Economic analysis of agricultural projects

534 Pages·1985·26.62 MB·English

by  Gittinger

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Economic Analysis
of
Agricultural Proj ects
EDI SERIES IN ECONOMIC DEVELOPMENT
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Economic Analysis
of
Agnrcultural Proj ects
Second Edition,
Completely Revised and Expanded
J. Price Gittinger
. *. . ::.
Join:t Librarv
Waahmgt,r, D. C. 20431 J
PUBLISHED FOR
THE ECONOMIC DEVELOPMENT INSTITUTE
OF THE WORLD BANK
The Johns Hopkins University Press
BALTIMORE AND LONDON
SECOND EDITION, COMPLETELY REVISED AND EXPANDED,
COPYRIGHT ) 1982 BY THE INTERNATIONAL BANK
FOR RECONSTRUCTION AND DEVELOPMENT / THE WORLD BANK
1818 H STREET, N.W., WASHINGTON, D.C. 20433, U.S.A.
ALL RIGHTS RESERVED
MANUFACTURED IN THE UNITED STATES OF AMERICA
The Johns Hopkins University Press
Baltimore, Maryland 21218, U.S.A.
The views and interpretations in this book are the author's and should not be attributed to
the World Bank, to its affiliated organizations, or to any individual acting in their behalf.
EDITOR James E. McEuen
PRODUCTION Christine Houle
FIGURES Raphael Blow
INDEX Ralph Ward and James Silvan
BOOK DESIGN Brian J. Svikhart
COVER DESIGN Joyce C. Eisen
Photo credits: World Bank photographs (facing pages) by Hilda Bijur, 437; William Gra-
ham, 431; Per Gunvall, 188; Yosef Hadar, 242; Edwin Huffman, papercover, 298; Jaime
Martin-Escobal, 42,411; Peter C. Muncie, 64; James Pickerell, 286; Tomas Sennett, frontis-
piece, 362, 445, 457; and Ray Witlin, 2, 84, 214.
Frontispiece: Milking tethered sheep in Syria.
* Karya ini tersedia pula dalam Bahasa Indonesia dengan judul Analzsa Ekonomi Proyek-
Proyek Pertanian diterbitkan oleh Penerbit Universitas Indonesia (Jln. Salemba Raya 4,
Jakarta).
* Une version en francais de cet ouvrage a ete publiee sous le titre Analyse economique des
projets agricoles, Editions Economica (49, rue Hericart, 75015 Paris, France; distributeur au
Canada: Le Diffuseur, C.P. 85, Boucherville, Qu6becJ4B 5E6).
* Esta obra tambien ha sido publicada en espafiol bajo el titulo Andlisis econ6mico de
proyectos agricolas,p or la Editorial Tecnos (distribuci6n en Espahia: Grupo Editorial, S.A.,
Don Ram6n de la Cruz 67, Madrid 1; distribuci6n en otros paises: GSR Internacional,
Villafranca 22, Madrid 28, Espafia).
Library of Congress Cataloging in PublicationD ata:
Gittinger, J. Price (James Price), 1928-
Economic analysis of agricultural projects.
(EDI series in economic development)
Bibliography: p. 445
Includes index.
1. Underdeveloped areas-Agriculture-Cost
effectiveness. 2. Agriculture-Economic aspects.
I. Title. II. Series.
HD1417.G58 1982 338.1'3 82-15262
ISBN 0-8018-2912-7 AACR2
ISBN 0-8018-2913-5 (pbk.)
Foreword
To INCREASE THE GROWTH AND EFFICIENCY of the agricultural and rural
sectors of the developing countries is of prime concern to the interna-
tional community. More rapid progress is crucial not only to improve the
quality of life of the 60 percent of the world's population earning its living
from rural labor, but also to ensure adequate food supplies for all nations
in the face of rapid worldwide population growth and rising incomes that
lead people to want more and better-quality food. Unless domestic food
production in developing countries steadily increases, these require-
ments will place unbearable strains on the world's food production and
distribution system-threatening widespread malnutrition in the
poorest countries and adding to inflationary pressures in the industrial
nations.
In the next few years, agriculture and rural development will be a
priority in the lending programs of The World Bank and International
Development Association (IDA). The World Bank will maintain its sup-
port of member governments with technical expertise and a continuing
flow of resources. It will help governments to expand irrigation systems,
provide more effective extension services, increase food storage capacity,
disseminate agronomic technology, and improve the marketing and dis-
tribution of agricultural goods.
This effort will require large quantities of scarce resources-both peo-
ple and money-from our member nations and from the Bank itself. We
must use these resources efficiently.
v
Vi FOREWORD
Since its founding the Bank has encouraged, indeed insisted upon, the
responsible preparation of the development projects for which it lends.
This book is one more implement by which the agricultural work of the
Bank is carried out.
The Bank shares its experience and skill with member governments
and their technical and administrative staffs so that wise and careful
investment decisions will yield higher national incomes and a better
quality of life for the people of the developing world. In no sector is this
sharing of information more important than in agriculture and rural
development, where sound investment has such effects on the lives of
millions.
The Economic Development Institute (ED) has played an important
role in disseminating the Bank's experience. Since its founding in 1954,
more than 10,000 senior officials from member governments have
attended EDI courses both at headquarters in Washington, D.C., and
overseas. EDI has helped dozens of institutions throughout the world to
provide courses in economic management and project analysis in their
own curricula.
Economic Analysis of Agricultural Projects derives from the Bank's
concern to hasten agricultural and rural development and from the
course activities of EDI. The book presents a sound, careful methodology
for project analysis based on the efforts of agricultural specialists in the
Bank and throughout the world. Care has been taken to make the techni-
cal topics discussed understandable to those without advanced training
in economics. The book was written to be used either in individual study
or in the classroom.
We are pleased that the first edition has enjoyed such wide acceptance.
Since it was published in 1972, it has become a standard text for those
planning agricultural projects and teaching project analysis. In offering
this revised edition, with expanded coverage and the addition of more
recent experience, we hope to make its contribution even more effective.
A. W. CLAUSEN
President
The World Bank
Washington, D.C.
June 1982
Contents
Foreword by A. W. Clausen v
Preface
xiii
Using This Book xvii
PART ONE The Project Concept
1. Projects, The Cutting Edge of Development 3
What Is a Project? 4
Plans and Projects 6
Advantages of the Project Format 7
Limitations of the Project Format 9
Aspects of Project Preparation and Analysis 12
Technical aspects 12
Institutional-organizational-manageriaals pects 13
Social aspects 15
Commercial aspects 16
Financiala spects 16
Economic aspects 18
The Project Cycle 21
Identification 21
Preparationa nd analysis 22
Appraisal 24
Implementation 24
Evaluation 25
Accuracy of Agricultural Project Analyses 26
Economic effects 27
vii
viii CONTENTS
Effect on incomes of rural poor 28
Implementation experience 28
Why Agricultural Project Analyses Prove Wrong 29
Problems of project design and implementation 29
Problems of poor project analysis 35
Steps in Project Analysis 37
2. Identifying Project Costs and Benefits 43
Objectives, Costs, and Benefits 43
"With" and "Without" Comparisons 47
Direct Transfer Payments 50
Costs of Agricultural Projects 52
Physical goods 52
Labor 53
Land 53
Contingency allowances 53
Taxes 54
Debt service 54
Sunk costs 55
Tangible Benefits of Agricultural Projects 56
Increased production 56
Quality improvement 57
Change in time of sale 57
Change in location of sale 57
Changes in product form (grading and processing) 58
Cost reduction through mechanization 58
Reduced transport costs 58
Losses avoided 58
Other kinds of tangible benefits 59
Secondary Costs and Benefits 59
Intangible Costs and Benefits 61
PART TWO Financial Aspects of Project Analysis
3. Pricing Project Costs and Benefits 65
Prices Reflect Value 65
Finding Market Prices 69
Point of first sale and farm-gate price 70
Pricing intermediate goods 71
Other problems in finding market prices 72
Project boundary price 74
Predicting Future Prices 74
Changes in relative prices 75
Inflation 76
Prices for Internationally Traded Commodities 77
Financial Export and Import Parity Prices 78
4. Farm Investment Analysis 85
Objectives of Financial Analysis 86
Assessment of financial impact 86
Judgment of efficient resource use 86
Assessment of incentives 86
Provision of a sound financing plan 87
Coordinationo f financial contributions 87
Assessment of financial management competence 87