Document of FILE COPYThe World Bank

FOR OFFICIAL USE ONLY

Report No. 3203a-TU

STAFF APPRAISAL REPORT

TURKEY

SECOND FRUIT AND VEGETABLE PROJECT

March 4, 1981

Projects DepartmentEurope, Middle East and North AfricaRegional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

US$1 = Turkish Lira (TL 78.00) /ITL I = US$0.012TL 1,000,000 = US$12,820.51

/_ Since January 1980, the rate is being adjusted for differentialinflation between Turkey and its major trading partners. This reportis based on data as of March 30, 1980, and the exchange rate of TL 78Ub$1 has been applied.

Previous Rates Were:

Currently (February 28, 1981) TL 95.95 = US$1.00From June 1980 to August 1980 TL 78 = US$1.00From April 1980 to June 1980 TL 73.7 = US$1.00From January 1980 to April 1980 TL 70 = US$1.0oFrom June 1979 to January 1980 TL 47.1 = US$l.00From April 1979 to June 1979 TL 26.33 = US$1.00From March 1978 to April 1979 TL 25.25 = US$l.00From September 1977 to March 1978 TL 19.44 = US$1.00

WEIGHIS AND MEASURES

1 kilogram (kg) = 2.20 pounds1 metric ton (t) = 1,000 kilogramsI metric ton (t) = 0.98 long ton1 meter (m) = 1.09 yards

1 kilometer (km) = 0.62 mile1 hectare (ha) = 10,000 m2 = 2.47 acresI decare = 0.1 ha = 0.25 acres

1 square kilometer (km2) = 100 ha = 0.386 square mileI liter (1) = 0.264 gallon

ABBREVIATIONS

CMU - Central Marketing OrganizationEDLD - Encouragement and Development Loan Division of TCZBGDAA - General Directorate of Agricultural Affairs of MAFGDAR - General Directorate of Agricultural Research of MAFGDPPQ - General Directorate of Plant Protection and Quarantine of MAFGOT - Government of TurkeyMAF - Ministry of Agriculture and ForestryXEYSEB - General Directorate of Fruit and Vegetable Export Development

Projects of MAEKiMlC - Regional Marketing CorporationSEE - State Economic EnterpriseSIb - State Institute of StatisticsbOF - Special Operational FundSPO - state Planning OrganizationTCZB - Agricultural Bank of TurkeyTOPRAKSU - General Directorate of Land and Water Resources Development of* Ministry of Village AffairsTZ - Agricultural Extension Service of GDAA of MAF

TZDK - Agricultural Supply Organization

GOVERNMENT OF TURKEYFISCAL YEAR

Republic of Turkey - March 1 to February 28TCZB - January 1 to December 31

FOR OFFICIAL USE ONLY

STAFF APPRAISAL REPORT

TURKEY

SECOND FRUIT AND VEGETABLE PROJECT

Table of Contents

Page No.

I. INTRODUCTION ............................................ I

II. THE SUBSECTOR IN THE ECONOMY. 2

A. Recent Performance. 2B. Production in the Project Area. 3C. Government Policies and Institutions. 6D. Performance Under Previous Projects .12

III. THE PROJECT .14

A. Project Objectives . 14B. Detailed Features .15C. Cost Estimates .25D. Financing .26E. Procurement .28F. Disbursements . 29G. Environmental Impact .30

IV. PROJECT IMPLEMENTATION ................................ 30

A. Organization and Management .30B. On-lending Terms and Procedures .31C. Accounting and Auditing .34D. Monitoring and Evaluation .35

V. PRODUCTION, MARKETING AND FINANCIAL ANALYSIS .35

A. Production .35B. Markets ............................................. . 41C. Prices .. 45D. Financial Analysis .46

VI. BENEFITS AND JUSTIFICATION .49

A. Economic Return .49B. Other Benefits .54C. Risks .57

VII. AGREEMENTS REACHED AND RECOMMENDATIONS . .58

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Text Tables

3.1 Phasing-in of Farm Plans for Investment and Operating Credit3.2 Project Costs During Period of Time Slice3.3 Project Financing During Period of Time Slice3.4 Estimated Disbursements

5.1 Phasing of Areas Planted using Investment Credit or to be Providedwith Production Credit

5.2 Present and Future Yield Levels at Full Development5.3 Estimated Increase in Crop Production5.4 Estimated Present and Future Income of Beneficiaries5.5 Producers Benefits and Financial Rates of Return

6.1 Summary Economic Analysis

Annexes

1. Total Program Cost Estimates2. Related Documents and Data Available in the Project File

Charts

C.1 World Bank 22148 Project OrganizationC.2 World Bank 22149 Applied Agricultural Research and ExtensionC.3 World Bank 22150 Crop CalendarC.4 World Bank 22212 Implementation Schedule

Mp

IBRD 15242 Project Area

TURKEY

SECOND FRUIT AND VEGETABLE PROJECT

I. INTRODUCTION

1.01 The Government of Turkey has requested a Bank loan in order toassist in financing a second fruit and vegetable production developmentproject. The proposed project originated during the implementation of theFirst '"-it and Vegetable Export Project (Loan/Credit 762/257-TU) and isbased upon a preparation report prepared by the General Directorate ofFruit and Vegetable Export Development Projects (MEYSEB) within the Min-istry of Agriculture and Forestry (MAF). Disbursements for the First Proj-ect were completed by March 20, 1980, and a draft completion report wasreceived (in the field) and reviewed by the appraisal mission for the pro-posed project. Lessons learned during implementation of the First Projectwere considered in the formulation and design of the proposed project.

1.02 The principal objective of the Second Project is to capitalize onTurkey's identified export potential in fruits and vegetables by raisingthe production level of selected fruits and vegetables and establishingeffective export marketing channels, thus generating foreign exchangeneeded to alleviate the country's present economic problems. The projectis designed to go beyond the objectives of the First Project--which concen-trated on citrus production in three provinces and provision of transport,processing and packing facilities--by developing the production of selectedfruits and vegetables in ten provinces, through the improvement of existingorchards and vegetable farms and the establishment of new ones using cul-tivars with high export potential. The project also goes beyond the FirstProject in providing for an effective fruit and vegetable export marketingorganization, rooted in the private sector, which is expected to overcomethe historical export constraints, particularly in transportation, marketintelligence and reliable supply of high quality produce.

1.03 The Bank and IDA have previously made 12 loans and 7 credits toTurkey for agriculture as follows: Grain Storage, Loan 27-TU (US$3.9million); Seyhar. Irrigation, Loan 63-TU (US$25.2 million), Credit 38-TU(US$2O million); Fruit and Vegetable Export, Loan 762-TU (US$10 million),Credit 257-TU (US$15 million); Intensive Dairy Production, Credit 236-TU(US$4.5 million); Irrigation Rehabilitation and Completion, Credit 281-TU(US$18 million); Second Livestock Development, Credit 330-TU (US$16 mil-lion); Seyhan Irrigation, Stage II, Loan 587-TU (US$12 million), Credit143-TU (US$14.2 million); Ceyhan Aslantas Multipurpose, Loan 883-TU (US$44million), Credit 360-TU (US$30 million); Corum-Cankiri Rural Development,Loan 1130-TU (US$75 million); Agricultural Credit and Agroindustries, Loan1248-TU (US$53.4 million); Third Livestock Development, Loan 1265-TU(US$21.5 million); Northern Forestry, Loan 1585-TU (US$86 million); FourthLivestock Development, Loan 1586-TU (US$24 million); Grain Storage, Loan1742-TU (US$85 million); and Fifth Livestock Development, Loan 1862-TU(US$51 million).

1.04 This report is based on the project proposals prepared by MEYSEB(May 1979) and the findings of an appraisal mission which visited Turkey in

June/July 1980. The mission consisted of Messrs. H. Eisa, C. Eugenio, R.Burcroff II and Mrs. T.J. Ho (Bank) as well as Messrs. I. Matthews and R.Lacroix (consultants).

II. THE SUBSECTOR IN THE ECONOMY

A. Recent Performance

2.01 The horticultural subsector occupies an important position inTurkey's national economy and has played a major role in agriculturalgrowth in recent years. Fruits and vegetables represent about 18% of thetotal value of agricultural production and about a third of all agricul-tural exports (which, in turn, account for about 60% of all exports). In1978, 7% of Turkey's agricultural land area was planted to orchards, vine-yards, olive trees and nuts, and 2% to leafy or stem, fruit bearing andother fresh vegetables. While total planted area had increased by only 2%over the previous decade, the orchard-growing area increased 18% and thevegetable-growing area 25% over the same period. However, per ha fruit andvegetable yields have remained largely stagnant.

2.02 Principal fruit crops are grapes, olives, apples and citrus.During 1969-79, fruit production (including nuts but excluding grapes)increased at an average rate of 5.5% p.a., due largely to the growth in theproduction of citrus. Sizable production gains also were achieved for thetraditional varieties of apples, peaches, apricots, cherries and plums,although the production of grapes gradually declined due to disease andslow replanting of vineyards.

2.03 Although vegetable production increased at a moderate rate of 3.9%p.a. in the decade 1969-79, the growth rate during the last six years ofthe period was higher, averaging 5.7% p.a. Most of the gains were realizedfrom the expansion of open field areas using traditional cultivars and pro-duction techniques. Early vegetable production (i.e., intensive cultiva-tion under cover) was introduced in Turkey during the late 1940s. Never-theless, as recently as 1977, less than 1% of the total vegetable growingarea was under cover, although this method is expected to spur growth invegetable production in the coming years. The Fourth Five-Year Planprojects a growth of 40% in area under cover between 1980-84, although itis highly unlikely that this target will be achieved.

2.04 Principal vegetable crops grown under cover are tomatoes, cucum-bers, peppers and eggplants. Recent growth rates in the production ofthese vegetables have been above average. An active market for theseproducts exists and further gains in production will be advantageous bothfor export and in domestic markets.

2.05 Turkey's domestic per capita consumption of fruits and vegetablesis quite high. Domestic demand is increasing and per capita consumption in

1975 was 127.2 kg for fruits and 149.3 kg for vegetables. Citrus consump-tion was about 12 kg during the same year and is expected to reach 20 kg bythe early 1980s. The upward trend in domestic demand is mainly due to ur-banization, high living standards and better awareness by the consumers ofthe nutritional value of fruits and vegetables. This has led to moderatethough sustained increases in the real prices of horticultural crops since1973 and shortages in supply. The importance of fruits and vegetables inthe national diet is demonstrated in rural food consumption patterns.About 12% of all expenditures (and 18% of all expenditures on food) areallocated to fresh and dried fruits and vegetables, with hardly anyvariation across income groups (Annex 2, C.14).

2.06 The fruit and vegetable subsector also plays a vital role inTurkey's external trade position. Turkey has established a modest positionin East European and Middle Eastern markets, and a still weak one withWestern Europe, which could be further exploited to her advantage. I/One-third of Turkey's agricultural exports originate from the subsector.About 86% of these exports consist of dried fruits and vegetables with thebalance consisting mostly of fresh produce. Principal exports are driedfruits (e.g. nuts and raisins), chick peas, broad beans and lentils.Citrus, apples, tomatoes, potatoes and, very recently, onions are theprincipal export commodities in fresh form. The export of tomato paste hasalso been successfully developed in recent years. Nevertheless, annualexports fluctuate from year to year depending on availability of exportquality produce. Limited supplies, deficient varieties, poor quality ofproduction, lack of a coordinated export marketing policies and increasingdomestic demand have not provided a sound basis for exploiting Turkey'sexport opportunities. Increased production through higher yields andlesser unit production costs; improved varietal selection, quality andpackaging; systematic and aggressive marketing and more reliable deliveryare prerequisites to achieving Turkey's export objectives for the subsector.

B. Production in the Project Area

2.07 Turkey's natural resources--i.e., climate, soil and rainfall--aredistinctively suitable for horticultural crops. The country grows about 80horticultural species out of perhaps 140 cultivated worldwide. Along theMediterranean coast, citrus, grapes and vegetable crops, particularly earlyvegetables, are predominant. Grapes, satsumas, peaches, apples andopen-field vegetables are grown in the Aegean region. The Marmara regionproduces peaches, apricots and artichokes. In Central Anatolia, apples,pears, peaches, plums, apricots and winter vegetables occupy most of thehorticulturally cropped area. Today in Turkey, around 16% (4 million ha)of the total cultivated land is horticulturally cropped. It is estimatedthat another 1.5 million ha can be put to horticultural crops in areas withirrigation and adequate rainfall (see Annex 2, C.2.1). Considerable pro-duction improvement also is possible in existing areas, considering thepresent state of productivity, if new technologies are adopted through

1/ Presently, Turkey supplies only about 1% of the EEC's annual fruits andvegetables import requirement.

- 4 -

fresh investment and improved cultural practices coupled with effectivetechnical assistance. However, a number of constraints must be overcomewhich will be addressed in this project before widespread yield increasescan be attained.

2.08 The main identifiable production constraints are; (a) lack ofhealthy budlings, productive fruit trees and adequate supply of improvedvegetable seeds at reasonable prices; (b) inadequate and unreliable pro-vision of credit; (c) inefficient links and feedback between farmers andapplied research and extension organizations; (d) inadequate farm manage-ment studies at the source to assist agricultural policy formulation; and(e) fluctuating prices. Improvement of fruit and vegetable yield levels inthe project area through the introduction of high quality and diseaseresistant cultivars, suitable for export, would'result from coordinatingthe applied research and extension activities, and the timely provision of (credit and inputs.

Citrus and Deciduous Fruits

2.09 The production of quality budlings for citrus and deciduous fruitorchards is limited by the availability of healthy budwood anddisease-resistant rootstock in Turkey. This, in turn, limits the yieldpotential of new or replanted orchards. Budlings are mainly produced bythe public sector in research stations and agricultural schools and to asmall extent by farmers and private nurseries. Screening of budwood mothertrees is undertaken solely by the research stations and agriculturalschools, but, because of limited equipment and resources and lack oftrained staff, screening and certification have not kept up with demand.The research effort of more than a few stations is further diluted byundertaking commercial production of budlings. For citrus, intensiveapplied research efforts are required to find substitute rootstocks for thepredominantly used sour orange which is susceptible to tristeza virus.Applied control measures for this and other important viruses such aspsorosis and exocortis should be incorporated in the budling certificationprogram. The production of quality budlings also is limited by the numberof properly operated private nurseries in the country. Only three citrusnurseries have been established with technical supervision, all under theFirst Bank-assisted Project. No deciduous fruit nurseries were included inthe First Project, these being operated mainly by horticultural researchinstitutes, agricultural schools and private farmers without supervision.Budwood screening and budling certification and production are features ofthe proposed project.

2.10 The yields of citrus, stone and pome fruits are constrained by thepredominant use of low yielding, locally propagated cultivars and improperorchard management. Farmers tend to plant their trees closely together,often at depths which cover the grafted portion of the budling. Bothinhibit tree development. Other causes of low yields are improper landpreparation and irrigation, aggravated by inadequate or untimely fertiliza-tion, incorrect pruning and poor attention to pest control during thedevelopment and production periods of the tree's life. Under the project,the horticulture extension efforts will tackle these problems.

- 5 -

2.11 The long gestation period associated with orchards' establishmentdiscourages many farmers from investing in planting new orchards. Theimpact is especially severe on small farmers who cannot sustain negativecash flows during the three to five-year establishment periods for citrusand deciduous orchards. Although some small farm sizes are involved, thenumber of farms and thus the potential hectarage involved is large.Supplementary income could be generated on newly established orchards bycareful intercropping with seasonal vegetables during the establishmentperiod, with a gradual phasing out of vegetable cultivation as the treesincrease in size. This technique has been used elsewhere in the MiddleEast (e.g., Egypt and Cyprus) with favorable results. However, carefulsupervision by the extension service is required, which is a feature of theproposed project.

Grapes

2.12 The production of grapes, which still ranks first in fruit pro-

duction in Turkey, is declining due to the spread of phylloxera disease andslow replacement of vineyards with resistant rootstocks, the predominanceof traditional (non-trellised) orchards, failure of the extension serviceto promote the use of modern practices such as the use of trellising andcareful pruning, and the resultant increase in the cost of labor comparedwith yields. There is a need to augment the production of early anddisease-resistant cultivars, which existing Turkish research stations arecapable of doing, extend investment credit to vineyard operators fortrellising, and strengthen the quality of extension supervision in theareas of vineyard establishment. These problems will receive attention inthe proposed project.

Vegetables

2.13 Turkey's production potential for fresh vegetables is quite good.Tomatoes, cucumbers, peppers, eggplants, beans, salad vegetables, colecrops, root crops, etc., could be planted in Turkey most of the year. Themost notable potential is through increased use of greenhouses, and plasticrow covers (low tunnels) in open fields during the early season to increasecropping intensities which would also permit farmers to capitalize on highprices of early vegetables. Yields could also be increased by use ofhybrid seed with proven performance, by improving existing greenhousestructures and providing farmers with systematic training in cultivationtechniques under controlled conditions.

2.14 Present glass greenhouses are constructed from ordinary glass andiron. The use of hammered glass, fiberglass and aluminum frames is stillto be introduced. Plastic greenhouses are constructed from plastic andwood frames and often cannot make maximum use of solar radiation because ofpoor layout and orientation. The use of high grade plastics with UV resinand aluminum frames is very limited. Ventilation is inadequate in mostgreenhouses, leading to excessive humidity, uneven heating, decreasedyields and the predominance of fungal diseases such as powdery mildews oncucumbers and cladosporium on tomatoes. Present cultural practices in

- 6 -

greenhouses and low tunnels have been developed through farmers' accumu-lated experience with minimal assistance from research organizations andthe extension service. Some farmers recognize the value of hybrid seedsand are using these in spite of their initial high cost; however, limita-tions on supply and/or availability of production credit inhibit widespreadutilization. Significant yield increases in vegetable production underopen-field conditions also are possible with some increase in workingcapital outlays and effective supervision. Production of early vegetablesunder cover and intensified open-field production is emphasized in theproposed project.

C. Government Policies and Institutions

Agricultural Research

2.15 The public sector is primarily responsible for agriculturalresearch, wherein activities and research entities are fragmented amongfive ministries and seven general directorates within the Ministry of Agri-culture and Forestry (MAF). Some agricultural universities are alsoinvolved in research but mainly on the academic side to support graduatestudent training programs. The overall coordination for research iscarried out by the Scientific and Technical Research Council of Turkey,established in 1968, to develop, promote, organize and coordinate basic andapplied research. MAF is the principal ministry involved in horticulturalresearch through the General Directorate of Agricultural Research (GDAR)and the General Directorate of Plant Protection and Quarantine (GDPPQ).Soil sciences are undertaken by the General Directorate of Soil Conserva-tion and Farm Irrigation (TOPRAKSU) of the Ministry of Village Affairs. Tocoordinate commodity specific research, national research programs haveassigned coordination responsibilities to individual research institutes.At present, about 27 national research programs are in operation; most areoverly ambitious considering the limited resources available. Thecoordination between basic and applied research in many of these programsis weak. Notably lacking in horticulture is periodic familiarization andtraining for extension personnel with recent horticultural research find-ings, the multiplication of resistant and improved cultivars under con-trolled conditions by the research entities and ultimate distribution tofarmers' fields, the involvement of horticultural research entities infield trials, testing and making specific recommendations for improvedon-farm performance in cooperation with the extension services, andinability or unwillingness to tailor ongoing crop research programs tocounter specific disease and cultivation problems as these may arise.These problems will be addressed by the proposed project.

Agricultural Extension

2.16 Responsibility for agricultural extension is carried by fivegeneral directorates in MAF, and one in the Ministry of VillageAffairs. In addition, some state economic enterprises (SEEs) such as theAgricultural Bank of Turkey (TCZB) and the Turkish Sugar Factories

-7-

Corporation undertake specialized extension work geared to theiroperations. Privately owned food processing companies also offer extensionadvice to farmers under contract with them, e.g. tomato paste manufacturers.

2.17 Teknik Ziraat (TZ), within the General Directorate of AgriculturalAffairs (GDAA) of MAF, is the main national agency for agricultural exten-sion. GDAA is represented at the provincial level in all of the 600 dis-tricts in Turkey and in some 4,200 village centers. At the district andthe village level, TZ is mainly staffed by general agriculturalists fromagricultural technical schools who receive support on technical mattersfrom subject matter specialists (SMS) at the provincial level. By andlarge, TZ still utilizes the lecture and demonstration approach to agri-cultural extension which is inadequate for the specific farm needs of mostfruit and vegetable growers. Lack of trained horticultural staff, housing,transportation and mobility, in-service training, extension equipment,feedback from research entities and farmers, and a proliferation of collat-eral duties inhibit the effectiveness of TZ in its work. Declining staffmorale is a problem and turnover is high.

2.18 In the horticultural subsector, the Government has experimentedwith the training and visit (T&V) system with some measure of success. Aspecial project implementation unit (PU) which was elevated later to theGeneral Directorate of Fruits and Vegetables Export Development Project(MEYSEB) was created within MAF to implement the First Fruit and VegetableProject utilizing a trained and highly mobile technical staff of SMS andvillage foremen in citrus extension. Effective extension is recognized inTurkey as a sine qua non of fruit and vegetable development, the lack ofwhich would impede the effectiveness of other production programs. TheGovernment recognizes the positive results obtained using the T&V system,and through this project, intends to transfer the special experience ofMEYSEB (and other special project agencies) to the national agriculturalextension system, without unduly compromising MEYSEB's professionalintegrity or engendering a bureaucratic response within TZ protective ofits own interests.

Financial Intermediation

2.19 Government Policy. The Government-owned T.C. Ziraat Bankasi(TCZB), which is the largest bank in Turkey (25% and 20% respectively ofthe total assets and total deposits of the Turkish banking system), is themain channel for assistance to agriculture and, in a real sense, the onlyinstitutional supplier of funds to the sector, holding as it does at least99% of the agricultural loan portfolio of the banking system at any onetime (see Annex 2, C.9 for details of TCZB's present organization andoperation). A consistent policy of Government is to provide credit foragriculture at attractive interest rates which are lower than those forother sectors. This policy was adopted because of the relative risk andinflexibility inherent in agricultural operations once investment andproduction decisions have been made and because TCZB has been mandated to

give lending preference to small and medium-sized farming operations(para. 2.24). Besides its principal responsibility as financier to theagriculture sector, TCZB is authorized to accept all kinds of deposits (itis a depository for official deposits), to borrow from domestic and foreignbanks and sources, and to issue bonds on its own account. It has access tothe Central Bank of Turkey (CBT).

2.20 Organization and Management. TCZB's annual lending program isdetermined by the Supreme Board for the Regulation of Credits whose membersaccording to law include, among others, the Minister of Commerce asChairman (TCZB, although relatively autonomous, is under the Ministry ofCommerce), and the Ministers of Finance and Agriculture. A Board ofDirectors decides on policy and general procedures and approves loans andinvestments beyond the authority of TCZB officers to act upon. TCZB'schief executive officer is the Director General, assisted by six DeputyDirectors and a Secretary General who, in turn, are in charge of sevengroups totalling 31 divisions. Some divisional responsibilities overlapand there is need for reorganization along functional lines, which is nowunder study by outside consultants (engaged-under Loan 1248-TU), whosereport is expected in May 1981. TCZB's management is competent and isbetter able to attract and retain qualified personnel than most otherGovernment entities because of its high salary scales and benefits. TCZBhas a network of 1,028 branches.

2.21 Lending Policies and Operations. At least 80% of TCZB's lendingmust be used in financing agriculture; statistics now available for theperiod 1975-1979 indicate that the bulk of lending (80%) has benefittedagricultural credit and marketing cooperatives and their unions, whosemembership is mainly comprised of small and medium-sized farmers. Thebalance has been loaned mostly to individual small-sized farmers (SSF) andmedium-sized farmers (MSF), commercial enterprises supportive of agricul-ture (especially those which supply imported inputs or are engaged in agri-cultural exports) and for State Economic Enterprises (particularly theAgricultural Supply Organization--TZDK),

2.22 The new Agricultural Credit Law of 1979, together with the Agri-cultural Credit Guidelines issued by TCZB (Annex to Circular 4770, June1979) have liberalized lending policies towards small farmers and coopera-tives. The new law and guidelines incorporate some of the suggestions madeby the Bank to TCZB and Government over the last few years, and extend thecredit arrangements agreed under earlier Bank-financed projects to all TCZBactivities. Basically, they make lending based on viable financing andfarm plans the main vehicle for credit to agriculture; they define farmersin three income classes; they have liberalized collateral requirements;they permit the use of chattel mortgage on farm assets and have markedlyliberalized the use of creditworthy cosignatories to govern the overall

- 9 -

lending operation to small farmers. Now, small- and medium-size 1/ farmingoperations can borrow as much as 90% of a project's cost solely on thestrength of their signature or together with cosignatories; large-scalefarming operations, on the basis of tangible security only, can get a loanof from 60% to 70% of project cost. The TCZB definitions of farmer sizehave been applied nationwide and are updated as Government periodicallyupdates the minimum wage level by decree.

2.23 As part of the Government's desire to revise interest rates tomeet changing conditions, Government Decree No. 8/909 of May 1980 left toTurkish banks the determination of loan interest rates; however, TCZB ratescontinue to be decided by the Government. In accordance with the Govern-ment's policy of using loan interest rates to encourage agriculturalproduction and investments, agricultural loan rates are substantially lower(to the borrower) than commercial loan rates; e.g., short-term loans, 22%p.a. against 30% p.a. for commercial loans; medium- and long-term loans,24% p.a. against 33-35% p.a. for business loans. In addition to interestreceived from borrowers, TCZB is paid 6% p.a. for all agricultural loansfrom the Interest Rate Differential Fund (IRDF) which is maintained andoperated by the Central Bank of Turkey from payment bv banks from a part ofthe interest collected on commercial loans.

2.24 Lending to agriculture almost tripled during 1975-79, reaching avolume of TL 133.6 billion in 1979. Of total loans granted, 80% wereapproved to finance cooperatives--20% for agricultural credit cooperativesand 60% for agricultural marketing cooperatives. The rest of the loanswere mainly granted to SSFs and MSFs. Because agricultural borrowers areallowed to pay lower rates of interest than commercial borrowers, the largebulk of TCZB's interest income is raised by interest subsidy from IRDF.Nevertheless, the resulting net income is negative in respect of recentinflation resulting in erosion of TCZB's lending potential. TCZB has triedto offset this erosion by expanding its lending program. 2/ While it isdesirable to have loan interest rates which would result in net incomes

I/ A small farmer is defined as one whose net annual pre-developmentfamily income does not exceed the national minimum wage level(TL 64,800 in April 1979, equivalent to US$2,464 at the time) and amedium-sized farmer as one whose family income is not more than fourtimes the small farmer ceiling.

2/ The following percentages show expansion of TCZB lending, in nominalterms, over each preceding year: 1976 - 12.5%, 1977 - 26.0%, 1978 -35.0%, 1979 - 51.4%. Lending during the first five months of 1980already exceeded the total for 1979 by 11%. Through these years, thenumber of TCZB borrowers have remained fairly constant; it wouldtherefore appear that TCZB has been able to maintain the number ofbeneficiaries in status quo.

-10-

positive in respect of inflation, other factors should be taken into con-sideration in order to maintain a sustained lending program.

2.25 Sources of Funds. TCZB's lending funds come from depositsreceived (normally around 50% of total) and the balance, almost all fromborrowings from the CBT. 1/ Around 47% of deposits received during 1975-78were non-interest earning Government official desposits (31%) and commer-cial deposits (16%); the rest were in the form of small individual savingsdeposits gathered by TCZB's wide network of branches. Savings deposits arepaid interest at rates equal to those of commercial deposits, are thereforecompetitive.

2.26 Financial Condition. TCZB has consistently recorded net incomesince at least 1964 (earliest available data to IBRD). In constructingTCZB's loan interest rate schedule, the Government has been careful to setrates which allow very modest margins to TCZB in order to minimize the costof funds to small farmers and cooperatives. Overdue loans have fluctuatedfrom some 16% of the total portfolio at the end of 1975 to around 28% atthe end of 1978 to less than 15% by the end of 1979. Almost all overdueloans are under litigation since it is TCZB's practice to aggressivelycollect loans that have been in arrears after a reasonable wait. The factthat most loans are to cooperatives (which are under TCZB's financialsupervision) makes its collection efforts relatively successful. TCZB'sbooks show that it is in good financial condition. Its financial equityhas been unimpaired by losses; however, TCZB's equity appears to be inade-quate to protect its creditors from losses. In December 1979, the ratio ofequity to "risk assets" (for practical purposes, total assets less cashassets and Government-guaranteed bonds) was only 3.3%, meaning that a lossin assets exposed to risk of more than 3.3% would affect TCZB's creditors.Nevertheless, as a highly visible Government-owned bank with thousands ofsmall depositors involved, there is no question that Government would makegood on TCZB liabilities should such an unforeseen need occur.

Fruit and Vegetable Marketing

2.27 Fruit and vegetable marketing in Turkey is characterized by spotpurchases and consignment sales, which, while adequate within the domesticmarket where the trading system is well understood and lubricated bylong-standing commercial ties, is inappropriate for export marketing.Several government organizations are involved in marketing. The GDPPQwithin MAF is responsible for plant quarantine and issues phytosanitarycertificates; the General Directorate of Standardization within theMinistry of Commerce has responsibility for enforcing quality and packaging

1/ Since expansion of deposits received is not fully within TCZB'scontrol, it has turned to CBT in recent years to finance expansion ofits lending program. TCZB's net borrowings from the CBT have risenfrom TL 6 billion in 1976 to TL 29.7 billion in 1979.

- 11 -

standards developed by the National Institute of Standards. The GeneralSecretariat of External Commerce (with commercial attaches in 46 countries)is supposed to supply foreign market information. The Ministries ofCommunications, Interior Affairs, Industry and Technology and of Customsand Monopolies regulate communication and transportation, importation ofmaterials and equipment, and exports. Regionally, the various chambers ofcommerce and chambers of industry, municipalities, transport unions andexport unions are supposed to organize and coordinate the activities oflocal traders and exporters, and to transmit market information receivedfrom the Ministry of Commerce and other organizations (these local entitiesare usually headed by public officials and function as public organiza-tions). Another semi-public agency, IGEME (Export Research Center), whoseBoard of Directors is chaired by the Undersecretary of Commerce, collectsmarket information, undertakes export promotion, and supplies exporterswith market situation reports. Overall coordination of export promotion isvested in the State Planning Organization (SPO) and the Export Encourage-ment and Development Department of the Prime Minister's office.

2.28 To alleviate disparities between low returns in the export marketsand more favorable returns domestically, export incentives have been intro-duced. The most important recent incentives are: (a) agriculturalexporters can now deduct up to 20% of gross export earnings from taxableincome before tax, with premia if exports increase during subsequentperiods; (b) specific interest rate incentives for fruit and vegetableexporters to encourage investment in cold stores and refrigerated coldfleets; (c) complete prefinancing of imported materials and local procure-ment requirements to sustain export operations; (d) extension of the for-eign exchange retention scheme in May 1980 to allow 10% of their foreignexchange earnings for operational requirements; 1/; and (e) all agricul-tural exports including foodstuffs are entitled to an 8% rebate on interestvia the Central Bank's discounting mechanisms if export financing creditsare utilized. While the traditional system works well to serve the needsof the domestic market, the supply response for export to the pyramiding ofpublic agencies and export incentives has been slow. Partially, this iscaused by mistrust of government initiative in the private sector, whichhas been reinforced until very recently by the small incentives offered.But slow response is mostly due to the comparatively low prices offered inforeign markets for Turkish horticultural produce, which in turn is influ-enced by variable quality, poor grading, improper packaging, damage instorage and transit, and unreliable delivery. Until considerable attentionis paid to these technical marketing problems, only marginal response togovernmental promotional and export incentive schemes can be expected. Theproject is designed to resolve these problems.

1/ By way of contrast, exporters of industrial and mining products canretain up to 50% of their foreign exchange earnings to sustain futureoperations.

- 12 -

D. Performance Under Previous Projects

2.29 Fruit and Veaetable Export Project (First Project--Loan No.762/Credit No. 257-TU). 1/: The objectives of the First Project were: (i)on-farm citrus development through the establishment of 8,000 ha of citrusorchards and about 60 ha of citrus nurseries in three Mediterraneanprovinces; (ii) the provision of an integrated refrigerated transportsystem to export markets through procurement of 385 refrigerated trailers(20-ton capacity), 100 towing units and two roll-on/roll-off (ro-ro) ferryships; (iii) agroindustries development through establishment of packinghouses, cold stores and a cardboard-box manufacturing plant with capacityof 150,000 tons; (iv) supply of technical assistance to activate a nationalorganization of exporters (MEPA); and (v) technical assistance to sub-borrowers, a virus-indexing program for citrus research, training and acomprehensive credit survey. The on-farm citrus and agroindustries com-ponents were implemented by supervised credit, using TCZB as the financialintermediary and PU established under the project as the supervising agency.

2.30 After an initial delay in project effectiveness, the projectencountered organizational difficulties caused by a change in government.Initially, the PU was a separate entity from the Citrus Extension Unit(CEU), and placed under the Ministry of Foreign Economic Relations (whichwas later disbanded), then transferred to the Ministry of Commerce. TheCEU was placed under MAF. As a result, project implementation wasuncoordinated and disbursements lagged. In 1975, in consultation with theBank, the PU was transferred to MAF and combined with the CEU into a newunit--MEYSEB--which was elevated to General Directorate status.

2.31 Following reorganization, project performance was generally satis-factory in the on-farm citrus component. Extension coverage, using SMS andtrained village foremen, reached about 20,000 ha of citrus in the threeprovinces (Hatay, Adana and Icel) comprising the project area. Because oflimited success with citrus nurseries development (see below), it wasnecessary to de-emphasize the establishment of new orchards in the projectand focus on improved production techniques for existing orchards. As aresult, only 743 ha (about 9% of the appraisal estimate) of new citrusorchards were planted, but supervised production credit was extended toover 9,600 ha of existing ones with notable increases in production. About4,500 farmers benefitted, about half of whom farmed orchards of only0.1-1.0 ha in size. Only 3 of the programmed 8 citrus nurseries wereestablished in the project and only in its latter years. Nurseries'establishment was inhibited by lack of identifiable and healthy budwood,and MEYSEB's requirement that budlings be sold at government procurementprices rather than the prevailing market prices. Recently MEYSEB has

1/ Approved on June 21, 1971. The original closing date was June 20,1976, but was extended until June 30, 1979.

- 13 -

adjusted budling prices to take into consideration increased productioncosts leaving a reasonable profit margin to nurserymen.

2.32 Performance of the transport and marketing components was gen-erally unsatisfactory. There were cost overruns on ferryboat purchases,and only one vessel was procured under the project, the other was beingfinanced through Loan 1248-TU (see below). Because of the operatingpatterns of Turkish trucking firms it was necessary to procure cabs andtrailers as a single unit. Thus 155 of each were purchased, compared withthe 100 cabs and 385 trailers expected during appraisal. The roll-onroll-off ferryboats have experienced continuous breakdowns and havesuffered from unreliable scheduling. As a result, exporters of freshfruits and vegetables, who prefer overland truck routing have made onlylimited use of them. Maintenance of the refrigerated trailers also hasbeen a problem. The central export marketing organization (MEPA), whichwas already being promoted amongst exporters prior to approval of the FirstProject and thus was not included as a project component, was never fullyactivated because of a change in government soor. after its creation. As aresult, the four participating joint stock companies--which were formed toprovide an operating nucleus for MEPA-- worked independently as uncoordi-nated exporters and some are presently managed by the major shareholder.

2.33 Establishment of cold stores, citrus packing plants and the cor-rugated box manufacturing plant was completed in 1977 and they became fullyoperational during the 1978-79 season. Few problems were encounteredduring implementation, though all are presently operating beneath ratedcapacity because of lack of working capital. This in turn has been causedby Turkey's overall financial retrenchment during 1979 and 1980. TheAgricultural Credit Survey was not undertaken due to resistance from TZCB.

2.34 Though all of the objectives of the First Project were notachieved, implementation of the on-farm production component and, to alesser extent, the agroindustries component proceeded well after MEYSEB wasformed, valuable services were provided to farmers in the project area, anda viable approach to horticultural extension evolved including recognitionwithin MAF of the merits of the T&V approach.

2.35 Agricultural Credit and Agroindustries Project (Loan No.1248-TU). The project became effective on May 11, 1977 with TCZB as theBorrower and the Government as Guarantor. The original loan amount ofUS$63 million was decreased to US$54.3 million following cancellation ofthe cattle-fattening component and provision of training funds throughUNDP/FAO. The project now consists of the following components; (i)supervised investment and short-term credit to farmers; (ii) investmentcredits for agroindustry with emphasis on fruits and vegetables marketingand processing; (iii) credit for the purchase of a ro-ro ferryboat formarketing perishable produce in European countries; (iv) technical servicesto strengthen TCZB's organization and operations, and to assist in imple-menting the first two components utilizing training provided by UNDP/FAO;and (v) provision of vehicles for TCZB's field staff.

- 14 -

2.36 Satisfactory progress has been achieved with the supervisedcredit component, and actual disbursements have been ahead of appraisalestimates. The ferryboat was procured on schedule and placed in service in1978; vehicles for TCZB have been purchased and the mobility of its fieldstaff has been increased; and the training programs for TCZB and MEYSEBstaff in agricultural credit and agroindustries have been completed.

2.37 After considerable delay, consultants were appointed to assistTCZB with a study of various aspects of its management, organization andlending procedures, who are currently preparing their report. TCZB wouldimplement their recommendations (after consultation with the Bank) inaccordance with Section 4.01(d) and (e) of the agreement for Loan No.1248-TU. Amongst the various credit components, progress has been partic-ularly slow in implementing the agroindustries component. This hasresulted from (i) poor coordination between MEYSEB and TCZB; (ii) continu-ing inflation, and the uncertainties posed for potential investors; (iii)the unwillingness of many investors to assume the full foreign exchangerisk on subloans under the project as required by Government; and (iv) dis-bursement delays due to rather inadequate evaluation of agroindustry sub-loan applications by TCZB. The Government has recently instituted measuresproposed by recent supervision missions to resolve the coordination problemby entrusting TCZB with sole responsibility for the technical, financialand economic appraisal of agroindustries subloans. It has also engagedconsultants to undertake a training program acceptable to the Bank for TCZBstaff in evaluation methods of agroindustry subloans (paras 3.10 and 3.11),and prepare a manual for agroindustry project evaluation for TCZB's use.Other proposals by Bank staff to overcome investors' reluctance to assumethe foreign exchange risk are presently under consideration by the Govern-ment, including acceptance of the full foreign exchange risk by Governmenton subloans for investment in agroindustry, to be offset by an increase inthe onlending interest rate to subborrowers. If adopted, it is believedthat these measures would hasten the utilization of the remaininguncommitted funds in Loan 1248 (US$18.74 million) which could be appliedinter alia to the financing of additional cold stores and agroprocessingfacilities for fruit and vegetable production. These investments, togetherwith improved utilization of existing processing facilities to be encour-aged in the project (paras. 3.10-3.11), should be sufficient to process theincreased production of fruits and vegetables during the period to besupported by the proposed loan. Additional investments in agroindustrieswill be studied in the proposed project as part of a master plan for horti-cultural subsector development (paras. 3.19-3.21).

III. THE PROJECT

A. Project Objectives

3.01 The objectives of the project are:

- 15 -

(a) to increase production of high quality fruits and vegetablesprimarily for export, in ten provinces of Turkey (Map IBRD 15242)which have the most experience and the greatest potential forexport production;

(b) to create an effective marketing organization that wouldcapitalize on the identified export potential of Turkish fruitsand vegetables in order to increase foreign exchange earnings from

* important overseas markets such as the Middle East, the EasternEuropean countries, and to a lesser extent Western Europe;

* (c) to plan future investments for production and processing in thesubsector through a study of export and domestic marketingopportunities and a detailed examination of existing and potentialland use, production techniques, processing needs andcapabilities, transportation, storage, skilled manpowerrequirements and organizational constraints; and

(d) to consolidate gains achieved under the First Project and expandit to include other fruits and vegetables besides citrus.

3.02 The project is part of a program for an integrated fruit and vege-table development effort, that balances investments between the need forquick gestation and the need to support the medium- and long-term develop-ment requirements of the sub-sector. The more rapidly gestating featuresof the program include technical and financial support for vegetableproduction--both under cover and in open field, improved production fromexisting orchards, increased utilization of existing agro-industrialcapacity--particularly packing houses and cold stores, and creation of aneffective export marketing institution in the private sector which wouldinitially concentrate on increasing export from present production. Thelonger term features include the establishment of fruit tree nurseries andnew orchards and vineyards utilizing high yielding cultivars suitable formeeting export demand, and the implementation of proven nurseries andorchard management reconmendations developed by cooperating research andextension entities on farmers to be established in the project and onexisting orchards and nurseries. Full implementation of the program willtake nine and one-half years; proceeds of the proposed Bank loan will be

X utilized to finance a portion of the investment costs expected to beincurred during its first four and one-half years of implementation(July 1, 1981-December 31, 1985).

B. Detailed Features

Agricultural Credit

3.03 Investment credit would be provided to private farmers forestablishing four citrus nurseries to supplement production of improved

- 16 -

budlings from three ongoing ones established under the First Project.Credit would also be extended to establish three deciduous fruit nurseriesto augment the production of budlings for pome and stone fruits. Eachnursery will be about 10 ha and have a production capability of 70,000budlings annually starting in the fourth year of establishment. Since theprovision of improved budlings is required to establish the number oforchards envisaged in the project, MEYSEB's staff and an internationallyrecruited nursery consultant would concentrate their efforts during thefirst year of the project on existing nurseries, to provide needed techni-cal assistance and assist with locating healthy budwood mother trees incooperation with the research institutes.

3.04 Under the program, investment credit would be extended for theestablishment of 700 citrus and 550 non-citrus orchards of about 2.5 haeach, and 2,000 small orchards of about 0.5 ha each which w4ill be inter-cropped with vegetables during the establishment period. In addition,about 100 vineyards, each 2.5 ha, would be financed from project funds.Trellising will be the main investment item for vineyards in the project,which will permit the production of early grapes of high quality suitablefor export. Provision is made to establish 50 glass greenhouses and 100plastic greenhouses (each 0.5 ha) to intensify vegetable cultivation andproduce early vegetables. Proceeds of the proposed loan will be utilizedto finance about 91% of the foreign costs (para. 3.23) expected to beincurred during the four and one-half year period of the time slice asso-ciated with farm investment plans to be phased in between 1983 and 1985(2,450 of the 3,500 farm investment plans envisaged in the program) and all7 nurseries in the program, which will be phased in between 1982 and 1984.Supervised production credit will be provided to producing orchards (mainlycitrus and apples), existing greenhouses and vegetable farms to improveyields and the quality of horticultural produce from existing farms. Pro-duction credit under the project will be extended to about 2,350 farms ofthe 3,575 farms expected to avail of supervised production credits in theprogram. Subborrower loan applications for financing under the projectwill be evaluated and approved in accordance with provisions of the exist-ing protocol between TCZB, MEYSEB and TOPRAKSU (Annex 2, C.10), which willbe appropriately amended with respect to dates and locations, and will besubmitted to the Bank for its review and approval (para. 4.03). Consider-able retraining of extension service personnel and expansion of these ser-vices in the project area is needed to provide adequate supervision forsubborrowers in the program (paras. 3.07-3.08). Most of this training willtake place in 1982, thus the implementation of all farm plans exceptingthose for two nurseries will begin in 1983. The Bank loan will be utilizedto finance a portion of the equivalent of the estimated foreign exchangecomponent of each subborrower's incremental production credit requirementduring the period of the time slice. The phasing-in of subloans forinvestment and production credit is detailed in Table 3.1.

- 17 -

Table 3.1: PHASING-IN OF FARM PLANS FOR INVESTMENT & OPERATING CREDIT(No. of Plans/Credits)

1982 1983 1984 1985 1986 Total /1

Nurseries EstablishmentCitrus (10 ha) I 2 1 - - 4Non-Citrus (10 ha) 1 1 1 - - 3

Orchards EstablishmentCitrus orchards (2.5 ha) - 100 200 200 200 700Citrus intercrop (0.5 ha) - 250 300 300 350 1,200Non-citrus orchards (2.5 ha) - 100 100 100 250 550Non-citrus intercrop (0.5 ha) - 150 200 200 250 800Vineyards (2.5 ha) - - 50 '50 - 100

Vegetable Farm EstablishmentGlass greenhouses (0.5 ha) - 10 15 25 - 50Plastic greenhouses (0.5 ha) - 20 30 50 - 100

Production CreditCitrus orchards (2.5 ha) - 200 300 400 600 1,500Non-citrus orchards(apples)(2.5 ha) - 100 200 300 400 1000

Glass greenhouses (0.5 ha) - - 10 15 25 50Plastic greenhouses (0.5 ha) - - 25 50 50 125Low tunnel (0.5 ha) - - 75 125 150 350Open field vegetables (1.0 ha) - 100 200 250 - 550

/1 The foreign cost portion of plans to be phased-in between 1982-1985will be totally or partially financed with proceeds of the proposedBank loan.

To provide suitable high quality cultivars for use by subborrowers in theproject, the Government has asrured that it will take all necessarymeasures to facilitate procurement of improved vegetable seeds, partic-ularly hybrids, and healthy buds from internationally reputed organizationsand seed companies to meet farmers' demand.

Technical Support Services and Training

3.05 In order to implement applied research and the expansion of exten-sion and training programs envisaged under the project, five internation-ally recruited horticultural production specialists (consultants) would beemployed by MEYSEB for three years, one in each of the following areas:(a) nurseries; (b) citrus; (c) pome fruits; (d) stone fruits; and (e) earlyvegetables. All consultants would be located in Antalya which is centrallyplaced in the project area. In addition, four leading research stationsare located in Antalya where citrus, deciduous fruits, and early vegetablesare important crops.

-18-

3.06 Applied Research and Extension. Essential to successful imple-mentation of the production aspects is the evolution of a strong teamwork approach between farmers, trained extension staff and able researchworkers. To achieve this, the vegetable consultant would be housed in theVegetable Research Institute and the four fruit consultants in the CitrusResearch Institute which undertakes research in temperate fruit crops inaddition to citrus. Four counterparts from MEYSEB, TZ, TCZB and the coop-erating research institutes would be assigned to each consultant to lay thegroundwork for the consultants' arrival, and assist with the planning andtimely implementation of the project's applied horticultural research,extension and training programs (para 3.08). Other cooperating researchinstitutions will be Cukurova University in Adana, the Aegean RegionalAgricultural Research Institute in Menemen, the Viticulture Research Insti-tute in Manisa and the Horticultural Research Institute in Yalova. Twocounterparts from each cooperating institute also will be assigned toundertake cooperative applied research programs with the internationalconsultants, thus involving a total of 28 counterparts. The Governmentagreed during negotiations that international recruitment of consultantswould begin after negotiations and their appointment would be no later thanJanuary 1, 1982. The Government has also agreed that all 28 counterpartswould be assigned and posted as indicated above not later than September30, 1981, that all information on horticultural crops research and exten-sion programs will be made available for the consultants' use, and thatit would cause MEYSEB to provide the consultants and counterparts withadequate transportation, suitable office facilities and clerical assistanceto enable them to carry out their duties efficiently. Funds forgreenhouses, laboratory equipment and transportation have been providedunder the project to accomplish the applied horticultural research pro-grams. There is a need to systematize budwood screening procedures toensure that only healthy budwood of uniform high quality is utilized.Assurances were obtained during negotiations that the consultants will out-line a program for screening healthy budwood mother trees and producingimproved budlings in sufficient quantities to meet the requirements offruit orchards to be established under the project. Such a program wouldbe prepared jointly with cooperating research entities under MEYSEB'ssupervision and submitted to the Bank for review by September 30, 1982.

3.07 Present horticultural extension activities are generally inade-quate, poorly staffed and do not address farmers' needs and problems exceptfor citrus in the area of the First Project (3 of the 10 provinces in thepresent project). Under the project, all extension activities would besupervised by MEYSEB which would establish three new regional offices inAntalya, Mugla and Izmir in addition to its present offices in Dortyol(Hatay), Adana (Adana) and Mersin (Icel). MEYSEB's regional office inIzmir would be housed in the Aegean Research Institute, to facilitateneeded coordination between research and extension workers. In the fourprovinces of TZ's responsibility (Bursa, Amasya, Tokat and Kayseri), TZwould implement extension activities under MEYSEB's supervision and accord-ing to the agreed protocol of June 25, 1980, between DGAA, (under which TZfalls), and MEYSEB (see Annex 2, C.10). During the initial year of projectimplementation TZ staff would be jointly trained with that of MEYSEB by the

- 19 -

consultants and their counterparts. Both would apply the T&V system usingSMS and foremen (MEYSEB) or technicians (TZ) in their areas of respons-ibility. Assurances of the above were obtained during negotiations.Necessary extension equipment, vehicles and office equipment will beprovided under the project. It is considered that these arrangements willhelp MEYSEB and especially TZ to upgrade their staff qualifications andalleviate present constraints on mobility. In the meantime, it introducesan element of needed cooperation between MEYSEB and TZ which would ulti-mately lead to the transfer of knowledge gained by MEYSEB to the extensionservice countrywide.

3.08 Training. Training programs for SMS, foremen and technicians ofMEYSEB, GDAA, TCZB and other cooperating research institutes would beconducted mainly at Antalya using facilities available at the researchinstitutes and the agricultural schools. Training in viticulture would beundertaken at the Viticulture Research Institute in Manisa. During thefirst six months of project implementation, the consultants, their counter-parts and present citrus SMS will study horticultural production in theproject area, and plan the applied research and training programs for 84new SMS. The total number of SMS to be trained in the second half of 1982would be 110 who also would receive intensive English language trainingbefore starting their horticultural training. Foremen (289) and techni-cians (240) would be selected and appointed at the beginning of 1983.Present MEYSEB's extension staff (26 SMS, 71 foremen and 10 technicians)will continue with citrus extension activities until training programs forother fruits and vegetables have been developed. Local and overseas train-ing will be concentrated in the first three years of project implementationto gain maximum benefits from the consultants, and will be carried outmainly during the summer months. Training will be continued after thedeparture of the consultants by their trained counterparts and SMS.Overseas training for outstanding SMS and extension staff would be carriedout at the end of 1982 and during 1983 to ensure use of techniques learnedabroad early in the project implementation period. Following theconsultants appointment and with their assistance, MEYSEB will prepare acomprehensive training program for both local and foreign training, whichwill include a roster of names of the initially selected trainees, fieldsof study and institutions chosen for their study. Such a program will bedeveloped not later than six months from the posting of the consultants andwill be forwarded to the Bank by July 1, 1982 for its review. Assurancesto this effect were obtained during negotiations. The Government also willmake every effort to retain staff employed in the project after finishingtheir training programs.

3.09 Recurrent Costs. Turkey's current economic problems have forcedthe Government to make deep cutbacks in the public budget including alloca-tions to line agencies for recurrent expenditures. Its significance cannotbe overstated. Cutbacks have been especially severe on the allocation ofbudget for fuels and lubricants, spare parts and general maintenance ofgovernment vehicles. This has impeded the mobility of the operatingagencies, and its impact has been severe on the implementation of projects

- 20 -

wherein the need for mobility is paramount. It has also impeded the opera-tion of crop research entities especially during the colder months. Thissituation is likely to continue until economic recovery is well underway.To guarantee the reliable operation of the applied research and extensionservices in the present project, assurances were obtained during negotia-tions that the budget required by the project would be provided on time andin the amount required to prevent implementation delays. It was furtheragreed that by March 1st of each year during the four and one-half yeartime slice in which disbursements for the technical services and trainingcomponent are expected to occur, Government will satisfy the Bank thatadequate annual operating budget estimated to be about US$1.0 millionequivalent has been allocated to meet the needs of the project during theforthcoming fiscal year. Subsequent to the end of each correspondingTurkish fiscal year (the Turkish fiscal year ends February 28), theGovernment has agreed to furnish the Bank with a summary of operatingbudget requested by each agency for purposes of the project and of amountsactually allocated and spent during the recently completed fiscal year.

Agroindustries Working Capital

3.10 It has been noted elsewhere in this report (para. 2.33) that manycold stores, processing and packing plants in the fruits and vegetablessubsector are underutilized including most of the plants installed underthe First Project. The reasons for poor performance are often plant-specific, but a common factor is their inability to secure operatingcapital when needed and in sufficient amounts to procure imported materialsfor cardboard and wooden box manufacture and other inputs such as sparesand machinery parts, and raw materials. The operational pattern of agro-industries in the sector tends to be seasonal in Turkey, which results ina high need for working capital during critical months, that quicklydiminishes in later months after the marketing cycle opens (see Annex 2,C. 4 for examples of monthly cash flows). 1/

3.11 The fuller utilization of cold stores, processing plants and pack-ing houses would help increase exports from present production. To facil-itate this, and in view of Turkey's difficult foreign exchange situation,provision is made under the proposed Bank loan to augment TCZB's workingcapital fund for agroindustries, and assist it to meet the seasonal directand imputed foreign exchange requirement of fruit and vegetable storage,processing and marketing for such items as cartons, boxes, electric power,fuel, and transportation costs (a detailed list was agreed upon duringnegotiations). The Government has agreed that, for purposes of disburse-ment, proceeds of the Bank loan will be incorporated into overdraft facili-ties, to be opened each year for eligible subborrowers by TCZB before the

1/ One reason for poor performance of packing plants established underthe First Project is that supporting working capital credits wereappraised by MEYSEB and TCZB on the basis of average monthly needs,which markedly underestimates actual peak season requirements.

- 21 -

peak season occurs in order to assure the timely availability of neededworking capital. Bank loan proceeds will be allocated by TCZB to coverthe expected incremental foreign exchange content of such lines of creditas each is approved; however actual disbursement of loan proceeds will bedone upon receipt of normal documentation from TCZB. It will not benecessary for TCZB to establish new offices or new divisions to implementthe agroindustries working capital component; its existing network of over1,000 branches is considered sufficient for the task. The subloans areexpected to be sufficiently large to require appraisal by staff of TCZB'sEncouragement and Development Loan Division (EDLD). TCZB's operating staffis currently trained in various aspects of agroindustry project evaluation,and a detailed manual for the appraisal and evaluation of agroindustriessubloans is being prepared for TCZB's use under revised implementation

responsibilities for the agroindustries component of Loan 1248 (para2.37). The training and manual will emphasize inter alia the workingcapital needs of fruit and vegetable processors including methods toproperly determine monthly overdraft requirements. Both are proceedingsatisfactorily and are expected to be completed by mid-1981. The Govern-ment has also agreed that subborrower loan repayments under the prbject, tothe extent that such repayment is not required for amortization of the sub-sidiary loan, will be placed in a fund which will be rolled-over from yearto year by TCZB in order to sustain the overdraft credit facility.

Marketing Organization

3.12 To quickly capitalize on the export potential of present produc-tion, the project will provide funds to support new institution buildingthrough the establishment of four regional marketing corporations (RMCs)under the umbrella of a central marketing organization (CMO). In theperiod immediately following its establishment the organization will seekto streamline transportation and market intelligence, and to convinceproducers of the benefits of improved packing, processing and qualitycontrol. In subsequent years, it is expected to assume direct managementof Turkish fruit and vegetable exports under a unified brand name whichwould be synonymous with high quality. Because participation in the RMCswill be voluntary 1/ it is essential that the RMCs should be seen tofunction effectively from the outset. This points to the creation of RMCs,at least initially, in a group of highly productive regions, serviced by ateam of experienced specialists. The four RMCs will be established,therefore, at Adana-Mersin, Antalya, Izmir and Bursa-Istanbul which arecenters of the horticultural industry; have good communications with bothdomestic and export markets by land, sea and air; and have cold storage andpacking house facilities. When operational, each RMC will identify exportopportunities, and provide skills, resources and services which by defini-tion are outside the financial capability of most individual exporters.These include market intelligence; marketing per se; quality control;

1/ Under present Turkish conditions, this is the only practical approachfor organizing to encourage horticultural exports.

- 22 -

monitoring of cold storage, packaging and packing house procedures; andtransport coordination.

3.13 The CMO will be owned by the RMCs to perform services for the RMCsvital for achieving regional export objectives, but which will be beyondthe capability of individual RMCs either to direct or influence. It isexpected that the CMO ultimately will be empowered to: (a) coordinate allexport related activities from production to sale and collectively repre-sent RMCs in foreign markets; (b) set quality standards in collaborationwith concerned Government agencies, for Turkish horticultural produce; (c)appoint resident representatives in overseas markets, monitor the perform-ance of overseas agents, and negotiate on behalf of the RMCs with multipleretail chains and wholesale buyers in importing countries; and (d) repre-sent the RMCs in bilateral trade negotiations. It will also be responsiblefor preparing annual export promotion plans in consultation with the RMCs,which will contain regional export sales targets for each commodity,expected monthly shipments and destination. In addition, a formal marketintelligence service, transport coordination service, marketing and salespromotion service, and purchasing finance service will be establishedwithin the CMO to assist the RMCs with their daily operations (these aredescribed in Annex 2, B. 6). The CMO will probably be located in Istanbulbecause of its excellent communications facilities.

3.14 The RMCs and CMO would be organized in the form of stock corpora-tions which would come into existence when the minimum capitalizationrequired by Turkish law has been satisfied. Shares in the RMCs initiallywould be available both to the public and the Government; however, theGovernment's capital participation when the corporations are formed will belimited to about 30% of all stock subscribed to ensure that control of theorganization is vested in the private sector from the start, and to furnishproducers with incentives to participate in order to avail of the servicesto be provided as a result of Government's involvement. Participation byindividuals or companies will be limited to not more than 5% of the sub-scribed shares. Shares of RMCs issued would be at no more than TL 1000 parvalue to allow small investors to participate. Shares of the CMO would beavailable to the RMCs only, and in equal proportion; in the future CMOshares would be available only to other RMCs which may be establishedlater. Government would pay its stock subscription in the RMCs from theproceeds of the Bank loan only when actual disbursements in foreignexchange are necessary. It is intended that Government's shares ultimatelywill be retired at a later date through a mechanism to be enunciated in theby-laws (para 3.18).

3.15 When operational, the services of the RMCs and CMO could be madeavailable to any producer, whether a shareholder or not. Fees will beestablished by the RMCs to cover the costs of the marketing intelligenceservice and other specific services availed of by the exporters, while themarketing activities of the CMO will be reimbursed on a commission basis.In later years a separate charge also will be levied for use of a nationalbrand name, the ownership of which will be vested in the CMO. During the

- 23 -

initial period of operation, however, it is expected that the RMCs and CHOwill have to supplement their equity with some debt financing until suffi-cient revenues can be generated to cover costs.

3.16 Five internationally recruited consultants will be engaged by theSPO on or before the date of establishment of the RMCs and CGO and in anyevent, not later than January 1, 1982 to assist the CMO and RMCs in each ofthe following key areas: general management, transportation, marketing,market intelligence, and cold storage. In addition, short-term consultants(for periods ranging from three to six months) will be engaged to promoteservices and train Turkish staff and entrepreneurs in the areas of packag-ing and promotion.

3.17 Funds provided in the project for the marketing organizationcomponent will be used to finance the foreign exchange requirements ofconsulting services, the market intelligence service, internationalpromotion and marketing, vehicles and office equipment, etc. duting thefirst four and one-half years of implementation. The funds provided willtake the form of Government subscriptions to joint stock of the RMCs andthe CMO, which will be administered through the SPO.

3.18 Agreement was obtained during negotiations on the concept andfunctions of the CMO and RMCs, their date of organization and the utiliza-tion of Bank funds thereafter as discussed in paras. 3.12-3.17. Additionalassurances were obtained that SPO would draft pro-forma basic articles ofincorporation and by-laws for the RMCs and CMO which would describe amongothers authority for incurring third party indebtedness as well asprocedures for incurring expenditures to be covered by the projectedcapital contributions of the Government. These will be transmitted forapproval by the Bank immediately following loan negotiations, and in anyevent not later than July 31, 1981. Following receipt of bank approval,the Government has agreed that SPO will initiate a vigorous promotionaleffort amongst private exporters to ensure that the RMCs and CMO areorganized and capitalized not later than January 31, 1982. All subsequentprocurement for the RMCs and CMO utilizing proceeds of the loan will bedone by these entities through the SPO.

Master Plan for the Subsector

3.19 Although high priority has been assigned to the fruit and vege-table subsector in the Government program for export development, theinformation base for a rational future development of the subsector isshallow and incomplete. Appropriate surveys and studies need to be carriedout both to facilitate the planning and coordination of future investmentsin the subsector and to assist the marketing organization with itsoperational planning. Between 1982-1983 a master plan for the fruit andvegetable subsector will be prepared by internationally recruitedconsultants under terms of reference which are acceptable to the Bank.SPO will be the executing agency for this component. The plan willidentify agroindustry investment needs to more efficiently exploit Turkey's

- 24 -

fruits and vegetables potential--especially for export--and will be com-plete in regard to the regional location and phasing of investment in newfarm production and agroindustrial capacity and/or rehabilitation ofexisting capacity. An investment program will be appended. To prepare afoundation for the plan, a research effort of some magnitude is required.Discrete studies will be undertaken as detailed in Annex 2, C.1. Theseinclude: (i) general design of studies, implementation program andperiodic monitoring of progress, (ii) export market screening and a deskstudy of Turkey's existing production, processing and markeiing capabili-ties, (iii) an in-depth examination of existing fruit anl vegetableproduction at the farm level, present constraints and potentials, and ofoptimal plant location and sizing to meet present and futSre storage,processing and packing requirements, and (iv) an in-destt ai-alysis ofregional and seasonal domestic demand for fresh and prccessed fruits andvegetables in order to gauge with some precision the expectei surplus forexport.

3.20 Prototype prefeasibility studies and programming models will beused to provide a quantitative basis for the investmenr program. Casestudies of particular agroprocessing and export marketing problem areas 1/will be used in conjunction with the investment program and prototypeprefeasibility studies to provide the qualitative dimecion of the masterplan. Completion of the supporting studies will overlap with the estab-lishment of the marketing organization and its initial operations. SPO hasagreed that the findings of each study will be made available to the CMOfor use as soon as it has been accomplished.

3.21 Consulting services required for completion of this component, tobe recruited internationally consist, of 8 man-months of highly specializedexpertise and about 1,349 man-months of general specialist expertise. Theexperts are expected to consist of (i) one or two highly qualifiedexpatriate agroindustry research specialists to be recruited separately bySPO from universities or institutes which specialize in agroindustrymanagement, training and research, who will assist with the design andlayout of the work program during the start-up phase, and then will revisitTurkey at least once to monitor progress; and (ii) the Main Study Con-sultants who will carry out the work described in para. 3.19. Because ofthe need for survey work and intimate familiarity with agribusiness prac-tise 4in--Turkey, anrrJput of local expertise is desirable, which expertisepresently exists in Turkey. As called for in the draft Terms of Reference(Annex 2, C.1), the Main Study Consultants should also have had priorexperience with investment programming for important agricultural andrelated subsectors; the production, processing and export marketing ofagricultural produce; and agroindustry or agribusiness systems analysis

1/ Including transportation scheduling and utilization, raw materialprocurement and delivery, plant operation and production management,appropriate product standards and maintenance of quality, and agro-industry manpower and training requirements.

- 25 -

and related survey work. Specific man-month requirements are set forth inAnnex 2, C.6, and include agroindustry specialists, agricultural engineers,mechanical engineers, economists, statisticians and systems analysts.During negotiations, Government agreed that all consultants required tocarry out this component would be recruited throu,h SPO no later thanJanuary 1, 1982. It further agreed that the progress made by the consul-tants will be periodically reviewed by the SPO, which will also approvechanges in scope and work plans in consultation with the Bank as may berequired during the progress of work, and that the completed studies andmaster plan would be made available to the Bank for its review and comment.

C. Cost Estimates

3.22 The total cost of this project is estimated to be $107.0 millionequivalent in March 31, 1980 terms (US$1 = TL 78.0), 1/ including some$2.1 million in taxes of which some US$44.0 million (about 41%) is foreignexchange. The project cost represents the estimated investment cost of thefirst four and one-half years (July 1, 1981-December 31, 1985) of a nineand one-half year investment program costing $156.7 million. The estimatedforeign expenditure during this part of the implementation period willlargely be for vehicles and equipment, technical specialists and overseastraining, technicai studies, imported farm chemicals and buildingmaterials. Imputed foreign exchange includes a portion of farm implements,local materials, fuel and other imported energy, machine rental and opera-tion and maintenance of project vehicles. Price increases of US$29.8 mil-lion were allowed over the four and one-half year time slice. They providefor price contingencies between April 1980 and the end of the time slice,applied to both local and foreign costs in US$ terms at the followingannual rates; 10.5% in 1980, 9% in 1981, 8% in 1982, and 7% in 1983-85.Presenting cost estimates and measuring both foreign and local price con-tingencies in US dollar equivalents implies a certain relation betweendomestic and foreign prices. Specifically, it has been assumed in linewith the Government's policy that the lira exchange rate would change so asto offset the inflation differential between Turkey and its major tradingpartners. The lira has been devalued roughly in accordance with this pat-tern since 1977 and is now adjusted on a sliding basis. It is expectedthat this will continue as necessary. About 1,714 man-months of inter-nationally recruited consulting services will be required for the project,costing US$5.3 million in total. Average direct costs have been estimatedat US$2,520 equivalent per man-month as of April 1980, ranging fromUS$10,000 per month for the production specialists to US$640 per month for

1/ Although the official rate of exchange during April was US$1 = TL 73.7the Lira was slightly overvalued at the time. The mission felt thatUS$1 = TL 78 was more representative of its true value in exchange forthe US$. Subsequently, the Lira was adjusted to TL 78 in June 1980 andon February 28, 1981 the Lira was at TL 95.95 = US$1.

- 26 -

local services tor the master plan and studies component. These rates areinclusive of international travel, overheads and per diems. Project costsduring the expected disbursement period of the proposed loan are summarizedbelow in Table 3.2; more detailed breakdowns for the entire project arecontained in Annexes 1 and 2, C.7. Although some expenditures for theproject could be incurred in 1981, it is expected that actual expendituresand disbursements will not commence until the first quarter of calendaryear 1982 after preparations for project start-up have been completed; theproject has been costed on this basis (Annex 1).

Table 3.2: PROJECT COSTS DURING PERIOD OF TIME SLICE /1

ForeignLocal Foreign Total Exchange------(US$ million)---- (%)

Agricultural Credit:- Investment credit 15.9 10.8 26.7 40- Production credit 8.2 4.5 12.7 35

Technical support services & training 13.6 9.7 23.3 42Agroindustries working capital 2.3 4.5 6.8 66Marketing organization 4.3 1.8 6.1 29Studies & master plan 0.6 1.0 1.6 63Total Baseline Cost 44.9 32.3 77.2 42Price Increases 18.1 11.7 29.8 39

Total Project Cost 63.0 44.0 107.0 41

/1 January 1, 1982 - December 31, 1985. Figures in the table were roundedto one decimal.

D. Financing

3.23 The Bank loan of US$40.0 million will finance 90.9% of the foreignexchange cost of the first four and one-half years of project implementa-tion, estimated at 37% of overall cost to be incurred during this period.TCZB will finance some US$22.4 million, or 21% of the total; subborrowersand RMC's shareholders contributions would amount to about US$21.2 million,or 20% of the total. Government will contribute the remaining US$23.4 mil-lion, or 22% of the total including US$4.2 million equivalent in foreignexchange required for operating costs for the technical support servicesand training component (para. 3.09). Financing of investment and technicalassistance costs will be shared as follows:

- 27 -

Table 3.3: PROJECT FINANCING DURING PERIOD OF TIME SLICE

Sub- Share-Project /1 borrowers holders /2 TCZB Gov't IBRD TotalComponent Amount % Amount % Amount Z Amount % Amount % Amount %

…--------------------…(US Fmillion)---------------------------------

Agricul-tural Credit-Investmentcredit 6.9 18 - - 15.8 42 - - 15.4 40 38.1 100-Prod-..ctioncredit 5.5 30 - - 6.2 34 - - 6.6 36 18.3 100

Technicalsupportservices &training - - - - - - 22.6 73 8.4 27 31.0 100

Agroindustryworkingcapital 2.9 31 - - 0.4 4 - - 6.1 65 9.4 100

Marketingorganization - - 5.9 72 - - - - 2.3 28 8.2 100

Studies &master plan - - _ - - - 0.8 40 1.2 60 2.0 100

Total 15.3 14 5.9 6 22.4 21 23.4 22 40.0 37 107.0 100

/1 Price increase added to each component./2 RMC's private shareholders.

3.24 The Bank loan of US$40.0 million equivalent will be made to theGovernment of Turkey which will assume the foreign exchange risk. The loanwill be for 17 years including a 4-year grace period at the prevailing rateof interest. Government will on-lend to TCZB in local currency the equiv-alent of US$28.1 million, which, together with a further US$22.4 millionfrom TCZB's own resources, will comprise the US$50.5 million for on-farmlending and working capital sub-loans for agroindustries. The Governmentwill lend to TCZB at a rate which will leave it with a spread of at least3.5% on Bank funds on-lent by TCZB to sub-borrowers in the project. Theproject cash flows indicate that a repayment period to Government by TCZBof 17 years including a grace of four years is appropriate. These termswere agreed upon during negotiations. A condition of effectiveness will bethe signature of a subsidiary loan agreement, acceptable to the Bank,between the Government and TCZB. Government also has agreed to make avail-able to MEYSEB, TZ and cooperating research institutes the equivalent of

- 28 -

US$31.0 million (including US$8.4 million from the proposed loan) fortechnical support services and training, US$2.3 million to SPO for theGovernment's financial participation in the marketing organization, andUS$2.0 million to SPO for carrying out the studies and master plan. Assur-ances to this effect were obtained during negotiations. The Government hasalso agreed that it would provide or cause to be provided sufficient addi-tional funds (amounting to about US$49.7 million of which US$15.0 millionwould be foreign exchange) after the proposed loan has been disbursed tofully implement the remainder of the nine and one-half year program,including both the incompleted farm plans in the project and those to beinitiated in 1986, provide these with adequate supervision, and subscribeto additional shares of the marketing organization in 1986-87 to financethe remaining portion of its estimated foreign exchange requirement duringits initial period of operation. The recurrent costs which the Governmentwill continue to bear will amount to US$3.9 million equivalent per year inconstant April 1980 US Dollars, which is only a very small portion of totalgovernment recurrent expenditure. They would be offset by tax revenues onincreased incomes which, while unquantified, are expected to be substan-tial. The assumption of foreign exchange risk for the credit aspects ofthe project is consistent with Government's policy for Bank-financed proj-ects (to which the Bank has agreed) where the proceeds of the Bank loanare not used directly (e.g. direct international procurement) by the sub-borrowers. Instead, the Government is protected by a subsidiary loanagreement whereby the proceeds of the Bank loan are passed on to thefinancial intermediary--in this case TCZB--at an interest rate higherthan the Bank's interest rate, but at a level which would still allow thefinancial intermediary to cover its loan administration costs and earn netincome.

E. Procurement

3.25 Procurement through ICB according to the Bank's Guidelines forProcurement of March 1977 will be limited to motor vehicles. Biddingdocuments will stipulate that suppliers will guarantee adequate servicingand provision of spare parts within Turkey. The estimated costs under ICBprocedures amount to US$1.7 million.

3.26 Greenhouses (glass and plastic) for cooperating research insti-tutes, laboratory equipment, furniture and office equipment including type-writers and telex equipment (for MEYSEB, cooperating research institutesand the RMCs and CMO), estimated to cost US$1.7 million, will be procuredon the basis of not less than three quotations from Bank member countriesand Switzerland. Details of procurement will be advertised in the localpress and circulated to accredited representatives of those Bank member

countries which are potential suppliers, and Switzerland.

3.27 Procurement of greenhouses for on-farm investment will be done byTCZB, also using international shopping procedures (para. 3.26) as each

- 29 -

procurement would be in small amounts extending over a period of threeyears and does not warrant the use of ICB. In evaluating the greenhousebids, TCZB will seek the advice of the internationally recruited greenhousespecialist employed under the project in order to determine the mostsuitable greenhouse structure. Purchase of anci iary equipment and farmmachinery, small tools and farm inputs will be through normal commercialchannels as is usual in credit projects. Fertilizers and some chemicalsare available through the Turkish Agricultural Supply Organization (TZDK)while pesticides are freely available from the private sector. Importationof improved seeds and propagation materials (e.g. budwood) would besupervised by MEYSEB and based on the technical advice of MEYSEB's staffand that of cooperating research institutes who have appropriate authorityfor importing such materials.

F. Disbursements

3.28 The Bank loan of US$40.0 million equivalent will be disbursed overfour and one-half calendar years as follows:

(a) 100% of foreign expenditures on imported motor vehicles, trainingabroad, imported equipment, market promotion, market informationservices, and communications equipment required for the technicalsupport services and training component and/or by the marketingorganization component;

(b) 100% of local expenditures ex-factory (less taxes and duties) forlocally procured vehicles and office and other equipment for themarketing organization, and for applied research, extension andtraining;

(c) 65% of the total expenditures for goods and services procured forexisting cold stores and packing plants and processing factories.A list of goods to be financed was agreed upon during negotiations;

(d) 90% of total expenditures on consultants' services; and

(e) 50% of the total amounts disbursed by TCZB for nurseries,orchards, vineyards, greenhouse establishment and/or productioncredit to existing fruit and vegetable farm operators.

3.29 Disbursements will be made against normal documentation except forsub-lending to farmers by TCZB, which will be made against statements ofexpenditure. Documents for disbursement against the working capitalrequirements of agroindustry and all statements of expenditure will beaudited and the supporting documents will be retained by TCZB and MEYSEBand be available for review by project supervision missions. Any savingsin the loan after project completion will be cancelled. The estimatedannual disbursements of the Bank loan by Bank fiscal year are as follows:

- 30 -

Table 3.4: ESTIMATED DISBURSEMENTS /1

FY82 FY83 FY84 FY85 FY86--- ( US mllion)-

Annual 5.5 7.5 9.6 12.1 5.3Cumulative 5.5 13.0 22.6 34.7 40.0

/1 A quarterly schedule is shown in Annex 2, C.ll.

It is expected that disbursement will be completed on December 31, 1985,and the closing date of the Loan will be June 30, 1986.

G. Environmental Impact

3.30 The project is not expected to have adverse effects on theenvironment. The use of chemical fertilizers, pesticides and herbicideswill be based on proven applied research and extension recommendationswhich minimize adverse effects on local ecology. Extension staff andfarmers will be trained by MEYSEB, TZ and GDPPQ in the safe handling anduse of pesticides. The use of biological pest control methods at the farmlevel will be investigated. It is expected that the plastic rolls to beprovided in the project for greenhouse and low tunnel construction will berecycled as is the tradition in Turkey and not burned or ploughed under.

IV. PROJECT IMPLEMENTATION

A. Organization and Management

4.01 The Borrower would be the Government of Turkey. Overall coor-dination of the project components would be the responsibility of the SPO,through which each executing agency will submit its respective progressreports. The main executing agencies (MEYSEB, TCZB, SPO) would beresponsible for implementation of their respective components and wouldcommunicate directly with the Bank.

4.02 MEYSEB would be responsible for coordinating the implementation ofthe technical support services and training component according to signedprotocols with TCZB and TOPRAKSU (agricultural credit), GDAA on behalf ofTZ (extension), GDAR and Cukurova University (applied research). TCZBwould be the executing agency for on-farm credit aspects and, assisted byMEYSEB and TZ with sub-loan preparation, would extend sub-loans tobeneficiaries in accordance with its rules and regulations which have beenapplied in other Bank financed projects. The management of theagroindustries working capital component will be vested solely in TCZB.

- 31 -

This arrangement corresponds with the revised arrangements for implementingthe agroindustry component of Loan 1248-TU, wherein the previous arrange-ment--which featured conjoint responsibility between TCZB and MEYSEB--wassimplified to avoid coordination problems which have impeded disbursement(para. 2.37). In addition to overall coordination of the project, SPOwould promote the establishment of the RMCs and CMO through its ExportMarketing Division, and would be responsible for implementing the study andmaster plan component. The SPO will appoint: (i) a project coordinatorwho will be responsible for overall project coordination and who willdirectly coordinate the implementation of the marketing organization andstudies components; and (ii) a staff marketing specialist who will under-take the promotion of the marketing organization and its establishment.The Government has agreed that both would be appointed no later thanSeptember 30, 1981. To provide vertical links between production andmarketing entities, the Government agreed during negotiations that SPO willestablish a horticultural coordination committee representing the followingareas: applied research, extension, production credit and marketing tomeet at least once every six months to review the experience of the preced-ing six months, and identify and resolve production-marketing constraints.These arrangements are considered to be satisfactory.

B. On-lending Terms and Procedures

4.03 Farm Lending. Under the agricultural credit component, any farmeroperating irrigated land or land which is potentially irrigable, withexperience in field crops, orchards or vegetables production and with asound investment plan for the establishment of nurseries, orchards, vine-yards or greenhouses, or who has a technically sound plan for the utiliza-tion of production credits and a demonstrable need therefor, and who wouldmeet the creditworthiness criteria of TCZB is eligible for a loan. Poten-tial sub-borrowers should occupy, or have access to, an area of tillableland which, in the opinion of the MEYSEB/TZ technician preparing the farmplan, is adequate to produce the incremental produce necessary to achievethe objective of the plan. In addition to the above criteria, to beeligible for a subloan, small farmers must be known to MEYSEB/TZ staff asbonafide farmers of good character, for whom viable farm development planscan be prepared. Assurances were obtained during negotiations that onlyfarmers meeting the above criteria will qualify for loans. Farmers willapply for a loan to the nearest office of TCZB, MEYSEB or TZ. After deter-mination of the farmer's creditworthiness and credit limit by TCZB, anappropriate farm development plan will be prepared by MEYSEB's SMS or TZ'stechnicians who will submit the plan to the regional manager for review.In accordance with TCZB's recently extended delegation of authority, plansfor less than TL 300,000 (US$3,846 equivalent) credit will be approved andfunded on the authority of the local TCZB manager with copies to the MEYSEBand TCZB regional and head offices. Plans for credit in excess of TL300,000 but less than TL 1,000,000 (US$12,821 equivalent) will be reviewedby MEYSEB's/TZ's regional manager and will be forwarded by the latter to

- 32 -

the local TCZB manager. Applications in excess of TL 1,000,000 willfurther need the approval of the General Director of MEYSEB and will besubmitted by him through EDLD to the Board of TCZB for credit approval. Inrecent years, these credit limits have been periodically increased by TCZBto adjust for domestic inflation. The existing protocol between MEYSEB,TOPRAKSU and TCZB will be appropriately amended with respect to dates,

areas of implementation, etc. of the proposed project. The Government hasagreed to submit the amended protocol to the Bank for its review andapproval. The basic procedure outlined above was followed in the FirstProject and in five earlier livestock projects and was satisfactory.

4.04 In accordance with TCZB's credit guidelines, individual farmercontributions to investment plans will be at least 10% in the case of smalland medium size farmers and at least 30% in the case of large farmersexcepting special cases wherein specific incentives are enjoyed byproducers holding government encouragement certificates in which case TCZBregulations establish a higher percentage. Farm family labor expected tobe utilized during the improvement of some on-farm facilities in the proj-ect, including buildings and greenhouse construction, will also be countedas part of the equity requirement. For purposes of assessing the credit-worthiness of small farmers, a portion of the collateral requirement may besatisfied by chattel mortgage to TCZB on farm assets and the equity itselfcan be paid in over several years.

4.05 As under earlier projects, small farmers will be expected toprovide family labor as part of their contribution. Incremental laborcosts associated with the implementation of farm plans is expected to beminor, except during harvest, as utilization of labor under pre-projectconditions is relatively inefficient on small farms. 1/ Credit will beprovided for incremental costs of labor only in special cases where, in thewritten opinion of the technician preparing the plan and the concerned TCZBmanager, it is considered necessary. Assurances were obtained duringnegotiations on the acceptability of these conditions.

4.06 Agro-Industries Working Capital. On-lending for agroindustriesworking capital will be through the opening of overdraft facilities by TCZBthat may be drawn upon by subborrowers as needs arise. To secure approvalof credit each applicant must prepare a sound financing plan with exportobjectives, in which monthly working capital requirements are demonstratedin good detail, the maximum cumulative monthly indebtedness on operatingaccount clearly identified, the expected monthly utilization of thefacility is indicated, and a viable repayment schedule is presented whichwill completely clear the repayment obligation of the subborrower beforethe next annual production cycle begins. The application will be submittedto the EDLD for approval and funding through TCZB's local or regional

1/ With technical assistance and improved planning, it is considered thatthe productivity of labor could be considerably increased withoutsignificant additional cost.

- 33 -

offices in accordance with TCZB's established procedures. Subborrowerequity contributions will be determined on the basis of the approved over-draft limit and not actual utilization of the overdraft facility, whichmight be less. These will range from 30% to 40% of the loan amount,depending upon the state of development and relative affluence of the prov-ince within which the borrowing entity is located. The first such appli-cation to be favorably appraised by EDLD will be submitted to the Bank byTCZB for review before funding is approved. Assurances on the accept-ability of these conditions were obtained during negotiations.

4.07 Interest Rates. Responding to the continuing inflation in Turkey,interest charged on loans by TCZB has been revised upwards three timesbetween April 1979 and July 1980. Under the project, medium- and long-termsubloans will be made at least at a rate of 24% per annum to individualfarmers for subloans for nurseries and orchard establishment and invest-ments in greenhouse construction. Supervised short-term production creditswill be made available at the basic rate of 22% per annum. The commissionsand duties result in an effective cost of 30% for medium- and long-termloans from TCZB to individuals. Given Government's policy to reduce incomeinequities throughout Turkey, the rebates to individual borrowers locatedin undeveloped regions would reduce the effective interest rates in thesecases to 23.9% for medium-term loans and 23.2% for long-term loans. Theeffective cost of short-term production credit will be 27.5%, except inunderdeveloped regions where it will be 22.0%. For the agroindustriesworking capital component, the rate to all subborrowers will be 31%. Withcommissions and duties, the effective cost of agroindustries workingcapital in developed regions will be 38.75%, while in underdevelopedregions, it will be 31%.

4.08 While the aforementioned rates remain negative in real terms theactual cost should be measured over the commitment period and expected lifeof the loans. Inflation has accelerated to 24% in 1977, 53% in 1978 and64% in 1979 and averaged about 100% per annum during the first six monthsof 1980. Because of uncertainties associated with changes in economicstructure expected in response to recent government policy initiatives, itis difficult to forecast the rate of inflation with any accuracy. However,if the Government's policies are effectively implemented, inflation maydecline to 80% in 1981, 60% in 1982, before reaching a much lower andtolerable level in the late 1980s. As a result, the lowest effectivecharges of 23.9% per annum on investment credits may be expected to implynegative real rates of about -4.4% over the life of the loans, which, whileundesirable, is tolerable in view of project objectives. Further, 28% ofproject beneficiaries will be small farmers with per capita family incomesat or below the relative poverty level of US$367 per capita. Nevertheless,they will pay progressive income taxes, since only farm family incomes upto US$770 per annum are exempt. 1/

1/ In January 1981, the Government imposed a general 5% sales tax onmarketed produce which will considerably increase expected tax paymentsby farmer beneficiaries in the project, since most of the incrementaloutput will pass through formal marketing channels.

- 34 -

4.09 Maturities for investment credit will be 6 to 12 years, with 1 to5 years grace, depending on the cash flow generated by the farm plan. Debtservice of subborrowers will be in equal installments. Grace periods forsmall farmers generally will be more favorable than for larger farmers, buteach case will be evaluated individually by TCZB technicians, depending onnet income generated in the investment plan. Sub-loans for development ofnurseries or establishment of greenhouses to a project beneficiary inexcess of 0.5 ha, individually or in total, will be made after Bank'sreview. The appropriateness of the interest rates charged by TCZB forproject subloans and other terms and conditions will be reviewed annuallyand in the light of changing conditions by TCZB, the Government and theBank. The agreements reached will thereafter be implemented. Assuranceson these terms and conditions were obtained at negotiations.

4.10 Special Operating Fund (SOF). Contributions to the SpecialOperating Fund (SoF), established under earlier projects, will be used toenable MEYSEB to supplement payment of miscellaneous expenditures incurredin the technical services provided to farmers under the project, and toprovide incentives to staff undertaking field work through increases in perdiem, but it will not be used to maintain and operate project vehicles forwhich separate provision by the Government is made in the project (para.3.09). Expenditures from this fund will be authorized by the GeneralDirector of MEYSEB or any other person duly designated by him for suchpurpose. TCZB will place in the SOF each February 1 and August 1, out ofthe part of the interest due on the Government loan to TCZB (para. 3.24),an amount equivalent to 1% per annum of the total outstanding amount ofTCZB's subloan to a farmer sub-borrower. Assurances to this effect wereobtained during negotiations.

C. Accounting and Auditing

4.11 EDLD will open separate accounts satisfactory to the Bank for theinvestment, production credit and agroindustries working capital compo-nents, as it did for the previous project. Each six months, a summary ofthe TCZB's accounts will be included in the semi-annual project reportsprepared by executing agencies and submitted to the Bank through SPO. Theaccounts will be audited annually by the Sworn Bank Examiners of theMinistry of Finance, which procedure is satisfactory. Copies of the certi-fied accounts and audit report in English will be sent to the Bank withinseven months of the end of TCZB's financial year. Assurances on thesematters were obtained during negotiations.

4.12 SPO and the Director General of MEYSEB will maintain accountssatisfactory to the Bank of their respective expenditures as related to theproject. SPO will cause similar accounts to be maintained by the RMCs andCMO, and details of these, MEYSEB's and SPO's accounts will be included inthe reports submitted by SPO to the Bank (para. 4.11). SPO and MEYSEB'saccounts will be subject to annual audit by the Financial Inspectors of the

-35 -

Ministry of Finance. The accounts of the RMCs and CMO will be audited byindependent auditors acceptable to SPO and the Bank. Copies of the certi-fied accounts and audit reports in English will be sent to the Bank withinseven months of the ending of the Government's fiscal year (February 28).Assurances on these procedures were obtained during negotiations.

4.13 The accounts of the SOF will be maintained by the General Directorof MEYSEB who will be responsible for providing the Bank with a detailedaccounting of expenditures from the Fund by March 31 of each project year.Assurances to this effect were obtained at negotiations.

D. Monitoring and Evaluation

4.14 Timely monitoring and systematic evaluation of project achieve-ments would be implemented by the main cooperating agencies, i.e. SPO,MEYSEB and TCZB, and measured against the project implementation schedule.Details of monitoring and evaluation methodology were explained to theimplementing agencies during project preparation and negotiations. Earlysupervision missions will include a monitoring specialist to assist execut-ing agencies in developing monitoring and evaluation systems and key indi-cators for project implementation. SPO would follow the implementation ofthe project components but would pay particular attention to progressachieved in streamlining the activities of the marketing organization andthe fruit and vegetable studies and master plan. SPO would submit to theBank six-monthly progress reports with summaries from cooperating agencies,MEYSEB, TZ, TCZB, the RMCs and CMO which would include an assessment oftechnical and financial aspects. The report will be prepared according toformat agreed upon during negotiations and will be forwarded to the Bankwithin two months from the end of each six-month period. Assurances tothis effect were obtained during negotiations.

4.15 Routine records for the implementation of project components, e.g.staffing, technical, financial and economic aspects, will be kept by eachagency. In addition, SPO would prepare a completion report and submit itto the Bank within six months of the Loan closing date. An assurance tothis effect was obtained during negotiations.

V. PRODUCTION, MARKETING AND FINANCIAL ANALYSIS

A. Production

5.01 It is expected that all production benefits in the project areawill be realized on irrigated land, of which about 55% in the project areais presently used to grow cotton, wheat and various other field crops, and38% is planted to higher valued project commodities. Fifteen models havebeen used to illustrate the impact of supervised credit. These include two

- 36 -

models of nurseries establishment, four of orchards establishment, one-forvineyard and two for greenhouse establishment, and six for supervisedproduction credit to existing orchards and vegetable farms. Each has itsindividual mix of cropping patterns and input utilization (Annex 2, C.2).

5.02 Without the provision of supervised investment and productioncredit, the cropping pattern would remain essentially unchanged on theapproximately 4,520 ha to be used for orchards, vineyards and greenhouseestablishment, and the 7,063 ha already in fruits and vegetables which areto receive supervised production credit. Open-field vegetable cultivationin horticultural areas or a cotton/wheat rotation would continue to be themain cropping pattern in non-horticultural areas. Vegetable yields wouldremain more or less stagnant while cotton/wheat yields would peak in fouror five years due to the combined effect of rising input prices, failure torotate with leguminous crops to rebuild soil fertility and overuse ofpesticides on cotton to combat mounting pest problems. On alreadyestablished orchards and farms cultivating vegetables under cover, yieldpotentials would not be realized because of close spacing of trees,improper irrigation and use of chemicals, inadequate pruning in the case ofcitrus and deciduous fruit orchards, and poor cultural practices in thecase of vegetables. Moreover, the government expectations of production,would not be reached to implement its production program for earlyvegetables under cover in open field vegetable areas. This, combined withpoor heating and ventilation of existing greenhouses, would limit toexisting levels the average prices and returns received by producers.

5.03 With the provision of supervised credit, there would be a changein the cropping pattern on lands presently under open field vegetables,cotton, wheat and other field crops. These crops would be replaced in themain by citrus orchards and some deciduous fruits in the coastal provinces,and deciduous fruit orchards and vineyards in the inland provinces. Inter-cropping with vegetables will be practiced during the establishment periodof smaller orchards to provide small farmers with a steady cash flow.Glass and plastic greenhouses will be established in or near existingvegetable-growing areas. Newly established citrus orchards would benefitfrom presently available proven extension recommendations developed andimplemented in the area of the First Project. Moreover, the citrus con-sultant and his counterparts would consolidate present extension efforts,build upon it and extend it to other provinces (Antalya, Mugla and Izmir).For pome and stone fruits, grapes and vegetables, the newly appointed staffmust first assimilate information provided by the consultants and the staffof cooperating research institutes prior to its dissemination to thefarmers. Therefore, extension activities for citrus production wouldcontinue during the first year of project implementation while deciduousfruits and vegetables would start in the second year. Two nurseries, onefor citrus and the other for deciduous fruits, will be established in thefirst year of project implementation. It is expected that budlingsproduced from these nurseries will be used in planting orchards establishedin the fourth year. Supply of budlings for orchards established during thefirst two years can be met from present nurseries which will be supervisedby the nurseries consultant and his counterparts. Based upon theseconsiderations, credit would be extended to cover areas presented inTable 5.1.

- 37 -

Table 5.1; PHASING OF AREAS PLANTED USING INVESTMENT CREDITOR TO BE PROVIDED WITH PRODUCTION CREDIT

1982 1983 1984 1985 1986 Total /1…__________--_ - - - --- (h -)…______-… … __________

Nurseries Estab-lishmentCitrus (10 ha) 10 20 10 - - 40Non-CS1tus (10 ha) 10 10 10 - - 30Subtotal 20 30 20 - 70

Orchards Estab-

lishmentCitrus orchards(2.5 ha) - 250 500 500 500 1,750Citrus intercrop(0.5 ha) - 125 150 150 175 600

Non-citrus orchards(2.5 ha) - 250 250 250 625 1,375Non-citrus inter-crop (0.5 ha) - 75 100 100 125 400Vineyards (2.5 ha) - - 125 125 - 250Subtotal - 700 1,125 1,125 1,425 4,375

Vegetable FarmEstablishmentGlass greenhouses(0.5 ha) - 5 7.5 12.5 - 25Plastic green-houses (0.5 ha) _ 10 15 25 - 50Subtotal 15 22.5 37.5 _ 75

Production CreditCitrus orchards(2.5 ha) - 500 750 1,000 1,500 3,750

Non-citrus orchards(apples) (2.5 ha) - 250 500 750 1,000 2,500

Glass greenhouses(0.5 ha) - - 5 7.5 12.5 25

Plastic green-houses (0.5 ha) - - 12.5 25 25 62.5Low tunnel (0.5 ha) - - 37.5 62.5 75 175

Open field vege-tables (1.0 ha) - 100 200 250 - 550Subtotal - 850 1,505 2,095 2,612.5 7,062.5Total 20 1,595 2,672.5 3,257.5 4,037.5 11,582.5

/1 The foreign exchange cost element of improving production on areas tobe phased between 1982-1985 will be totally or partially financedutilizing proceeds of the proposed loan.

-38-

5.04 Present yield levels of fruits and vegetables in Turkey vary fromone province to the other due to several interrelated factors, notablyclimate, soil, market demand, pricing policies and intensity of appliedresearch and extension efforts. Citrus yields have been improving in thelast decade which may be attributed to export encouragement, increaseddomestic demand and improved extension efforts during implementation of theFirst Project. A recent surge in apple exports to Middle Eastern marketshas stimulated apple production, as has increased domestic demand by theprocessing industry for the production of sour cherries. A similar trendfor vegetables, particularly during the winter months is leading toincreased establishment of greenhouses and cultivation of early vegetablesunder low plastic tunnels. Table 5.2 shows present and future yield levelsfor the main crops in the program expected at full development.

- 39 -

Table 5.2: PRESENT AND FUTURE YIELD LEVELS AT FULL DEVELOPMENT _I

PresentWithout Newly Established Producing

Supervised (with Investment (with OperjiingCrop Credit Credit) Credit4-

-------------------(t/ha)------------------

FruitsCitrusLemons 27 35 32Oranges 26 37 34Mandarines 28 40 37Grapefruits 34 50 43

Pome FruitsApples 19 30 26Pears 10 25 -

Stone FruitsPeaches 12 25 -Sour cherries 10 15 -

Grapes 10 25 -

VegetablesGlass GreenhousesCucumbers (Fl Hybrid) 108 140 140Tomatoes (Fl Hybrid) 74 90 90

Plastic GreenhousesTomatoes (Fl Hybrid) 62 80 70Cucumbers (Monoecious) 34 50 45

Low Plastic TunnelTomatoes 49 - 60Peppers 29 - 35Eggplants 34 - 50

Open FieldTomatoes (Staked) 39 - 50

Cucumbers 24 - 30Peppers 19 - 27Eggplants 30 - 35

/1 Yields are calculated on a decare basis (1 decare = 0.1 ha), assumingfull development for lemons, year 15; oranges, year 13; mandarines,year 11; grapefruits, year 14; apples, year 12; pears, year 11;peaches, year 11; sour cherries, year 10; grapes, year 10; andvegetables, year 5.

/2 Operating credit is extended for producing orchards with healthy treesduring years of yield take-off (for citrus, years 5-7; non-citrus,years 7-9; and vegetables, years 2-4.

- 40 -

5.05 The projected yields are considered conservative as some farmersraising the same fruits and vegetables, both under the First Project incitrus areas and those applying correct techniques are now reaching theselevels. The use of improved budlings with proper soil preparation spacing,fertilization and irrigation during the establishment period would allowhigher potential yields, which could be achieved were proper practicesfollowed during the production period. The use of supervised productioncredit on existing orchards, if introduced early enough during the tree'slife, would also enhance yields, though normally not to the extent expectedof new orchards in the project. In the greenhouses established under theproject, vegetable yields will be increased through better design, layoutand atmospheric control, coupled with improved seed, fertilization, andmodern cultural practices. In existing greenhouses and open-fieldvegetable farms production would be intensified through supervisedproduction credits permitting use of improved seed and inputs, minorrehabilitation of greenhouses and irrigation systems, and use of lowtunnels for early-season planting. Present and future production issummarized in the table below:

Table 5.3. ESTIMATED INCREASE IN CROP PRODUCTION

ProductionFuture

Without WithSupervised Supervised

Present Credit Credit Increment % Change…('----------------------------('000 tons)------------------------------

Lemons 25.3 50.6 25.3 100Oranges 24.4 53.6 29.2 120Mandarins 26.3 58.2 31.9 121Grapefruits 31.9 69.7 37.8 118Apples 11.9 81.0 69.1 581Pears - 13.3 13.3 -Peaches - 8.9 8.9 -Sour Cherries - 5.3 5.3 -Grapes - 6.3 6.3 -

Cucumbers 9.0 16.4 7.4 82Tomatoes 15.4 23.2 7.8 51Bell Peppers 5.0 5.7 0.7 14Eggplants 7.2 7.7 0.5 6.9

Lint Cotton /1 2.4 - -2.4 -100Wheat /1 7.3 - -7.3 -100

/1 Assumes that all establishment occurs on cotton/wheat lands.

- 41 -

B. Markets

5.06 Part of the incremental output would be exported and part would beconsumed domestically.

Export Markets

5.07 Because of location and favorable climate, Turkey has been able toexport horticultural produce to three important markets, viz. the MiddleEast, Eastern Europe and Western Europe. The value of fruit and vegetableexports has risen since 1976 (Annex 2, C.15) from about US$128 million tonearly US$200 million in 1978. Fresh and dried fruits accounted for about85% of these exports. Based on value, lemons are the most important freshfruit export, followed by mandarins (satsumas) and apples. Tomatoes arethe most important fresh vegetable export. Based on tonnage, about 85% ofrecent lemon exports were marketed to Eastern Europe, while 63% of mandarinexports went to the EEC. Nearly all apple and fresh vegetable exports goto the Middle East with the exception of peppers, for which a small demandhas developed among Turkish residents of West Germany. Turkey's existingmarket shares for off-season produce are difficult to document in theprincipal export markets, though these are undoubtedly quite small.Volume, value and import price statistics for off-season produce are notpublished by most importing countries except the EEC, and existing annualfigures of many importing countries are inconsistent with reported Turkishexports. There also is evidence that substantial re-exports of Turkishproduce by third countries has occurred, both to Middle Eastern markets,within Eastern Europe, and to Western Europe. (Both of these factorsobviate the possibility of solid quantitative marketing analysis andprojections of market shares.) The following judgements are thusnecessarily subjective, being derived mainly from discussions withimporters of horticultural produce, commercial counsellors of importingcountries, Turkish exporters and concerned government officials. It isclear from these discussions, however, that a good potential exists for aconsiderable expansion of horticultural exports during the off-season.

5.08 The Turkish climate favors the production of off-season vegetablesfor Middle Eastern countries (principally summer vegetables), and early andlate vegetables for European markets. It also favors the early and lateproduction of both citrus and deciduous fruits. These seasonal aspects andTurkey's proximate location appears to give it a long-term comparativeadvantage in the export of many project commodities vis-a-vis most of itspotential major competitors. Turkey already exports to these markets andto Western Europe in a limited way, 1/ but many export opportunities aremissed and exporters are unable to obtain high prices. If Turkish farmersand exporters can be encouraged to improve quality and ensure systematic

1/ More to Eastern Europe and the Middle East than to Western Europe whereTurkey only supplies 1% of total EEC horticultural imports.

- 42 -

and reliable delivery, Turkey could exploit her comparative advantage atprices three or four times greater than presently received. The productionimprovement aspects of the program and the proposed marketing organizationare key elements in the country's strategy to improve horticultural exportperformance.

5.09 Turkey's trading partners in Eastern Europe comprise the USSR,Romania, Czechoslovakia, Bulgaria, Poland, E. Germany (GDR) and Hungary.All purchases are executed by the central buying agencies of thesecountries in accordance with annual quotas allocated to each exportingcountry. Bilateral meetings at government level are held annually with theTurkish Government and quantities and prices are agreed upon for the comingyear.

5.10 The Eastern European market accounted for 27% of Turkish citrusexports by volume in 1979 compared to 47% in 1978 and 45% in 1977. Lemonsconstituted approximately three quarters of total exports; the remainderwas divided evenly between oranges and mandarins. The USSR and Romania arethe most important market for fruits, with USSR in 1979 purchasing 40% oftotal Turkish lemon exports. Vegetable exports to the Eastern Europeancountries, are selective and occasioned only by shortfalls in suppliesor by some policy decision. However, orders are substantial when theyoccur 1/ and these have been increasing in recent years. Lower qualitystandards than Western Europe is the norm for Eastern European countriessince fixed prices and quantities, with guaranteed delivery, take priorityover quality. Turkish exporters are anxious to secure orders from EasternEurope in spite of low prices because payment is regular and less time needbe spent on proper packaging and quality control.

5.11 There are good indications of potential export growth of citrusto markets of selected East European countries. For example, sales ofmandarins to Czechoslovakia have tripled in the past three years to 6,200tons in 1979 taking Czechoslovakia from 16% of the market to 86%, more thanoffsetting declining sales to Romania, which fell from 2,000 tons to 300tons during the same period. Exports of grapefruit to Romania have risenfrom 500 tons to 2,200 tons. It is reported that mandarins exported toRomania and Czechoslovakia have been re-exported to Austria. Projectionsare conservative and no spectacular increases are predicted either byproduct or market from a volume base of 73,944 tons in 1979. It is crudelyestimated that average growth between 1979 and 1986 of about 5% per year isreasonable.

5.12 The Middle East represents a market potential of major importanceto Turkey due to its proximity, regular transport connections by road andsea and religious affinities. Iraq and Libya are important suppliers of

1/ For example, Romania took 10,000 tons of potatoes in 1977, the USSRorder 2,500 tons of onions in 1978, and a further 2,000 tons in 1979.Poland ordered 660 tons of tomatoes in 1979.

- 43 -

oil to Turkey and exports of Turkish produce to these two countries aregranted favorable terms including high prices. Nevertheless, competitionis strong, especially from Italy, whose traditional relations with Libyafacilitate entry of a wide range of fruit and vegetables of excellentquality and good presentation. Until very recently, both countriesprimarily imported large quantities of apples. Large quotas have beengranted, which Turkish exporters rarely fill. Iraq is less demanding thanLibya with respect to packaging and produce quality, and has recentlyliberalized imports of other produce as well.

5.13 Trading in the Saudi Arabian, Jordanian, and Kuwaiti marketsand in the United Arab Emirates is done on an ad hoc basis and Turkishexporters appear to have paid little attention to market needs. Thepotential in these markets is good because their ever-increasing demandsfor high quality consumption goods can be satisfied without undue regardfor cost. This applies no less to fresh fruit and vegetables with theresult that high quality produce from Greece, Italy, Spain and South Africahas secured strong footholds in these markets. Access and affinity pro-vides a unique opportunity for Turkey to become a major exporter. Turkey'sprincipal Middle Eastern market is Jordan, accounting for 50% of allTurkey's fruit and vegetable exports to the Middle East. Only a smallpercentage of produce so "imported" by Jordan is consumed locally. Thebulk of the fruits and vegetables from Turkey is regraded, repacked andre-exported to Kuwait and Saudi Arabia. On average the price paid for thetop grade in Middle Eastern markets covers the costs of the whole consign-ment bought in Turkey.

5.14 Since Middle Eastern markets are largely undocumented in respectof imports, and existing foreign trade data are conflicting and incomplete,it is difficult to quantify either the size of the overall Middle Easternfruit and vegetable market, or the increase in commodity specific exportsthat Turkey could achieve, though prospects for expanded sales seem excep-tionally good. Increased exports of apples is the most likely futuresuccess for Turkey in Middle Eastern markets, especially to Libya and Iraqassuiming improved packaging and transportation, and better use of coldstorage facilities. Off-season vegetable exports to the Middle East alsoare expected to increase, though not at the same rate, due partly to theincreasing production of vegetables in potential importing countries.

5.15 Effective July 1980 Turkey was granted freer access to theEuropean Common Market. Although Turkish exports of fruits and vegetablesto the EEC at present are negligible in comparison to overalL EEC imports,a potential exists to markedly expand selected exports to Wesit Germany,Great Britain and non-EEC members in Western Europe, principally Austria.The selective tariff barriers which the Turkish Government believes haveprejudiced Turkey's exports to the EEC have been replaced by a system ofquotas to prevent oversupply at any time. This is unlikely tio affectTurkey because the country's principle opportunity in the EEc is expandedexport of off-season produce, for which generous quotas are allowed. Thereal problems confronting Turkish exporters in Western EuropO are poor

- 44 -

grading and presentation, irregular and unreliable deliveries, especiallyduring periods normally favorable to Turkish produce, and insufficientquantities.

5.16 It appears that Turkey could easily expand its off-season exportsof selected project commodities to some West European markets. Austriantraders believe that the country could absorb five times the present volumeof grapes imported from Turkey and could, at a minimum show a 200% increasein imports of satsumas and oranges. The Austrian market also has goodpotential for vegetable export, but wastage en route at the present timeis often as high as 60%. Green and red bell peppers are increasinglypopular. Given Turkey's ability to produce early season vegetables, the

popular California bell pepper could be grown for Austria, West Germany andthe United Kingdom. The major competition today is Kenya, which mustabsorb higher shipping costs.

5.17 Citrus importers in Germany confirmed that Turkish lemons andsatsumas are generally quite good but badly packed, not graded or presentedto attract the German consumer who is very quality conscious. As a resultTurkish exports of early lemons are rapidly losing market shares to Cyprusand Spain. Quality control in the packing house is important since Germancustoms do not accept Turkish Ministry of Commerce certificates. Britishimporters believe that the United Kingdom offers excellent prospects forearly grapes, lemons and satsumas from Turkey. Britain imports 600,000tons of citrus and 100,000 tons of grapes and muskmelons each year. Thecountry also imports about 112,000 tons of grapefruit, as well as 44,000tons of lemons. Of the latter, barely 1,000 tons come from Turkey.Because of price and seasonal advantages, Turkish grapefruits also appearto have an open market in the United Kingdom. However, shipments in March1980 were a loss due to premature picking and delays en route. Eggplantscould compete with the Kenyan product from October through March. Themarket for cherries has recently changed following termination of produc-tion by Holland. Recent early sales of Turkish cherries in the UK havefetched very good prices.

5.18 These examples demonstrate that the prospects for increased salesof Turkish fruits and vegetables in Western Europe are good. And becauseTurkey would be starting from such a small base vis-a-vis EEC importdemand, she could probably expand exports of early and late season produceby several times at current prices without fear of creating over-supply.

The Domestic Market

5.19 Domestic consumption of fruits and vegetables increased rapidlybetween 1971-1979, and is expected to continue to increase in the fore-seeable future, but at a slower rate. During 1973-1979, annual per capitaconsumption of citrus and major project deciduous fruits increased at ratesof 3.1% and main project vegetables by 5.7%. During the last three yearsof the period, the respective growth rates tapered off to 0.8% and 4.9%.Present per capita consumption of citrus, main stone and pome fruits and

-45 -

project vegetables is estimated to be 19.5 kg, 51.2 kg and 84.9 kg, respec-tively, which approaches European consumption levels. In the past, thereal farm gate prices of these commodities have also been increasing.Since consumers prices have not been subsidized for fruits and vegetables,nor have farmgate prices been supported, this t:-nd indicates a shortage ofsupply relative to domestic demand in view of the fact that the very largebulk of all project commodities has been consumed domestically (Annex 2,C.15). If present trends continue, the satisfaction of this buoyant demandwill become prerequisite in future years to realizing a sustainable surplusfor e.&urt. In addition to export requirements, incremental productionwill be required to satisfy growing domestic offtake, which might otherwisereduce the availability of project commodities for export. Thus longergestation on-farm investments for nurseries, orchards and vineyards (aswell as the more quickly gestating greenhouse investments) were designedinto the project to satisfy, inter alia, this requirement.

C. Prices

5.20 With the removal of the export registration (licensing) system,levies on horticultural products and the dual exchange rate system in early

1980 and the recent substantial reduction of inputs subsidies the domesticprices of all project commodities and most agricultural chemicals havebecome largely free of distortion. The prices of other major inputs, suchas labor and machine rental also are not controlled. Prices used in thefinancial analyses are therefore based on actual farmgate prices received(or paid) in recent months, converted to US dollars at the prevailing ratesof exchange and held constant over the life of the farm plan. The priceassumptions used in the financial analysis may be considered conservativeas prices used were observed during early 1980 when Turkey's farm-to-markettransportation system was severely affected by petroleum shortages. Manyfarmers could not have their perishable produce moved to urban markets atthe time and had to accept lower prices in regional markets. Prices usedare below the expected trend in future prices based upon extrapolation ofthe trend of deflated 1973-1978 prices using ordinary least squares regres-sions (Annex 2, C.13) as well as below the available projections of theBank's Economic Analysis and Projections Department.

- 46 -

D. Financial Analysis

Producer Income

5.21 Increases in the income of the various participating farmers areestimated to be as follows:

Table 5.4. ESTIMATED PRESENT AND FUTURE INCOMEOF BENEFICIARIES

Per Capita Annual IncomeDerived from Lands Allo-

Number cated to Receive Loans /1Farm of Sub Without With

Supervised SupervisedSize Borrowers Credit Credit /2-ha -- US$---------

EstablishmentCitrus Nursery 10.0 4 323 9,598Deciduous Fruits Nursery 10.0 3 323 3,553Citrus Orchard 2.5 700 81 1,434Non-citrus Orchard 2.5 550 81 1,442Citrus Intercrop 0.5 1,200 16 287Non-citrus Intercrop 0.5 800 16 288Trellised Vineyard 2.5 100 81 2,361Glass Greenhouse 0.5 50 391 8,543Plastic Greenhouse 0.5 100 391 2,787

Supervised Production CreditCitrus Orchard 2.5 1,500 737 1,222Non-citrus (Apple) Orchard 2.5 1,000 1,097 1,255Glass Greenhouse 0.5 50 6,121 8,543Plastic Greenhouse 0.5 125 1,580 2,463Low Tunnels 0.5 350 856 1,196Open Field Vegetables 1.0 550 782 1,003

/1 From farming activity, average household size in the project area is7.0 persons. Suitable household income statistics from the projectarea are not available. However, it is reasonable to assume thatpre-project income from farming activity constitutes no more than halfof the operator's household income from all sources (includingnon-agricultural sources) except possibly for the class of farmers whowill temporarily intercrop fruits with vegetables under with-projectconditions. These generally are marginal farm operators that dependupon farming for the large bulk of their income, and daily wages asagricultural labor for the rest. Further, lands allocated to theexpansion of nurseries, orchards and vineyards in the project normallyconstitute no more than half of the land operated by each farm. Theseconstitute an even lower percentage in case of greenhouse establishment.

/2 At full development.

- 47 -

Producers' Benefits and Financial Rates of Return

5.22 Producers benefits, classified for each farm category, and thefinancial rates of return (FRRs) derived from the farm models aresummarized in Table 5.5. The amount of household incomes at fulldevelopment from farm operation is expected to increase considerably fromthe establishment of nurseries, orchards and greenhouses as a result ofshifting from low valued field crops and low yielding vegetables to theintensive production of horticultural crops. Incomes on farms utilizingsupervised credit will also rise considerably because of increasedproduction and the use of cost saving techniques. The large increase innet operating income on newly established fruits and vegetable farms stemsfrom (i) the fact that fruits and vegetables are extremely high valuedcrops in comparison with other uses of irrigated land, and (ii) the

expansion of horticultural crops in the project area will take place onalready irrigated land. Farmers need only incur land development expensesfor opening field channels and farm drains. The gestation period fornurseries and fruits expansion is quite long, however, resulting in alengthy period of negative cash flows (after financing) for all modelsexcept the small fruit farmers who will intercrop with vegetables duringthe farm plan's early years. Further, the amounts needed in the earlyyears for investment are high in all models (Annex 2, C.2.11). 1/ With theexception of the intercrop models, it is expected that only the moreaffluent households in the project area will be able to absorb the largecash requirements of the early years, which is characteristic of presenthorticultural development in the project area. With these restrictions,the cash flows for all the models, both for establishment and productioncredit, are satisfactory and can withstand a reasonable decrease inincremental net benefits without imperilling their financial viability.

5.23 All financial rates of return indicate that it should befinancially rewarding for farmers to utilize the investment and/orproduction credits and to introduce the supporting technology. Sensitivitytests are in general satisfactory with the exception of the deciduousfruits nursery. The analysis indicates that the most adverse generalsituation which can be reasonably anticipated is a one-year delay instart-up accompanied by a two-year delay in production. In this situationno financial rate of return will fall below 10.8%. The worst particularsituation (a 20% increase in the combined investment and operating costs ofthe deciduous fruits nursery) will result in a financial rate of return of10.0%. Sensitivity analyses are in Annex 2, C.13. The trends in pricespaid to farmers (Annex 2, C.13) and the with- and without-project cropbudgets indicate that the best estimate of the basic return is more likelyto be the case than the lower values indicated in the sensitivity tests.The analysis also indicates that the deciduous fruits nursery will have tobe established on lands where cotton, wheat or other low-valued field cropsare grown, though all other establishment models could displace highervalued open-field vegetables and still show good incremental returns.

1/ These considerations and the largely ineffective horticulturalextension assistance have served to discourage spontaneous investmentin project activities.

Table 5.5: PRODUCERS BENEFITS AND FINANCIAL RATES OF RETURN

Estimated Net OperatingIncome from

Farming Activities atFull Development Projected Cash Flows After Financing

Without With ----------------------------------------Year------------------------------------------ Rate of

Type of Farm Supervised Supervised 1 2 3 4 5 6 7 8 9 Return /3Credit/2 Credit/2

------- US$ ----Establishment /1Citrus Nursery 2,264 67,189 -5,404 -13,136 -25,340 54,512 27,197 27,917 27,917 27,917 67,189 19.3

Deciduous Nursery 2,264 24,870 -4,970 -12,006 -23,638 12,760 -13,334 -13,334 -13,334 -13,334 24,870 11.1

Citrus Orchard 566 10,042 -361 -436 43 -542 24 1,619 3,136 4,564 5,692 25.5

Non-citrus Orchard 566 10,093 -368 -415 -594 -726 231 -348 1,446 3,472 5,375 26.4

Citrus Intercrop 113 2,099 3,616 609 676 955 1,460 -284 19 306 531 21.7

Non-citrus Intercrop 113 2,099 3,588 613 550 920 1,502 -677 -318 87 468 23.4

Vineyard 566 16,530 -1,256 -2,069 -2,274 -880 -6,311 -4,042 -488 5,837 8,241 35.0

Glass Greenhouse 2,737 59,800 46,441 15,359 20,279 25,199 30,119 30,119 59,800 59,800 59,800 40.6

Plastic Greenhouse 2,737 19,507 23,176 624 3,130 6,229 9,622 9,622 19,507 19,507 19,507 27.6

Production CreditCitrus Orchard 5,158 8,557 -95 1,665 2,990 4,174 5,434 6,379- 7,217 7,496 7,775 93.3

Non-citrus Orchard 7,678 8,785 3,684 4,791 5,936 7,063 7,708 8,350 8,350 8,350 8,350 44.6

Glass Greenhouse 42,845 59,800 41,726 46,358 50,986 55,615 55,615 55,615 55,615 55,615 55,615 * O

Plastic Greenhouse 11,050 17,242 9,402 11,597 13,816 16,035 16,035 16,035 16,035 16,035 16,035 *

Low Tunnels 5,991 8,374 5,135 6,071 7,009 7,788 7,788 7,788 7,788 7,788 7,788 *

Open Field Vege-tables 5,473 7,023 2,875 3,890 5,218 6,531 6,531 6,531 6,531 6,531 6,531 55.9

/1 Full development is reached in year 4 for nurseries, between years 12

and 15 for the orchards and vineyards, and year 5 for vegetables.

Under the without-project situation, it is assumed that all nurseries

and fruit farms to be established presently grow cotton and wheat. It

is assumed that the greenhouses will be established on lands presently

cropping open-field vegetables.

/2 Farm income under US$770 equivalent is exempt from tax. A portion of

the farm income in excess of this amount is subject to personal incometax, the applicable portion being determined with reference to

principal crop or farm activity (Annex 2, C.8).

/3 Calculated on incremental farm income from all farming activities

before financing and taxes.

* FRR is very high.

- 49 -

5.24 Monthly cash-flow models for agroprocessing facilities in theproject area were constructed to illustrate the seasonal need for workingcapital and serve as a basis for costing short-term operating creditrequirements of the project for agroindustry (Annex 2, C.4). Because ofthe great diversity of agroprocessing industries which might apply forcredit, different scale and various degrees of integration of theirprocurement, storage, processing and trading activities, it is difficult todetermine which is "typical" and a complete financial analysis was notattempted. Considering that most of the plants visited by the missionpresently operate at a fraction of capacity (16-30%) due mainly toinadequate working capital, it is clear from reference to the monthly cashflows that substantial increments would be generated by the creditfacility, thereby placing most subborrowers on a sounder financial footing.

5.25 The breakdown of the number of subborrowers and their incomelevels with comparison to the poverty level is shown in Annex 2, C.14. Itis estimated that 28% of the subborrowers are expected to be at or belowthe relative rural poverty level 1/ which includes all of the citrus andnon-citrus orchards with vegetables intercropping during the establishmentperiod. Of the total funds on-lent under the project from Bank sources foron-farm investments and production credit amounting to about US$22.0million, funds for such lending will amount to US$2.2 million, or about 10%of total on-lending of Bank funds to all project farmers.

VI. BENEFITS AND JUSTIFICATION

A. Economic Return

6.01 The principal benefits at full development (in year 18) will bethe incremental production of citrus, stone and pome fruits and grapes andvegetables, principally tomatoes, cucumbers, bell peppers and eggplant. InMarch/April 1980 prices, these will amount to an estimated US$55.2 millionequivalent for fruits and US$33.5 million equivalent for vegetables.Approximately US$45.5 million in crop sales will be foregone each year as aresult of conversion from the existing cropping pattern to one of intensiveorchards and vegetables cultivation. 2/

6.02 The rate of return to the economy (ERR) has been calculated on thebasis of nine farm models assumed to be representative of differentsubborrowers, and six models for supervised production credit on existinghorticultural farms (para. 5.01, Annex 2, C.2). No quantified benefits

1/ Estimated to be US$273/capita in March/April 1980 (Annex 2, c.14).

2/ Of which, US$3.7 million will be in the form of cotton, wheat and otherfield crops, US$20.7 million will be additional open field vegetables,and US$21.1 million will be production from older orchards.

- 50 -

have been estimated for the provision of working capital to agroindustriesnor for value added expected of the improved export marketing organiza-tion. The following assumptions underlie the rate of return calculations:

(a) For economic analysis, border prices of traded outputs werederived from recent EEC prices for low-quality and mainlyin-season produce and brought back to the farmgate. These wereheld constant during the expected life of the program (see para.6.02 (h)). EEC quotations were utilized due to the virtualabsence of reliable price statistics for project produce in MiddleEastern markets and the unsuitability of prices received fromtrade with Eastern European countries as indicators of futureprice trends, in view of the price determination mecahnism inthese countries. Although the EEC in-season prices for somehigher quality product commodities, e.g. citrus, are expected todecline gradually in the 1980's, the price forecasts used areconsidered to provide the best estimte of expected economicbenefits. Because of Turkey's climatic advantages, exporters canand do exploit off-season markets to receive prices for lowerquality produce which are considerably higher than prices used inthe analysis. Moreover, as a result of introducing higher qualitycultivars than are generally utilized, with supervision ofplanting, cultivation and harvesting by trained extension agents,the quality of project commodities at the farmgate is expected toimprove considerably above levels on existing farms and will beable to command higher prices than most current production,whether exported or consumed domestically. The domestic prices oftraded inputs were applied. The domestic prices of non-tradedproduce, goods, inputs and labor were adjusted, as appropriate, bystandard conversicn factors for capital, intermediate andconsumption goods (estimated at 0.75, 0.80 and 0.86, respectively)to translate them into border prices. Benefits and costs oftradeables were adjusted, where necessary, for all apparenttransfer payments such as taxes, duties, tariffs and subsidies.

(b) All incremental production and incremental inputs utilization werephased in at the rate at which the individual farm enters the nineand one-half year program (Table 3.1). Costs of training andstudies, establishment of field offices and laboratories,procurement of vehicles and equipment were phased in according tothe implementation schedules and investment tables, as was donefor the marketing organization.

(c) The working capital requirement of agroindustry was excluded fromthe analysis (see para. 5.24).

(d) Investment and operating costs were calculated using March/April1980 prices, adjusted to represent costs at the farm level asappropriate.

- 51 -

(e) It is assumed that periodic nominal devaluation of the TurkishLira will continue until domestic inflation has been brought undercontrol. 1/

(f) There is no apparent underemployment in the project area. Indeed,farm operators complain of a shortage of all categories of farmlabor at existing wage rates, both of seasonal and permanentworkers. Thus, family labor was costed at the same value as thatof its nearest alternative, which is US$1,731 equivalent annuallyfor a skilled farm-hand in rural areas, equivalent to employmentof 300 days at the going daily wage of US$5.77. Wages of hiredcommon, skilled and specialist workers, managerial andadministrative personnel were costed at the market rate.

(g) A life of 25 years was assumed in the analysis of all components.Replacement investments in equipment and farm implements werepro-rated to be fully depreciated by the end of the component'slife. Foregone crop sales from the without supervised creditsituation were deducted throughout the expected life of theprogram with allowance made for production increases in the earlyyears.

(h) The basic ERR has been calculated for the entire nine and one-halfyear program, from its inception to completion, since the benefits

from most of the investments made during the project's four andone-half year time slice are conditional on future investmentsrequired during the last five years of the program's implementa-tion period.

1/ Because non-tradeables weigh more heavily in the economics of theproject on the costs side than on the benefits side, the ERR wouldincrease if future devaluations are not sufficient to offset domesticinflation (i.e., if the currency becomes overvalued). The ERR willdecrease if an over-adjustment occurs and the currency becomesunder-valued.

- 52 -

6.03 Based upon these criteria and on the data shown in Table 6.1, thebasic economic rate of return to the program is estimated to be 29.7%. 1/The ERR of individual components and relevant switching values are listedbelow and detailed in Annex 2, C13.

Switching Values /1

(Percent Change)

% ofInvestment

ERR Benefits Costs Cost /2Entire program /3 29.7 -43.1 75.7 100.0Establishment /4 22.7 -33.1 49.4 78.7

Production credit /5 Very high -65.7 191.9 21.3

/1 Percentage change required in benefits or costs to reduce the ERR ofthe program to the opportunity cost of capital (assumed to be 12%).

/2 Financial (base) costs.

/3 Excluding agroindustry working capital component. This componentaccounts for about 6% of total program costs.

/4 Assumes entire investment costs are assigned to establishment component.

/5 If the investment costs are assigned to the production component, theERR falls to 15.1% and the relevant switching values for benefits andcosts to -15.4% and 18.3% respectively. In that case, the ERR for theestablishment component would be 92.9% and the relevant switchingvalues for benefits and costs -55.3% and 123.9%, respectively.

1/ The ERR for segments of the program to be initiated during the periodof the time slice only, and without a commensurate decrease in outlaysfor the technical support services and training component to allow forthe lesser number of farm plans in the time slice than envisaged forthe complete program, is estimated to be 24.8%.

TURKEY

SECOND FRUIT I VEGETABLE PROJECT

TABLE 6.1 SUIJ1ARY ECONOMIC ANALYSIS

( US$ THOUSANDS )

YEAR 1982 1983 1984 1985 1986 1987 1980 1M 1990 1991 1992 1993 1994 1995 1996 197 1998 1999 2000 2001 002-2006 2007 2008 2009 2010

INCREMENTAL BENEFITS

FRUITS U 2001 4870 8542 12852 15060 15814 16848 19170 21198 25259 28703 31213 32731 33681 33979 34066 34110 34110 34110 34110 33941 29351 20127 10445VEGETABLES 0 1059 3027 6676 8617 10588 12001 12763 12763 12763 12763 12763 12763 12763 12763 12763 12763 12763 12763 12763 12763 12763 10876 7203 1375

TOTAL INCR BENEFITS 0 3060 7897 15218 21470 25656 27895 29611 31933 33961 38022 41466 43976 45494 46444 46742 46829 46873 46873 46873 46873 46704 40227 27330 11819

INCREMENTAL COSTS

INCR OPERATING COSTS

ESTABLISHMENT 13 1113 2501 3993 5257 5536 5433 5425 6078 6229 7324 8334 9148 9748 10129 10279 10347 10378 10387 10387 10387 10289 8461 5792 3061SUPERVISED CREDIT 0 237 743 1500 2119 2596 3044 3432 3628 3740 3740 3740 3740 3740 3740 3740 3740 3740 3740 3740 3740 3740 3296 2396 1127

SUBTOTAL 13 1350 3244 5493 7377 8132 8477 8856 9706 9970 11065 12074 12888 13488 13069 14019 14087 14118 14127 14127 14127 14029 11757 8188 4188

INVESTMENT COSTS

ON-FARN I TSS 8559 7298 9093 9096 4857 3330 0 0 0 0 0 0 0 0 0 22 915 1518 2226 305 0 0 0 0 0MKTG ORWG ASTER PL 1699 2014 1880 1250 1433 1392 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 °

SUBTOTAL 10258 9311 10973 11146 6290 4721 0 0 0 0 0 0 0 0 0 22 915 1518 2226 305 0 0 0 0 0

OTHER ECONOMIC COSTSE D S 5 2 9 8 36 3 3 3 3 3

FOREGONE FIELD CROT S 15 562 1439 2328 3466 3567 3641 3693 3716 3716 3716 3716 3716 3716 3716 3716 3716 3716 3716 3716 3716 3699 3089 2132 1191_ _ _ _ - - - --_- - - --_- - - --_- - - --_- - - --_- - - --_- -- --_- - - --_- - - --_- - - --_- - - --_- - - --_- - - --_- - - --_- -- - - - - - --_- - - ---- - - --_- - - ---- - - - - - - - ---- - - - -_-- - - - - - - - -

SUBTOTAL 15 562 1439 2328 3466 3567 3641 3693 3716 3716 3716 3716 3716 3716 3716 3716 3716 3716 3716 3716 3716 3699 3089 2132 1191

TOTAL INCR COSTS 10286 11223 15657 18967 17132 16420 12118 12550 13422 13686 14781 15790 16604 17204 17585 17758 18719 19352 20069 18149 17843 17728 14846 10320 5379

INCR NET BENEFITS

1NCR NET BENEFITS -10286 -8163 -7760 -3749 4337 9236 15777 17062 18511 20276 23241 25675 27373 28290 28859 28985 28110 27521 26803 28724 29029 28976 25381 17010 6440

NET PRESENT VALUE AT 12.0% = 74304.INTERNAL RATE OF RETURN = 29.7%

TABLE CONTAINS ROUNDING ERRORS

- 54 -

6.04 The analysis of switching values shows that relatively largevariations in benefits and costs are required to reduce the program's ERRto 12% and thereby imperil its viability. A decrease in real terms oftotal benefits by 43.1% would be required to do so. Similarly, arespective real increase of combined total investment and operating costsof the order of 75.7% is required. Thus, even higher percentage overrunson investment (about 195%) would have to occur in order to make theanalysis marginal. 1/

6.05 The program is more sensitive to declines in benefits than toincrease in costs, which is most likely to occur if the yield and productprice expectations are not met. Production data from the First Project andthe experience of leading farmers in the project area indicate the possi-bility of obtaining higher than estimated fruit and vegetable yields.Further, the probability of prices decreasing appreciably is very low inview of: (i) the buoyant domestic demand for fresh fruits and vegetablesin spite of the economic uncertainty engendered by recent inflation andbalance of payments difficulties; (ii) the present pattern of Turkey'shorticultural exports, which are oriented more towards Eastern Europe andthe Middle East than toward Western Europe, and where good potential existsto expand exports at higher prices provided minor but systematic attentionis devoted to product quality and packing; and (iii) the potential forexporting larger quantities of off-season fruits and vegetables to MiddleEastern and Western European countries at much higher prices, givenTurkey's climatic advantage which favors out-of-season production, andTurkey's presently miniscule share of EEC markets.

6.06 An analysis of switching values for the establishment andsupervised production credit components indicates that these, whenestimated separately, also are fairly insensitive to risk. The analysis ismoderately sensitive to lags in implementing the establishment component,which was the experience of the First Project. If a one-year lag in thecosts of establishing orchards and greenhouses occurs, accompanied by atwo-year lag in receiving benefits, the ERR of the establishment componentwill decline to 18.0% and that of the entire program to 23.4% (Annex 2,C.13). Since good supervision by trained extension agents is provided inthe program (this was notably missing during the early years of the FirstProject), it is unlikely that such delays will be encountered.

B. Other Benefits

Benefits from Marketing Organization

6.07 Two major features of policy package for economic recoveryannounced in January 1980 are rapid expansion of exports and emphasis onquickly gestating projects. Perhaps the best opportunity within theagricultural sector for intiating these inter-related measures can be found

1/ Plots of benefit and cost curves vis-a-vis the opportunity cost ofcapital and loci of switching values are presented in Annex 2, C.13.

- 55 -

in the horticultural subsector. At present, only about 2% of theproduction of fruits (project commodities) and 0.5% for fresh vegetablesare exported. 1/ By putting into place an institutional framework whichhas been designed to rationalize the marketing of fresh fruits andvegetables, that could at the same time provide technical assistance toexporters in the areas of packaging, quality control and grading and otherneeded services, the project is expected to facilitate a substantial andrapid increase in exports from existing production. The marketingorganization also will facilitate the export of project production, whichwill derive from the use of improved cultivars and/or good extensionsupervision and therefore be of higher average quality at the farmgate thancurrent production. 2/ Although it is difficult to quantify increased netforeign exchange earnings from current production, these are expected to besubstantial. Net incremental foreign exchange earnings from incrementalproduction could amount to US$19.4 million per year at full development, if20% of the incremental project produce is exported.

Employment Benefits

6.08 The direct beneficiaries of the program are the approximately7,082 families (about 49,500 persons) who increase their income fromfarming, mostly from horticultural production. They will have not only ahigher income but a more even annual distribution of revenues. Employmentin farming activities will be provided for these families plus about 28,300families providing labor, benefiting a population of some 198,000 persons.More families which cannot be quantified will benefit directly from theincreased seasonal employment opportunities in cold stores, packing plantsand processing facilities. Better utilization will be made of the labordirectly involved. Indirect beneficiaries include the suppliers of goodsand services widely scattered throughout the project area, especially thosedealing with machinery services, inputs distribution, and downstreampacking and trading activities.

Other Benefits

6.09 The annual incremental sales of nearly 1 million improved budlingsper year by the citrus and deciduous fruit nurseries at full developmentwill alleviate the scarcity of high-quality planting material needed fororchards development and rehabilitation throughout Turkey. Theestablishment of a regionally-based marketing organization, if successful,will greatly improve the coordination of production decisions withprocurement needs for export; provide Turkish exporters with marketinginformation and systematic access to export markets; monitor and ultimatelyenforce adherence to packing standards and product quality requirements;

1/ Value exported to value produced net of loss.

2/ And therefore more amenable to export.

- 56 -

and better coordinate transportation needs with available capacity therebyimproving the reliability of delivery. The studies and master plan willenable the more efficient utilization of marketing organization services bymatching up export opportunities with Turkish production capabilities. Itwill determine in a much more rigorous way than has been done to date, thedeterminants of domestic demand for fresh fruits and vegetables, thecountry's production capability, and the production likely to be availablefor export after domestic wants have been satisfied. It will also providea basis for rationalizing future investments in storage, packing andprocessing facilities, and rehabilitating or expanding the operations ofexisting ones where warranted. Other significant benefits include thefollowing:

(a) introduction of modern methods of production and horticulturalfarm management resulting in better land utilization and overallhigher fruits and vegetables productivity;

(b) establishment of infrastructure at the national level, providingtrained manpower and services directed towards development of theproject area;

(c) upgrading facilities at horticultural research stations and theextension of their activities into applied research,multiplication and distribution of certified cultivars, and betterintegration of applied research programs with extension agents'activities;

(d) transfer of lessons learned and experience gained by a specializedimplementing agency (MEYSEB) with the training and visit system tooperatives of national extension system (TZ), as a prelude to theultimate reintegration of the two;

(e) specialist training in techniques of agroindustry projectevaluation for TCZB (modification of Loan No. 1248), increasedavailability of working capital for processing plants whichcurrently are operating under capacity, thereby increasing theirefficiency of operation; and

(f) preparation of an investment program and master plan for thefuture development of the fruits and vegetables subsector, withemphasis on low-cost processing for expott, coordinated siting ofprocessing facilities and production possibilities; identificationof managerial training needs for agroindustry management andproposals for implementing this in Turkey. If adopted, bettertrained production and marketing managers could further developavenues of foreign exchange earning in the fruit and vegetablesubsector.

- 57 -

C. Risks

6.10 Considering the traditional distrust of the private sector formany initiatives of Government, there is a risk that timely private sectorparticipation in the RMCs may not be forthcoming, or to the extent requiredfor these to function effectively. In order to gain needed and widespreadrecognition by Turkey's horticultural exporters, the marketing organizationwill have to demonstrate simultaneously that it is indeed evolving quicklytowards independence from government, while at the same time securingsufficient private capital participation to make this evolution possible,through a demonstration of its value in providing timely services forexporters and shareholders. Institution building is inherently a high riskfeature of most projects in Turkey--Lhis one no less than others. However,it is believed that the following measures will help reduce risk associatedwith the Marketing Organization component during its teething period. TheGovernment intends that initial promotion, establishment and capitalization

of the marketing organization should be done under the aegis of the SPOwhere the idea was originally conceived. Second, the seed capital for theRMCs which necessarily must come through Government channels, would not bemore than 30% of the shares and in foreign exchange, such stock to berepurchased as soon as the RMC's are able to do so. Thirdly, specialistconsultants would be engaged through SPO to enable them to assist early onwith promotion and counsel on the managerial, administrative and technicalaspects of the CMO and RMCs. With these measures, the risk of directgovernment control will be significantly reduced. Further, the probabilitythat it could become operational quickly and provide services ofdemonstrable value would be enhanced.

6.11 Two risks which could affect project viability in all or part ofthe project area are (i) inadequate local budgetary support for theprovision of technical support services, and (ii) delay in appointinginternational production specialists, counterparts and extension staff andenvisaged training programs. The significance of the first risk cannot beoverstated in the present economic climate in Turkey. Setbacks have beenespecially severe on the allocation of budget for fuels and lubricants,spare parts and general maintenance of government vehicles. This hasimpeded the mobility of the operating agencies, and its impact has beensevere on the implementation of projects wherein mobility is a paramountrequirement. To minimize this risk and guarantee the reliable operation ofthe extension services, adequate provision by the Government to finance theforeign exchange portion of vehicles O&M and local expenses would be madeand submitted for the Bank's review by March 1st of each year (paras. 3.09,3.23 and 3.24). In regard to the second risk, the delay in appointinginternational production specialists (consultants), counterparts and exten-sion staff, would postpone the training of an efficient cadre of extensionworkers, introduction of modern horticultural production techniques, andresolution of feedback problems between applied research and extension.MEYSEB recognizes the consultants' crucial role in project implementationand has agreed to appoint the production consultants and staff no laterthan January 1, 1982.

- 58 -

VII. AGREEMENTS REACHED AND RECOMMENDATIONS

7.01 Agreement having been reached on the principal issues referred toin Chapters III and IV of this report, and subject to the condition ofeffectiveness in para. 3.24, the project is suitable for a bank loan of theequivalent of US$40.0 million to the Government of Turkey for a term of 17years at 9.60% interest per annum with a grace period of 4 years.

T URICIy

ilen ~~~~~~~~~~~~~~~1982 IM ) 1984 199 io _ 90Fl 9,lAit L F S 4 C U F S U F / F 0 F. F S U F 7 - v T U F F T porige

Nurseries eusehiinteoene ~~~ ~~~~~~61 8F 1418 146 i 34 280 19FF 1l1 3)1 29 17 ~ 243 16l 25l 2 25 81A4S 43FF F245 12

Otet Avnyar aalalFn 2,085 1,311 3,436 21,838 1,74 4,600 2.954 1,6 4,31 3,85 1,2 5,6 1261 471 1,13FF i,A93 94,7 1,435 35)0 163 41 294 102 3l6 14,8664 7,40 21,06 35Vegtbl tsr stlish-et- ,42116 2,3 ,3 1,9 4,'16 3,2 2,6 664 - -7,49 9,32 13,38 44

Orndnetin9credit - - - 1,093 l~~~~~~~~~~~~~~~~~~~~ITT 1,204 2,841 126 4,367 4,257 2 ,3 35 6,592 3,616 2,465 6VAIN I ,9A1 657 1,3l5i15 871,438 7 ,9 39 21,327 1

Retal -(FetateCredit61 87 _4 6 48_8 92 88 80 16 578ii14. 6_ 2A2 78L 51 _40 7,314 _,319 1, 2 4_2 1 1_34 ~3.55/ _64 t85 A330 308 163 4 71 294 192 89' 36.410 21~669 258~4 '

B."ildisga onlle qntpnent 871 2,609 3,489 - - -- - - -. 7/12 ,408 7 5Runing tN-. 6 diilrtcc 2,961 968 3,929 2,961 368 3,929 2,961 968 3,829 2 ,952 968 1,920 2,952 968 3,928 2,952 9,9 3 9,21. 17,239 5,80 23,47 25Tr-Iing~ 82 1,140 1,222 464 249) 704 38i - 381 - 9-7 :1,38 2,39 60

Conenltoccla - 691 609 - 650 4~~~~ ~~~~~ ~~~~~~~~~~~~~~~~00 - 650( 800--- 1800 1,8 00 0

Tsem1 - TOS and Teeinig 3.9_14 5_1 312 9.3i 3_4215 1,888 5_ 233 3_34 2 1_568 049130 .5 6 3_920 2 95 2 968 3,920 _,952 98 3 920 - - - 9 5/ 7 31.134 317

nT-l - Ag-'ind-a trite Ors inCpita1 I - 941 720 -, 94 384 N 4 - j_310 _62 .75

TV. Maratg rasece

Puutos&snpne-c 348 284 632 - 6 6 24 21 45 - 6 6 1 7 8 6 673 330 "753 47lanai aularles, admin. general 717 0 0 788 60 8nd 947 38 1,003 1 ,8076 211 1,286 1,211 205 1,lO 1,242 don 1,448-.,983 145 c80 1

CsSIt.st - 303 303 - 58 258 - 243 243 - 60 60 0 123 506- ,4 8,04 100

Ote zNine 106 69 1275 79 32 Ili 97 32 129 107 20 1 3 5 121 33 154' 124 0 7 131-t3'c 201 855 26

Ttl- M-rketing Otg-sle-incc 7. 60 3 860 7 756 11 233 JA_0 3 _54 142 1 18 3I__04 1 480 1._335 _36 5 1,7000 I.36t 289 _.6 6 5-6 890 2~ 94_8430 26

Nenanr Prntosngntl- - 28 32 -60 2 2 8f 5C...ueni1a -5 5 779 735 912 382 152 534 28 - - -77 F0 72 460 Terel, NCtiec prI-ing 4 pnblltacI_ 70 74 82 39 29 68 5 -- /7 / 1306

Teo ..rnlaad Router plan -- 192 7007 924 _448 21 662 -- -- - - - -Ae 3FFF

TOA 6AECS ,343 6,9 33 12.276 10,461 7.459 17.920 138 92 9. 735 23.657 15,281 7.924 23,255 11.918 3,649 17,567 6.041 2,4A,1 9,142 1049 6895 0,330 SF70 IV)3 4/I 294 102 386 ,5.99Y 3F Ft12 10',014 78

PRC C010c2 ~191,4 273 -- 2Sa 2032 5.717 5644 4,051 9695 1,017 bl11.008 MI0 __ 0.4 .1 . 5 ,0 0 240 42 0 9 0 7 F'/ 701 6 C04Ž~~g~y19) 1 34 2 038 29 2 ________ 9 __ _4 4061 7,175 3.48 0 ____ ______2 1,AOl 63 383 1 3-1 6 5819, 2 O1, , 1,I~I_,~ 6

TOTAL PRDjEC COSTr 8_3,451l5.~0l4 51,35469.991 142 ~b~ 1 554 73 8_06 3~3 3532 2,9 03,5 3,5 90_9 3 9 1836 2828 11 .453 4,2 441501 .3 ,9 0 21 90 542) 82 j1 1- 5,44 i

44Peced p h pr-p-se lea will be otilieed .ft.-iace the f-rsgntnthangsteqnlr--et Cot the tiret lent ond ma-half yeer (Jely 1981 1-Fescb-r 1985) nO the spnje-t.

Caie:Oun2, 0.7.2 - C.7.6.

JA....Oty 5. 1981

- 60 - ANNEX 2

TURKEY

SECOND FRUIT AND VEGETABLE PROJECT

Related Documents and Data Available in the Project File

A. Selected Reports and Studies Relating to the Sector or Subsector

Al IBRD, Turkey Agricultural Sector Survey, Report No. 1684-TU,June 23, 1978.

A2 IBRD, Agricultural Sector Memorandum and Identification of Invest-ment Projects for Turkish Agriculture, Report No. 3178-TU, draftyellow cover, October 27, 1980.

A3 Fourth Five-Year Development Plan: 1979-1983; Report of the SpecialExperts Commission on Fresh Fruit and Vegetable Marketing andOrganization; SPO pub.

A4 EMENA Fruit and Vegetable Marketing Study, Landell Mills AssociatesLimited, Final Report, December 1977.

A5 IBRD, Turkey: Policies and Prospects for Growth (in two volumes)Report No. 2657a-TU, December 12, 1979.

A6 FAO 1976 Production Yearbook, Vol. 30, 1977.

A7 IBRD Staff Working Paper No 321, Fruit and Vegetable Exports fromthe Mediterranean Area to the EEC, March 1979.

A8 USDA, A Global Review of Greenhouse Food Production, EconomicResearch Service Report No. 89, October 1973.

A9 1978, The Summary of Agricultural Statistics, SSI, Turkey

AIO 1973-1976, Prices Received By Farmers, SSI, Turkey

All 1977, Prices Received By Farmers, SSI, Turkey

A12 1976-1978, Wholesale Price Statistics, Registered Commodities inCommodity Exchanges, SSI, Turkey

A13 1979, Statistical Yearbook of Turkey, SSI, Turkey

A14 1973-1974, Income Distribution & Consumption Expenditures in RuralAreas, SSI, Turkey

A15 1974 Nutrition in Turkey, Hacettepe University, 1977

A16 1976-1978, Agricultural Structure and Production, Turkey, SSI

- 61 -

B. Selected Reports and Studies Relating to the Project

Bi IBRD, Turkey Appraisal of a Fruit and Vegetable Export Project,Report No. PA-87a-TU, May 26, 1971

B2 IBRD, Turkey, Appraisal of an Agricultural Credit and AgroindustriesProject, Report No. 987-TU, April 12, 1976.

B3 General Directorate of Fruit and Vegetable Export iDevelopmentProjects (MEYSEB), MAF, Preparation Report Fruitiand VegetableExport Project II, May 1979

(a) Main Report

(b) Annex 1- Appendix 1 Prospects for Exports- Appendix 2 Price Data for Fruit and Vegetables at WestGerman Markets

- Appendix 3 Harvesting Periods for Fruits- Appendix 4 Harvesting Periods for Vegetables- Tables 1-89- Charts 1-3

- Chapter A: Fruit Growing Practices- Chapter B: Vegetable Growing Practices- Chapter C: Supporting Services- Chapter D: Marketing Aspects

(c) Annex 2: Project Area

(d) Annex 3: Farm Models

(e) Annex 4: Agroindustries Models

B4 TCZB, "The New Law Governing the Agricultural Bank of Turkey andRecent Developments in Turkish Agriculture and the Credit System"(Pamphlet - in Turkish), Ankara, 1979.

B5 TCZB, "Agricultural Credit Guidelines: Annex to Circular No. 4770"(translation) Ankara, 1979.

B6 Ian Matthews, Turkey: Marketing of Fresh Fruits and Vegetables(With Emphasis on the Institutional Framework to Promote Exports),September 1980.

B7 R. Lacroix, Turkey: The Fruit and Vegetable Processing Industry(A qualitative Evaluation of its State of Development, Expectationsabout its Prospects and Major Development Constraints), September 1980.

- 62 -

C. Selected Working Papers

Cl Terms of Reference for International Consultants

C2 Fruit and Vegetable Production Component

C3 Technical Support Services for the Production Component

C4 Agroindustries Working Capital Component

C5 Marketing Organization Component

C6 Studies and Master Plan Component

C7 Project Cost Estimates

C8 Price Escalation and Taxes

C9 The Agricultural Bank of Turkey (TCZB)

C10 Participating Agencies and Protocols Agreed Upon

Cll Procurement and Disbursement; On-lending and Repayment

C12 Implementation and Organization Charts

C13 Financial and Economic Analyses

C14 Relative Rural Poverty and Other Quality of Life Indicators

C15 Miscellaneous

TURKEYSECOND FRUIT AND VEGETABLE PROJECT

Oganization Chart

| Bo,rrowe,| (Government)

rCentral Marketing State Planning F MAncu; rV of Cukurova Agricultural Bank Ministry of

Organization (Instanbul) ... Ministry of Commerce Organization _ 9 University of Turkey Village Affairs

(CMO) (SPO Fo ) (Adana) (TCZB) (MVA)

- --- --- - - -. - - - *- --------------

General Dire torate _ I II . _ al Vagetate General Directorate of

L for Fruit and Vegetable j L _ Soil Conservation andExport Development Farm 1,rigati- (Topraksul

(MYSEB) Fa- rigton(Tp-ku

Regional Marketing Master Plan Study of General Directorate of

Cororationau Fruit and Vegetable Agricultural Affairs: ( Bursa/Istanbu l )Susco(GDA)

(RMC) Subsector(GAA

Regional Marketing General Directorate of Agency Responsible for Overall Coordination

Corporation (lzmir) Agricultural Research Administrative Control

(RMC) (GDAR) . Coordination

SPO would supervise the establishment of theMarketing Corporation which would be independent.

Regional Marketing General Directorate ofCorproation (Antalya) Plant Protection and

(RMC) Quarantine IGDPPQI

Regional Marketing General Directorate ofCorporation Planning, Research and

(Adana/Mersin) Coordination(RMC) (GDPRC)

World Bank -22148

n-

TURKEYSECOND FRUIT AND VEGETABLE PROJECT

Applied Agricultural Research and ExtensionOrganization Chart

Ministry ofAgriculture and

ForestryIMAFI

Gen eral Directorate of General Directorate of Ptant Directorate General Directorate Geera rectot

Agriculttrat Affairs Planning, Research and ............ Egetale... o lantP n of Agricultural Research

/GDAAI Coordination (GDPRC) E DEp vElt upQu ni GAR) arc

(M =SEB)I(DPQ:::............................................... ........ ....... _ _.....__ . ..........................................

Division of Agrclt*ura Ag*;cu trie Prodctio

Extension /Teknik Ziraati Assistant Director General Assistant Director General

F - F I I1 I I

Kayseri _ .. Izmir M aAntalya e Adana HlatayProvincial ~zmr u~ ntlv egional Regional Regional

Regional Directorate Regional Dire egional Directorate Rectore D D

Tokat | MaAegean Antalya Alata

Provincial Regiunal Vegetable Agricultrral ReCukuhrova

Office ~~~~Research Institute Research Institute Research Institute Uiest

Manisa Antalva

Amasya ~ - Viticulture .. Citrus Retearch

Provincial Office Research Institute Institute

Bursa I A Agency Responsible for Overall Coordination

|PBurovincial OffI Admi nis trative Control.rnle.... .Coordination

YalovaHorticulture

Research Institute

World Bank - 22149

C. 3

TURKEYSECOND FRUIT AND VEGETABLE PROJECTCrop Production Calendar in the Project ArealI

Jaruary February March Aprl Mnav June July Auqust September October November December

FRUIT NURSERIES2/

Year I _ . ., ''_ . .

Yea, 2' ! _ ___ |||| +_

Year 3 -_ - I - -_mYear 4

FRUITS KOranges

Navels ____ ______ l>F @Z1-s

SNamo-ti ..... ..

Valencia ... ... I - -Lemons .. 019 -00 * !-l_ - ***** 4***0 1****6

Mandarines ' . . . . ' | ' T 00.009-4

Grapefrurts .* . .*.**.*. . | I -. . . -

Apples _ --e****1*--+v*''

Pears m i i 1 | -4i|i

Peaches mI . . O..*.* I . * . *.*

SoarCherries * . ... .' . 00tr' ' '

Sweet Cherries I m -I I ..... , .. . -. Grapes m . |'' *4** I*X*v!* 464 ** .......@*

VEGETABLES

GreenhouseseO|

Tomatoes(F1 Hybrdl *@Wtj Ifl - - * | - ** 4*

Cucumbers (Ft Hybrid) I . . ...- ....

Low Plastic Tunnels

Tormatoes _JzF|l 1@ *@- Peppers - r m | '|4**;*

Aubergines _60-* | _* _ t 1 1 IOpen Field (Present)

Tomnatoes (Staked) . .. .. . . .. I I

Cscurmbrs (Monoeci-vs) | m * * *

Peppers - r i n i t

Eggplants .-.-.. . . . ' . I

Open Field (Recommended) ||

Tomatoes | I i . ...

Cucu mbers m_ | i n | . * .

Peppers i i i n

Eggplants -. 0 -. | * init |.I |

FiELD CROPS

Wheat m m | .... | _

CoTton I~~- I __n I 1 in m-' I in.. 1.Cotton

Soybeans , .n |i n m *e*...

LEGEND

- - - - Lard Preparation and Seeding_ A F_ Transplanting

Growing

_ Diyging of BSdfings and TrTnspl-nvlng ,n orchards. . * * * * Harsesting (Main Season)

Ha-vesting IEarly and Late CultivarslIUEEIEuEEI Budding (for Nurseries Onily)

1/ Dates of fanning operations vary with location, cultivars, crop pattern, rotation and apphcative of research and extension rec-rmendations2 Seeding of rootstock in Spring. In cave of name and stroe fruits, after ripening treatment isoaking seeds ,n beat moss medium at 40°F for

about 70-120 days depending on crop) seeding is carriad in controlled rooms du,ang Wnter,; transplanting of rootstock seedling in t& Springand budding in the Fall Digging of budhngs and transplantIng is done In orchards dcting the Spting and in some locations during the Fall.

V Predominant rotation for coastal areas. Prices and location determine whether other crops e.g., beans, peppers or eggplants could be planted.

World Bank - 221 50

TURKEYSECONR FRUIT ARD VEGETABLE PROJECT

INPxetRReAntiOC Schrdule C.4

Calen lal YEAI Isa7 = 4 100 1lRI 1441 1004 IRON 19R0

4 1s Eb i1 44 11 |N - X_ _2 1 2 T 4 _____ 4 1_ 2 3 4_ _ 4 73 _

2vo -0,114 (14 5.) - (i - -i i

12,1124 O4541,1812.12h41 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ W.

11750' 12811s O08h)4d4 0018 (31 10 1 | )0) 1 = ZIO 2Wiead (2 - 7 -77l| l | 5) l t}

Il.CNlNNll 7,4,4,10~~I 7-

SIOi .4, ..... R.. 100

VoPR,41,l 12,1110 41ah JN1IRI.ln, r11

TRNmiSNII 114. ......

O4NIl4roNhl ss{Sa 14 _2 180 II N 41 44) _ )2

NI0IIpSIIINI CNNl I,I,4 1 ,_

110.. 1l8INN1 SIl,0

- - - - - - - - - - L

11818148041414 ORh d 2S IAJI_ ZO,))k 3 0I _1G3

PNoIN 041141 ROIIOId N0N182s 4.Nl8_il84_ )3G) = )G9

01141RIII 5,4114,141 Rollttll l 5 = = ,s 0,p8,,IR.,lotd0 G

88lnh f 014,4112l )5 l _= 50

01444 :S18l SL r I 8

P1 tN4411N1.41M 41h0d 1 joNSM ,0j8l 1 r ll l

48,11412s fo SMSs140.8 _ NI I I I I 11,44I I5114.1n3 4.11411. & d t 1401411 _ 1

1l0p8l141ll011lO1l110 10G CEDT8 2)11

0111114 N1O1184(lNIZTG I T T II II

1214n2441V51 8 1 ,4lNprjl)II _

01 41 4 G nR.R411 c M ° A D i ~ - l ll lll

4 1 ,1 ,, C o s u x a t 1 1I, I I I I I I I I I I I I I IC444,1 an N oRI, S nR- & -R R''J544 | _ | -

IBRD 15242R

250 30. 35 40 DECEMBER 19a0

B U L GAR I A -r

_;1 Edirn Kerkrrj. 9 Edirne( 4re/i Inebnlu Sinop U. S. S. R

aths.J t YCsyurnsuldak0>- 5 A . J P NOP Hopee _,f

k'rdsB /Ksbt -. -X z.,t NT. ~~~~~~~~~~~~,t AMSIJN

1 *t.rbu Tlik Io-u 9t n 9T

o Reisv "'9< ~~~~~~~~~~~~_Adeor.p BAo- - ' Rt

Bend/two I -tIN -O 4>A KRI(h ORDU G Ak' 35Ao

40 j %~e-kk.le c' -4 \ Conuhn

.4- .,/I Serum s- P tERZUM 40 -'gN.-t ,-,~~~~~~~~~~B* k &O.A

144 -e,nik 'NNNot .ffices ,, | -OLANRd.ee,t -<s II,-~~~~~~4A> wt~~ct> ~~sDe~~nir t!NKAR Dogg KA ~ no~-J EerunAI

R Centro Morkehg OrgOnzotlon Propose PoCtolotliCE

C, A SIVAS JA~~~~~~~~~AKR

--) - Mci y o. 8 r. rv'o - -OAI

+Ni?' < aitWSy4ŽY 6o!t \.1 U NU C E LI BING L

MeVlc -onore -St. ,' eOfyn 9 ,>- - Brq 2MU

4>'>" Usok '½AC'N v~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~A

( ~ ~ Rvr od2l*s te xlsvi o lr>~L r,>' J0'- Ara N M aoB VA -

0 110 k'~~~~~~ 4> Apdin NY -~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Moden DIYARAR

0Bah BCu

NY~~~~~~~~~~~KOY .. y

KILMETES- , I) ,3 Ii - Qu .: VdMorsho,erkCir mo H-At/R _=. :,k,r,K_

MILESteI1,en K tN N GorhsalE rozionrep .rt A x.'i LT

B U I .

TURKE

lst Protect Area 40'~~~~~~~~~~~~~~~~~ RA

* Teknik Ziroat Offices j POLAND~~A-- URKE

35' < 35'-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~t

A A Main, Others ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~Poec Ae

I st Project Area 40,~~~~~~~ft<RO AN I

- - InErnaona Begoundarfies C?UAA-N

Provekinc Boundarfies POLN A"~

Riversnal, naprketaiegnCorporations U S A S'R

Central Ma,keting Organization (PrOP05ed Location);z>z' AnIo

Mi, O An noonip/fOnheiepaRoMtheIA

Railways20Wo h,,sctts,/sessa5- tIA

International Boundaries 'IIJLGARIA~~/ov,snvttna/ea/sttuso~SYIA ev

Provnce oundrie A/ >>Z ;%tg:tCEE CRi