Initially equity equivslent to 20T of the Intest.ents in fined osuet. and working capital is split eq-silv b.tsten (WtI and COMP, In *dditiun, Initis1

operating deficits are financed by additional equity purchlse bh WKMP to he redeemed in ye-rs 6 snd 7. The ltnilon apply 207 of their Reserve FPnd llocl.tjons

in year 6 to purchase rOl and COiP equity, resulttng in the equity structure shown bove.

3/ Initial year operating deficits sre shown as establitshent costs and financed of tOMP equlty subscription, to he redeened in years 6 and 7. See Table 2 f-r details,

4/ See Table 1 for details of investments.,5/ 9

1g% interest; 5 years grace and 10 yeurs of rep.yment of princip.l ond -apitalleed interest.

6/ Average figures for these years.7/ Funds available for re-investment and expansion of operations.

(EjA!

AM=E 5_Table -

I N D I A

MUDHYA PRADESH DAIRY DEVEDA)?iWNT PROJECT

Corporation Bull Breeding Farm

Herd Projection

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

Inventory 1 2 3 4 5

Cows

On hand -- 71 62 58 58lat calf heifers -- ,/ -- 13 17 17Total mated 75- 71 75 75 75Less deaths 4 2 2 2 2Less sales -- 7 15 15 15

On hand at end 71 62 58 58 58

Heifers (1-2 yr.)

On hand -- 26 25 28 28Less deaths -- 1 1 1 1Less sales -- 12 7 10 10

On hand at end -- 13 17 17 17

Calves ( 1 yr.)

Born during year 60 57 60 60 60Males 30 29 30 30 30Less deaths 4 3 3 3 3

On hand at end 26 26 27 27 27Females 30 28 30 30 30Less deaths 4 3 2 2 2

On hand at end 26 25 28 28 28

Males (1 - 2 yr.)

On hand __ 26 25 28 28Less deaths 1 1 1 1Less seles 2/ -- 25 24 27 27

On hand at end _- -- -- -- - -

T o t a 1 : AU 71 102 99 103 103Milked 60 57 60 60 60

Parameters

Calving % 80 80 80 80 80Mbrtality %

Cows % 5 3 2 2 2Others> I yr. % -- 3 3 3 3Calves< I yr. % 12 10 8 8 8

Milk/lactation (1.) 2,700 3,000 3,300 3,300 3,300

Sales

Cows No. -- 7 15 15 15Heifers No. -- 12 7 10 10Males No -- 25 24 27 27Milk 3/ '000 I.W 28.5 159.6 186.0 186.0 186.0

1/ Imported in-calf heifers.2/ Sold at end of year to union bull farms.3/ After deducting 200 litres per calf for calf feeding.:/ Milk production for 3 month only.

I N D I A

RAJASTYAN DAIRY DEVL.OPMENT PROJECT AN ble 5

Dairy Develorment Cornoratton: Staffing Plan bl

Monthly Salary______________ _ Years --------------- (Rs)1 2 3 4 5 6

Managing Director 1 1 1 1 1 1 2,500

Support Staff 1 1 1 1 1 1 400

Divisions,

Administration

Controller-Treasurer 1 1 1 1 1 1 2,000Personnel Officer 1 1 1 1 1 - 1,200Auditor 1 1 1 1 1 1 1,200Audit and Accounts Assistants 2 2 2 2 2 2 800Support Staff 1 1 1 1 1 1 400

Engineering 2/

Chief Engineer 1 1 1 1 1 1 2,000Conœultant: Dairy Plant Engineering 1 1 1 - - - --Consultant: Dairy Plant Operations - - - 1 1 - --Construction Supervisors 2 2 2 1 1 - 1,200Technical Staff - 2 2 1 1 - 1,200Support Staff 2 2 2 2 1 1 400

Livestock Development

Manager 1 1 1 1 1 1 2,000Livestock/Fodder Consultant 1 1 1 - - - --Breeding Farm Supervisor 1 I 1 1 1 1 1,200Livestock Officers 2 2 2 2 2 2 400rarm officers 3 3 3 3 3 3 400

Institutional Development

Manager 1 1 1 1 1 1 2,000Cooperative Consultant 1 1 1 - - - --Field Supervisor 1 1 1 1 1 1 1,200Support Staff 2 2 2 2 2 2 400

MarketinR 3/

Manager - 1 1 1 1 1 2,000Marketing Consultant - 1 1 - - - --Marketing Assistant - 1 2 2 - - 800Support Staff 1 2 2 2 1 1 400

1/ An overall review of Corporation functions would take place in year 5 and staffing plan amended to reflect the advisoryand coordination function of the Corporation thereafter. Hired consultants would fill the positions of divisionalmanagers as far as possible to assume full responsibility for their duties.

2/ With most construction complete by year 6, and Urions operating their own plants, engineering function would be modifiedin year 6; one senior staff engineer would continue to function in an advisory capacity.

3/ Activities to be transferred to the Unions in year 4/5; however, one senior marketing expert would continue in anadvisory capacity.


Madhya Pradesh Dairy Developmenf CorporationOrganization Chart"

Board of Directors (15)

Managing Diirector

Administration Marketing Livestock Institutional Engineerin gDivision 21 Divisior 2/ | Deveopmen 2! | LvelSon Divsion 2

- Budget & Finance -- Product Mix Anirnal Health - Spearhead Teams - Specifications- Cost Control Sales Promotion Bull Farm & A.1. - Training - Tenders & Contracts- Personnel - Procurement of - Extension - Publications - Procurement- Administration Feed Mix -- Demonstration - Supervision of

Ingredients Farms Construction

1/ For Managemer, staff oniy; for others, see staffing plan (Annex 5, Table 5l.2/ Hired consultarits would fill the positions of divisional manager as far as possible,

working through their respective cotnterparts at the Unions. The DairyProcessing consultants would work out of the Engineering Division but report directlyto the Managing Director.

3/ Functions& organization of MPDDP would be reviewed in year 6 as project.implementation is completed.

World Bank-9004

Hf\'

ANNEX 6Page 1

INDIA


Training and Extension

A. Training

1. The factor most critical to the success of the Project is theavailability of trained and mot:Lvated manpower at all levels. While gradu-ates in the various technical disciplines involved in the Project are avail-able, further orientation and job related training would be required for themto handle the responsibilities envisaged under the Project. In addition, thetask of creating 1,200 new cooperative societies would require acceptance ofcooperative principles on part of 160,000 project farmers, 11,000 members ofDCS management commit-tees and 3,600 paid officers of DCS. This can only beachieved through extensive education and demonstration, organized specificallyfor the Project. Table 1 gives the course content, frequency and trainingmethods for the various training programs while Table 2 provides a cost esti-mate for this promotional investment. Chart 1 presents the relative timingand duration of the training and extension activities relating to a singleDCS.

DCS Level

2. At the DCS level, the training involves a two-day visit to AMUL of10 farming couples for each DCS prior to the formation of the DCS. Thesefarmers would see AMUL in action and cooperation at work. Spending a day atthe AMUL villages, they would learn firsthand about the duties and benefitsinvolving cooperatives. On their return to their own villages, the farmerswould be expected to participate in or lead group discussions during thevillage base camns organized by i:he spearhead teams. These camps, of 4 days'duration for 3 hours/day, would be held during the period of pre-DCS activityaiming to communicate cooperative princinles and AXUL experience, identifypotential leaders and build membership in preparation for the DCS operation.

Union Level

3. At the Union Training Center (UTC), courses would be organized fortraining the three-man staff of each new DCS in AI, animal first aid, milktesting and basic record keeping. These basic courses would be of 2 months'duration immediately preceding the village base camp, followed by a 1 weekrefresher course every year. A one-week course would be organized for themembers of the management committee of each DCS in the village by the Union'sTraining Center about 2 months after a DCS had commenced operations. Themanagement committee from two or three DCS would be trained simultaneously.The course would use the DCS by-laws, and the record of operations as thetraining material and focus on the objectives, potentials and pitfalls open

ANNEX 6Page 2

to a DCS with a view to formulating an annual plan of action for each individualDCS. Cooperative principles would also be discussed. A third course alsoorganized at the Union level would be for the Village Extension Workers (VEWs)of the Unions. A 2-month course, followed by 2-week refresher courses everyyear, would deal with animal production, crossbreeding, fodder production aswell as on cooperative principles and practices. The MPDDC consultants wouldcontribute their expertise to the course (para. 5).

MPDDC Level

4. Most of the training of the project implementation teams, the UTCstaff and the extension supervisors would be organized by the MPDDC to NDDBand NDRI. For the three spearhead teams the program at NDDB would focus on theAMUL principles and practices and on the exDerionce of NDDB with replicatingthe AMUL model. The objectives would be to establish the specific systematicapproach to be followed in setting up DCS, milk collection routes, Al andanimal health services and DCS supervision, etc. (Outline of a recommendedapproach to DCS implementation is given in Chart 1.) The NDRI course woulddeal with the technical aspects of crossbreeding, crossbred rearing, fodderproduction and feeding.

5. The MPDDC's animal production and fodder experts would organizeseminars for the extension and animal productior officers of the Unions.The results from Project demonstration farms would be evaluated and otherimproved techniques would be discussed at these seminars. Similarly, theMPDDC Dairy Processing and Dairy Engineering consultants would formulate train-ing programs for the Union's engineers and plant managers. Terms of referenceof MPDDC five consultants are given in Appendix 1.

6. A total of 9 overseas fellowships (3 per Union) of 6 months durationin the field of dairy plant management, dairy livestock production and cross-breeding, and cooperative communication would be arranged by the MPDDC for theUnion staff. Suitable training courses would be found in Denmark, New Zealand,Australia and Sweden. These overseas followships would follow a 3-monthorientation course at NDDB, and would be organized in the first and secondyear of the Project so that the trained staff would be available when thedairy plants come in,Co operation early year three.

B. Extension

7. To spread the concept of crossbreeding, improve animal managementand stimulate fodder production, special extension efforts would have to beundertaken under the Project. These changes in dairy practices would haveto be implemented in a reasonably short period in order that the DCS andthe Union become financially viable institutions.

ANNEX 6Page 3

Extension System

8. Existing extension svstems (Annex 1) attempt to cover very largeareas in all kinds of activities, and these tend to be slow in inculcatingnew practices. Extension under the Project would be intensive and centralizedunder the Union's divisional manager of institutional development. Trainingof the Union extension staff at NDRI, along with the expertise provided bythe consultants and that developed at the Project demonstration farms, wouldprovide sufficient material for the extension effort, which would need to bevery vigorous during the early Life of a DCS. For this purpose, one VillageExtension Worker (VEW) would be placed in each new DCS for the initial periodof 3 months. The VEW would be a member of the spearhead team during thevillage base camp and would stay behind in the village to attend to its exten-sion needs. The resident VEW would be charged with identifying and training10 Progressive Dairy Farmers (PDF) during the 3-month assignment. Followingthe resident assignment, each group of 10 DCSs would be supervised by oneVEW through 1 day stay at each DCS once every fortnight. A supervising VEWwould basically operate through PDFs, although he would devote 50% of histime in the DCS to individual member's problems. Each Union Extension Super-visor would direct the activities of 10 VEW's. Considering the enormousimportance of the farmer's wife in the process of changing any farming ordairy practice, the participation of the VEW's wife in the extension activitieswould be encouraged. An extra allowance in the VEW's salary for such partici-pation would be provided by the Union.

Selection of Staff

9. During the 5-year Project development period when the extensionactivity is very intense and totally promotional in nature, each Union'srequirement of 30 VEW's in year 1 and 50 by year 2 would be met by thesecondment of VEWs by GOMP to the Union, where they would be directed bythe Union's divisional managers. The selection of VEWs for secondment tothe Union would be made by the Union and would have to be particularly meticu-lous because of the very demanding nature of the assignment. Factors liketechnical training and degrees would be assigned as much importance as moti-vation, cooperative thinking, devotion to the welfare of farm families andability to work hard. The Union would be allowed to pay extra compensationin addition to the regular salary in order to reward good performance by aVEW. At the end of 5 years of DAS implementation, the Union would have theoption to absorb as many or as few of these VEWs as it requires into its ownstaff with the rest returning to GOMP.


INDIA


Madhya Pradesh Dairy Development Corporation

Terms of Reference of Consultants

Dairy Plant Engineer

1. Qualifications: University graduate in construction, mechanical,chemical or dairy engineering or have equivalent training with at least tenyears experience in positions of responsibility involving dairy plant de-sign, construction and equipment. Candidate must have adequate knowledgeof modern trends within the dairy industry and able to prepare specificationsfor tender covering construction of dairy plants that will meet Danish orU. S. or equivalent sanitary standards. Prior experience with engineeringcontracts and in a developing country would be desirable. Candidate shouldalso be familiar with feed mill construction. Knowledge of English would beessential.

Duties and Responsibilities

2. He would report directly to the Managing Director (MPDDC) and, unlesshe himself is the MPDDC manager of the Engineering Division, be co-responsiblewith such manager whom he would train, for the construction of the newMilk Processing Plants and Feed Mills under the Project. He would coordinatewith his respective counterparts under the divisional manager of plantoperations at the Unions who would later become the chief engineers of eachdairy plant. He would prepare specifications, request and evaluate tenders,and assist in the supervision of construction. 1/ His appointment would lastthree years, starting in year one.

Dairy Processing Engineer

3. Qualifications: University graduate in chemical or dairy engineer-ing or have equivalent training with at least ten years experience in positionsof responsibility operating dairy plants of at least 100,000 lts./day capacity.Candidat;e should be fully conversant with current Danish or U. S. or equiva-lent sanitary standards and the equipment, process monitoring and qualitycontrols required for production of such dairy products as butter, yoghurt,casein, cheese and milk powder in addition to pasteurized and aseptic fluidmilk packaged in various forms. Prior experience in a developing countrywould be desirable and knowledge of English would be essential.

1/ In consultation with NDDB.


4. Duties and Responsibilities: He would report directly to theManaging Director (MPDDC) and be responsible for training the dairy plantmanagers and operating staff at the Union level in operating plant equipmentcorrectly and enforcing the proper process and quality controls that wouldyield satisfactory and competitive products. The position would last twoyears starting at end of year two. He would coordinate with the divisionalmanagers of marketing for production of the most profitable product mixfeasible and marketable.

Dairy Marketing Specialist

5. Qualifications: University graduate in business administration,marketing, or economics or have equjivalent training with at least ten yearsexperience in positions of responsibility involving production and marketingof packaged fluid milk and such dairy products as butter, yoghurt, casein,cheese and milk powder. He would 'ave experience in effecting marketingstudies or analysis and would be fuilly conversant with dairy product yieldsand production costs. Prior exper-ience in a developing country would bedesirable. Knowledge of English would be essential.

6. Duties and Responsibilit:.es: He would report directly to theManaging Director (MPDDC) and, unless he himself is the MPDDC manager of themarketing division, be responsible for training such manager and hiscounterparts at the Union level in the marketing techniques of dairy productsand particularly sale of packaged fluid milk in the urban markets in theface of strong competition from the agent/collectors and city producers.He would also advise on coordinating production between all plants tooptimize product mix and minimize transport, processing and marketing costs.His duties would commence at the er.d of year two and cease at end of yearfour.

Mass Media Communication Specialist

7. Qualifications: University graduate in social sciences withemphasis in visual and oral means of communication or equivalent trainingincluding knowledge of modern teaching techniques, cooperative extensionand advertising. Candidate should have at least ten years of experience inpositions of responsibility involving effective techniques in oral andvisual communication to groups of about 50-100 people. He should offer proofof successful communication of simple pragmatic concepts to people of acomparatively low level of education including samples of visual aids orother devices designed for and utilized with success in those instances.Prior experience with cooperative organizations and in a developing countrywould be desirable. Knowledge of English would be essential.

8. Duties and Responsibilitieas: The communication specialist wouldreport directly to the Managing Direoctor (MPDDC) and work in coordination withthe divisional manager for Institutional Development, his counter parts at theUnion level and all the way down to the spearhead teams out in the villages,to determine:


(a) the most appropriate technique for transmitting to thevillagers in an effective and comprehensive way the con-cepts of the AMUL model and the extension servicesincluded;

(b) that the technique once developed is followed and utilizedby the spearhead teams to its full effectiveness;

(c) detect and analyze reasons for any lack of response, andmodify the technique as required. The candidate would takeup his duties at the beginning of year one terminating at theend of year three without replacement however trainingcounterparts at the Union level.

Forage/Animal Production Specialist:

9. Qualifications: A degree in agriculture, animal husbandry orrelated field with at least five years experience in dairy livestock/forageproduction in the tropics with emphasis on management and utilization ofirrigated fodder. Knowledge of English would be essential.

Duties and Responsibilities

10. He would report to the Managing Director (MPDDC) and, unless hehimself is the MPDDC manager of Livestock Development, work in coordinationwith such manager and his counterparts at the Union level who he would trainand through who he would select and organize the demonstration farms ofmixed farming management proposed under the project. He would collaboratein training union instructors and VEW supervisors in aspects related toimproved management of mixed farms, animal husbandry, milking hygiene, fodderproduction, crossbreeding and crossbred calf rearing. The duration of theposition would be three years starting beginning of year one.

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flNDIAANE6MADYA PRA2ESR DAIRY DEVEaOPMENT PROJECT Table 2

Project Ir.vestment in Training and Extensior.

!Rs. Thousands)

----------------- Y e ea rs----------

Pre ProJect 1 2 5 Total Foreig Exchange

Fellowships(9Travel 5O 60 110 85Course Fee 60 70 130 100Subeistence 290 610 650 100

Sub-Total 9C 89y 7Price Contingencies 6C ii 1

Total 8

2/Training at NDDB N NIRI 2

Trave' 20 7 4 31

Course Fee 45 15 9 69

Subsi stence 51 7

Sub-Total lO ,Price Cortingencies 55 5

Total 410 4 i C -2 170 -

Consultant Services vVehicles '5, 250 - - 250 25

?urniture & Roipment 50 50 -

Conev' tant Fees & Travel 1.05C 1,400 1,400 750 - 4,60C 9CResear&c Yaterials 200 300 200 200 900 90

Sub-Total T I7M' 16 98 0 0 86Price Contingencies 200 390 52Q _ 400 ia

Total * ,co 2,0C, 2,120 1,7 "',lo

Onion TraininR Centers (3) IVVehiecles-C-6 (6 300 300 25

Buildings & Furniture 240 26C -

Staff Expense 66C 660 66 660o 660 3,30C Field Visits & Training Materials 120 14.0 -40 ;0 6 10

Sub-Total T,32C1 d or 8 00 O ,520 3.2Price Contingencies '70 is9 260 _,,C '20 ' 380

.otal *- 090 T; _.lC 10 77900 3.2

Onion Extension Proga/Vehicles 270 70 340 25

Transuortation 230 230 230 230 1,150 10Extension Materials 30 30 30 30 30 150 10Staff Expenses 660 870 1,030 1,030 ,620 -

Sub-Total l,190 1.200 1 290 1,290 :.29 6,26 Price Contingencies 15 280 420 50 68C 2 080

Total .3'0 1,.°0 I85 .4

Farmer Visits to MML 6/Transportation 120 120 120 120 120 600 10Subsistence 90 90 90 90 90 450 -

Sub-Total 210 210 210 210 210 1,050 5.7Price Contingencies 3C 50 70 90 110 350

Total 2hO 2 5 300C 7( ¶71fbo

Village Base CampsTransportation 20 20 20 20 20 100 10Training Materials 10 10 10 10 lO 0

30 3C 30 30 15Price Contingencies l10 10

Total 3 4C 40 4 205 6.7

Total Without Contingencies 100 4,735 4,J50 3,930 3,280 2.330 18,825 32.oPrice Contingencies 5 61C 1.040 1,280 1,395 .,22 5.555

Totel with Contingencies 10!, 5,41 5,490 5,210 )L675 3.5 24L.380 32L4

1/ I officers per Union to be trained ir. plant management, animanl production and cooperative caunication.

Z/ Training load! 50 trainees in the pre-pro3ect year, 20 in year 1 and 10 in year 2. Travel at Rs 350/trainee.subststence Rs 650/man month, course fee, Re 850/trainee.

At Rs 350,000/man year for fee, including travel, * vehic e for each at Re 50,000/vehicle.4/ Staff conststing of 1 principal, 5 regular sIa3'f members and 2 supporting staff. Teaching materials @ Rs 50/man month

and transportation at Rs 20/man month and Re 50/day for each spearhead team- includes *Parhead teem staff & 3 vehicles.

100 mtles oer day for 10 vehicles @ Rs I/mile. 15 motor bikes at Rs 0-50/mile and 15C bicycles: Staff: 1 Director,

5 Extension Supervisors and 30 VEV in yeao- to AC V3W by year 3.6/ 10 dairy 'arming couples per neo 0",5 for Iwo iAy--Re SO/eurle tranportation and RE 35/couole for subsistence.7/ One a-dar y " are cwNo for 2 new 0CS.

INDIAMADHYA PRADESH DAIRY DEVELOPMENT PROJECTTraining & Extension Activities for DCS Implementation

ACTIVITIES

1/I day1. Initlal Cont3ct & Leadership Identification - 1 day

2 days

2. Farmer's AMUL Visits 2/8 weeks

3. DCS Staff Training Course -

2/ 4 days4. Village Base Camp - *

5. Start DCS Operations 3/ >I12 weeks

6. Resident Extension Activities by VEW -_2 days

7. Review of Activities with VEW

8. Society Registration with Registrar3 h.iaf days

9. Management Committee Course 211 day

10. Field Extension Activities 4 l

1 day

11. Quarterly Union Supervisions il31-2 days

12. DCS Annual Meetinrg1week

13. DCS Staff Refresher Course 2/ 2hl-a

2/ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~2 half-days

14. Management Committee Refresher Course 2-3

. _ _ _ _ _ _ _ __._ _ _ I I I 1 I I I I I I I I I5 } ,

0 2 4 6 8 10 12 14 16 18 20 22 24 26 52 54 56

Timing/Duration(weeks)

1/ Objective is to select 10 progressive dairy farmns cum village leaders for Amul visits, and to select 3 potential DCS Staff for tvainimg at UTC

2/ See Annex 6 Table 1 for details of training requirements.3/ Milk collection and sale ot cattle feed should start together, follovwed, within one week, by Veterinary Services F

4/ After 12 weeks of extension activities by a VEW stationed in the village, a DCS would be served once fortntghtly by lield extension stafl. World Bank-9007

ANT.NEX 7Appendix 1Page 1

INDIA


ProjectImplementation: Tnitial Steps

1. The project has a defined scoDe and its entire implementation wouldrequire careful planning with each steo scheduled in a "critical-path" fashion.The MPDDC and the three Unions would be organized in year one and their corres-ponding DCS would be implemented progressively over a period of five years,only the second expansion of the dairy plants would take place in year six.

2. The Project authority and center of coordination would be theMPDDC. This would be the seat of the aired consultants and other experiencedexecutives (divisional managers). They would be coordinated by the ManagingDirector. The divisional managers, asSisted by the consultants, would eachcarry out a specific phase of the Project. This would be done by workingthrough his respective counterpart in the Unions who in turn would be respon-sible for the same specific phase within his own Union.

3. Major initial steps in implementing the project would be the fol-lowing:

(a) Government would appoint a kev team to assist in organizingthe MPDDC, nominate its board, establish its headauarters andappoint its Managing Director. NDDB's services would be contracted.

(b) With assistance of the NDDB, the team would recruitthe executive staff, including three of the fiveconsultants, for MPDDC and the three Unions, and trainthe selected candidates at NDDOB.

(c) The General Managers of each Union and the DivisionalManagers of the MPDDC and the Unions would be appointed.

(d) The headquarters would be established for each Unionin the main urban center of their respective districtor milk-shed regions.

(e) Each Union division would determine its workload,schedule, staff and other facilities required in co-ordination with the respective MPDDC divisional manager:

ANNEXF 7

Page 2

(i) The Dlivision of Institutional Tevelopment of eachTJnion woujld schedule the imnlementation of coonerativesocieties, determine strength of sDearhead teamsand arrange for their recruitment, coordinate theirtraining at NDDB with the teams for the other Unionsand arrange for purchase of vehicles and otherfacilities.

(ii) The Division of Livestock Development of each IJnionwould schedule the implementation of the extensionservices: animal health; Al, demonstration farms,etc. and arrange for recruitment and training ofits staff at NDTB and NDRI also coordinated with theteams from other IUnions. Vehicles and other facilitieswould be purchased.

(iii) The Division of Marketing of each Union *Tould promptlybe organized for selling the milk collected from theDCS in the urban centers. Until the plants are com-missioned in year two, the milk would be sold chill.edin bulk from one or two Union owned chilling centerstemporarily installed in the cities.

(f) The Division of Marketing ( PDDC) with assistance from NDDB,would effect a marketing study to determine the most apDropriateDroduct mix for each dairy plant, to effect economies of scalein investment and minimize transportation of fluidt milk.

(g) The Engineering Division ()UDDC) would promptly nrocure andinstall chilling centers in the urban areas for sale ofUnion milk.

(h) The Engineering Division (MPDDC) in consultation with theother divisions of MPDDC and the IJnions would locate andpurchase suitable sites for the bull breeding farm, bullfarms (AI centers) and dairy and feed plants.

(i) The Engineering Division (MPDDC) would Drepare specificationsin consultation with NDB for calling tenders for the con-struction of the feed mills and the dairy plants based onthe marketing study. NDDB would also be consulted forevaluation of tenders received and award of contracts.

(j) Each union would be formally registered on completing theimplementation and registration of 25 of its DCS (seeAnnex 6, Chart 4).

I N D I A ANTable I

MADI2YA PRADESH DAIRY DEVELOP8(E8T PROJECT

l'roject Costs by Major Investment

(Rs Thousands)

_ ____._________-- Years ----------------- Foreign

1/ 1 ' 3 4 5 6 Total Exchange

Dairy Cooperative Societies 1

Equipment 420 480 540 480 480 -- 2,400 __Establishment Costs 250 350 460 570 680 -- 2,310 --

Sub-Total 670 E30 1,000 1,050 1,160 -- 4,710 --

Contingencies

Physical 60 60 80 60 70 -- 330 __Price 90 210 350 460 650 -- 1,770 --

Sub-Total 150 270 430 530 720 2,100 __

T o t a 1 820 1,100 1,430 1,580 1,880 __ 6,810 __

Union Investments 2/

Milk Processing Plants 12,960 42,330 -- 9,450 22,410 __ 87,120 34Feed Mills 1,830 3,640 1,830 5,470 3,640 -- 16,410 26Services 4,500 5,420 1,020 1,030 620 60 12,650 12Working Capital 390 650 -- 650 650 -- 2,340 -_

Establishment 2,520 2,450 5,670 -- -- -- 10,650 --

Sub-Total 22,200 54,470 8,520 16,600 27,320 60 129,170 27

Contingencies

Physical 1,730 4,930 230 1,580 2,670 __ 11,110 --

Price 3,220 13,920 2,920 7,970 16,320 60 44,410 --

Sub-Total 4,950 18,870 3,150 9,550 18,990 60 55,520

T o t a 1 27250 73 2?0 11 670 215O 46 310 ==120 184 690 27

Dairy Development Corporation -

Bull Breeding Farm 1,630 4;0 -- -- -- -- 2,080 34

Management Facilities 300 300 25Establishment Cost 410 1v0 150 70 __ __ 770 --

Sub-Total 2,340 5'0 150 70 3,150 25

Contingencies

Plhvsical 100 20 -- 120Price 330 1 '0 50 30 -- __ 580

Sub-Total 430 1"0 50 30 - 700

r o t a 1 2,770 7210 200 100 3,850 25

Training and Extension -

Consultant Services and Fellowships 1,950 2,19i0 1,600 950 6,690 85UTC and Extension Program 2,650 2,0:'0 2,090 2,090 2,090 _- 10,940 3

Farmer Training Camps 240 2L0 240 240 240 -- 1,200 6

Sub-Total 4,840 5/ 4,4'0 3,930 3,280 2,330 __ 18,830 32

Price Contingencies 610 5/ 1 OLD 1,280 1,390 1,230 -- 5550

T o t a 1 5.450 5/ _,Q 5 210 4,670 3,560 -- 24,380

Calf Rearing Grant 670 1,8F0 3,860 5,960 8,180 9,450 30,000 --

Total Without Contingencies 30,720 62,220 17,460 26,960 38,990 9,510 185,860 23

Contingencies

Physical 1,890 4,9F0 310 1,640 2,740 __ 11,560Price 4,250 15,340 4,600 9,860 18,200 60 52,310

Suib-Total 6,140 20,320 4,910 11,500 20,940 60 63,870

l'otal Project Costs ~~5/lotal Project Costs

3 6L

860 - 82,540 22,370 38,460 59,930 9,570 249,730 24

~~ ~~~ - =- --- --- : 323B=

1/ See Annex 3 Table j42/ See Annex 4a Table 123/ See Annex 5 Table 14| See Annex 6 Table 25/ Preproject year costs are included in year 1,

INDIAMADHYA PRADESH DAIRY DEViLOPMENT PROJECT

Pro.bct Fir,ancing Plan

!(~t, Thousar-Is)-- IDA FiraPr-ing-- -' -- -- ________GOI-------- ---- GOMP---_--- ARC Banks DCS Members

Total Cost % Loans Thru/ Public Ex-

Processing Facilities a pendituress y rants F_u_ _ GAntLans ------- Fqity

Unions 79,660 100% CIF 46X;o - 7,97) - 7,97 - 10,910 6,370

Other Eoupment & Civil WorksDCS 3,520 70 _ 2,4h0- - - 1,c. -

Unions 87,340 70 ol,10 - o,730 - 8,730 - 1,750 6,990 -

MPDDC 2,210 70 1,550_- 220 _ 220 - 40 180 -

Sub-total 3,070 62 2,690 2,1,60 8,950 1,60 1,790 7,170 9

Cattle and SemenUnions 1,000 100% CIF - 320 70 - 70 - - 490 50 -

MPDDC 710 100% CIF _ b40 - 7D - _ - _

Sub-total 1, 710 5 -7 7.0 70 - 490 50

Establishmsent CostsDCS 2 3,290 I _ _ _ 2,090 _ - 1/ 1,2Ulnions -/ 16,690 - - - - _ 13,t90 _ 3,000 _ _

NPDDC - 3 Sub-total 20,910 -140 2,090 - 3,000

Trainiga & ExtensionConsultant Services & FellnJships 8,370 2 7,110 - _ 1,260

UTC & Extension Programs 14,420 80 - 11,540 - - - 2,880

Farmar Trainirg Camps 1,590 - - 1,5909ub-tDtal 218,,3O __0 5,730

Calf Rearirg Grants 30.0(0 - 20,_ _ 10,000

Total Rs Thousands 249,7'0 1oQ,130 22,070 16,990 20,070 1,1, 6 ld,d80 ,190 16,590 1,200

Total by Source of Finane (Rs Thousaros, --------- --------_ 3--- 37,06 ------ ----- 0,l 13,190 1b,9'00 1,200

Total US $ Thousands 31,220 10,400 14,b 30 6,310 1,650 2,080 150

% of Total 100 92.5 14.9 20.2 5.3 6.7 0.5

1/ Working capital is financed by marticipating banks without ARC refinance.2/ 100% of foreign expenditures or equivalerit % expenditures, if local consultants.

3/ Suity financing for 20% of investments is assumed here, but actual requirmernt may be higher deperxling on the lenxirig barnk's requirements.

W 90% ARC refinance for bank loans is assumed here.

ANNEX 7Table 3

INDIAMADHYA PRADESH LEERY DEVELOPMENT PROJBCT

Estimated Disbursement Schedule

Cumulative DisbursemenrtsIDA Fiscal Year and Quarter at End of Quarter V/

(US$ millions)-

FY 19753rd-4th 2/

FY 19761st 0.132nd 0.323rd o.884th 1.39

FY 1977lst 2.632nd 3.833rd 5-594th 735

FY 1978lst 8.222nd 9.103rd 9.414th 9.71

FY 19791st 10.132nd lo.463rd 11.084th U1*70

FY 19801st 12.652nd 13.503rd 14.454th 15.39

FY 19811st 15.892nd 16.333rdt 16.39hth - 16.40

1/ Calculated from Annex 7, Tables 1 and 2 assuming a 1-2 quarterlag on expenditures.

2/ Estimated date of effectiveness.1/ Estimated closing date June 31,1982

ANNEX 8Page 1

INDIA


Economic Rate of Return

1. Primary Project benefit to the Indian economy would be increasedmilk production, mainly pasturized milk and milk products (285,000 tons/yearby year ten). This represents about 10% of Madhya Pradesh's and 1% of India'spresent production.

2. Key assumptions and adjustments made in computing the economicrate of return were that:

(a) The prices of investment items, operating cost and milkwould remain in real terms at mid-1974 price levels;

(b) Milk production is valued at Rs 1.50/lit., which is thecomposite price for ex-plant fluid milk and the portionof the incremental farm production that does not reachthe plant. Milk products (skim milk powder and associatedbutter) are valued at Rs 1.50 liter fluid milk equivalentwhich is comparable to the cif price of skim milk powderand butterfat. In the local markets, the prime impactof the Project would be a substitution of raw milk bypasteurized milk, with the excess being converted topowder and products. Powder production in the winter andreconstitution to fluid milk in the sumner would dampenout the wide fluctuations in the price of milk over theyear. Overall, a slight supply effect (10-15%) on priceswould be expected and is included in the price assumptions.

(c) Labor for plant operations and administration is pricedat the financial wage rate, and labor cost for fodderand cattle-feed production is included in the marketprice of these inputs;

(d) Cost of training and extension is charged to the Project,as are all administrative costs of the DCS, Unions andMPDDC;

(e) Milk production, without the Project, is assumed to growto 3% per annum, which is slightly higher than the 1950-1970rate of growth of 2%;

ANNEX 8Page 2

(f) Incremental production beyond year 10 is not taken intoaccount since the additicnal processing investmentsrequired then are not part of this Project;

(g) The residual value of the Project crossbred herdwould be the difference in market price between anindigenous cow and a crossbred;

(h) The expected long-term increase in soil fertility andcrop yields as a result cf the introduction of leguminousfodder crops and mixed cropping systems is not included.

3. Based on these assumptions, the economic rate of return is pro-Jected to be about 34% (Table 1).

4. A sensitivity analysis has been carried out with respect to costsand benefits. Table 2 summarizes the results. It costs were 10% higherand benefits 10% lower, the rate of return would fall to 25%.

5. -To test the sensitivity of the estimated economic rate of returnto the rate of formation of successful DCS, the following assumptions weremade:

(a) The timing and the amount of investments was not alteredeven though investments are to be made in three distinctphases to match the success in DCS formation;

(b) A DCS was termed "successful" if it yielded the milkproduction stream of Annex 3, Table 3 1/ from the firstyear of its implementation. An "unsuccessful" DCS wasassumed to take 5 years from the yenr of implementationbefore starting on the milk production stream above.During these five years, upgrading of native cattleby crossbreeding was assuaed not to take place;

(c) For testing the sensitivity it was assumed that DCS wereimplemented at the same rate but that half of all DCSimplemented in years 1-5 were unsuccessful, as definedabove, and thus begin to yield benefits only 5 yearsafter being implemented. Thus the number of successfulDCS operating from year one onwards was 105, 225, 360,480, 600, 705, 825, 960, 1080, 1200 respectively, asopposed to the original schedule of 210, 450, 720, 960and 1200, thereafter;

1f Even for a "successful" DCS, it is projected that it would take3 years before the full level of participation (70% of village herd)is reached: also it takes 3 years before a native breedable cowis replaced by a crossbred in milk.

ANNEX 8Page 3

(d) The new project incremental milk production stream isobtained from the new phased formation of "successful"DCS and the incremental milk production stream for onesuccessful DCS (Annex 3, Table 3);

(e) Costs of operation of the DCS, union services and MPDDCwere assumed to be unchanged even when there are fewernumber of successful DCS during years 1-9;

(f) New operating costs for the milk plants, feed mills, andfodder production were derived from the corresponding costsin Annex 8, Table 1, by splitting the latter into "fixed"and "variable" costs. "Fixed" costs were assumed to beindependent of, and the "variable" costs directly propor-tional to, the level of operation. The level of operationitself was assumed to be directly related to the amount ofincremental milk production. Thus,

(i) for milk plants, from Annex 4, Table 5 (excludingtaxes and raw milk purchases), it was derived that(at most) 30% of the costs were fixed while (at least)70% were variable;

(ii) for feed mills, from Annex 4, Table 6, it wasderived that (at most) 10% of the costs were fixedand (at least) 90% variable; and

(iii) for fodder production charged to the project, 100%of the costs were assumed variable.

6. Given the above assumptions, when the rate of formation ofsuccessful DCS is reduced to half, but the same number is eventually formed,the estimated rate of return is about 27% (Annex 8, Table 3).

I N D I A

MADI1YA PRADESH DAIRY DEVELOPMENT PROJECT

Economic Rate of Return

(Rs '000)

---------------------------------------------------- Years ---ar________-__- ________-____,____-_____

Incremental Investment 1 2 3 4 5 6 7 8 9

DCS Equipment -/ 400 450 500 450 450 -- --Union Milk Plants and Feed Mills 9,180 28,460 1,200 9,430 16,200 -- --Union Services 4,015 4,845 910 910 560 50 --Corporation Investments 1,720 400 -- -- -- -- --Training and Extension 4,350 4,000 3,540 2,950 2,100 -- --Farm Dairy Investment-

19,665 38,155 6,150 16,740 21,d60 3,050 3,000 3,000Incremental Operating Costs

DCS 3/ 940 2,260 3,840 5,810 7,880 8,960 9,890 10,590 11,090 11,400 11,400Union Milk Plants 4/ 2,000 6,180 17,950 26,300 37,780 48,280 50,680 52,140 52,140Union Feed Mills -- -- 13,900 23,310 36,430 51,340 59,950 62,430 62.430 62,430 62,430Union Services 6/ 2,350 3,010 4,290 5,670 6,720 8,180 8,180 8,180 8,180 8,180 ,180Corporation *~I7/ 445 650 690 680 670 550 550 550 550 550 550FuddeL lIOu(0nLiuLI 030 2,300 0,430 10,300 2!,,26 40,2/ 46,'S n1,n)UU n,400 ' tI,400

5,735 12,600 43,020 68,250 103,380 141,510 171,450 182,840 195,990 202,790 202,790

Incremental Benefits

i.ncremental Milkflc Production -- 3,150 14,700 40,500 87,000 151,500 226,000 306,000 385,000 427,500 427,500@ Rs l.50/lt

Residual Projiect Herd Value 929,600

Net Benefits (25,400) (47,605) (34,470) (47,490) (38,240) 6,940 51,550 120,160 189,010 224,710 1,154,310

Fconloisiic Rate of Retturn = 34%

1/ See Annex 7 Table for investments including taxes and dtuties; for economic analysis the followinig taxes have been deduicted:DCS Equipment (157), Union Plants (44% based on 707. duties and taxes on imported eniiipment anid 307 on locally prociired enuipment15% on corporation (breeding farm) investments; Unioni Feed Mills (40;' hased oT 607 on imports arnd 30() onl local; 10% on training

and extension items.2/ About Rs l00/household from years 4 to 8 for shelter, watering trough, etc.3 See Table 5 Annex 3 for one DCS. Phasing of 1,200DCS is shown in Annex 3 Table 2.

Excluding milk procurement ari taxes. Consolidation of cost data in Table 5 Annex 4 ,over three plants./ Including cost of ingredients and excluding taxes. See Annex 4 Table 6.

- See operating cost data in Table 4 Annex 5; taxes at 10% are excluded.7/ See Annex 5 Table 2, (10% taxes are excluded).8/ Market price for green fodder is about 12p/kg in the project villages anr this ircludes the cost of labor. 2 kg of given fodder per kg of milk.2 The incremental value of the project herd as a result of crossbreeding and the increase in the herd size M Rs 3,000/hd for replacement by

crossbred and Rs 4,000/hd for the increase. Total herd size is 247,000 increasirg to 297,0C0 by year 15.

ANNEX 8Table 2

INDIA

MADHYA PRADESH DAIRY DEVELOPME1T PROJECT

Economic Rate of Return: Sensitivity Analysis

Economic Rate of Return Assuming that

COSTS ARE .... BEIEFITS ARE

Standard -10% -15%

Standard 34.2 29.3 26.6

+ 10% 29.7 2L.9 22.3

+ 15% 27.7 22.8 20.2

August 26, 1974

I ND 1 A

YA,ELXA PRADiH DIAIRY DEVEfPlHENTf PRIOJ:T

8conomic Rate of Return: Seraitivity to DCS Formation

(Re '000)

bor0080t.l Investment Y 1 3 - 2 6 I b 10 U 1 12 3 14 15

Additional Training Y 19,665 38,155 6,150 16,740 21,860 3,050 3,000 3, 0 _ - - - -_- - - - - 2,100 2,100 2,100 2,i 0). 2, --

Incrementol Oseratita Costs

DXS 940 2,260 3,840 5,810 7,880 8,960 9,890 10,590 11 ogo 11,400 n 11,600 11,400 11,400 11,140 11,400Union Milk Plants V 2,000 4,020 11,670 17,100 24,560 31,400 32,900 34,800 35,800 33,000 4L,060 49,400 52,140 52,140 52,140Union Feed Hill, - - 7,650 12,800 20,040 28,240 33,600 35,700 37,340 41,800 49,950 58,250 62,430 62,430 62,430Union Srericee 2,350 3,010 4,290 5 670 6 720 8,180 8,180 o,180 8,180 8,ldO 8,180 8,18o 8,180 8,180 8,180Corporation V 1445 6 0 610 6 690 690 69 660 5 0 55oFodder Prod-ction y- 25 1,10 3,280 6,90 2 0 21,600 25,700 34,050 143,360 53,0000 0 AR6 in . -.

I-ncrementl Benefits

Snorarnotal MiLk Production ./ - 1,570 7,350 20,100 43,200 75,600 116,100 160,800 21 3, (W 27u,100 332,o00 395,500 427,5oo L27,500 427,500Ra Ho.50/it

Residual Project Herd Valu- 714, 0300

Net Benefits (25,40) (46,775) ( 45,190) 9 19,120) 9 (140,170) Wb7 7, 5 (72 5,0 U ) 0 02 400)

EcDonoic Rate of Roturn - 26.8

T'he timing rad eonunt of investments (except tranin ) is esemd un-h. ed. Training activity is co-tinoed at the intenmive lal for 5 additional years./I XCS are Implemented end spending coete incurred at the previous loel. Hovere, it is aenumed that only 50% yield the full proJected benefito -hil the balance 508 yield none at all for fi,st file yoar. after impli.eotation./ 30% of costn on Annex 8 Table 1 are fixed, rad the balance 70% are directly proportional to milk han-ld; for feed mill, only 10% of correeponding co6ts cn Table 1 are fixed and the balance 90% are directly proportional to

milk handled. (Sea paragraph 5 of An-e= 8). Full 100% of the coot of fodder ia dirctly proportional to Incremental milk production./ Thebe are assumed unchanged fro- Table 1./ Derired from the incremental production ,treac of 1 succ fseel DOS (Annex 3 Table 3) end rate of -- ccf 10 fr.s oreation giten in P r.gr-ph 5 Sc) of Annex 8/ Herd replacement is coeplete by year 15 but herd increase of Annex 8 Table 1 is nat complete, and only the former benefit 1i Included hero.

70

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