Agribusiness development with small farmer participation : evaluation of the Paraguay rural enterprise project

Evaluation covers the period 1977-80 and is based on interviews with USAID/P, participating bank staffs, and participant and nonparticipant farmers. About $6.5 million of A.I.D. funds were lent by the Central Bank of Paraguay (CBP) and commercial banks (CB) to 56 small and medium agricultural storage (15 loans), farm input and services (19), and processing (22) firms. Borrowers were required to do at least 50% of their business with small farmers. The high caliber of CBP and USAID/P staff, the prior experience of CB"s in rediscounting with the CBP, and the fact that CB"s could rediscount 60% of the value of the loan, made the rediscounting mechanism operate smoothly. On the negative side, CB"s had difficulty in loan administration, as evidenced by inadequate loan appraisal (for which consultant help was needed) and the lack of loan follow-up (even after CBP took over the responsibility). Participating farmers had incomes 39% and 35% higher than did nonparticipants in 1978/79 and 1979/80 respectively (of which difference 38% and 39% were due to the project) -- realistic figures given the spread of project benefits among many farmers and indirect project benefits enjoyed by nonparticipants. Participants decreased off-farm employment to expand the size -- if not the efficiency -- of their operations by intensifying or expanding land use. The project also increased awareness in government and the banking sector of the needs and abilities of small farmers. Direct data collection regarding the changes in attitudes toward small farmers that were observed in this project is recommended. The limited number of loans possible and the project"s limited time frame make it questionable whether adequate provision was made for permanent institution-building in the CB sector. CB"s may not have found the loans profitable if they had had to bear full administrative costs. In addition, the lack of specific social criteria for loans made the monitoring of loan benefits difficult; it would have been better to formally limit loans to certain geographic areas or types of agribusinesses.