RETURN TO REPORTS DESK RESTRICTED WITHIN Report No. PA-94a ONE WEEK TMis report is for ofn_a us on by the, Bank Group nd specificly authorized orpnizations or persons. It muy not be publihod, quoted or cited without Bank Group authorization. The Dank Group doos not accept responsibility for the accuracy or completeness of thereportL INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF A FISHERIES PROJECT PANAMA July 15, 1971 Agriculture Projects Department Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
RETURN TOREPORTS DESK RESTRICTED
WITHIN Report No. PA-94a
ONE WEEK
TMis report is for ofn_a us on by the, Bank Group nd specificly authorized orpnizationsor persons. It muy not be publihod, quoted or cited without Bank Group authorization. TheDank Group doos not accept responsibility for the accuracy or completeness of the reportL
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
INTERNATIONAL DEVELOPMENT ASSOCIATION
APPRAISAL OF
A FISHERIES PROJECT
PANAMA
July 15, 1971
Agriculture Projects Department
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CURENCY EQUIVALENTS
US$1.00 - B 1.00
WRIG:ITS AND MEASURES
1in - 2.54 ceI ft - 30.5 cm1 lb - 0.453 kgI metric ton - 2,205 lb1 U.S. gAl - 3.8 liters1 km - 0.62 mile1 sq mi ' 2.56 sq kilotersI sh ton - 2,000 lb
AB, VIATIONS
BNp - Banco Neiional d. Panama
PANAMA
FISHERIES PROJECT
TABLE OF CONTENTS
Page No.
SUMMARY AND CONCLUSIONS ...................... i-ii
I. INTRODUCTION ....................... , 1
II. BACKGROUND .......................... 1
A. General .................. 1B. Fishing Industry ................. 2
Development and Administration .............. 3Fishing Port Facilities ..................... 4Shrimp Fishery ............................. . 4Other Fisheries ....................... 6
C. Fisheries Development Credit .................. 7General .................................. 7Banco Nacional de Panama .................. 8
D. Shrimp Trawler Construction ...................... 9
III. THE PROJECT ........................................... 9
A. General Description ........ ...................... 9B. Detailed Features ................................ 10
Fishing Vessels ............................. . 10Technical Assistance . . . 10Fishing Port Feasibility Study ............ .. 10Permanent Working Capital ................... . 11
IV. ORGANIZATION AND MANAGEMENT ....... .................... 14
A. Loan Policies and Procedures ...................... 14B. Fisheries Project Committee ...................... 16C. Accounts and Audit . ..... 16
V. OPERATING RESULTS ..................................... 16
VI. BENEFITS AND JUSTIFICATION ....... ..................... 17
VII. RECO11MENDATIONS ......................... 18
This report is based on the findings of a Bank mission in January/February1971 composed of Messrs. Frank and Kada (Bank) and Svoboda (Consultant).
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ANNEXES
1. Past Production, Exports and Imports of Shrimp, Fish and Fish ProductsTable 1 Fish and Crustacean LandingsTable 2 Exports of Fish ProductsTable 3 Imports of Fish Products by ValueTable 4 Imports of Fish Products by Volume
2. Functions and Organization of the Directorate of Marine ResourcesTable 1 Personnel of the Directorate of Marine ResourcesChart 1 Organization of the Directorate of Marine Resources
3. UNDP/FAO Regional Project for Central American Fishery DevelOpment
4. UNDP Follow-up Project
5. Panamanian Shrimp Fishing FleetTable 1 Average Number of Shrimp Trawlers in OperationTable 2 Composition of Shrimp Trawler Fleet, 1970Table 3 Licensed Shrimp Fleet Ownership
6. WIorld Shrimp Resources and Market ProspectsTable 1 Shrimp Catches by Countries and RegionsTable 2 Shrimp Imports intc Major MarketsTable 3 Shrimp Exports by CountryTable 4 Shrimp Wholesale Price Series Ex ChicagoTable 5 Income and Price Elasticity of Consumption for Shrimp in
Different CountriesEChart 1 Shrimp Price Movements - 1950-69
7. World Fish Meal Production and Market ProspectsTable 1 Fish Meal and Solubles: World Exports, 1955-65 - 1975Table 2 Fish Meal and Solubles: World Production, 1955-65 - 1975Table 3 Fish Meal World Imports, 1955-57 - 1968Table 4 Prices of Fish Meal in Western Europe and United States,
1954-1969Chart 1 Fish Meal Production and Imports in Major Net Importing
Countries, 1955-1968Chart 2 Fish Meal Prices in, Western Europe and in U.S.A.Chart 3 Fish Meal and Solubles Production in Major Producing
Countries, 1955-75
S. Panamanian Fish Meal IndustryTable 1 Landings of Anchovy and Thread HerringTable 2 Purse Seiner Fleet (1970)Table 3 Fish Meal and Fish Oil ProductionTable 4 Estimated Earnings and Costs of Purse SeinerTable 5 Assumptions for Purse Seiner Income Statement Forecasts
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9. Panama Banking Sector and Monetary SystemTable 1 Summary Balance Sheet Figures of Panama Banks and
Savings InstitutionsTable 2 A. Balances of Bank Deposits, December 31, 1966-1969,
March 31, 1971B. Loans Granted, Years 1966-1969 and 1st Trimestre 1970
Table 3 Panama Banks and Savings Institutions, December 31, 1969Table 4 Panama Finance Companies: Comparative Summary Balance
Sheets, December 31, 1964 and 1968
10. Fisheries Development CreditTable 1 Estimate of Bank Loans to the Fisheries Sector,
January 1, 1966 to September 30, 1970Table 2 Banco Nacional de Panama: Loans for Fishing Vessels
Made in 1969 and 1970
11. Banco Nacional de PanamaTable 1 Banco Nacional de Panama: Comparative Balance Sheets,
December 31, Fiscal Years 1965 thru 1970Table 2 Banco Nacional de Panama (Loans Granted in 1966 to 1969
and 1st through 3rd Quarter (1970)): Distribution ofLoans by Economic Sectors
Table 3 Personnel of the Banco Nacional de Panama (January 1971)Table 4 Banco Nacional de Panama: Comparative Income StatementsChart 1 Organization of the Banco Nacional de Panama
12. Specifications 67-Foot Shrimp TrawlerDrawing Example of Acceptable Design for 67-Foot Steel Shrimp
19. Financial Operating Results of Shrimp TrawlersTable 1 Number of Shrimp Trawlers According to Length (1970)Table 2 Annual Catch Estimates of Proposed Shrimp TrawlersTable 3 Estimated Earnings and Costs of 72-Foot Shrimp TrawlerTable 4 Assumptions for Income Statement Forecasts of 72-Foot
Shrimp TrawlerTable 5 Estimated Earnings and Costs of 67-Foot Shrimp Trawler
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Table 6 Assumptions for I[ncome Statement Foreca6ts of 67-FootShrimp Trawler
Table 7 Financial Return of 72-Foot Vessel with Constant Pricesand Costs
Table 8 Financial Return of 72-Foot Vessel with Increase inPrices and Costs
Table 9 Financial Return of 67-Foot Vessel with Constant Pricesand Costs
Table 10 Financial Return of 67-Foot Vessel with Increase inPrices and Costs
Table 11 Sub-borrower Cash Flow
20. Projected Project Account Cash Flow
21. Financial and Economic Results of ProjectTable 1 Economic Results of Project (Prices and Costs Constant)Table 2 Economic Results of Project (With Increase in PriCes
and Costs)Table 3 Incremental Shrimp Export Earnings
MAP
Main Shrimp Fishing Grounds
PANAMA
FISHERIES PROJECT
SUMMARY AND CONCLUSIONS
i. This report concerns the appraisal of a fisheries project in theRepublic of Panama to assist in the renewal of that country's obsolete shrimptrawler fleet. New vessels are required to enable Panama to take maximumadvantage of its valuable shrimp resources. The proposed project is in linewith Government's strategy of developing all aspects of the fishing industryand, in particular, coincides with its objective of insuring the availabilityof development credit to small fishing enterprises. The proposed loan wouldbe the first Bank loan to support agricultture in Panama since the 1950's andis viewed as the first of a possible series of projects to support the Pana-manian fishing industry.
ii. The proposed project involves the supply, over a four-year period,of about 40 shrimp trawlers, equipped with modern fishing gear, and the pro-vision of technical assistance in vessel design, construction supervision,operational training and a fishing port feasibility study. Total projectcosts are estimated at US$5.4 million, of which US$3.4 million, or 64%, rep-resents the foreign exchange costs to be financed by the proposed Bank loan.Sub-borrowers would contribute 16% towards project costs and tlle BancoNacional de Panama (BNP) and government would provide the remaining 20%.
iii. The loan would be made to the Banco Nacional de Panama, which wouldbe the lending channel, setting up a Project Unit within its organization toassume responsibility for coordination and execution. The Unit would beheaded by a senior BNP officer, and a naval architect and a Fisheries ProjectCommittee would assist in international tendering and bid evaluation. TheDirectorate of Marine Resources of the Government of Panama would assist insubloan analysis, vessel design selection, and crew training. BNP would es-tablish a Separate Project Account through which all project ftnds managedby BNP would flow.
iv. The 40 replacement vessels would catch an annual average incrementalvolume of about 1.8 million lb over wlhat the 40 vessels would catch ifleft to fish until the end of their economic life. The resulting earningswould provide satisfactory financial retUtrn!; to the fishermen. The economicrate of return would be 15% if future prlces and costs are assumed constant and22% under the more realistic assumption of an increzase in prices and costs.It is expected that the coming decade will see a continued upwardl pressure onshrimp prices due to fixed worldl supply and Increasing per capita consumptionof slhrimp. The projected incremwental, net export e;irnings due to the projectwould amount to an annual average of at least US$1.7 million.
v. At present there are no import duties on shrimp vessels because ofa Government decree prohibiting imports. Thle project would be exempt from thedecree, however, and the vessels would be procured through international com-petitive bidding. A 15% preference would be allowed for locally built vessels
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an(I it is expected tilat local shipya:rds would win the bids. Thie estimated
foreign exchange component of tLie pro,je;Jct includes expatriate Lectinical as-
sistance and imported materials for vessel construction: steel plate, diesel
engines, auxiliary Liqu ipment, iiavigation eqluipmen.t, and fisling, gear.
vi. Thie project would be suitable for a Bank loan of US$3.4 million, with
a term of 12 years, including flve years of grace. T'he borrower would be
tile Banco Nacional de Panama anid wou:ld bear the forefgig exchange ri.sk. BtNP
would supplement abotit US$3.0 nmillion of the Bani loan with its own funds
and grant subloans for replacing vessels with terms of eiglt years, inicluding
one year of grace, and an interest rate of 9-1/2%. The remainder of theBank loan; about US$0.4 million, would be used by Government Lo help finance
the fishing port feasibility study and the fishing operations training.
PANAMA
FISHERIES PROJECT
I. INTRODUCTION
1.01 The Government of Panama has requested a Bank loan of US$3.4million to meet the foreign exchange costs of a fisheries project that wouldrenew a substantial part of the shrimp trawler fleet, improve its efficiencyand increase its output. The project involves the supply of about 40 vesselsand the provision of related technical assistance services. It would be animportant part of Government's plan to develop all aspects of its fishingindustry and to insure that credit is available to small fishing enter-prises.
1.02 This would be the first Bank loan for agricultural development inPanama since the mid-1950's when two small loans were made for farm equipmentand grain silos (PAN-86, $1.2 million, and PAN-87, US$290,000). The proposedproject is viewed as the first of a possible series to support the Panamanianfishing industry. A second project is being prepared by the Government whichwould involve the construction of a fishing port and a possible third wouldprovide additional fishing vessels, based on the improved shore servicingfacilities.
1.03 The project was identified and prepared by an FAO/IBRD CooperativeProgram mission in August 1969. This report is based on the findings of an
appraisal mission, consisting of Messrs. Frank and Kada (Bank) and Svoboda(consultant), that visited Panama in January/February 1971.
II. BACKGROUND -/
A. General
2.01 Panama, with an area of about 29,000 sq mi, has a population ofabout 1.4 million, which is increasing at the rate of about 3.2% per annum.Per capita income was about US$700 in 1970. The country has provided an openand stable economic environment that, together with the Panama Canal, has
led to the development of a sophisticated communications, banking, andentrepot community, and it has achieved an economic growth rate of almost 8%against a background of price stability. Although the Canal is the majorsource of foreign exchange earnings, dependence on it has been somewhat re-duced as a result of progress made by the private sector. Since 1969, theGovernment has undertaken a large public investment program to correct
1/ For further information on the Panamanian economy, see: Current Econo-mic Position and Prospects of Panama, IBRD Report No. CA-2 of February 19,1970.
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deficiencies in the economic infrastructure, such as power, water supplies,road maintenance, airports, fishling ports, and vocatlonal and secondary edu-cation.
2.02 Agriculture, in spite of high urban migration, still employs about40% of the population but accounts for only 20% of the gross nationalproduct. A wide and growing gap exists between the few advanced, export-oriented farmers and a large group of farmers producing for domestic consump-tion. While in 1970, the single largest source of foreign exchange earningswas revenue from the Panama Canal Zone, bananas provided about 50% of Panama'scommodity export earnings, followed by refined petroleum (21%) and shrimp (8%).
B. Fishing Industry
2.03 "Panama" is said to be the Indian name for abundance of fish.The territory of the Republic of Panama is situated on the isthmus separatingthe Caribbean Sea from the Pacific Ocean. On the Pacific side (1,780 km ofcoastline), the waters are rich in fish resources, especially in the Gulf ofPanama where many rivers deposit alluvia to form a layer of mud along the
coast and create a favorable habitat for shrimp. Seasonal water upwellings 1/in the Gulf account for a high biological production that supports size-able stocks of commercially important fish species. Coastal waters on theCaribbean side (880 km of coastline) are rather poor in fish resources andtheir exploitation is hampered by lack of roads and scarcity of populationalong the coast.
2.04 The fisheries industry employs 4,600 people, or about 1% of thee(onomically active population, and capital invested in all fisheries
activities is estimated to be US$20.5 million, of which a total of US$13mfllion is invested in fishing vessels. The bulk of the Panamanian catchis processed and exported, amouinting to about US$11.0 million in 1970, buttinports of fish products are also considerable, especially salted cod, cannedsardines, and ttna, amounting to about US$2.1 million in 1970. Statisticson past production imports and exports of the fishing industry appear inAnnex 1.
2.05 In spite of an active fishing industry, annual per capita consump-tioll of fish in Panama is only about 10 lb, which is low compared with manyother nations. Since there is a reported lack of a properly nutritional diet,especially among the inland rural population, the Government is developingthe food fish industry through specific projects in the catching, distribut-ing, marketing and preparation of various species of fish that are not pres-ently part of the typical diet (paras 2.06, 2.09 and 2.21).
1J An upwelling is a stream from the ocean bottom towards the surface of
the sea that is caused by: surface wind, bottom currents, shape ofocean floor, difference of water temperature, etc. The upwellingsbring Up nutritional elements from the ocean bed and form rich fishfeeding waters.
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Development and Administration
2.06 The Government of Panama has a comprehensive program to develop thepotential of its fishing industry. To overcome the inadequacies of the pres-ent port and fish installations, a new fishing port complex is being planned(para 2.11). Government is also developing the food fish industry throughspecific projects in the catching, distributing, marketing, and preparationof various species of fish. UNDP/FAO is working with the Government in thisfield (para 2.09), and, with the assistance of AID, the Directorate of MarineResources has launched a promotional campaign designed to increase local con-sumption. As part of the campaign, fish cookbooks are distributed and fishcooking programs are televised. The U.S. Peace Corps has been assisting indeveloping a cooperative of individual fishermen in a remote area that wouldcatch and process food fish.
2l07 The organization holding primary responsibility for fisheriesadministration and development is the Directorate of Marine Resources,within the Ministry of Industry and Commerce. This Directorate formulatesahd enforces fishing regulations and legislation, conducts biologicalinvestigations, performs exploratory fishing, collects and publishes fishingstatistics, assists in fish marketing efforts, and supports the developmentof small-scale fishing (Annex 2). In addition, the National Fisheries Commis-sion, composed of representatives of public organizations and the fishingindustry, including the seamen's trade unions, reviews and makes recommenda-tions on key fishing policies and legislative issues.
2.08 The National Association of the Panamanian Fishing Industry is anactive trade association whose membership includes nearly all processingcompanies and over 75% of the vessel owners. The Association works closelywith Government officials in efforts to develop the commercial fishingindustry.
2.09 Panama is a participant in the UNDP/FAO Regional Project for Cen-tral American Fishery Development and has contributed nearly US$500,000 tothe six-year project, which concludes this year (Annex 3). The project'spurpose is to increase the production and consumption of marine and brackishwfter fish and fishing products in the Central American region. Activitiesin Panama have included resource surveys, made through exploratory fishing,and work to strengthen the infrastructure for the local distribution and mar-keting of food fish. A UNDP follow-up project is being formulated that wouldconcentrate on further development of small-scale fishing, shark fishing,domestic food fish marketing and distribution, and intensive offshore ex-ploratory fishing (Annex 4).
2.10 All commercial fishing activities in Panama are licensed and aresubject to regulation by the Directorate of Marine Resources. To insurethat the intensity of fish processing and exploitation does not surpass thelevels that fishing resources can biologically and economically support, theDirectorate has set limits on the maximum fleet sizes and installed processingcapability.
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Fishing Port Facilities
2.11 Although the fisheries of 'Panama have considerably developed overthe past 15 years, available fish resources and potential markets for fishproducts still allow for a larger expansion of fisheries activities. Thisexpansion is hampered by the lack of fishing port facilities on Panamanianterritory, and especially in the Gulf of Panama where the most importantfish resources are concentrated. Because there is no port for shelteringor berthing fishing vessels, damage to vessels is frequent, and operatingcosts are high. In areas where vessels anchor, the inner reaches are veryshallow and fish catches can be landed only at high tide. As a result,fish processing cannot be made a continuous operation and the marketing offresh fish is also disrupted. In any action taken to expand Panamanianfisheries, the construction of a fishing port must have priority.
Shrimp Fishery
2.12 Resources. The Gulf of Panama and the Gulf of Chiriqui off thePacific coast of Panama are the two major shrimp fishing grounds (Map). Theshrimp grounds are within the territorial waters claimed by Panama, 200 milesfrom the coastline, with the most important shrimp trawling taking placewithin 12 miles of the coastline. Panama has had no difficulties over inter-national fishing rights to its shrimp fishing grounds. Shrimp resources aregenerally determined by the amount of alluvial deposits carried by therivers to the sea to form areas of brackish water in which infant shrimpgrow. The life cycle of shrimp is estimated at 12 to 18 months. One adultshrimp female produces millions of eggs and the proportion surviving andgrowing into adult shrimp is determined primarily by the availability offood sources and not the intensity of the shrimp fishing. Most eggs do notresult in adult shrimp because of a lack of food sources; many are also eatenby fish. As long as a few adult shrimps mature and lay eggs, the resourceis maintained. It is conceivably impossible that shrimp resources would betrawled to the extent that all adult shrimps are caught before laying eggs.In Panama, the brackish waters are placed off limits to allow the infantshrimp to develop.
2.13 Three main species of shrimp are found in Panama - white, pink,and sea bob (titi). White shrimp are the most sought after because of theirlarge size and higher commercial value, and available data show that thesestocks are being fully exploited. I'here are possibilities of increasedexploitation of other species, especially a type of red shrimp, Solenocerasp., for which new fishing grounds have been recently discovered in deeperwaters. Further exploratory fishing to determine whether the new groundscan be commercially exploited is being conducted by the Government of Panamaand the UNDP/FAO project.
2.14 Shrimp fishing statistics indicate annual catches of 6,100 to 7,800sh tons over the past 10 years, with an annual average of about 6,600 shtons (Annex 1). In 1970, the shrimp fleet brought in about 7,600 sh tons.Since these catches represent near complete annual exploitation of provenfishing grounds, a further increase in fishing effort would not significantly
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increase total annual catch. Providing replacement shrimp trawlers underthe proposed project would, however, prevent a decline in shrimp catch, whichwould occur if the old vessels are not replaced.
2.15 Fleet. Shrimp fishing on a commercial scale in Panama began in theearly 1950's with successful shrimp exports to the United States and theimport of second-hand trawlers from the United States, mostly old styleMfississippi coastal single-net trawlers. By 1955, several shipyards werebuilding wooden shrimp trawlers and the size of the fleet grew rapidly untilit was limited by Government in 1968 to 238 licensed trawlers. Althoughthe new modern steel trawlers have an initial higher catch per vessel thanand old wooden trawler, the catch of the steel trawler will also declinewith age and increased maintenance time. At the projected rate of fleetreplacement, all vessels in the fleet would have an adequate catch pervessel. During 1970, 229 shrimp trawlers were operated throughout the year,leaving nine licenses partially inactive due to delays in replacing sunkenvessels. Of the 229, about half (115) were wooden trawlers over 10 yearsold (Annex 5), which are kept in operation only with very high operating andmaintenance costs. Vessel owners must frequently replace the wooden hull,keel, and rudder pieces, which are damaged by the shipworm that commonlyinfests tropical waters. In addition, the older trawlers require frequentcaulking of the hull planks. On the majority of these boats, the mainengines, brine tanks, and auxiliary equipment have reached the point wherethey can no longer be repaired but must be replaced. As a result of thehigh maintenance costs, many of the old vessels are operating at a marginalprofit and sometimes at a loss. Owners of the vessels have begun to buildor purchase replacements but, due to the limited credit and stringent terms,only 17 trawlers have been replaced in the past three years.
2.16 The largest part of the shrimp trawler fleet, 68%, is owned bycompanies or individuals with three or more vessels each and comprise 16%of the total number of companies or owners. The companies or owners withone or two trawlers own a total of 32% of the fleet and comprise 84% of thefishing company or owner population. The largest companies (10 to 44 vesselseach) are owned by the shrimp processing plants while the owners of one andtwo vessels are usually former captains and small investors. Before thenumber of licenses was fixed at 238 in 1968, the fleet was generally expandedby the larger companies selling their older trawlers to individuals and thenbuilding new ones. The individual owners who purchased these second-handvessels were not able to earn sufficient profit to purchase new vessels. Itis estimated that a subloan for a new and more efficient trawler could befully repaid after eight years of operation. However, present credit arrange-ments for replacing trawlers have been limited and carry stringent terms(three to five years for repayment). Most of the recent trawler replacementsare those made by the larger companies who often purchase the licenses ofindividual owners that are not able to replace their old vessels.
2.17 Production. Shrimp are caught by vessels dragging trawl nets on theocean bottom. They are hauled aboard and dumped on deck, beheaded, washedwitl sea water, and stowed in brine freezing tanks in the vessel's hold. Whena trawler arrives at a pier, the shrimp tanks are washed with fresh water
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and defrosted on deck. T'he shrimp are then landed on the pier, weighed, anddelivered to one of the six processing plants. In the plants, shrimp arekept in icy fresh-water tanks until they arc separated by hand, accordingto species and then sorted by machine according to size. Depending on markcet-ing requirements, some are also shelled andci devefne(l. Shrimp are usuallypacked in 5-pound inner cartons, placed on metal trays, and put into a con-tact freezer. Groups of 10 inner frozen cartons are packed into 50-poundmaster cartons for shipment and kept in cold storage until loading, on aweekly basis, into refrigerated containers. These containers are then shippeddirectly by liner service fromi Balboa to New York or other foreign ports.
2.18 Market. Within the fishing industry, the shrimp fishery is econom-ically the most important, witl an annual average export value of about US$9.0million over the past five years. Nearly all the production of shrimp is ex-ported to the United States, the largest consumer of shrimp and where percapita consumption has doubled since 1950. Japan is the second largest con-sumer and, like the United States, is forced to rely increasingly on importsto satisfy local demand. Witlh relatively fixed world shrimp resources andincreasing per capita consumption, the pressure on price is evident. TheChicago wholesale price went from US-$0.63 per lb in 1950 to US$1.31 per lbin 1969 - more than a 100% increase, with the sharpest rises coming between1964 and 1969. These increases are likely to be even steeper as time passes.The United States National Marine Fisheries Service estimates price increases(in real terms, that is withotut allowing for inflationary increases) of 58%from the base years 1965-67 to 1985 (Annex 6). The project financial andeconomic analysis was made on the alternative assumptions of: (a) pricesand costs remaining constant; and (b) prices and costs increasing (para 5.03).
Other Fisheries
2.19 Fish Meal. Two main species of small pelagic fish (anchovy andthread herring) are caught by the purse seiner fleet for processing into1:ish meal and fish oil by the two reduction plants. The fleet has about24) purse seiners, mostly converted shirimp trawlers. The reduction processproduces about 18% of the raw fish weight in fish meal and about 2% in fishoi1. For profitability, the two plants must achieve an annual productionlevel of about 8,800 sh tons of meal each, which requires a total catch ofabout 88,000 sh tons of fish. Total fish catches have fluctuated dramaticallyin the past five years (1965-70) but the annual average was only about 56,200sh tons, with a high of about 72,800 sh tons in 1966.
2,20 Panamanian fish meal production, averaging 7,000 sh tons annually(1965-70), is negligible in comparison with the world production, whichincreased from about 4.4 to 5.5 million sh tons during the same period. Fishmeal is used as a basic protein ingredient for animal feed formulas, butas fish meal price rises, soybean meal is substituted as the protein source.The world production of fish meal is projected to grow at a slower rate dueto the fixed fish resources, and soybean meal production is projected toincrease substantially. This is expected to bring about a decline in fishmeal prices in the 1970's (Annex 7). Analysis, based on Panama's limitedand variable fish resources, excess capacity in installed processing
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capacity, and poor fish meal market prospects, indicates that additionalinvestment in the purse seiner fleet would not be justified (Annex 8).
2.21 Food Fish. The average annual production of food fish in the lastthree years was about 3,900 sh tons, most of it caught by shrimp trawlers(1,600 sh tons), fish meal purse seiners (800 sh tons) and inshore fishermen(1,500 sh ton). The inshore catch is landed by eight small inshore purseseiners and 250 small boats and canoes, 60 of which are based in PanamaCity and supply the city markets. The Government is receiving assistancefrom the UNDP/FAO project (para 2.09) to increase local consumption anddevelop export markets by improving fish landing facilities and the roadnetwork and by providing equipment and organization required for fish dis-tribution.
2.22 Tuna. Panama lies at the geographical center of the large easternPacific tropical tuna fishing grounds, whiclh extend from California to Chile.Two tuna purse seiners, flying the U.S. flag, but owned by Panamanians,operate out of Balboa. There are no statistics available on their catches,which are entirely exported. Yellow fin tuna is found in sizable quantitiesoff the coasts of Panama, but exploitation has reached the level of maximumsustainable yield and catch is now limited by an international agreement towhich Panama is a party. Investments in the Panamanian tuna fishing fleetare therefore not justified.
C. Fisheries Development Credit
General
2.23 The openness of Panama's banking and monetary policies has led tothe establishment of many domestic and foreign financial institutions. Panamaprovides unrestricted currency convertibility and, with the Balboa beingon par with the U. S. dollar, U. S. dollars are used as legal tender. Theestablishment of both local and foreign banks is encouraged by the lack ofcontrols placed on their activities (Annex 9). Credit specifically for thefishing industry is provided by various sources (Annex 10). Commercialbanks have made some loans for vessel repair and construction and processinginstallations and have handled the export financing of fish products. Creditfor processing equipment has also been provided by a Panamanian privatedevelopment bank and foreign equipment suppliers. Individual vessel ownersoften utilize credit from processing plants for their working capital andto finance maintenance costs. These credits, however, almost always entaila trade agreement whereby the fisherman is obligated to sell his catch to theparticular processing plant and usually at a price differential that resultsin a high effective interest rate.
2.24 The shrimp fishermen, especially the independents with only oneor two vessels, now have a critical need for loans to replace their oldwooden trawlers. For the most part though, the commercial banks have notshown an active interest in extending credit for new boat construction
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especially to individual vessel owners. The new vessels that have beenconstructed in Panama during the past three years were partially financedby the banks on terms that could be met only by the larger companies (para2.16). Of the 115 vessels 10 years old or older, it is estimated that about35 are owned by large companies and about 80 by individual owners. Of theindividual owners with old vessels, a number indicated they would not seek
a subloan under the proposed project at the projected terms; others who are
interested in replacing their vessels would most likely not meet the finan-cial criteria. Therefore, credit for replacing 50% of the old trawlers isconsidered to be a conservative estimate of the demand that will develop fromindividual vessel owners over the next four years (40 vessels).
Banco Nacional de Panama
2.25 Of the financial institutions providing credit to individualfishermen, the Government-owned Banco Nacional de Panama (BNP) is currentlythe most active and would be the lending channel of the proposed Bank loan.
Other financial institutions in Panama are either not interested or notstructured to provide development credit to individual fishermen for vesselreplacement. BNP provides full commercial banking services, performs variousfiscal functions, and provides development financing (Annex 11). It is beingencouraged by Government to become more active as a development financeinstitution and to assist sectors of the economy that previously have nothad credit available on appropriate terms.
2.26 There were some political dlisturbances in 1968 and private depositolswithdrew their funds from BNP. At the same time, Government borrowed heavilyfrom BNP to finance its emergency expenses. Despite past internal problems,however, BNP has been rebuilding its deposits and Government has repaid nearlyall of its 1968 borrowings. Altlhough BNP has been demonstrating respectableprofitability and its debt-equity ratio had improved from 7.3:1 in 1968 to
about 5.8:1 by the end of 1970, preliminary information from a Governmentaudit of BNP's loan portfolio shows al significant percentage in arrears.
2.27 During the period of 1968-70, BNP had frequent and disruptivechanges in its higher management, but in 1970 Government began to recruitqualified people from foreign commercial banks in Panama and from otherGovernment financial institutions. A new general manager has been appointedand several qualified professionals have been named to other key positions.This new management team has undertaken a general organizational review,with an emphasis on aligning the organization according to the various typesof banking functions performed by BNIP and establishing an improved managementinformation system. With the assistance of IDB, which has made three loansto BNP, a U. S. consulting firm 1/ was contracted and is now working tostrengthen the procedures and personnel of the Industrial Credit Department.
1/ Peat, Marwick and Mitchell.
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D. Shrimp Trawler Construction
2.28 The construction of shrimp trawlers in Panama was stimulated bythe growth of shrimp fishery and the Government regulation of 1953 prohibit-ing the import of fishing vessels. Originally, most of the vessels wereconstructed of wood because a strong preference for steel vessels did notdevelop until the late 1960's. Panama has at present one large shipyard andseveral smaller ones. The large shipyard constructs only steel vessels.Several fishing companies and the small shipyards build both wooden and steeltrawlers. A ship repair yard is very active in the repair of both steel andwooden vessels.
2.29 The large shipyard in Panama has built 12 steel shrimp trawlers inthe past three years and has the slipway capacity to build 15 to 20 vesselsannually, with a construction period of about six months each. The shipyardhas experienced personnel and basic construction equipment, and fishermenwho have had trawlers built in the yard recently have been satisfied withthe workmanship. The yard has also built several vessels for export. Thesteel shrimp trawlers built by the several small shipyards have also beenof a satisfactory construction quality and according to an acceptable design.
III. THE PROJECT
A. General Description
3.01 The proposed project would provide critical assistance to Panama'sshrimp fishing industry by preventing a decline in the catch of a substantialpart of the existing fleet and by increasing the industry's efficiency. Overa four-year investment period, the project would:
(a) provide credit to fishermen to replace about 40 old woodenvessels with modern steel shrimp trawlers equipped withmodern fishing gear; and
(b) provide technical assistance services to design and assistin procurement and construction supervision of the shrimptrawlers and to give training to shrimp fishermen in basicnavigation and in the use of modern fishing gear; and fora fishing port feasibility study. Panama's main fishingport in Panama city has become overcrowded and does notallow for any expansion of filshing operations. A studywill be conducted to determine the feasibility of a newfishing port outside the Panama city area.
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B. Detailed Features
Fishing Vessels
3.02 The proposed project would provide for the replacement of 40 oldwooden trawlers with 40 standard steel trawlers, having an overall length of67 feet and powered by 240-hp diesel engines. The new vessels would havestainless steel brine freezing tanks and compressors with the capacity tofreeze and carry the shrimp catch of a two-week trip. 'The main winch wouldbe configured to allow for double rigging so that two trawl nets could betowed simultaneously. In addition, the winch would accommodate the "trynet," which is hoisted from the water at about 15-minute intervals to checkon the richness of the shrimp beds being trawled. In addition to a magneticcompass and short-wave radio, vessels would be equipped with echo sounders --sonar devices that assist in gauging ocean depths -- since various varietiesof shrimp are found at different depths (Map). The vessel hull would beconstructed of 1/4-inch welded steel plate and protected with marine paint.The upper deck, pilot house, and sleeping quarters would be constructed ofwood. An outline drawing and specifications for the trawler appear inAnnex 12.
Technical Assistance
3.03 Naval Architect. A naval archltect would be contracted by theProject Unit of BNP (para 4.01) to assist in determining the detailed speci-fications, make the vessel design, prepare the tender documents for interna-tional competition, and assist in bid evaluation. Periodically during theconstruction period, the naval architect would visit the shipyard to insurethat conistruction conforned to contract standards. The services of the navalarchitect would be required if the vessels are built in Panama or abroad. Ageneral work plan for this expert appears in Annex 13. That a naval archi-tect, acceptable to the Bank, had been employed on terms and conditions ac-ceptable to the Bank would be a condition of effectiveness of the proposedloan .
3.04 Fishing Operations Training. Assurances were obtained duringnegotiations that all captains, before assuming command of the new vessels,would receive a training course satisfactory to the Bank, to be provided bythe Directorate of Marine Resources and starting three months before thedelivery of the new vessels. The course would consist of theoreticalinstruction and practical training in such subjects as basic navigation,engine maintenance and echo sounding (Annex 14). Assurances were alsoobtained during negotiations that if funds from the proposed Bank loan wereUsed to finance a training officer, the officer would be hired on terms and(cn0l1Li ons sat isfactory to the Bank.
FisIiung Port Feasibility Study
3.( 5 Government lhas recently signed a contract with Livesey, Hendersonand Partners (UK) to carry out a fishing port feasibility study. The con-stltants and the terms of reference for the study were approved by the Bank.
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The cost of the study (56 man-months in the field and 11 man-months in theoffice) is US$550,000 of which approximately US$400,000 is foreign exchange.Retroactive financing of about US$50,000 from May 1 may be required. Ex-pansion of the fishing industry in Panama is dependent upon a new portfacility (para 2.11).
Permanent Working Capital
3.06 The sub-borrower would provide from his own funds the permanentworking capital investment in the fuel, food, and supplies necessary for atwo-week fishing trip and in a shrimp fishing license for each new vessel.
C. Cost Estimates
3.07 The total cost of the project is estimated at about US$5.4 million,of which US$3.4 million, or 64%, represents the foreign exchange component.The estimates of the cost of vessel construction are based on quotations bythe local shipyard and the cost of similar vessels recently constructed inPanama. Cost estimates are summarized below:
5. Permanent Working CapitalFor 40 Vessels 440 - 440 0
Total Project Cost (100% DomesticAwards) 1950 300 5,350 64
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3.08 A detailed cost breakdown for the trawlers appears in Annex 15.rhe estimates include the CIF cost of all imported materials, equipment, andengines; cost of local materials; and cost of construction and installationlabor. Estimates for gear are based on CIF costs. The cost of the technicalassistance component is based on saliries sufficient for recruitment ofqualified experts and local expenses associated withi their work and on thecontract price of the fishling port feasibility study (para 3.05). Price con-tingencies have been calculated to allow for a 6% annual increase in the costof imported items and a 3% annual increase on local items over the four-yearinvestment period. A 10% plhysical contingency has been added to cover apossible change in specifications or design of the shrimp trawler that mightresult from the analysis by the naval architect and by the Fisheries ProjectCommittee (para 4.06). No contingency has been calculated on the technicalassistance and working capital component of project costs. The estimate forworking capital reflects local purchase prices.
3.09 Foreign costs were based on the assumptions that awards for vesselconstruction would be made to the local shipyard. In the event of 100% for-eign awards at the same vessel price, the foreign cost component of the proj-ect would be US$4.7 million instead of US$3.4 million and Government wouldhave to provide the difference in foreign exchange instead of local currency.Since the Balboa is freely convertib:Le into U.S. dollars, this would not pre-sent a problem.
D. Financing
3.10 Proposed financing is based on Bank lending for the foreign ex-ciange costs, with the remainder of the funds to be provided by government andBNP's contribution to the subloans and by the sub-borrowers' equity contribution.The financing plan is as follows:
3.11 The Bank loan of US$3.4 million would be made to the Banco Nacionalde Panama for 12 years, with five years' grace, and at the prevailing Bank in-terest rate. BNP would on-lend about US$3.0 million of the Bank loan plusits own contribution to fishermen for eight years, with one year's grace, andat an interest rate of 9-1/2% per annum. About US$0.4 million of the Bankloan would be used by Government to help finance the fishing port feasibilitystudy and the cost of trawler captain training.
3.12 Assurances were obtained during negotiations that sub-borrowerswould be required to provide at least US$9,000 towards the purchase price ofeach vessel, for a total of US$360,000, and that they would also provide,from their own resources, working capital estimated at US$11,000 per vessel,for a total of US$440,000. Assurances were also obtained that BNP wouldsupplement the Bank loan with its own funds (US$925,000) to finance the re-maining vessel construction cost and the cost of technical assistance.
E. Procurement
3.13 The new shrimp trawlers would be procured through constructioncontracts awarded according to international competitive bidding procedures.The Project Unit of BNP would be responsible for conducting the tenderingand bid evaluation, assisted by the naval architect (para 3.03) and theFisheries Project Committee (para 4.06). Prequalification of shipyardswould be performed and include evaluation of each yard's construction capa-city, technical and managerial capability, and financial position. Theshrimp trawler, complete with main engine, equipment, and fishing gear, wouldbe tendered as one unit and bid together. Prospective shipyards and sup-pliers would provide a one-year warranty on hulls and engines, while poten-tial engine and major equipment suppliers would have to assuire adequatespare parts inventories and service facilities in Panama. Prequalified ship-yards would be subject to Bank approval.
3.14 It is projected that the vessels would be procured in four lotsof 10 each, with a construction period of nine months per lot (Annex 16).The Project Unit of BNP would prepare tenders after subloans had been approved,for a lot of at least 10 shrimp trawlers and would also ask for bids on theremaining trawlers. BNP would have the right to accept at a later date thebids for one or more trawlers when additional sub-borrowers had applied andbeen approved, or, alternatively, to invite new bids on lots of at least 10.
3.15 At present, there is a regulation prohibiting the import of ves-sels to fish shrimp in Panama (para 2.28). It would, therefore, be a condi-tion of effectiveness of the loan that this regulation had been amended topermit, if necessary, the import of new shrimp trawlers financed under theproposed project. Local bidders would be allowed a preference margin of 15%of the CIF bid prices.
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3.16 Assurances were obtained during negotiations that the shrimptrawlers and gear would be procured uncler international competitive biddingprocedures, as outlined in paragraphs 3.13 through 3.15, and that the bid(locuments and contract awards would be subject to Bank approval.
F. Disbursement
3.17 Disbursement of the Bank loan would be made on 67% (the estimatedforeign exclange component) of the cost. of the shrimp vessels, includinggear, and 100% of the foreign costs of the technical assistance. Disbursementfor vessel construction would be made by the Bank upon receipt of a requestfrom the Project Unit of BNP, supportedl by statements certified by BNP onwork completed by the shipyard. Disbursement for the foreign cost of tech-nical assistance would be made by the flank upon receipt of a request fromthe Project Unit of BNP, supported by the experts' certified statements andfrom Government for the fishing port feasibility study. An estimatedschedule of disbursements appears in Annex 17.
IV. ORGANIZATION AND MANAGEMENT
A. Loan Policies and Procedures
4.01 BNP would be the lending charnel for the proposed project andwould set up a Project Unit within its organization to assume responsibilityfor project coordination and execution. This Unit, to be established aspart of the Department of Industrial Credit, presently being reorganized(para 2.27), would be headed by a senior BNP officer, who would coordinateVm ssel procurement and supervise all sublending operations. Assistance ininternational tendering and bid evaluation would be provided by a navaldr. Chitect (para 3.03) and by the Fisheries Project Committee (para 4.06).T'Dt qualified credit analysts would also be assigned to the Project Unit toperform the technical and financial analysis of the subloan applications.The Directorate of Marine Resources and the Productivity Center, both inthe Mlinistry of Industry and Commerce, would assist in the technical, mainly'ishing, aspects of the subloan analysis. The appointment of an officer,;-cectable to the Bank, to hiead the Project Unit and of two qualified creditanalysts would be conditions of effectiveness of the proposed loan. During
negotiations BNP agreed to improve the staffing, organization and proce-dures of the Department of Industrial Credit and to take steps to improvel:NP's overall organization and operations.
4.02 Fishing operations can be undertaken as efficiently by small fish-ermen as by large con,panies. Since processing companies have recourse tocredit sources, it is Government's intention to give priority in selectingloan applicants to individual fishermenl and fishing companies not owned byprocessing companies. Assurances were obtained during negotiations that only
- LFiere appeared to be insufficient credit demand would the processingcompanies become eligible to apply for subloans.
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4.03 An applicant for a subloan would submit to the Project Unit histor-ical, financial, and operational data on his shrimp fishing activities andproof that he holds a valid shrimp fishing license. Criteria for selectingsub-borrowers would include:
(a) proven competence and experience in shrimp fishing;
(b) possession of a valid shrimp fishing license;
(c) age of vessel (to which the existing shrimp fishing li-cense applies) tl-hat would be replaced;
(d) lack of alternative sources of credit; and
(e) creditworthiness.
Assurances were obtained during negotiations that sub-borrowers wouldbe selected as outlined above and that all subloan analyses would be for-warded to the Bank for review before final approval. Assurances were alsoobtained during negotiations that successful subloan applicants would berequired to deposit with BNP 5% of the estimated cost of vessel constructionat the time of signing subloan contracts.
4.04 Assurances were obtained during negotiations that BNP wouldestablish a separate Project Account in a form acceptable to the Bank throughwhich all project funds managed by BNP would flow.
4.05 Excluding contingencies, BNP would provide about US$20,000 towardsthe financing of each new trawler and related technical assistance, which,together with the contribution of the Bank, would provide a subloan of aboutUS$80,000; the remaining US$20,000 of investment funds would be provided bythe sub-borrower. Assurances were obtained during negotiations that theterms and conditions of all subloans would be acceptable to the Bank. Sub-loans would be made for eight years, with a grace period allowing for sixmonths of construction and six months of initial operation. The subloaninterest rate would be 9-1/2%, which is the present commercial rate for thistype of loan. Subloans would be fully backed by mortgages on the new vessel,gear, and license, which, evaluated at 80% of their commercial value, wouldprovide sufficient collateral. All the new trawlers would carry "all risk"marine insurance, with BNP named as the first beneficiary. BNP would makethe insurance premium payments for the sub-borrowers and be reimbursed aspart of the subloan amortization. Because of the assured premium paymentsand the safe, high-quality, supervised vessel construction, the insurancecompanies would be prepared to provide a group plan at reduced rates(Annex 18). BNP would negotiate with the local insurance companies toobtain an advantageous policy for the new vessel owners.
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B. Fisheries Project Comittee
4.06 A Fisheries Project Commitltee would be established, with repre-sentatives of BNP, the Directorate oiE Marine Resources, the fishermen'sassociation, and independent fishermxn as menbers. The committee, with theassistance of the naval architect, would be responsible for determining theproper trawler design criteria and deciding detailed specifications. The
committee would provide advice to the Project Unit on the evaluation of bidsreceived from shipyards. That the Fisheries Project Committee had beenestablished as described above would be a condition of effectiveness of theproposed loan.
C. Accounts and Audit
4.07 During negotiations, assurances were obtained that:
(a) detailed accounting procedures would be established andfollowed for recording of all transactions involving theProject Account;
(b) an independent annual audit, acceptable to the Bank,would be made of BNP; and
(c) BNP's audited financial statements, including auditedProject Account statements, would be forwarded to theBank within four months after the close of BNP'sfinancial year.
V. OPERATING RESULTS
5.01 Analysis indicates that a 67-foot trawler, powered by a 240-hp en-
gine, would have a higler financial return than a larger size trawler (Annex
19). Catch rates for the recommended trawler during the first year of fulloperation were conservatively projected to be at the same average level asthat achieved by trawlers of the same size that are one to five yea s old.That level is about 70,000 lb per year for all shrimp species. Due to
increased maintenance witlh age, this catch level is estimated to begin
declining after the first year, reaching 60,000 lb after 10 years and 52,500
lb after 15 years.
5.02 Operating cost estimates were based on data obtained from opera-tors of similar steel trawlers in the fleet, with crew labor, fuel consump-tion, and maintenance being the largest cost components. Crew labor is paidon a share-of-catch basis (about 18%), and projected fuel consumption is
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based on hourly usage rates applied to a fishing year of 240 days. Themaintenance cost estimate includes an annual engine overhaul and sand-blasting of the hull, followed by repainting.
5.03 The projected revenue from the proposed project trawler is basedon two alternative assumptions: (a) shrimp prices and costs remain constant,and (b) there is an increase in the price of shrimp (para 2.18) and in costs.For the constant case, the price would remain at the 1970 average paid to thefishermen in Panama for all varieties of shrimp, which was US$0.77 per lb.For the increase case, the price is estimated to rise from US$0.77 per lb toUS$0.88 per lb in 1975, US$0.96 per lb in 1980, and US$1.09 per lb in 1985,representing the increase projected (para 2.18). In calculating the netearning for the increasing prices case, the cost of crew labor was projectedto increase at the same rate as that projected for shrimp prices since thecrew is paid on a share-of-catch basis (para 5.02). This assumption isreasonable because it is expected that crew wages will increase slightlydue to pressure expected to arise on the Panamanian labor market. Panamaalready has a relatively low urban unemployment (about 6%) and several labor-intensive projects are to be executed in the next few years.
5.04 Based on the above, the financial rate of return for the individualshrimp trawler would be about 14% if prices and costs remain constant and22% if prices and costs increase (Annex 19). The projected cash flow for anindividual vessel (Annex 19, Table 11) shows that sufficient funds would begenerated to service each vessel's debt.
5.05 The cash flow for the Project Account has been calculated inAnnex 20 and indicates an accumulated net surplus of about US$140,000 afterBNP's administrative expenses are deducted. Assuming that the annual sur-pluses were to be invested in securities yielding 7%, the project lendingoperation would produce an accumulation of about US$690,000, which wouldprovide an adequate contingency for bad debts.
VI. BENEFITS AND JUSTIFICATION
6.01 The principal economic benefit of the proposed project would bethe stimulus it would give to the shrimp fishing industry by providing re-placement trawlers, which would catch an annual average incremental volumeof about 1.8 million lb over what the old vessels would catch if they wereleft to fish until the end of their economic life. Replacing the vesselswould of course be more profitable to the owner than operating them untilthe end of their economic life. The value of net export earnings (afterdebt service of the proposed Bank loan) from the annual average incrementalvolume would be at least US$1.7 million over the expected life (15 years)of the new trawlers.
6.02 The proposed project wotuld provide substnntial economic benefitsto the shrimp fishing sector, producing an economic rate of return of 15%if prices and costs remain constant and 22% if prices and costs increaseas projecte(l (para 5.03). In addition to the earnings projected for the
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fishing sector, the incremental volume would produce increased earningsto the shrimp processing sector. When the shrimp fishi ng and processingbenef Lts are combined, the rate of return increases to abotut 17% for theconstant prices and costs case and to about 23%,' for the increase in pricesand costs case (Annex 21) .
6.03 The efficiency of the entire shrifnp fishing fleet would be in-creased with the introductioii of advanced fishing gear on new trawlers,while the training program would have an eventujal impact on the entirePaniamanian fleet. Furthermore, the assistance provided by the naval archi-tect in designing and supervisinig the construction of the shrimp trawlerswould improve the capability and production quality of the local shipyardif the vessels are constructed in Panama. Finally, as a result of executingthe credit operations of the proposed lproject, the management and organiza-tion of BNP would be strengthened and staff members would receive valuableexperience.
VII. RECOMMENDATIONS
7.01 During negotiations, assurances were obtained on the followingpri ncipal points:
(a) all captains before assuming command of the new vesselswould receive a training course satisfactory to theBank (para 3.04);
(b) the trawlers and gear would be procured under internationalcompetitive bidding procedures with a preference to localbidders of 15%, as outlined iLn paragraphs 3.13 through 3.15and that the bid documents and contract awards would besubject to Bank approval (para 3.16);
(c) priority would be given to smnall fishermen and fishingcompanies in selecting sub-borrowers (para 4.02); and
(d) the terms and conditions of all subloans would be acceptableto the Bank (para 4.05).
7.02 Conditions of effectiveness of the proposed Bank loan wouldbe that:
(a) a naval architect, acceptable to the Bank, had beenhired by BNP on terms and conditions acceptable to theBank (para 3.03);
(b) the Government of Panama had exempted vessels fi-nanced out of the project from the regulation prohibitingthe import of shrinmp traw,lers (para 3.15);
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(c) a senior officer of BNP, acceptable to the Bank, tohead the Project Unit and two qualified credit analystshad been appointed (para 4.01); and
(d) a Fisheries Project Committee had been established,with the membership and functions outlined in paragraph4.06.
7.03 The project is suitable for a Bank loan of US$3.4 million, witha term of 12 years, including a grace period of five years. The borrowerwould be the Banco Nacional de Panamaa and would accept the foreign exchangerisk.
July 12, 1971
ANNEX 1
PANAMA
FISHERIES PROJECT
Past Production, Exports and Imports ofShrimp, Fish and Fish Products
1. Statistics on the Panamanian fishing industry are presentedin Tables 1 through 4. Table 1 contains the estimated landings of crustaceans(mainly shrimp), of fish for the fish meal industry (herrings and anchovies),and of other fish caught. Table 2 presents the official figures for exportsof fish products by volume and weight, while Tables 3 and 4 give the volumeand weight of fish product imports.
I/ Up to 1964 landings of Solenocera were included with pink shrimp. 2 Estimates.
Source: Deaartamento de Pesca e Industrias Conexas, ,inisteric de Gomercio e Industrias; Republica de Panama.
june 10, 1971
ANNEX ,1Table 2
pANAIM4
FISHERIES PROJECT
Exports of Fish Products
Year | rirp 1/ Lobster Fish Fish Meal 2 Fish Oil I/ Total
Volume (net weight in sh tons)
1960 4,158 1 4,159
1961 4,770 54 69 1,316 6,208
19 2 5,113 8 15 939 6,075
1963 4,758 4 19 774 5,555
1964 6,141 0 10 2,360 28 8,538
1965 5,243 44 1 4,906 1,054 11,248
1966 5,016 35 11,232 2,786 19,070
1967 5,563 2 9,944 4,178 19,687
1968 5,246 13 9.835 L.). 19,509
1569 4,852 17 2,235 330 7,434
1970 4/ 6,328 NA 5,089 NA 11,417
Value (US$'000)
1960 4,990 1 4,991
1961 5,854 94 4 128 6,o05
1962 7,941 16 2 101 8,060
1963 6,173 9 25 82 6,289
1964 7,405 1 9 235 3 7,653
1965 7,782 143 1 612 170 8,7\8
1966 8,972 106 1,399 454 10,931
1967 9,185 7 1,123 367 10,682
1968 9,727 42 954 252 10,975
1969 9,740 62 276 54 10,132
1970 / 10,168 NA 789 A 10,957
= NOt Avai:abLe1/ Average of shrimp exports in value, 1965 - 1969: US$9,081,300T/ Average of fish meal exports in volume, 1965-70: 6,965 sh tons§/ Average of fish oil exports in value, 1965-1969: US$259,000.
4/ Preliminary figures.Source: Direccion GenaFal de Est&distica y Censo, Contraloria General de la RepXblica de Panama.
Functions and Organization of the Directorate of Marine Resources
Functions
1. The Directorate of Marine Resources, as part of the Ministry ofCommerce and Industry, has the following functions:
(a) Administration and Coordination
(i) Advise the Ministry on all economic, social, adminis-trative, and scientific matters relating to the fishingindustry and to the exploitation and exploration ofmarine resources and their conservation;
(ii) Plan and implement a national program to develop thefishing industry, including:
(1) promulgation of official policy governing fishing;
(2) assignment of responsibilities for the control ofthe fishing industry; and
(3) formulation of rules, regulations, reports, andpublications related to control of development ofthe industry.
(iii) Propose regulations in other official publications forthe guidance and fulfillment of the fishing industry;
(iv) Assure the full distribution of fishing registration, itsregulations and pertinent standards and procedures amongthe competent authorities;
(v) Issue fishing licenses, import permits for fish and fishnets, and export licenses for fish meal, in accordancewith the governing regulations;
(vi) Prepare and publish, at regular intervals, special reportsconcerning activities of the Directorate;
(vii) Prepare, direct, coordinate, and supervise thenational program of fish development, which includesprograms to investigate development of exploratory
ANNEX 2Page 2
fishing to develop small sc:ale fishing, and to promotefish consumption; and
(viii) Coordinate procedures and assist in obtaining financeand technical assistance from international organiza-tions.
(b) Biological Investigations
(i) Initiate scientific investigations of fish populationsthat are being commercially exploited to determine anynecessary changes in the intensity of fishing and inthe fishing environment;
(ii) Advise the Director of any control measures required,as revealed by the investigations;
(iii) Prepare and publish detailed reports of the results ofthe investigations;
(iv) Determine the species whose importation could bepermitted in the interest of developing the fishingindustry; and
(v) Initiate studies on fish culture and hatcheries and oncrustaceans, and coordinate international assistance.
(c) Development of_Small Scale Fish:Ln
(i) Prepare, direct, and coordiLnate a program of technicalassistance for small scale fishermen;
(ii) Prepare procedures for development promotion and fi-nancing for the fishermen that will permit the estab-lishment of the necessary :Lnfrastructure and the ac-quisition of efficient equipment, obtaining theassistance of internationaL organizations when appro-priate; and
(iii) Direct, supervise, and coordinate a special integratedprogram for development of small scale fishing for Azuero,Aguadulce, and Montijo that will increase the fishcatch; improve the method of processing and storage;provide ice-making facilities; and improve the channelsof distribution and sales.
ANNEX 2Page 3
(d) Exploratory Fishing
(i) Make a quantitative inventory of the fishing resourcesin the Atlantic and Pacific, with initial emphasis onshrimp resources and deep waters;
(ii) Determine the geographical distribution of the mostimportant marine resources and the seasons they shouldbe caught; and
(iii) Estimate the commercial potential of the species withhighest commercial value.
(e) Fisheries Statistics
(i) Collect, compile, and process statistical data concerninglanding and intensity of commercial fishing for crusta-ceans and fish for industrial and human consumption;
(ii) Provide the information necessary for biological inves-tigations, for fish development programs carried out withthe cooperation of international organizations, and formarket studies;
(iii) Conduct practical demonstrations on the cooking of fish;and
(iv) Advise and assist low-income fishermen in improving methodsof distribution and storage.
Organization
2. Staffing of the Directorate is shown in Table 1. Organizationis depicted in Chart 1.
B. Exploratory Fishing Section:(These personnel will be named in October 1971)
1 General Fishing Expert (expatriate)1 Biologlst1 Biological Assistant1 Captain4 Crew Members
C. Fisheries Statistical Section:
1 Chief Statistician3 Statistical Assistants
III. Small Fislwernen Assistance_ 2partment
1 Chief Programmer2 Programming Assistants
IV. Department of Marketing
1 Chief Programmer2 Home Economics Assistants1 Assistant
June 8, 1971
ANNEX 2CHART 1
PANAMAFISHERIES PROJECT
ORGANIZATION OF THE DIRECTORATE OF MARINE RESOURCES
NATIONAL FISHING _j_ DIRECTORATE OFCOMMISSION M MARINE RESOURCES
U.S. PEACE CORPS UNDP/FAO REGIONALDEVELOPMENT OF FISHING DEVELOPMENTSMALL SCALE FISHING PROJECT
DEPARTMENT OF INVESTIGATION SMALL FISHERMEN DEPARTMENT OF MARKETINGAND EXPLORATION ASSISTANCE DEPARTMENT D
BIOLOGI CAL_-iNVESTIGATION_SECTION
EXPLORATORYFISHINGSECTION
FISHERIESSTATISTICALSECTION
I BR D-5676(2R)
ANNEX 3Page 1
PANAMA
FISHERIES PROJECT
UNDP/FAO Regional Project of Central American Fishery Development
A. Project Support
1. United Nations Development Program (Special Fund)
Special Fund Allocation: US$4,329,900
Consisting of:
Special Fund contribution US$2,245,500
Governments' counterpartcontribution in cash Us$1,884,000
Governments' contributiontoward local operatingcosts US$ 200,000
Governments' counterpart contribution in kind: US$ 720,000
Duration: Six years (Started: 1965)
Executing Agency: Food and Agriculture
Organization of the UnitedNations
Cooperating Government Agency: Central American FisheryDevelopment Commission,under the auspices of theEconomic Cooperation Com-mittee of the Central
American Isthmus, herein-after referred to as the"Fishery Commission"
Participating Governments: Costa RicaEl SalvadorGuatemalallondurasNicaraguaPanama
ANNEX 3Page 2
B. Purpose
2. The purpose of the project is to increase the production andconsumption of marine and brackish water fish and fishery products on aregional basis. To achieve this, project efforts will be directed at:
(a) the strengthening of fishery administrations andplanning;
(b) the development and management of various fisheries;
(c) a general resources survey; and
(d) the improvement of processing and marketing.
C. Description -/
Strengthening of Fishery Administrations and Planning
3. The Project would strengthen the fishery administrations of thesix countries by establishing new posts and by providing training foradministration personnel. This must be done on a coordinated basis toensure that staffing is satisfactory and that administrations will begranted the status required to maintain a proper continuity of actionafter the period of Special Fund support. Training will emphasize thepractical aspects of developing the industry and will include fisheriesmanagement, fishing methods, preservation, processing, transportation,and marketing of fish and fishery products.
Development and Management of Various Fisheries
4. The rational management oiF the major existing fisheries, parti-cularly those for shrimp, will recelve high priority. Resource appraisalwill be carried out to determine the most economic yields that can beexpected and attention will be given to the possibilities of utilizingthe large quantities of fish caught by shrimp trawlers, most of whichare presently discarded. Development of existing in-shore shellfishfisheries, as well as expansion of local tuna and anchoveta fisheries,will also be considered. Demonstrations of modern fishery technologyand training of capable fishermen wiLll be carried out with a view toimproving the efficiency of artisan fisheries where they constitute animportant source of supply for the ]Local markets.
1/ This description was taken from Plan of Operation, Regional Project ofCentral America Fishing Development, UNDP, Document Ws/48728.
ANNEX 3Page 3
General Resources Survey
5. The development of new fisheries, mostly for coastal fishesusing adequate vessels, will be promoted in the Caribbean and Pacificwaters. Two medium and one small mechanized vessel will be used fordemonstration, experimental, and exploratory fishing. These boats willbe equipped for adequate handling of fish and for different fishingtechniques, including long-lining, gillnetting, purse-seine fishing,trolling, and fishing with lights; trawling for bottom and midwaterfish; and line-fishing for reef fishes. A general survey of those watersconsidered to be potentially the most promising fishing grounds will becarried out by an exploratory vessel. The operation will be mainly inPacific waters, with emphasis on the deep-water shrimp and demersalresources. Fishing for snappers and reef fishes will be developed inthe Caribbean Sea. Possibilities of cultivating shrimp, oysters, andother shellfish will be explored on both coasts. Biological oceanographicobservations will be made in the course of exploratory fishing by theproject vessels during special trips, and from market landings to obtaininformation on the characteristics of the major resources and on theeffect of the fishery on them. Pertinent information obtained throughthe fishing surveys of the Caribbean Fishery Development Project, whichis a regional scheme supported by the Special Fund, will be made availableto this Project.
Improvement of Processing and Marketing
6. The project will give attention to the urgent need to improveand extend the marketing of fish and fishery products in the six coun-tries, as well as in intra-regional trade and export trade outside theregion. Based on the study of actual marketing problems, emphasis willbe placed on improved methods of processing, handling, storing, anddistributing fish and fishery products. The possibility of replacingimported marine products with locally produced items will be givencareful attention. Adequate marketing and processing methods will bedemonstrated. Fishery enterprises will receive factual advice wheneverit is considered necessary to strengthen their management and improvetheir operation in the best interest of the national and regional econom-ics. Work on fish processing will be carried out in coordination withthe Central American Institute for Research and Industrial Technology(ICAITI), which is a regional scheme supported by the Special Fund.Studies concerning intra-regional trade will be carried out in collabora-tion with the Permanent Secretariat of the General Treaty of EconomicIntegration of Central America (SIECA).
Location
7. Headquarters of the project will be situated in San Salvador,Republic of El Salvador. Different aspects of the project, however,will be implemented in various parts of the region in accordance withtheir special conditions. International experts will be stationed in
ANNEX 3Page 4
various countries, although they will be required to travel throughoutthe region. The Executing Agency will make arrangements with the Govern-ments, as necessary, through the Cooperating Government Agency, foroffice accommodation and facilities for project staff, and for the neces-sary shore facilities at which demonstration and exploratory vessels arebased or are to land their catches and training courses, processingmarketing studies, and demonstrations are to be carried out. In orderto receive training, as well as in accordance with specific project re-quirements, Government personnel will travel extensively and may have tospend extended periods of time outside their own country.
Duration
8. The six-year period of the project will be divided into apreparatory phase, lasting approximately one year, followed by an opera-tional phase, lasting approximately ifive years. The division betweenpreparatory and operational phases may vary between the sections of theproject.
April 26, 1971
ANNEX 4Page 1
PANAMA
FISHERIES PROJECT
UNDP Follow-up Project
UNDP Regional Project
1. The UNDP/FAO Regional Project of Central America Fishery Develop-ment (Annex 3) was initiated in 1965 and is ending in 1971. In the opin-ion of many, the project covered too many subject matters and was spreadtoo thinly over a large area to have a serious impact on fisheries devel-opment in Panama. Some of the operations carried out, however, havebrought positive results. Most beneficial activities included:
(a) assistance and training provided to fisheries cooperativesin the processing of sharks by salting/drying; this productis a substitute for imported salted/dried cod;
(b) a deep sea resource survey along the Pacific Coast of Panama.The first phase of the survey found considerable trawlableareas in the depths 100-200 fathoms. High yield sample catcheswere made of a small, red, deep sea shrimp, thought to beSoleniocera sp;
(c) a brief survey of possible trawl net fishing grounds onthe continental shelf of the Caribbean Sea along thecoast of Panama. According to the preliminary resultsof this survey, potential resources in lobster andshrimp in the shallow water area of the Caribbean arerather poor, but commercial quantities of various speciesof shrimp and "Scampi" (Norway lobster) have been foundon the continental slope between depths of 100 and 200fathoms; and
(d) a survey organized for the purpose of identifying thefactors that hamper development of fish distribution andconsumption on the internal market. A plan of action toovercome these factors and to organize fish distributionis being established and a pilot program will be implementedin 1971.
Follow-up Project
2. Follow-up action is necessary before advantages gained underthe first project can be fully exploited, and FAO officials in Panamaare assisting the Government in formulating a program to provide this.
ANNEX 4Page 2
The Government of Panama intends to request a second project that wouldcover Panama exclusively and concentrate on the problems whose solutionis a condition of further development of its fisheries. The proposedproject would include the aspects discussed below.
3. Exploratory Shrimp Fishery. The shrimp fishery presentlyfully exploits the relatively shallow fishing grounds. In order tosubstantially expand, a program of exploratory fishing would be carriedout on the deeper area of the Pacific continental shelf to locate redshrimp (Solenocera sp.) resources and find out when and where they occurin commercial quantities. The same type of work would be also carriedout on the continental slope of the Caribbean for Norway Lobster(Nephrops sp.) and shrimp species of commercial quantities. The Govern-ment intends to request UNDP to transfer one of the research vessels ofthe regional fisheries project to thle new project. If this is not pos-sible, the Government would construct or buy another vessel suitablefor this investigation. The Government already has a budget allotmentfor exploratory fishing and the Directorate of Marine Resrouces willbegin hiring specialized personnel, including exploratory vessel cap-tains, in the second half of 1971.
4. Development of Market and Improvement of Fish Distribution.The main fisheries activities in Pan,ama are oriented toward products(shrimp and fish meal) that can be etxported. At the same time, ex-ploitation of bottom fish resources is neglected and the greater partof the fish taken by the shrimp trawler and purse seiner fleet isdiscarded. The need for a diversification of the fishing industry alsoarises from the low domestic consumption of fish - a high protein source.
5. The survey recently made, with UNDP regional project assis-tance, has shown that there is a potential domestic market for fish.In addition, there is a potential market provided by the merchant andpassenger vessels that call at Balboa or Colon while passing throughthe canal. Approximately 400,000 seamen and 140,000 passengers passthrough the Panama Canal per year; additionally about 100,000 touristsvisit Panama yearly. Hlowever, present fish catches by in-shore fisher-men and shrimp trawlers find a limited outlet because of the lack ofa fishery harbor with central marketing facilities and the lack of aproper fish distribution network.
6. The Government is arranging for a feasibility study on con-struction of a fishing port. At the same time, however, efforts must bemade for the organization of fish distribution and gradual development offish consumption so that, when a new, port is put in operation, its installationswill be fully used.
7. The fish distribution network to be gradually developed willbe fed by fish landed by shrimp trawlers and in-shore fishing boats.Small storage and ice-making facilities will be set up at landing siteswhere inshore fishermen's cooperatives are operating and where te&hnical
ANNEX 4Page 3
assistance in fish handling and conditioning for internal distributionwould be available. Training and transportation to distribution centersand retail stores would be organized and advice and assistance would beprovided to retailers. A campaign to promote fish consumption wouldalso be organized. At the same time, assistance to inshore fisherieswould be provided to increase production as the demand for fish develops.
8. Organization of the complete fish distribution network, asoutlined above, would be developed step by step. It would be centeredon the fishing port central market and amplified when construction ofthe new port is completed. An expert in fish marketing would be providedfor the duration of the project. In addition, an expert to advisecooperatives and inshore fishermen in fish handling and conditioning forinternal distribution would be required during 18 months.
9. A master fisherman to assist and advise inshore fishermen infishing boat and fishing gear handling and maintenance would also be re-quired during 18 months. The necessary equipment, storage facilities,and such that would be required during the early phases of the projectwould be provided by Government. The complete expansion would eventuallyrequire new investments for which an international source of financingwould be sought.
10. Shark Fishing. Previous assistance provided in the processingof sharks has given excellent results, and processed shark has beenreadily accepted on the Panama market as a substitute for imported cod.Production now needs to be increased. This increase can be obtainedthrough an improvement in fishing gear and methods. A small program ofassistance in this field would be carried out as a part of the widerprogram to assist inshore fishermen and to organize the fish distributionnetwork. Increased catches of shark would be welcomed by the shrimpfishermen, who often have them ripping into shrimp trawl nets. A con-sultant would be required for approximately three months to advise andassist fishermen in the design and operation of suitable fishing gear.
April 26, 1971
ANNEX 5Page 1
PANAMA
FISHERIES PROJECT
Panamanian Shrimp Fishing Fleet
1. Shrimp fishing in Panama with cast nets and seines dates backto ancient days, but modern trawling began about 1946 when one boatstarted fishing for the local market. Visiting tuna fishermen from theUnited States saw the large shrimps that were caught and sent samplesto American importers. These were well received and a new industrydeveloped rapidly. The first shipments were made in 1950 and within ayear the fishery was booming. By 1955, the shrimp fleet had grown to90 vessels, and four freezing plants were in operation.
2. The Panamanian fishery started with United States capital. In1953, most of the companies then operating were bought out by Panamanianinterests. At present, six freezing plants are locally owned and theseventh is U.S.-owned. No difficulties are placed in the way of foreignownership, although foreign investors are required to form a Panamaniancompany. At first, all the boats were from the United States, mostlytypical old-style Mississippi coastal single-net trawlers, along witha few West Coast conversions. Since 1953, only boats built in Panamahave been permitted to operate.
3. By 1955, the several boatyards in Panama City were buildingshrimp trawlers, with 15 under construction in November of that year.About that time, the typical Panama-type boat evolved, which has sincespread to Ecuador and El Salvador. This craft, essentially based onthe Florida trawler, is 55 to 65 feet in length and of wooden construc-tion. Traditionally, Panamanian trawlers are painted black, with awhite superstructure, but recently a few white vessels have appeared.The first steel trawlers were built in 1955, although steel craft didnot become popular until lately when a slight trend toward steel becameevident. All the vessels fish with two nets, most of them with theusual two booms slung from the mast. Mlany, however, rig the booms onthe outboard rails, which is more prevalent in Panama than elsewhere.All vessels are equipped with brine refrigeration instead of ice-carryingfacilities.
4. Because of attacks from shipworms, the wooden trawlers needfrequent service and seldom can continue in operation more than 10years. Consequently, several boatyards in Panama City are kept busyservicing and building replacements; in fact, it is usual to have towait one's turn for haul-outs. Typical repairs include replacing planks,plugging worm holes, caulking, and painting, as well as servicing therudder and propeller.
ANNEX 5Page 2
5. Between 1957 and 1959, the fleet underwent a tremendous anduncontrolled expansion, following exceptional fishing for pink shrimp.In an effort to control over-expansion, which had resulted in unprofitableoperations, legislation was passed in 1968 to limit the total fleet to238 vessels. Table 1 shows the average number of vessels in operationeach year from 1960 through 1970. In 1970, 229 of the 238 authorizedlicenses were being utilized; the remaining nine belonged to owners whohad been delayed in replacing sunken vessels.
6. The composition of the shrimp fleet by age, tonnage, and horse-power at the end of 1970 is shown in Table 2. About 50% of the trawlersin the fleet were 10 years old or more. A distinct move toward largerand more powerful vessels is evident.
7. Tn 1970, ownership of the fleet was divided between the shrimpprocessing plants (45%) and independent vessel owners (55%) who supplythe processing plants (Table 3). Froim 1968 through 1970, there has beena definite trend toward more shrimp processing plant ownership, probablyreflecting financial ability to purchase licenses (and build boats) fromindependents, who are not in a financial position to replace their oldtrawlers.
8. Table 3 also indicates the structure of fleet ownership. Fish-ing companies with only one or two licenses each comprise 84;..of allfishing companies, but they own only 32% of the total number. of licenses.On the other hand, companies that own three to forty-four licenses eachcomprise only 16% of the fishing company population but own 68% of thetotal number of licenses.
Total 229 14,%71.2 100.0 63.7 50,081 100.0 220.6Average
-Age Number of vessels %
10 years or older ............... 115 50
5 tQ i.0 vears ..... ...... .. 64 28
1 to .YearS ......... I... 50 22
Total: 229 100
1/ Shrimp trawlers in over-20-tro,ss-tonnage cl'ss.
Onurce: Direccion General de Ilecursos Marinos , Ministerio de Comercio eIndustrias, Republica de Panamsa.
ANNEX 5Table 3
PANAMA
FISHERIES PROJECT
Licensed Shrimp Fleet Ownership
A. Processing Plant Versus Independent Ownership
1968 1969 1970No. of No. of No. ofLicenses % Licenses % Licenses %
Shrimp Processing2iants 90 38 94 40 106 45
Independent Vesselrwners 148 62 144 60 132 55
TOTAL 238 100 238 100 238 100
B. Number of Licenses by Size of Companies
% Licenses % OwnersSize of Companies Total No. by Size of No. of by Size ofby No. of Licenses of Licenses Company Owners Company
1 48 20 48 65
2 28 12 14 19
3-5 14 6 4 5
6-10 23 10 3 4
11-20 25 10 2 3
21-44 100 42 3 4
TOTAL 238 100 74 100
April 26, 1971
ANNEX 6Page 1
PANAMA
FISHERIES PROJECT
World Shrimp Resources and Market Prospects
1. Shrimp are found in practically all oceans of the world, butthey fall broadly in one of the two varieties: the tropical and subtropicaland those found in the northern temperate zone, the former being by farthe most common. Shrimp are concentrated in the west-central Pacific andthe Indian Ocean, though a substantial amount is also caught in regionslike the east-central and southwest Atlantic, east-central Pacific andthe Mediterranean. As is typical of fisheries, the world harvest ofshrimp is limited by natural and biological factors. The maximum sus-tainable yield of shrimp is estimated to be in the neighborhood of 3.3billion pounds and the world catch, which at present is about 44% ofthis figure, is expected to reach that level by the year 2000. Becauseof the relatively short life cycle, overfishing of shrimp is virtuallyimpossible.
Shrimp Catch and Trade 2
2. Consumption of shrimp has grown rapidly in the recent decades,while consumption of all seafood has just about kept pace with popula-tion growth. Not very long ago, shrimp was regarded as a rare luxuryconsumption item in the western countries but now, although still ex-pensive relative to other food substitutes, it has become fairly popular,especially in the United States.
3. The United States is both the largest catcher and consumer ofshrimp, consuming in any year more than 30% (or around 450 million pounds)of world shrimp catch in one form or another. Per capita consumption ofshrimp in the United States rose from 1.47 pounds in 1950 to 2.22 poundsin 1960 and about 3.00 pounds in 1969. The countries next in importanceare Japan, with a consumption level of about 250 million pounds, andThailand.
1/ FAO has agreed on the prospects for shrimp as presented in this Annex.
2/ Data on shrimp may occasionally appear to be conflicting with othersources. It is largely attributable to the way product weight is de-fined. The two most common measures are the "live weight" and "heads-off weight". Unless otherwise specified, it is the former measureused here.
ANNEX 6Page 2
4. World catch of shrimp increased by something like 200% between1950 and 1958, reaching a level of 1,054 million pounds in the latteryear (Table 1). Growth in the sixties, particularly since 1963, hasbeen much slower. Between 1958 and 1968, the annual shrimp catch inthe listed countries expanded at an average rate of 4.4%. The valueof shrimp landings is estimated to have increased from US$143 million in1950 to US$402 million in 1960 and US$781 million in 1967. The rate ofexpansion in this respect was also considerably slower in the 1960'sthan in the period before.
5. It is clear from Table 1 that there is a large number of coun-tries engaged in shrimp trade, but the great bulk of supplies comes fromthe Asian and North and South American countries, with obviously verylarge differences among individual countries. Countries whose annualcatch exceeded 100 million pounds during 1966-68 were the following: theUnited States (281 million pounds), India (207 million pounds), Japan(144 million pounds), Mexico (144 million pounds), and Thailand (133million pounds). Other important suppliers include the Federal Republicof Germany (71 million pounds), Malaysia (66 million pounds), the Philippines(53 million pounds), Pakistan (52 million pounds), and Taiwan (43 millionpounds). Brazil's annual catch usually exceeds 50 million pounds, butdata for recent years are not available. These countries together accountfor about three-quarters of the world catch of shrimp.
6. A significant feature in the development of the world shrimpindustry has been that the large suppliers in general have been able toexpand their catch much more slowly than some of the small suppliers.In the case of the United States, India, Japan, Mexico, and the FederalRepublic of Germany, shrimp catch has increased hardly at all in recentyears, while some Asian countries--notably, Thailand, Taiwan and Malaysia,and possibly also Pakistan and the Philippines--went through a period ofvery rapid expansion. In most cases, especially the United States, theslow growth can be explained by the fact that additional fishing efforton traditional grounds has failed to produce any material gains. Asobserved earlier, overfishing is not possible in the case of shrimp. In-creasing the catch significantly, therefore, involves fishing in moredistant waters, but this requires larger vessels with equipment neededto preserve shrimp for a longer than four- to seven-day period, whichhappens to be the present norm.
7. A natural consequence of the above situation has been that theUnited States, Japan, and other large consumers among developed countrieshave had to rely increasingly on imports to meet the rising domestic con-sumption of shrimp. Information on imports and exports is limited onlyto a few countries, 1/ but the data in Tables 2 and 3 show unmistakably arapid expansion in shrimp trade-,
1/ It is believed, nevertheless, that the listed countries do coverthe bulk of world trade in shrimp.
ANNEX 6Page 3
8. Table 2 gives the level of imports during 1962-69 in the UnitedStates, Japan, and Canada, while the data for the EEC are available onlysince 1966. The expansion in imports was most dramatic in the case ofJapan, where imports rose from 8 million pounds to 108 million pounds in1969. However, her imports still remain only a little more than half ofthe U.S. imports. The increase during the same period in the case of theUnited States and Canada was, respectively, 38% and 147%.
9. Table 3 gives the export side of the picture for the period1958-69. Exporters that supplied more than 10 million pounds of shrimpper annum to foreign countries during the last three years of the periodwere Mexico, India, the United States, Pakistan, Panama, and liong Kong.
Price Behavior and Future Outlook
10. There are fairly wide differences in the prices charged forthe different varieties of shrimp. Larger size shrimp, i.e., with lowercount per pound, are more expensive per pound than shrimp of small size.It has also been observed in recent years that the price increases havebeen steeper in the case of large shrimp, while the price of the smallestsize shrimp has not increased over the years. however, in general, theprice movement has been fairly uniform among the various varieties andmarkets.
11. Table 4 gives the wholesale price of shrimp at Chicago since1950, and refers to frozen brown shrimp, with 26 to 30 count per pound,and the same data are reproduced in graph form in Chart 1. It is im-mediately obvious that shrimp prices have been on a rise throughout theperiod, although there were substantial but fairly regular cyclicalfluctuations. The trend lines fitted gave an average annual growth rateof 5.8%, and an average yearly increase of 3.1 cents. 1/
12. The price in 1950 was only 63 cents per pound, as compared toUS$1.31 in 1969. The pressure on shrimp prices remained very strongthroughout the 1960's, when the decade began with a price of 72 cents,but the price increases were particularly sharp between 1964 and 1969.Past experience has shown that suppliers do respond, however slowly, tosharp price increases and bring down the prices somewhat. There does
1/ Equation for the trend line is: Y - - 101 + 3.13 t(0.42)(7.45)
2r - 0.75
This equatAon obviously does not give the trend rate of growth, whichis measured by: log Y - 0.970 + 0.016 t
(0.002)(7.68)
where t - 50 for the year 1950, etc.
ANNEX 6Page 4
seem to be a close relationship between the price increase and theunusually slow expansion in shrimp supply since 1963. lhowever, therehas been some improvement in the supply situation relative to the demandin the last few months of 1970, resulting in a decline in the pricelevel.
13. Shrimp prices in the United States at any rate have risenfaster than the prices of other varieties of meats, 1/ which can beattributed to a relatively high incorme elasticity with low priceelasticity of demand for shrimp and the relatively poor response ofthe supply to the increases in demancl. Very little information isavailable on the actual magnitude of these elasticities. Results of anattempt made by the U.S. National Marine Fisheries Service to measurethese elasticities for some selected countries are reproduced in Table 5.
14. It is evident that the estimates differ as to the extent oftheir reliability. Only in the case of the United States do the resultsseem plausible: Not only is the signL of the elasticities what could beexpected a priori, but the magnitudes also seem reasonable. 2/ Only inone other case, i.e., Mexico, are both the elasticities significant at95% level of confidence and of the "right" sign, but their magnitudesseem to be on the high side. Thailand and Pakistan have significant (95%level) estimates of income elasticity, but the estimates of price elasticitydo not have the right sign. On the other hand, neither Japanese nor Indiandata threw up any significant results, and the Indian results are peculiar,for the estimated price elasticity is positive and the income elasticitynegative.
15. Estimates of income elasticity are more reliable than those ofprice elasticity, and suggest that as per capita incomes and populationrise, particularly in the less developed countries, demand for shrimpwill remain strong and continue to grow. If the U.S. price elasticity,estimated to be - 0.31, is taken to be more realistic, then this pressureof demand, in the presence of supply limitations, will have a tendency,as in the past, to raise shrimp prices in the future. The price increasesare likely to be steeper as the time passes. If past tendencies persist,
1/ See Donald P. Clearly, Demand and Price Structure for Shrimp, WorkingPaper No. 15, U. S. Bureau of Commercial Fisheries, Division of EconomicResearch, June 1969.
2/ An estimate of price elasticity can also be obtained from a modelworked out by Mr. Timmer. See his, "A Projection Model of the U.S.Shrimp Market", Food Research Institute Studies in AgriculturalEconomics, Trade and Development, Stanford University, Vol. VIII,No. 3, 1968. On the basis of his regression results, the priceelasticity comes to 0.41 for the demand and price level in 1966.
ANNEX 6Page 5
i.e., the shifts in demand continue to be closely associated with time, 1/the price that will rule in 1975 at Chicago may in fact lie on the ex-tended trend line in Chart 1, barring any temporary disturbances. Inthis case, the price will reach a level of US$1.33 per pound in that year.This estimate seems to be in line with the estimates derived by the U.S.National Marine Fisheries Service, after converting its price relativesto the actual market price. 2/ However, the increase in price could beas much as 60%, if world supply of shrimp continues to grow at the rateobserved during the 1960's and if the price and income elasticities ofdemand for shrimp for the world are more or less similar to the U.S.estimates.
16. The simple projection of time trend for the purpose of priceforecast becomes increasingly unsatisfactory as the period is extendedinto the more distant future. The reason for this is that this proceduredoes not take account of the worsening of the supply situation that willresult as the world supplies will approach the world maximum sustainableyield for shrimp and the substantial changes that can be expected in thedemand elasticities in future. However, the U.S. National Marine FisheriesService estimates that the price increase will be 39% between 1965-67 and1980 and 58% between 1965-67 and 1985 (or a 41% increase between 1970and 1985). This, when converted into the market prices used in the aboveanalysis, implies that the shrimp price will be around US$1.43 in 1980rising to about US$1.63 in 1985 barring, of course, any temporary dis-turbance.
May 21, 1971
1/ A sufficient condition for the observed price to be associated withtime is that shifts in the demand and supply schedules are alsoclosely related to time.
2/ For the purpose of comparison, this was done by assuming that theactual market price between 1967 and 1975 would rise by the same pro-portion as the price relative calculated by the U. S. National MarineFisheries Service.
3/ Refers to eyports to United States and Japan only.
Source: FAO, Yearbook of Fishery Statistics, various issues; U.S. Department of the Interior, Bureau ofCommercial Fisheries, Shellfish Situation and Outlook; National Trade Statistics ohirJapan, India,
Pakistan and United States.
ANNEX 6Table 4
PANAMA
FISHERIES PROJECT
Shrimp -/ Wholesale Price Series Ex Chicago
(Annual Average in US #/lb)
Year Price Year Price
1950 63 1960 72
1951 56 1961 78
1952 62 1962 103
1953 78 1963 90
1954 57 1964 82
1955 61 1965 90
1956 76 1966 111
1957 89 1967 107
1958 90 1968 121
1959 74 1969 131
Source: FAO, Monthly Bulletin and Production Yearbook, various issues.
1/ Frozen, brown grooved headless, 26 to 30 count in 5-lb carton.
May 21, 1971
ANNEX 6Table 5
PANAMA
FISIIERIES PROJECT
Income and Price Elasticity of Consumptionfor Shrimp in Different Countries
Price IncomeCountry Elasticity Elasticity
/1 /1United States - 0.31- 1.70-
/1 ~~~~~/1Mexico - 1.66a 5.24-
India 0.48 - 0.01
Japan - 0.15 0.14
Pakistan 0.17 2.02/
Thailand 0.6 0/ 3.9g
/1 Results significant at 95% or higher level of confidence.
Source: U.S. National Marine Fisheries Service, Division ofEconomic Research, "The Future of the World's FisheryResources", 1970.
1. World 2/ consumption of fish meal in the period 1955-57 to 1969 hasgrown at an annual rate of 9.3%, due mainly to increased consumption in theUnited States, the EEC, and Japan 3/. Supplies of fish meal have been ableto match demand, in part through higher production in some of the old estab-lished producing countries, i.e., Norway, South Africa, and Iceland, butparticularly by the entry of new producers (Peru, Chile, and Denmark).These supplies were also sufficient to offset a long-term decline in thedomestic production of some major consumers, i.e., the United States (Chart 1).Growth in world trade, therefore, has more than matched the growth of worldconsumption and exports grew at a rate of 17.9% per annum during the period1955-57 to 1968 (Table 1).
2. As of 1968/69, world exports accounted for 68% of world production(Table 2). The major exporters of fish meal have been Peru, which in 1968/69accounted for nearly 60% of world exports, South Africa, and Norway. Minorexporters are Chile, Iceland, Denmark, and Angola. More than two-thirds of"Total" exports went to the EEC, the United States, and the United Kingdom(in that order of importance) while the remaining exports were rather widelydispersed.
3. Over the period 1955-57 to 1966-68, there was a considerable shiftin the geographic distribution of import demand for fish meal. The combinedshare of the EEC, the United States, and the United Kingdom, the threelargest markets in the late 1950's, dropped from 81.7% to 64.1% as of 1966-68,involving declining market shares for the EEC and the United Kingdom butshowing some increase for the United STates. At the same time, imports intothe centrally planned countries, Japan, and other Western European countrieshave gained importance and now account for roughly 40% of the market forfish meal (Table 3).
1/ Prepared by Trade Policies and Export Projections Division, EconomicsDepartment, IBRD, March 31, 1970.
2/ Throughout this report, the term "world" is defined as the world,excluding Mainland China but including all COMECON countries.
3/ "Consumption" in this case means use in animal feed mixtures.
ANNEX 7Page 2
4. Despite the rapid increase iLn consumption, the long-run trend offish meal prices remained remarkably trendless and the average price forthe period 1964 through 1968 was approximately US$156 per ton c.i.f. Hamburg(Table 4). Short-term price fluctuations, however, connected as a rulewith supply fluctuations of rather small magnitudes frequently disrupted thetrend (Chart 2).
5. The current situation is one case in point. Prices in 1969rose from US$135 per m ton in March 1969 to US$205 per m ton in December1969, averaging US$172 per m ton for the year. The main reason forthe price increase, similar to short-term price fluctiations in 1959 and 1965has been a supply shortage in Peru, Norway, and South Africa, which was notoffset by reported gains in exports from Angola and Chile. Import demand,while sharply reduced in the United States, continued to increase in the EEC(particularly Germany) and other countries. Total demand in 1969, therefore,maintained its level as compared to 1968 and stocks were depleted. Thereare indications that world fish meal supplies are increasing again, however(particularly in Peru), and meal price-s have shown a tendency to weaken,declining to US$170 per m ton in late March 1970.
Future Trends
6. Nearly all fish meal is used as an important ingredient in poultryprotein feed containing fish meal and other feed meals and mixed on the basisof protein content. The possibility of technical substitution between fishmeal and other ingredients, in particular soybean meal, is significant. Thehighest rate of interchangeability between fish meal and soybean meal appearsto exist in countries where animal feed mixing is highly developed and basedon scientific research (i.e., the United States); it declines together as thelevel of mixing technology drops.
7. Pig and poultry, the end prcducts for which fish meal is used asanimal feed, have an extremely low income elasticity. In addition, fishmeal is facing a high price elasticity, of demand. As a result of these twofactors, efforts to project demand as a function of any macroeconomic dataare greatly hindered and have produced only inconclusive qualitative results.A somewhat pragmatic approach has, therefore, been adopted by FAO in arrivingat its demand projection for fish meal 1/. This projection, in addition,assumes a constant 1962 price for fishl meal.
8. On the basis of data on the EEC's policy of expanding pig andpoultry production, FAQ expects fish meal consumption in the Community togrow at an annual rate of 4.4% betweern 1970 and 1975 2/. For the other
1/ FAO, Indicativ*,World Plan, C 69/4, Vol. 1, August 1969, pp. 273-303.
2/ FAO's projections assume a linear rate of growth between 1962-75.
ANNEX 7Page 3
European countries and for the United States, lower rates are projected,while, for Japan and other developed countries, growth rates range between5.8 and 8.5% per annum. On the basis of these projections, demand for fishmeal in the developed countries as of 1975 may reach 4.25 million tons com-pared to 3.04 million tons in 1964-66, or grow at an annual rate of approx-imately 4.5% between 1970 and 1975. Fish meal consumption in the centrallyplanned and in the developing countries is projected to nearly double between1965 and 1975 and is predicted to reach 1.5 million tons as of 1975. Onthe basis of the foregoing considerations, FAO projected that world consump-tion of fish meal seems likely to grow at an annual rate of 5.6% per annum.
9. However, growth of world consumption in the period 1961-63 to1966-68 has turned out to be significantly higher than those projections.Due largely to higher growth of US consumption (at an annual rate of 7.6%as compared to an FAO projection of 2.6% per annum), the actual annual rateof world consumption reached 7.5% per annum. Consumption in the centrallyplanned countries and in the United Kingdom was also higher than predictedin the FAO study.
10. A major reason for this increase in the United States and theUnited Kingdom appears to have been the combined effect of increasing worldmarket prices for soybean meal, the major substitute for fish meal, andsome decline of fish meal prices in the middle 1960's. In the period 1966-68,the price ratio between fish meal and soybean meal in the United Statesdecllned to approximately 1.6, i.e., returned to levels prevailing in thelate 1950's. Our present view, based on preliminary examination of theserelationships, is that consumption of fish meal in the United States wouldslow down, i.e., might grow at a rate of approximately 5%, if the priceratio were maintained at 1.7. In Western Europe, fish meal seems to bereplaced by soybean meal in the feed component if the ratio increases above1.5 1/. In fact, in 1966-68, the ratio has averaged approximately thislevel. Assuming a continuation of this ratio in the period 1970 to 1975,consumption in Western Europe is estimated to grow at an annual rate ofapproximately 4%. Given our projected price for soybeans, the price implica-tions of these ratios for fish meal are US$143 per ton c.i.f. Hamburgand US$158 per ton f.o.b. New York. This will be discussed further below.
11. It is hazardous to forecast fish meal production simply by extra-polating historical trends. Fish meal production is determined by theavailability of fish occurring in great abundance and readily accessible tolarge-scale production types of gear. To provide a realistic forecast offish meal production, It is necessary to have knowledge of the world harvest
1/ The difference in the ratios of fish meal prices to soybean prices of1.5 and 1.7 for Western Europe and the United States reflects largelylower prices for soybean meal in the United States as compared toWestern Europe.
ANNEX 7Page 4
potential of these fish species. Some information is available for Peruand Chile from Bank reports. In many other countries, however, no study ofthe potential has been undertaken. FAO has drawn attention (with others) tothe problem of over-exploitation and has projected world fish meal productionto reach 4.5 million tons as of 1975, compared to 6.3 million tons based ontrend extrapolation. There exist possibilities of exploitation of newsources of supply in the longer run (particularly of Antarctic krills) and aproduction of 4.7 million tons in 1985 is suggested. Both the latter projec-tions, however, have already been surpassed by production in 1968 when 4,945million tons of fish meal were produced. In view of these deficiencies, andpending Bank projections for a number of other countries, a tentative projec-tion is provided in Table 2, using estimates of other experts in the field.These assume that growth of world production for the period 1970-75 couldcontinue to grow, but a declining rate, from an annual rate of 5.8% to annualrate of 4.2%, even if Peru's production were to return to its 1968 level(Chart 3).
12. Production in net exporting countries are assumed to grow at 3.7%per annum while production in consuming countries (i.e., net importingcountries and countries neither exporting nor importing at present) wouldgrow at 5.2% per annum. Since production of net exporting countries isnearly all exported, exports from these will grow at the same rate as produc-tion (Table 1) 1/. The increasing fish meal production in consuming countriesis expected to occur mainly in centrally planned economies, where risingdomestic demand would, however, prevent the development of any excess suppliesand, therefore, a change in those countries' trade position from an importingto an exporting country. However, it is expected that net imports intothose countries and into the "rest of the world" group will stabilize atapproximately their 1966-68 level. Net imports into all other countries,particularly the United States, the EEC, and other developed countries, areprojected to grow at the same annual rate as consumption.
13. The trade balance between potential and net imports, calculatedon the basis of factors discussed above, indicates a more or less balancedexport/import position of fish meal as of 1975. With an export potentialof 4.1 million tons as of 1975, total net imports may reach 4.3 milliontons. The estimated gap of 0.2 million tons, equivalent to 5% of the exportvolume, is too small to indicate a significant supply deficit in view of thetentative character of the export and import projections.
1/ Note, due to lack of data for exports in 1969, growth rates of prospec-tive exports for the period 1969-75 are calculated on the base years1966-68. Production of net exporting countries in 1966-68 was slightlylower than in 1967-69. The implied annual rates of export growth,shown in Table 1, therefore, are slightly higher than the annual ratesof growth of production calculated on the basis of 1967 to 1969.
ANNEX 7Page 5
14. The price of fish meal at this volume of import demand wouldhave to remain within the price ratios of 1.7 in the United States and 1.5in Western Europe in relation to the price of soybean meal (para 10).Soybean meal prices as of 1970 to 1975 are projected to remain at approxi-mately US$95 per m ton c.i.f. European ports, with ample supplies availableto meet expected demand 1/. The corresponding price of fish meal c.i.f.European and U.S. ports would amount to US$143 per m ton and US$158 per mton, respectively, or decline by approximately 8% from the average pricelevel as of 1963-69 (Table 4 and Chart 2).
15. The declining price predicted in face of a significant reductionof growth in fish meal supplies assumes a further substitution of soybeanmeal for fish meal in Western Europe. Preliminary analysis undertaken inthe Economics Department indicates a high probability of this development.In Germany, which is the major fish meal importer in Western Europe, statu-tory minimum ratios of fish meal in feed mixtures have been abolished as ofJanuary 1, 1970 and these changes should open the possibility of furthersubstitution. In case substitution is advancing slower than expected,however, the average price c.i.f. Hamburg, as of 1974-76, might remain at,approximately, the 1963-69 level of US$156 per m ton.
16. Prices within the range of US$143-156 per m ton c.i.f. Hamburgmight also be sufficient to cover production costs in major producingcountries and should prevent any curtailment of production. Average costsof production in major producing countries are estimated, by various sources,to range between US$85 to US$130 per m ton.
1/ IBRD, Economics Department, Trade Policies and Export ProjectionsDivision.
April 26, 1971
--Iish 'eal and Soio5i--(-+,hAiRA m tons)
.Rate of Rate ofA c t u a 1 Growth Projected Growth
Average ~:1963-65 1966-681955-57 1963-65 1966 1967 1968 1969 to 1966-68 1975 to 1975
Source: FA0 Com2odity Review and Outlook, 1968-1969 and 1969-1970.Fish Meal Exporters Organizatiwi, Monthly I August 1979.U.S. Department of Agriculture, World Agricultural Producticn and Trade August 1970. CD.
2/ Fish Meae.. Exporters Organization !Al other net exporting countries.
Source: FAO, Cc.odiL Rehiew and Out.lokc, 1968-69 ar.d 1969-70.I32A, 01"_ od e, Nover.aher 28, 1969, pp. 5-192.Pish Yeal Exporters Organizatimp, mh-nvY R t , Aug:st 1970.U.S. Deparua,ent of Agriculta-tr, dorld al Produqtion and Trade. August 1970. g'
ANNEX 7
PANAMA Table 3
FISHERIES PROJECT
Fish Meal: World baports, 1955-57 - 1968
Ujrj. t ed Urti ted Ws.vtcr Cw' ttral])., o.f World3tLttce^, E1,', li ~wdo:n Thrc,'-. Jaa. P.la!r .d V!orI(d Tot.l
0@ i 002k--______________-----------------1,000 ____0
0 1955-57 1963-65 1966 1967 1968 1969 1970 1971 1972 1973 1974 1974-76Average Average Average nI>
d A C r uAL-->ACTUAL >
IBRD - 4891(R) -
ANNEX 8Page 1
PANAMA
FISHERIES PROJECT
Panamanian Fish Meal Industry
Resources
1. Small pelagic fish are caught by purse seiners for processing intofish meal and fish oil. The main species caught at present is theCentengraulis mysticetus (a type of anchovy), generally found in Panamain shallow coastal waters; its estimated life cycle is one year. The abun-dance of this species is subject to considerable fluctuation with the catchvery low in the years when water upwellings and rainfall do not occur in theBay of Panama. The annual landing of anchovy, according to past catchrecords, has varied from 9,000 to 53,000 sh tons (Table 1) although theDirectorate of Marine Resource of Panama estimates that the maximum annualsustainable yield is around 80,000 sh tons.
2. The other main species caught by purse seiners is Opisthonema sp.(thread herring), which, in Panama, is found in deeper waters than theanchovy. The fishermen find the thread herring only during about six monthsof the year and past catch records show that landings vary from 7,000 to27,000 sh tons per year (Table 1). After exploratory fishing, the UNDP/FAOCentral America Fisheries Development Project staff reported that there islittle possibility of finding more in deeper off-shore waters in the Bay ofPanama.
Fleet
3. The purse seiner fleet varies from 15 to 20 vessels, consistingmostly of converted shrimp trawlers (Table 2), although one of the fishingcompanies has recently added four new purse seiners built in Mexico.1/ Thenewer ones are equipped with refrigeration facilities so that trips may belonger.
Processing
4. There are two fish reduction plants, one on an island in theGulf, just off the entrance to the Panama Canal. It was recently purchased
1/ The import of these vessels was allowed as an exemption to law prohibitingthe import of fishing vessels with the condition that the firm must re-place them with Panamanian built vessels within five years.
ANNEX 8Page 2
by International Protein Corporation, USA, after a previously foreign-ownedand managed enterprise went into bankruptcy. This plant can convert 49.6 shtons to 55.1 sh tons of raw fish into fish meal each hour. Fish are providedby the company's own fleet of nine purse seiners. Operating expenses aresomewhat higher than those of the land-based plant (para 5) because of thecost of transporting employees and the difficulty of maintaining a freshwater supply.
5. The other plant, located at a small inlet of Puerto Caimito, hasbeen in operation for over 10 years and is owned by a number of Panamanianinterests. The capacity of the plant is 44.1 sh tons of raw fish per hour,supplied by a separate fishing company, owned by many of the same interests,two independent purse seiners, and the company's own fleet of about eight.
6. Each plant claims it requires an annual fish meal output of 5,512.5sh tons to break even on direct costs and an output of 8,820 sh tons to showa reasonable profit. Historical production levels of fish meal are given inTable 3. The plant with outputs of about 5,953.5 sh tons of meal in 1969 and6,174 sh tons of meal in 1970 showed net losses for those years. Their totalproduction cost was US$127 per sh ton in 1969 and US$ 141 per sh ton in 1970against average sales prices of US$122 and US$139 (FOB Panama), respectively.In 1968, with the record catch and being the only plant in full operation out-put increased to 11,907 sh tons of meal, total production cost dropped toUS$102 per ton and the world price was depressed to an average selling priceof US$96 per sh ton (FOB Panama).
7. The projected selling price, FOB Panama, based on the projectionsin Annex 7, would be US$101 per sh ton to the U. S. and US$112 per sh ton toEurope. If each plant received an even share of the total fish resource basedon the average landing over the past five years (56,228 sh tons), both plantswould be producing only about 5,513 sh tons of meal each. Based on the proj-ect prices and estimated production costs, both plants would be operating ata loss.
Purse Seiner, Catch Rate, Earnings, Cost and Rate of Return
8. The average fleet catch rate, according to the landing record,varied from 15.2 sh tons to 24.9 sh tons per trip during the past five years.The average trip catch for the newer purse seiners was about 26.4 sh tons andthe average number of fishing days per year was 180, producing an annualcatch of 4,752 sh tons. The present price for raw fish paid to the fishermanin Panama is based on 10% of the price of fish meal FOB Panama, and the max-imum price is US$15 per sh ton. Based on these assumptions, the estimatedgross earnings of a new purse seiner would be the following (Table 4):
US$10.00 US$12.50 US$15.00Catch per sh/ton per sh/ton per sh/ton
752 sh tons per year US$47,500 US$59,400 US$71,300
ANNEX 8Page 3
The ratio of total operating costs to the gross earnings is 88% atUS$10.00, 77% for US$12.50, and 69% for US$15.00 (Tables 4 and 5). Theresulting rate of return to the fishermen would be the following:
Price of Fish paid to US$10.00 US$12.50 US$15.00Fishermen: _
Rate of Return: -3.4% 6.9% 14.8%
With the projected FOB Panama meal price projected at US$101 to US$112 per shton of fish meal, the financial prospects for a fisherman with a new purseseiner are unsatisfactory.
(b) Ship's ExpensesRepairs and Maintenance 6,500 6,500 6,500Fishing Gear 5,000 5,000 5,000Dinghy and Watchman 300 300 300Insurance 3,700 3,700 3,700Licenses and Legal Expenses 500 500 500Overhead 1,200 1,200 1,200
Subtotal 17,200 17,200 17,200
(c) Total Operating Costs 41,800 45,300 48,900
3. Net Earnings before Depreciation 5,700 14,100 22,400
4. Depreciation 7,400 7,400 7,400
5. Net Earnings after Depreciation -1,700 6,700 15,000
6. Rate of Return -3.35Z 6.87% 14.79%
April 26, 1971
ANNEX 8Table 5
PANAMA
FISHERIES PROJECT
Assunptions for Purse Seiner Income Statement Forecasts
Characteristics Length: 71 ftEngine: 365 hpCost of vessel: US$123,000 (c.i.f. Panama),including electronic equipment and withoutinsulation and refrigeration
Operations 180 fishing days per year
Earnings 180 trips (daily operation) at 26.4 sh tonsper trip - 4,752 sh tons per yearEx-vessel price:Minimum US$10.00 per sh tonMedium US$12.50 per sh tonMaximum US$15.00 per sh ton
Crew's share 30% of gross landing value of fish
Fuel 0.38 lb/hr x 365 hp - 138.7 lb/hr138.7 lb/hr x 12 hours - 1,664.4 lb/day1,664.4 lb/day x 180 days - 299,592 lb/yr299,592 lb/yr e 7.12 lb - 42,000 US gal/yrUS$0.15 x 42,000 US gal/yr - US$6,300/yr
Lubricant 42,000 US gal x 0.54% 226.8 US galUS$1.40 x 227 US gal US$318
Food TUS$14 per day for 10 crewmenUS$14 x 180 days - US$2,520/yr
Miscellaneous US$6.70 x 180 days - US$1,200/yr
Insurance Marine insurance for total loss based on thespecial reduced rate
Other costs Repairs and maintenance, fishing gear, dinghyand watchmen, licenses and legal expenses,overheads: estimated costs based on similarexisting vessels
Depreciation Residual value of vessel after 15 years,10% of US$123,000 - US$12,300To depreciate US$110,700 in 15 yearsUS$7,380 per year
April 26, 1971
ANNEX 9Page 1
PANAMA
FISHERIES PROJECT
Panama Banking Sector and Monetary System
1. The Panamanian monetary system is closely linked to the US dollar(which is equivalent to the Balboa) and the country's monetary basis, underfree currency convertibility, is essentially determined by the movementsin the balance of payments. With a central bank (Banco Nacional de Panama,BNP) of only limited powers, the commercial banks within this system enjoygreat freedom of activity and carry a major responsibility for the function-ing of the money market.
2. Within this free environment and under an aggressive creditpolicy, the banks, during 1960-67, recorded a rapid growth, marked bya large credit expansion supported by a strong inflow of deposits (Tables1 and 2). These developments were brought to a sudden stop in 1968 due tothe uncertainties caused by the political events of the year. However,after reassurances were given by the new Government, which took the standthat the traditional freedom of the banks would not be encumbered byrestrictive regulations, the rapid expansion resumed in 1969 and continuedinto 1970. BNP did not immediately participate in this credit expansion dueto a depletion of its liquid resources caused by withdrawals and the heavyGovernment borrowings in the aftermath of the 1969 political events.
3. In the absence of a central bank equipped with adequate regulatorypowers over the activities of the money market and over the country's economicactivities in general, Panama lacked the necessary facilities required forsupport of the Government's fiscal policies as well as the protective measuresfor meeting a liquidity crises in times of emergency. To remedy this situation,the Government, in July 1970, created the National Banking Commission, equippedwith important regulatory powers, to meet these objectives and to ensure asound banking system and an attractive environment for Panama as an interna-tional financial center.
4. The credit activities of the banks are greatly diversified, withstrong emphasis on commercial credits (Table 2). Loans to agriculture andindustry are of relatively minor importance, covering mainly cattle raisingand cash crops and, manufacturing and processing, particularly for export.Consumption, housing, and personal loans are important lines with some of thebanks, especially BNP, where they have reached major proportions. Apart fromthe commercial banks, these latter credits are also provided by a number ofsmall finance companies and savings and loan associations, classified asEstablecimientos Financieros (Tables 3 and 4).
ANNEX 9Page 2
5. The commercial banks take an active interest in financing capitalinvestments, although they, with the exception of BNP, generally limit theirlendings in this field to terns of up to three years and not more than five.BNP, under its supervised loan programs for agriculture and industry, supple-ments the activities of two specialized agencies. The Instituto de FomentoEconomico, IFE, an autonomous Government institution, extends assistance tothe agricultural sector through its price-support and development loanprograms, while the Desarollo Industrial S.A., DISA, a private developmentfinance company, serves the private sector of industry through loan andequity finance. The two institutions have been relying heavily on AID andIDB low-interest loan funds for their financial resources.
6. The expanding insurance sector in Panama has become a sourceof long-term capital of growing importance, the major part of its freefunds being invested in loans as well as in equities.
April 26, 1971
ANNEX 9Table 1
PANAMA
FISHERIES PROJECT
Summary Balance Sheet Figures of Panama Banks and Savings Institutions
(B'gooo )
i26 1966 1967 1969
ASSETS
Cash and Other Liquid AssetsCash and Other Gah Values 29,735.5 33,748.6 34,040.2 40,723.6 37,772.4Bank Deposits and 1
Bank of America . . . . . . . . . . 5 1 4Compania Nacional de Ahorros y
Prestamos . . . . . . . . . . 3 1 2Bank of London and Montreal Limited 2 1 1Mercantile Bank of Panama Inc.. . 2 1 0Banco General, S. A.. . . . . . . 1 1 0
Fixed Assets 435 8;28 Capital & Reserves 5,829 14,935
Other Assets 215 31
Total 10,661 35X5;'6 TOAL 10,661 3526
List of the Finance Companies(.Yea~r 196d
Commerce Personal loanss
Cuentas, S. A. Rattan SinghFinanzas, S. A. Financiera del Educador, S.A.Santa Elena, S.A. Financiers General, S.A.Financiera Crawford, S.A. Prestadora Istemena, S.A.Financiera Istmena, S.A. Inversiones Algor, S.A.Financiera Panamericana, S.A.Compania Panamena de FinanzasCreditos Panama, S.-A. Industry:Compania Financiera Pancolon, S.A.Laykas, S. A. Desarrollo Industrial, S.A.Creditos Latorre, S.A. Cuentas Comerciales, S. A.Financiera AutomotrizWest Indies Financial and Commercial Corporation
Housing
Compania Inversionista Panamena, S.A.Primera Asociacion de Ahorros y Prestanos para la ViviendaAsociacion nacional de Ahorros y Prestamos para la ViviendaAsociacion la Inversionista de Ahorros y Prestamos para la Vivienda
Source: Contraloria General, Direccion De Estadistica y Censo, Hacienda Publica y Financas,ano 1969.
ANNEX 1 0Page 1
PANAMA
FISHERIES PROJECT
Fisheries Development Credit
Demand and Sources of Credit
1. There is a large unsatisfied demand, particularly on the part ofthe small fishing operators, for credit to support capital investments in newvessels and to finance remodeling and overhaul of old boats, and to provideworking capital. Credit facilities offered by the commercial banks aregenerally out of reach of the small fishing boat operators, who have aninadequate credit standing or lack the collateral or financial backingrequired by the banks for the approval of credits. Even those owners whoare able to obtain partial credits for constructing new boats, must repaythe loans in three to five years. Interest and amortization payments aremade on a monthly basis and most borrowers must supplement their boatsincome with funds from other sources to meet the payments. Their financialrequirements are usually covered by the freezer plant owners within closetrade-partnership arrangements, whereby the freezer plants provide credits forship maintenance and working capital requirements, including the supply ofsmall items of equipment. Piers are owned by the processing plants and inorder to land shrimp at one, the boat owner must buy his fuel from theprocessing plant. Many boat owners find themselves short of sufficientfunds to finance a two-week trip so it is sold on a credit basis until theboat returns from a fishing trip. In addition, some of the processing plantshave small fish gear supply stores and sell to fishermen on credit. Thefishermen, in turn, sell their catch to the freezer plants at an agreeddiscount price, involving a margin of 7% to 10% below the current marketprice. These arrangements clearly have been inadequate and quite costlyfor the small shipowners, especially for those with older boats who, have notbeen able to generate adequate funds finance proper maintenance or renewtheir boars and fishing equipment, let alone expand their operations. Tradecredits have also played an important role in the establishment and build-upof some of the local processing plants. They were granted by foreign importersof shrimp (mainly US) to individual local companies and, sometimes, process-ing equipment is supplied on credit agreements containing exclusive shrimpsupply contracts, under fixed price and payment provisions, with the localproducer.
Bank Finance
2. Bank finance has mainly benefited the larger and medium-sizedfisheries enterprises, covering their working capital requirements as wellas capital enterprises, covering their working capital requirements as well
ANNEX 10Page 2
as capital investment needs. Trade credits, especially in the exportphase of the frozen product, have been an important and apparently verylucrative line of the bank's credit activities in this sector. They havegrown over the years with these industries into important financial relation-ships, involving a continual credit expansion both for capital investmentand operational purposes.
3. An estimate of bank loans to the fisheries sector from January 1,1966 to September 30, 1970 is given in TAble 1. Total bank credits, overabout five years, amounted to B 2.7 million. Among the four banks involvedin fisheries credits, Chase Manhattan has had a leading position, basedon years of experience in credit activities in the sector that it helped todevelop, particularly in regard to fish processing. DISA, since it startedoperations in 1964, has taken a continuing interest in serving the industry'sshort and mediumr-term financing requirements, both for fishing and processing,resulting in a total investment over a seven-year period of B 619,000.Banco Nacional de Panama (BNP), after an earlier bad experience in financingboat repair and rehabilitation projects, resumed fishing credit activitiesin 1969 and 1970 with four loans for new boat construction in the amount ofB 230,000. This raised its total lendings to the sector, over the past fiveyears, to B 355,200. Details on BNP's fisheries loans are given in Table 2.
Purpose and Terms of Loans
4. The loans by the banks vary widely in purpose, comprising thosefor capital investment in new fishing vessels, remodeling old boats, acquir-ing processing plants, and equipment jand buildings, as well as those forworking capital and trade credits. The terms of the loans also vary, runningup to five years, from 90 days for trade credits to three years, in excep-tional cases, for loans for capital investments. Loans to the fishing boatoperators range in size from B 3,000 and less for small items of machineryand equipment to B 60,000 for new fishing vessels. The loans carry interestat the prevailing rate of 9% per annun and they are secured by mortgage orcollateral up to 60% of assessed value.
April 29, 1971
ANNEX 10Table 1
PANAMA
FISHERIES PROJECT
Estimate of Bank Loans tothe Fisheries Sector
January 1, 1966 to September 30, 1970
(B '000)
------ Y e a r -------- 1-3 qtr1966 1967 1968 1969 1970 Total
Banco Nacional de Panama (BNP) 48.0 44.7 13.2 67.0 182.3 355.2
Desarollo Industrial SA (DISA) - 54.6 48.7 65.0 300.0 468.3
Source: Based on data supplied by Direccion de Estadistica y Censo, DISAand BNP, February 1971.
April 26, 1971
ANNEX 10Table 2
PANAMA
FISHERIES PROJECT
Banco Nacional De Panama: Loans for Fishing Vessels made in 1969 and 1970(in Balboas)
Kind o.' Company . o.al BI.? v Termns of GraceDate of Knd of Company Total BN P Interest ~_ !. Loans Per,lodLoan Vesse-l or }wner Cost Loan 2a1e (ears) (Months) Securi-6A'
August 3,1970 Shrimp trawler Pescadora Ma- 95,000.00 60,000.00 9% 3 6 60,000.oo72' Foot rina, S. A.
TOTAL 487,000.o 230,000.00
1/ Interest rates are subject to upward automatic adjustment concurrently with any increase in the maximum interest rate setby the law. No additional charges or commissions are charged.
2/ Amounts stated are insured values of the vessels forming the collateral of the BNP loans.
ANNEX 1 1Page 1
PANAMA
FISHERIES PROJECT
Banco Nacional de Panama
1. The Banco Nacional de Panama (BNP) is a government-owned financeinstitution that serves as Government's fiscal agent, with limited centralbanking functions in addition to its widely spread banking activities asthe country's leading commercial bank. It started operations in 1904,originally as a mortgage loan bank and in February 1956 was reorganized,assuming its present name and functions. It has a continual record ofgrowth, both in its widely diversified commercial banking activities and inits extensive fiscal operations. BNP lendings so far have been directedmainly to commercial credits and personal consumption and housing construc-tion loans, which, on July 31, 1970, represented 23X and 312 of the bank'sloan portfolio. Comparative balance sheet statements for 1966-70 appearin Table 1.
2. Small loan operations have been considerably expanded, reaching,together with personal loans in the first three quarters of 1970, arecord number of 42,838 transactions. This reflects, in part, the take-overby the BNP of the loan portfolio and business from Bancrepo, a Government-owned small loans bank that, in 1969, was liquidated. The move furtherincreased the bank's already heavy preoccupation in a field of lendingactivity that may be socially justified and very lucrative, but does notserve productive purposes. The usually high incidence of defaults insmall loans has added to the bank's loan recovery problems.
3. BNP has recently taken an increased interest in expanding itsloans for agricultural and industrial development (Table 2 indicates BNP'sloan activities by sector). These operations have been financed mainlyby loans from the Inter-American Development Bank (IDB) under supervisedloan programs, but, in their total, US$4.5 million, they have remainedas yet in moderate proportions. The bank has also recently made loansfor the construction of fishing vessels and has applied for an additionalloan from the IDB for agriculture.
4. Although qualified professionals for key positions in BNP havebeen recently recruited, the bank lacks at present the staff for appraisingdevelopment projects, and, on the advice of IDB, it has retained a consul-tants firm 1/ to build up its industrial credits department. It also hasunder review its overall organization, which has been lacking in operatingefficiency and staff performance. Chart 1 depicts BNP's present organiza-tion, and Table 3 indicates personnel assignments in BNP.
1/ Peat, Marwick and Mitchell, U.S.
ANNEX 11Page 2
5. BNP's operations and financial position suffered from thepolitical events in 1968 and its liquidity was seriously affected by large-scale deposit withdrawals and heavy borrowings by Government. In meetingthe sharply increased Government financing demand, the bank raised largecredits on short term from foreign banks, the greater part of which hadbeen repaid by early 1971, concurrently with Government loan recoveries.As a result of these repayments and a greatly curtailed credit expansion,the bank's liquidity by 1971 has considerably improved. Increased promo-tional efforts are now underway to attract new deposits, which should helpto enlarge the basis for planned further credit expansion. Due to itslow cost resources and high gross income from earned interest, BNP has hada comfortable profit/assets margin, averaging 4.8% over the past five years.(Table 4 contains the comparative income statements for the years 1966-70).Much of this, however, has been absorbed by high administrative costs andgrowing financial expenses, resulting in only a moderate gross profit ratiobut a satisfactory net return on net worth (average, 7.5% in normal years).Since 1967, the bank's yearly surpluses have been added to capital andreserve, resulting in an improvement of the bank's debt-equity ratiofrom 6.6:1 in 1966, to 5.8:1 on December 31, 1970. 1/ However, the bank'sfinancial position appears to be considerably affected by its loans inarrears, which are heavily weighted with a large block long overdue.A final opinion on this situation will have to await completion of adetailed report on the subject, which is under preparation by the GovernmentAuditor.
May 21, 1971
1/ The adding of surpluses tended to improve the debt-equity ratio,although, because of the disturbances of 1968, the debt equity inthat year became about 7.3:1. The ratio has been calculated byeliminating the IMF counterpart and the category of special reserves.
ANNEX 11Table I
PANANA
FISHEIaES PROJECT
Banco Nacional De Panama: Comparative Balance Sheets
December 31. Fiscal,Years 1965 through 1970k"sUuu)
ASSETS 166 1967 1968 1969 1970
Cash and Local Banks 10,605 13,603 13,980 13,988 17,582Correspondent Banks 1,245 836 3,683 7,983 1,894Overdrafts - 10,068 7,968 6,586 8,559Clearings, Branches and AgenciestRemittances in Transit) 4,110 2,179 3,350 3,700 4,572Loan Xlthholdings - - - 379 825
Sub-total 15,960 26,686 28,981 32,636 33,432
International Monetary Fund 2,931 2,931 2,931 7,289 12,607
Special Reserves and Provisions 269 407 491 636 713
Capital and Reserve Fund 8.583 9,063 8,809 13,983 i/ 13.582
Total Capital and Reserves 68,481 74x461 78.396 115,270 106.6
1/Includes B 22,150,000 special loans to Central Government./ Includes foreign borrowings, B 17,530,000.y Includes capital of Bancrepo,B 4,528,0oo and B 3,216,000 in 1969 and 1970,respectively.
Source: Banco Nacional De Panama, Accounts Dept.
April 5, 1971
ANNEX 11Table 2
PANAMA
FISHERIES PROJECT
Banco Nacional De Panama (Loans Granted in 1966 to 1969 and First through Third Quarter 1970)
Distribution of Loans by Economic Sectors
Agri- 1/ Other Personalculture - Commerce Industg Housing Constructiop Consumption Other Total
t__ ^ E ! _ , /~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
t~~~~~~~~~~~~~~FS No, L - t Qkt ER AXir
ANNEX 13Page 1
PANAMA
FISHERIES PROJECT
Naval Architectural Services
Vessel Design and Specification
1. A naval architect with experience in supervising design andconstruction of shrimp trawlers would be hired to determine the most appro-priate vessel characteristics, detailed features, and design of the shrimptrawlers to be built under the proposed project. He would be assistedin acquiring the consensus of the recommendations of the prospective sub-borrowers by the Fisheries Project Committee.
2. During the preliminary design work, the architect would partici-pate in actual shrimp fishing operations and become fully familiar withboth the sea conditions in the Gulf of Panama, the trawling depths, andthe characteristics of present and future landing facilities. In particular,he would perform detailed analysis on the economics and operating factorsof vessel size and engine horsepower.
3. Upon finalization of the detailed design and specifications, thearchitect would prepare the tender documents required for the internationalcompetitive bidding procedures and, subsequently, assist Banco Nacional dePanama and the Fisheries Project Committee in evaluating the bids received.
Supervision of Vessel Construction
4. Periodic supervision of vessel construction by a naval architectwould be provided under the project so that he could check workmanship andconformity vith plans and specifications included in the constructiomcvaotract. Supervision would require two visits of about one veek e.acduring the construction of each lot over the four years alloted for vesselconstruction.
5. If the construction is won by the Panamanian shipyard, additionalsupervision could be carried out. The fisheries operations training officer,together with the prospective shipowners should check suitability ofthe installation of equipment, machinery, and accommodations in the vessels.
May 21, 1971
ANNEX 14Page I
PANAMA
FISHERIES PROJECT
Project Training Program
Need for Training Program
1. Captains of shrimp trawlers in Panama are well experienced andknow how to operate shrimp fishing gear. For implementation of the project,there is no doubt that owners of the vessels to be provided under theproject have, or will be able to find in Panama, captains and crews ableto operate successfully in the fishing grounds that are at present exploitedin shallow waters close to the coast. The captains, however, are usuallyformer seamen 11 who have learned "on the job" receiving little or noformal or theoretical training. They have scant knowledge of navigationand would not be able to determine the position of their vessels withsufficient accuracy if they were to attempt to exploit offshore fishinggrounds in deeper water. Their lack of knowledge of safety rules at seaoccasionally makes them navigational hazards to ships coming from or goingto the Canal. Furthermore, vessels to be provided under the project wouldhave echo sounders to determine the depth at which shrimp trawls would betowed. Such devices can also be employed to detect the occurrence of thespecies of fish normally found in association with shrimp. Since echosounders are presently used only on a small number of vessels, few skippershave experience in their use. Therefore, to insure full success of theproject, training of captains in elementary navigation, navigation rules,and echo sounding would be required.
Subjects to be included in Training Program
2. Training would include a minimum theoretical course ashoreon navigation, safety rules, echo sounder installation, and enginemaintenance, and then practical training at sea.
(a) Elementary training in navigation would include instructionin: determination of ship position by dead reckoning;making corrections for draft and current; use of tidetables, magnetic compass, marine sharts, and pilotbooks; and keeping a navigation log;
(b) Training in navigation and safety rules would includeinstruction in: navigation rules at sea and in channels;lights to be shown at night by boats when fishing, when
1/ The captain career pattern is usually: apprentice seaman/helper,mechanic, and then captain.
ANNEX 14Page 2
sailing, when at anchor, and the like; rules of maneuverto avoid collision; requirements for lifesaving deviceson fishing boats; methods of fire prevention and firefighting; and operation of bilge, fire, and safety pumpingsystem;
(c) Training in the use of eclho sounder would include instructionin: general principles of echo sounding, installation andmaintenance (change of needle and paper), adjusting gain,adjusting zero depth measurement, determining nature ofbottom and detecting fish; and
(d) Elementary training in operation and maintenance of dieselengines.
O it othe Program
3. In organizing and implementing the training program, theBanco Nacional de Panama would be assisted by the Directorate of MarineResources. The exploratory fishing vessels to be operated by the Directorateas part of the UNDP/FAO follow-up preoject would be used for trainingsessions at sea and the Directorate would also provide any other equipmentrequired.
4. Each captain would follow a two weeks' course ashore and receive10 days' training at sea. No more than 10 captains at a time would attendthe courses ashore and no more than five would receive at sea instructionat the same tinme.
5. Instructor. A fisheries operation officer would be requiredto serve as instructor for these courses over a period of 18 mouths. To bequalified, he must have had experience as a captain on a shrimp trawlerwith modern gear and previous experiLence as an instructor. He wouldalso have to be able to speak Spanish.
6. Certficates. A certificate would be issued by the Directorateof Marine Resources to captains who successfully complete the courses.The possession of such a certificate would be required of all captainsof the proposed vessels.
May 21, 1971
ANNEX 15Page 1
PANAMA
FISHERIES PROJECT
Project Cost Estimates
1. Estimated Cost Breakdown of One 67-ft Shrimp Trawler
(Constructed in Panama)-
Z ~US$
1. Steel Plate and Steel Products 16 12,960
2. Engine 20 16,200
3. Shafting, Steering Gear, and such 6 4,860
4. Auxiliary machinery, includinggenerators, winches, and such 18 14,580
5. Electronics 3 2,430
6. Paint 2 1,620
7. Wood 2 1,620
8. Labor charge 18 14,580
9. Overhead, profit 15 12,150
Total 100 81,000
Working Capital
2. The permanent working capital requirement for a vessel would bethat amount needed to finance purchase of supplies for a two-week fishingtrip and the cost of licensing for shrimp fishing. Approximately US$3,000per vessel is needed for diesel fuel, oil, crew, food, and miscellaneoussupplies.
3. Shrimp fishermen paid only a nominal fee to the Directorate ofMarine Resources for their original shrimp fishing licenses but sincethe number of licenses was fixed in 1968, their commercial value hasincreased to US$8,000 - 10,000 in 1970. Licenses are transferrable, andrecent court actions in Panama have ruled that a holder can realize the
1/ At present there are import duties on vessel construction materialsof 8-10% but it is expected that these duties will be removed byPresidential decree before the initiation of the proposed project.
ANNEX 15Page 2
actual market value of the license. In recent years a number of licenseshave been sold, usually individual vessel owners vho cannot replace theirold trawlers sell their licenses to larger fishing companies. US$8,000was used as part of the estimate of the working capital requirement forthe project cost estimate. A subloan applicant must either pos"ss alicense of this value or purchase one.
May 21, 1971
PANAMA
FISHERIES PROJECT
PROJECT TIME SCHEDULE
YEAR 1 2 3 4 |
NAVAL sr ……777ARCH ITECTi 1 9 1 0
F IT R E I G NL+
EXPERTS TRAINING * f* ff*OFFI CER F
LOT 1 T I I 10 Vessels IIIII III,t-ILOT 2 -- 1I-----
SHRIMP esgn10 Vessels 1id Eauto C u11 1c
TRAWLERS LoTi3 tructi -- ii10 Vessels -IIIIIII
LOT 4- -
10 Vessels
NAVAL ARCHITECT TRAINING OFFICER SHRIMP TRAWLERS z9K'A Design, Tender Preparation, Bid Evaluation 1EEE Conducting Training IlIllIlIll Construction
* Period;ic Construction Supervision Operation
IBRD - 5563(R)
PANAMA
FISHERIES PROJECT
Estimated Schedule of Quarterly Disbursements(US$'000)
Technical TechnicalAasistance Assistance Fishing Fort
Fishing Naval Training Feasibility Total AmountYear Quarter Vessels Architect Officer Study Contingency Disbursements Undisbursed
1 1 3,4001971 2 3,400
3 13 13 3,387bo l 13 50 6 3,324
9bb-total 7- 1 114 50 64 3,260
2 2 191 50 241 3,0191972 3 1 92 2 50 244 2,775
4 192 3 5 50 250 2,525SLub-total 799
1 5 50 55 2, 470
3 2 191 2 5 50 248 2,2221973 3 192 5 50 247 1,975
4 192 3 5 200 1,775Sub-total 750
1 5 5 1,770
4 2 191 2 5 198 1,5721974 3 192 5 197 1,375
4 192 3 195 1,180Sub-total 595
5 2 191 2 193 9871975 3 192 192 795
4 1 92 3 195 600Sub-total
1 600 600 >6
1976.-Sub-total 600
TOTAL 2,300 60 40 400 600 3,400
7/13/71
ANNEX 18Page 1
PANAMA
FISHERIES PROJECT
Maritime Insurance
1. Two companies in Panama presently write maritime insurance andboth maintain reinsurance arrangements with foreign concerns for theirlarge underwriting contracts.
Coverage
2. Two types of coverage are available -- total loss andall risk. The former provides compensation only for total loss. Offeredat a lower rate than the all risk policy, it affords no protection againstpartial damage due to natural causes or to collision and other operationalaccidents. The "all risk" policy provides comprehensive insurance coveringtotal loss as well as damage caused by stranding, storm and lighteningand explosion and collision. The insurance is normally contracted ona year-to-year basis and covers the vessel on the high seas, in port, andin the shipyard.
Restrictions
3. The companies often place two important restrictions on theextent of their financial coverage, i.e., required co-insurance and adeductible provision. The co-insurance provision limits the insurancecompanies' coverage to a portion of the asset value of the vessel andit may vary between 75% for new ships and 60% or less for older vessels.This imposes an unduly high risk on the shipowner, making it an unattractivetype. A standard deductible in the amount of B'`OOO is presently providedfor in all policies on compensation claims under the insurance contract.
Rates
4. A summary of the latest tariff of maritime insurance rate isgiven in Table 1. The rates which have been raised substantially recentlydue to the high incidences of loss in the operation of the local fishingfleet, vary considerably, depending on the type of vessel, its construction,and age. For example, all-risk insurance on vessels over 70 ft long isbeing quoted at between 5.75% and 12% for those of steel construction, de-pending on the age and condition of the boat, and between 6.75% to 13% forthose made of wood. These may be considered as maximum rates, subject tonegotiations; underwriters have been able, in individual cases, to makeconsiderable reductions if warranted by the condition of the vessel, thecredit standing of the customer, and the business volume involved. It is
ANNEX 18Page 2
generally known that, under special circumstances, insurance contracts withlarger customers have been made at preferential rates of 5% and below.
Payment Provisions
5. The insurance contracts are usually for a period of one yearand premiums are payable in cash on al quarterly or monthly basls. However,the companies have encountered great difficulties in collecting theirpremium payments on time from many of the financially weak policy holders,some of them having been in default in their payments for considerabletime periods. Contractual arrangements under which premium payments wouldbe made by a bank on behalf of an insured party in case he fails to makehis own payment are therefore favored by the insurance companies wheneverfeasible.
Fisheries
6. In establishing insurance requirements for the fishing vesselsto be financed under the project, two points should be considered:
(a) the vessels financed under the program should be covered byall-risk insurance without restrictions. This has been anormal requirement of the local finance institutions andit would be an appropriate arrangement also under thethe Project subloans.
(b) insurance for these vessels should be possible to arrange atconsiderably lower rates than those presently charged by thelocal companies on boats in a similar category. The increasedseaworthiness of these vessels would justify a substantialreduction.
7. The insurance requirements of up to 40 vessels to be acquiredunder the proposed project by the fisheries industries would provide aconsiderable impetus to the local insurance business. Because of theincreased volume of contracts and the reduced risks involved, insurancecompanies appear quite willing to adjust their rates downward by asubstantial amount. Group arrangemenLts would greatly facilitate a ratereduction. Insurance companies would also welcome automatic direct paymentsby BNP of premiums due instead of operating under the stand-by arrangementspresently in use.
8. While the two maritime insurance companies apparently have attaineda measure of coordination in their activities in the local market, anelement of competition exists. This would undoubtedly increase as eachtries to capture a share of the new market resulting from the FisheriesProject. BNP would be responsible for negotiating a satisfactory group, allrisk, Marine insurance for the new vessels. BNP would, as part of its nego-tiations, give due consideration to the past performance, financial strength,and reinsurance arrangements of the company selected, as well as to the in-surance rates quoted.
July 13, 1971
ANNEX 18Page 3
would therefore be responsible for negotiating a satisfactory group, allrisk, Marine insurance for the new vessels. The Fisheries Project Committeewould, as part of their negotiations, give due consideration to the pastperfonmance, financial strength, and reinsurance arrangements of the com-pany selected, as well as to the insurance rates quoted.
May 21, 1971
PANAMA
FISHERIS PROJECT
Maritime Insurance Rates(January 1971)
Type of Vessel Vessels under 70-ft Long Vessels over 70-ft Long
Basic Construction Wood Steel Wood Steel
Total All Total All Total All Total AllType of Insurance Loss Risk Loss Risk Loss Risk Loss Risk
Age of Vessel
New to Two Years 5.00% 7.25% 4.00% 6.25% 4.75% 6.75% 3.75% 5.75%
From Two to Five Years 6.00% 7.75% 5.00% 6.75% 5.50% 7.25% 4.50% 6.25%
From Five to 10 Years 7.00% 9.50% 6.00% 8.50% 6.75% 8.75% 5.75% 7.75%
Over 10 Years 9.50% 14.50% 8.50% 13.50% 9.00% 13.00% 8.o0% 12.00%
1/ The rates quoted are basic rates, subject to possible adjustment, depending on the condition of thevessel and its maintenance; all policies include a deductible provision in the amount of B 1,000.
Source: Compania Interamericana de Seguros S. A.
1c
ANNEX 19Page 1
PANAMA
FISHERIES PROJECT
Financial Operating Results of Shrimp Trawlers
1. An analysis was made to determine the most advantageous size ofshrimp trawler and to determine the financial returns to the individual fish-ermen purchasing a new trawler.
Trawler Size
2. More than 50% of the trawlers in the present fleet have an overalllength of 60 to 65 ft and, on the average, are powered by engines of about200 hp (Table 1). However, the vessels that have been constructed in thepast few years have been significantly larger, with most being in excess of70 ft and powered by engines of the 240-hp, 365-hp and 425-hp category.
3. A proper balance of trawler size and engine power for the shrimpfishing grounds in Panama would be a 72-ft trawler powered by a 365-hp engineor about 67-ft trawler powered by a 240-hp engine. The standard trawler sizebeing used by the American and Mexican fleets in the Gulf of Mexico are about72 ft and powered by engines of about 365-hp. However, the fishing groundsthere are usually farther from the home fishing port and fishing trips lastfrom 4 to 6 weeks. In Panama, the shrimp fishing grounds are usually onlya few hours from the shore facilities and the average trip lasts 15 days.Therefore, the trawler carrying capacity for oil, water, and shrimp catch isless in Panama than in the Gulf of Mexico. In addition, the Gulf of Panamahas much calmer waters than the Gulf of Mexico and the size of a Panamaniantrawler for adequate seaworthiness can be smaller.
Financial Evaluation
4. The financial operating results projected for the 67-ft vessel andthe 72-ft vessel operating in Panama clearly favor the 67-ft vessel. Theannual catch estimated for the two trawlers (Table 2) shows an advantage forthe larger vessel due to its ability to tow larger trawl nets, but the cor-responding fuel consumption is nearly a third greater for the larger engine.The catch estimates are conservatively projected by starting at the averagecatches of similar sized vessels one to five years of age presently used inPanama and declining each subsequent year. The earnings and costs estimatesfor the two trawlers appear in Tables 3 through 6.
5. Trawler financial projections were made under the assumption thatshrimp prices and costs would remain constant as well as on the basis thatthere would be an increase in shrimp prices due to the world situation --increasing per capita consumption and demand that a fixed world supply of
ANNEX 19Page 2
shrimp (Annex 6) 1/. In the case where the calculation is made on the basisof increased shrimp prices, the cost of labor is increased in the same pro-portion 1/. The crew is paid on a share basis (approximately 18% of thecatch), and, under the price projection, their salaries would be increasingat a rate of 41% between 1970 and 1985, or at an average rate of 2.7% perannum. The future labor situation would most likely require an increase inwages because, at present, the urban unemployment level is estimated at onlyabout 6% and a number of labor intensive construction projects will be under-taken in the next few years.
6. The results of the analysis based on the above assumptions aresummarized as follows:
72-Ft Trawlers 67-Ft Trawlers(a) Net annual earnings after
tax and depreciation: US$13,600 US$15,240
(b) Net annual earnings aftertax plus depreciation: US$18,400 US$19,600
(c) Financial Rate of Return (Tables 7 through 10):
With constant prices andcosts 10.2% 13.8%
With increase in pricesand costs 18.8% 21.5%
7. On the basis of the financial evaluation, the 67-ft trawler size issuperior to the 72-ft size, and, since the smaller vessel is adequate for theoperating conditions in Panama, it is recommended as the proper size to beused for the project.
Sub-borrower Cash Flow
8. A cash flow was projected for the sub-borrower purchasing a new67-ft trawler as proposed in the project (Table 11). The net cash flow underthe assumption of constant prices and costs indicates that the sub-borrower'scash flow would allow him to repay US$80,000 in a period of eight years, withone year of grace, during the construction and initial six months of opera-tion.
1/ The increases estimated for shrimp prices and labor costs could be de-fined as "real" increases depending on definitional criteria and in anycase the increases estimated do not take into account any future changeswhich would be attributable to inflationary pressures.
May 21, 1971
ANNEX 19Table 1
PANAMA
FISHERIES PROJECT
Number of Shrimp Trawlers According to Length(1970)
HorsepowerAve rage
perVessel LenRth Number Total Vessel
30 ft to 39 ft 11 in
40 ft to 49 ft ll in 5 804 161
50 ft to 59 ft 11 in 32 6,698 209
60 ft to 64 ft 11 in 132 26,320 199
65 ft to 69 ft 11 in 25 6,580 263
70 ft to 74 ft 11 in 27 7,635 283
75 ft to 79 ft 11 in 3 925 308
80 ft to 84 ft 11 in 4 1,120 280
85 ft to 94 ft 11 in 1 370 370
TOTAL 229 50,452 220
Source: Direccion General de Recursos Marinos, Ministerio de Comercio e
Industrias, Republica de Panama.
May 21, 1971
ANNEX 1$Table 2
PAN'AMA
FISHERIES PROJECT
Annual Catch Eatimaates of Poposed Shrimp Trawlers-67-ft 240-hp _-ee1 Trawler
Commercial name Catch (lb) Value/lb (US$) Ytxlue (US$)
White 27,840 1.33 37,027
pink 19,488 0.58 44,303
Titi 22,200 0.24 5,328
Zebra 72 0.30 22
Total 69,600 0.77 53,680
72-ft 365-hp Steel Trawler
Commercial name Catch (lb) Value/lb (US$) Value (US$)
White 30,451 1.33 40,500
Pink 21,562 0.58 12,506
Titi 24,099 0.24 5,784
Zebra 388 0.30 116
Total 76,500 0.77 58,906
ANNEX 19Table 3
PANAMA
FISIIERIES PROJECT
Estimated Earnings and Costs of 72-Ft Shrimp Trawler(365-hp, Steel)
Repairs and Maintenance 7,000Fishing Gear 4,000Dinghy and Watchman 300Insurance 2,500Licences and Legal Expenses 300Overheads 1 200Sub-total 1 ;,300
(c) Total Operating Costs 39P800
3. Net Earnings before Depreciation 19,100
4. Depreciation 5,500
5. Tax 700
6. Net Earnings after Depreciation and Tax 13,600
7. Net Earnings after Tax plus Depreciation 18,400
ANNEX 19Table 4
PANAMA
FISHERIES PROJECT
Assumptions for Income Statement Forecasts of 72-Ft Shrimp Trawler
Characteristics Length: 72 ftEngine: 365 hpCost of vessel: US$91,000
Operations 240 fishing days per year
Catch Catch calculated on the basis of 1970catch from boats of similar characteristics
Crew 's Share 182: of catch value
Fuel: 0.38 lb/hr x 365 hp x 80% - 110.9 lb/hr110.9 lb/hr x 20 hr - 2,218 lb/day2,218 lb/day x 240 days - 532,320 lb/yr532,320 lb/yr ; 7.12 lb - 74,700 US gal/yrUS$0.15 x 74,700 US gal - US$11,205/yr
Lubricant 74,700 US gal/yr x 0.54% 403.38 US gal/yrUS$1.40 x 403 US gal/yr - US$564/yr
Food US$100 x 18 trips - US$1,800/yr
Miscellaneous US$17 x 18 trips - US$306/yr
Insurance Marine insurance for total lossbased on the special reduced rate
Other costs Estimated costs based on similarexisting vessels
Depreciation Residual value of vessel after 15 years,10% of US$91,000 - US$9,100To depreciate US$81,900 in 15 years -US$5,460 per year
May 21, 1971
ANNEX 19Table 5
PANAMA
FISHERIES PROJECT
Estimated Earnings and Costs of 67-Ft Shrimp Trawler(240-hp, Steel)
P 7 Tubloon - IJ$S 79.000 enoh and in-lude6 payment for teobnicbi1 zsistnece services in vessel design cod procurement.
ANNEX 21Page 1
PANAMA
FISHERIES PROJECT
Economic Results of Project
Economic Earnings
1. The net economic benefits that would result from the proposedproject were calculated by estimating the benefits that would accrue from thefuture operation of 40 replacement trawlers as compared to the benefits thatwould accrue if there were no replacement and the vessels continued in opera-tion until the end of their economic or technical lives. The calculationswere made on both the basis of an increase in prices and costs and the al-ternative of constant future prices and costs (Annex 20).
2. Old Vessels. Projections for earnings on old vessels were made onthe basis of statistics available for shrimp catches and operating costs ofvessels 10 years old or more. The conservative assumption was made that awooden vessel presently (1970) 10 years of age could fish another 10 years ifit proved economical to do so. The catch of a wooden vessel was expected todecline as more and more fishing time was lost due to increasing repairtime. The operating costs were conservatively estimated to remain at thesame level. Under these assumptions, the old vessels would have an economiclife until 1975, assuming prices and costs constant, and an economic lifeuntil 1978, assuming increasing prices and costs (Tables 1 and 2).
3. New Vessels. The financial benefits of the new vessels were givenin Annex 19, and the earnings of a 67-ft vessel under the conditions of bothconstant and increasing prices and costs were used. The new steel vesselswere estimated to have a life of 15 years, with a 10% residual value. Thefinancial earnings of the shrimp trawler operations were adjusted to economicearnings by adding back taxes that were projected to be paid by the fishermenon the incremental income due to the new vessels. Also, the value of theshrimp fishermen's licenses were deducted from the investment costs as thiswas not considered as using an economic resource. The investment requiredfor permanent working capital was retained as it goes mainly for stocks ofoil, food, and supplies.
4. With these adjustments, the project's internal economic rate ofreturn would be 15.22, assuming prices and costs remain constant, and 21.8%assuming projected increases in prices and costs (Tables 1 and 2). The totaladditional income of the project under constant prices and costs would beabout US$8.2 million, US$7.1 million of which would be due to the incrementalvolume of shrimp produced by the new vessels and US$7.1 million to the in-creased efficiency of the new vessels. With the projected increases inprices and costs, the additional earnings provided by the project would be
ANNEX 21Page 2
about US$13.1 million, about US$10.11 million of which would be due to incre-mental volume and about US$3.0 milli'on due to increased efficiency.
Benefits to Shrimp Processing Sector
5. As a result of the project's incremental volume (26.7 million lbwith price increases and 32.7 million lb with prices constant) of shrimpcatch, the shrimp processing sector would be provided with additional earn-ings. Since the shrimp processing sector in Panama has earnings of about4 cents per lb of processed shrimp, the proposed project would produce aboutUS$1.3 million of additional earnings.
Combined Benefits
6. The investment for shrimp processing is about 6 cents per lb andthe net shrimp processing benefit flow was calculated by providing for capa-city to process the incremental volume. Discounting the combined processingbenefit flow and the shrimp catching economic benefit flow yields a rate ofreturn of 17.2%, assuming a constant: price and cost, 22.5%, assuming in-creases in prices and costs (Tables 1 and 2).
Sensitivity Testing
7. Sensitivity testing was performed on the economic rate of returnby using alternative values for the estimated catch of the shrimp trawlers.The results for the case of increasing prices and costs can be summarizedas follows:
8. The export earnings due to the incremental volume of the projectwould amount to about US$32.7 million during the 15 years, or an average ofabout US$2.3 million per year, assuming prices and costs constant (Table 3).Assuming increases in prices and costs, the total value of the exports wouldbe about US$36.4 million, or an annual average of about US$2.4 million (Table3).
