Sudan - Second Mechanized Farming Project

RETURN TO 1 v RETURN TO [ ~CIRCULATING COPE REPORTS DESK CRUAIGOP,RESTRICTED WREHNOT D0 BE RETURNED TO REPORTS DK ReporT No. PA-I C6a ONE WEEK This report is for official use only by the Bank Group and specifically authorized orpnizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF SECOND MECHANIZED FARMING PROJECT SUDAN April 6, 1972 Agriculture Projects Department  CURRENCY EQUIVALENTS US$ 1 - Sudanese Pounds (WSd) 0.3482 ESd 1 - U9$2.872 ESd 1,000,000 - US$2,872,000 WEIGHTS AND MEASURES Tons - metric tons (mt) Local Units 1 feddan (fd) - 0.420 hectare 3 1.038 acres (ac) 1 kilogram/feddan (kg/fd) m 2.123 pounds/acre (lb/ac) Metric Units 1 kilogram (kg) 2.204 pounds (lb) 1,000 kg = 1 metric ton (mt) = 0.98 long ton 1 millimeter (mm) = 0.039 inch (in) 1 meter (m) - 39.37 inches - 1.09 yards 1 kilometer (km) = 0.62 mile GLOSSARY AND ABBREVIATIONS ABS - Agricultural Bank of Sudan M - million MCPS - Mechanized Crop Production Scheme MFC - Mechanized Farming Corporation CROP/PROJECT YEAR May 1 - April 30 FISCAL YEAR July 1 - June 30  SUDAN SECOND MECHANIZED FARMING PROJECT TABLE OF CONTENTS .2ZeN o. SUMMARY AND CONCLUSIONS ............................,.i-iii I. INTRODUCTION .1 A. Mechanized Farming in Sudanese Development.. 1 B. Existing Loans and Credits for Agriculture.. 2 C. Second Mechanized Farming Project . . 2 II. BACKGROUND.... 2 A. General. . 2 B. Mechanized Farming.. 3 III. PROJECT AREAS. . . 4 A. General. 4 B. Present Production, Marketing, Storage and Prices. 7 IV. THE PROJECT. 8 A. General Description. 8 B. Detailed Features. 9 C. Cost Estimates .13 D. Financing, Procurement and Disbursement .14 V. ORGANIZATION AND MANAGEMENT . .17 VI. PRODUCTION, MARKETING AND FARMERS' BENEFITS . .18 VII. ECONOMIC BENEFITS AND JUSTIFICATION . .21 VIII. RECOMMENDATIONS.... . ..... ....... 22 This report is based on the findings of an IDA appraisal mission to the Sudan in September-October 1971 composed of Messrs Nelson, Hussain, Sallner, Zimmer-Vorhaus (IDA); Smith (PMEA); Gardiner (Roads Consultant) and Jemritt (Soils Consultant). The Farm Machinery Training Center at Tozi was appralsed by Messrs Haynes and de Ponteves in February 1972 during the Rahad Irrigation Project reappraisal.  -2- ANNEXES 1. The Project in Relation to Sudan's Development Plan 2. First Mechanized Farming Project Table Yields, Prices and Return for Average First Project Farm of 1,000 Feddan 3. Agriculture in the Sudan 4. Marketing of Project Production Table 1 Production and Exports of Sorghum and World Trade Table 2 Average Sorghum Prices at Gedaref Market Table 3 Price Structure of Sorghum Varieties Table 4 Production and Exports of Sesame Table 5 Average Annual World Price of Sudanese Sesame Table 6 Price Structure of Sesame Table 7 Average Sesame Prices at Gedaref and El Obeid Markets 5. Costs of Land Development 6. Communications, Services and Proposed Road Program Table 1 Road Design Standards and Construction Methods Table 2 Road Construction and Maintenance Costs Table 3 Road Construction and Equipment Costs Table 4 Road Construction Salary and Wage Cost Table 5 Machinery Operating Costs 7. Costs of Water Development 8. On-farm Investment 9. Costs of Technical Services Appendix Equipment for Research 10. Costs of Workshop Services 11. Costs of Project Administration 12. Guidelines for Research 13. Draft Terms of Reference for Enquiry into, and Recommendations on, the Accounts of MFC 14. Guidelines for Feasibility Study of Areas Suitable for Mechanized Farming 15. Farm Machinery Training Center at Tozi Table 1 Capital Costs Table 2 Operating Costs  -3- 16. Summary of Project Cost 17. Financial Implications for Government 18. MFC Cash Flow from Project 19. Table 1 Financial Contributions and IDA Disbursement Table 2 Estimated Schedule of Disbursements 20. Project Farm Models and Cash Flows Table 1 Umm Seinat Farm Model Table 2 Umm Seinat Farm Cash Flow Table 3 Habila Farm Model Table 4 Habila Farm Cash Flow Table 5 Cost of Farm Machinery Table 6 MFC Cost of Operating Combine Harvesters 21. Economic Rate of Return Table Economic Rate of Return . CHARTS 1. Rainfall Pattern in Project Areas 2. Mechanized Farming Corporation (MFC) Organization Chart 3. Activity Bar Chart MAP   SUDAN SECOND MECHANIZED FARMING PROJECT SUMMARY AND CONCLUSIONS i. This report appraises a second project for mechanized farming, on about 420,000 feddan (fd) (440,000 acres) of presently unused and virtually unpopulated land, in the central clay plains of the Sudan. Because rainfall is brief and variable and the soils are heavy, it is only practical and eco- nomic to grow crops there by extensive cultivation with modern tractor-drawn equipment. Hand cultivation is not feasible. ii. The Sudanese economy depends heavily on agriculture, the expansion of which is central to the country's development. Rainfed mechanized farming has high priority, bringing new land into production at relatively little cost to Government, compared with irrigation, yet extending public invest- ment into relatively remote rural areas and mobilizing private capital for agricultural development. It complements irrigation, producing food cheaply while irrigated farms produce extra long staple cotton, the main export crop, which rainfed farms cannot grow. iii. The Sudan Government wishes to enlist private initiative, capital and skill to bring the clay plains into production and has, for some years, provided roads and minimum domestic water supplies and offered uncleared land, at nominal rent, to entrepreneurs with the substantial capital needed. More recently, it has broadened participation by making cleared land and credit available to individuals, cooperatives and companies of more limited means, comprising members of farm families, raising capital from the family group; farmers with sufficient capital from their other operations (merchant farmers in particular); ex-civil servants with an agricultural background; and others with successful farming experience in similar areas in the Sudan. The capital needed is still substantial (about US$7,500 per farm) but the first Mechanized Farming Project (First Project) with Bank finance of US$5M (556-SU, approved in September 1968), met with a good initial response. Farmer interest waned during 1970/71 in a political atmosphere that became antagonistic to private investment; but interest is expected to revive with the restoration of more settled and responsive political conditions. The response to invitations to apply for farms made available by extension of the First Project, was satisfactory. iv. The First Project was completed in July 1971, a year ahead of schedule, with substantial cost savings. Results are otherwise about as forecast during appraisal, though there are shortcomings which can be largely remedied, notably poor yields on some farms and slow repayment of equipment loans. The revised estimated rate of return to the economy from the First Project is 16%, compared with 12% at appraisal. In addition to 556-SU, two Bank loans and one IDA credit totalling US$48M have been extended for Sudanese agriculture, all for irrigation projects, on which progress is satisfactory.  - ii - V. The proposed project would be an extension of the First Project and would create about 280 farms of 1,500 fd each - a size which the First Project has showr. to be about right for single tractor units with one third of the area taken out of cultivation each year for soil regeneration (fallow). As in the First Project, it would provide supervised credit for on-farm in- vestment, mainly in equipment and land clearing, together with technical agricultural and equipment maintenance services and supporting infrastructure. Further research for rainfed agriculture and a feasibility study to identify additional areas for mechanized farming would be included, together with the expansion of the Farm Machinery Center at Tozi. vi. In the First Project, farmers paid an annual development fee for land clearing based on recovery of total cost over 25 years at 6-1/4%. Credit up to 75% of the cost of farm machinery was at 8% per annum, repayable over 5 years. For the project now appraised, farmers would be given loans fo,r land clearing at 8% per annum. Loans for farm machinery would be on terms silmilar to the First Project except that the rate of interest would be that charged by the Agricultural Bank of the Sudan, currently 9% per annum. vii. Estimated average net annual cash income per farm, after debt service, would be between US$2,100 and US$4,000 depending on location; with- oul: debt service it would rise to about US$7,000. The financial rates of return on total on-farm investment would be about 16-21%. A 10% price or yield reduction or increase would result in returns of 11-15% and 21-26% respectively. These returns are not high for the risks involved, and not oul of line with alternative opportunities for investment by entrepreneurs of this class; but the reward for above average performance would be a powerful incentive. viii. The project, except the Farm Machinery Training Center at Tozi, would be run by the Mechanized Farming Corporation (NFC), a statutory body, wholly-owned by Government, established under the First Project, and now responsible for all mechanized rainfed farming in the Sudan. As strengthened by the proposed consultancy services, MFC administration of the project wotuld be satisfactory. ix. The Farm Machinery Training Center at Tozi is operated by the Ministry of Agriculture. It was established in 1964 with USAID assistance. Its expansion under the project would raise its annual output from 50 to 250 tractor and combine drivers. x. Project costs are estimated at US$19.5M equivalent, of which about US$8.4M (43%) would be the foreign exchange component. Land, water and road development would cost US$7.9M, buildings US$0.9M, on-farm investments US$5.3M, technical services, administration and start-up expenses US$3.6M ancl a feaslbility study US$0.3M. The expansion of the Farm Machinery Training Center at Tozi would cost US$1.4M. Government would provide approximately 27%, farmers 15% and IDA 58%, which is equivalent to the foreign exchange component together with 25% of local costs (15% of total costs). The proposed IDA credit to Government would be US$11.25M. Government would provide US$6M as a loan to MFC at 5% per annum over 20 years, with three years' grace, to finance MFC loans to farmers, US$5.6M as MFC equity capital, US$0.75M of the IDA credit would be passed on to the Ministry of Agriculture for the Tozi Center.  - iii - xi. MFC procurement of machinery for farms, road construction, land clearing and workshop equipment, and vehicles (totalling about US$6.3Y, would be by international competitive bidding. Buildings (US$0.9W4) f-w in number and in five different locations, would be put out to local tender and roads (US$1M, excluding equipment) would be built by MFC. Land clearing (US$5.3M) would be carried out by IIFC and farmers, and domestic water supplies (US$0.6M) would be provided by the Government Rural Water Development Department. xii. Procurement of agricultural machinery for the Tozi Training Center (US$0.42M) would be by negotiated contract with manufacturers, who have been awarded contracts under the Mechanized Farming Projects. xiii. The project would produce an estimated annual 125,000 tons of sorghum, the basic Sudanese food, of which about 1.3M tons are consumel annually, with occasional surpluses for export; and 5,700 tons of sesane, an important oilseed export. It would thus help to feed a growing population and improve export earnings. The value of annual project production of sorghum would build up, over 5 years, to about US$4.2M and of sesame to about US$1M. Annual gross foreign exchange earnings at full producticra would be about US$5M, at present exchange rates, compared with estimated annual foreign exchange costs of about US$1.4M. xiv. The market can readily absorb project production, which would enable Sudan to sell more foodgrain sorghum to neighboring Arab countries, up to an estimated limit of 50,000 tons. The balance of 75,000 tons would be sold locally. xv. The project is risky, and benefits are liable to wide fluctuation due to changes in weather and prices, beyond project control. An error in sowing time, or unseasonal rain or drought (expected to be severe about once in ten years), would sharply reduce a farmer's yield and return, in the year in which it occurs. Such risks have been taken into account in estimating the project's economic effects, and the project would make a worthwhile contribution to the Sudanese economy, with an estimated rate of return, based on the most probable assumptions, of 17%. A 10% rise or fall in prices or yields would result in estimated rates of return of 21% and 13% respectively. xvi. The project is suitable for an IDA credit of US$11.25M equivalent, subject to the indicated assurances.   SUDAN SECOND MECHANIZED FARMING PROjEC. I. INTRODUCTION A. Mechanized Farming in Sudanese Deve w.I-ent 1.01 Expansion of irrigated agriculture, promotion of mechanized rainfed farming, and exploitation of animal wealth, are the central themes of Sudan's development plans (Annex 1). Mechanized rainfed farming has high priority. It brings unused and virtually unpopulated land into commercial crop pro- duction, at relatively little cost to Government, compared with irrigaition, yet extends public sector investment from the well-developed Nile valleys into relatively remote rural areas and mobilizes private capital for agri- culture. Less costly than irrigation (with investment of about ESd 1; per feddan (fd) compared with ESd 80, including the cost of water, for ir:-igated farming) it is complementary to it, producing food cheaply while irrigated farms produce extra long staple cotton, the main export crop, which rainfed farms cannot grow. It fits well into Sudan's development strategy, providing investment opportunities for private capital and earning much needed :Eoreign exchange (see Annex 1). 1.02 A First Project (556-SU), described in Annex 2, comprised tile development of 170,000 fd gross into 140 farms of 1,000 fd net for mechanized cultivation at Simsim, south of Gedaref (see Map). These farms were rnade available to individuals, cooperatives and companies, comprising members of farm families, raising capital from the family group; farmers with sufficient capital from their other operations (merchant farmers in particular); ex- civil servants with an agricultural background; and others with successful farming experience in similar areas in the Sudan. Approved in Septenier 1968, it was completed in July 1971, a year ahead of schedule, with sutbstan- tial cost savings, now being used to extend it. Clearing has been wel.l done and land planning is satisfactory. Estimated yields have been aLtained, on average, and the potential is demonstrated by some farms yielding 700 kg/fd of sorghum 1/, or more, compared with a forecast average 450 and the latest estimate of the rate of return to the economy is 16%, compared with 12% at appraisal. However, many farms also have poor yields of less than 201^ kg/fd; waterlogging is reducing farm productivity more than expected; and mary farmers are in arrears with payments. The reasons are generally: late planting, due mainly to farmers' inexperience of the area; insufficier.t time between farm allocation and onset of the farming season; bad roads hindering timely access to farms; inclusion of too much low-lying land in some farms; and poor financial results, due largely to losses on cotton, included at Government insistence in 1969 and 1970 crop rotations, but not since. The reasons for these shortcomings are clearly understood and they are being largely remedied. 1/ Sorghum vulgare: a coarse grain; arabic Dura.  B. Existing Loans and Credits for Agriculture 1.03 In addition to 556-SU (Bank US$5.OM), two Bank loans and one IDA credit have been extended for Sudanese agriculture, all for irrigation: 258-SU in 1960 for Managil (Bank US$15.5M); 2-SU and 284-SU in 1961 for Roseires (IDA US$13.OM; Bank US$19.5M). A possible IDA credit for the Rahad irrigation project has been under discussion for some years, and is at present under reappraisal. 1.04 Progress of the irrigation projects is satisfactory. Disbursement for them, and for 556-SU, was held up by slow Government procedures, now improved. Managil was completed in 1964 and Roseires in 1966, a year ahead of schedule, though location of the irrigated area had to be changed in the light of further soil studies. At present about half the available water is being used. Most of the remainder will be consumed by the Es-Suki pump scheme, already completed, and by the Rahad project. C. Second Mechanized Farming Project 1.05 Early in 1971, Government prepared a Second Mechanized Farming Project, with assistance from an IBRD/PMEA team. This appraisal report is based on Government's May 1971 credit application and the findings of a mission to the Sudan in Septemder-October 1971, comprising Messrs Nelson, Hussain, Sallner, Zimmer-Vorhaus (IDA); Smith (PMEA); Gardiner (Roads Con- sultant) and Jewitt (Soils Consultant). The expansion of the Farm Machinery Training Center at Tozi was appraised by Messrs. Haynes and de Ponteves (IDA) during the Rahad Irrigation Project reappraisal in February 1972. II. BACKGROUND A. General 2.01 Sudan, the largest country in Africa, covers about 2.6 M km2; population is about 15.5 M, growing at 2.8% per year. Per capita average annual income is about US$100. The northern third of the country is desert; arnual rainfall increases gradually southward to about 200 mm around Khartoum, 400-800 mm in the central clay plains (in whicn the project is located) and up to 1,500 mm in the extreme south. 2.02 The Sudanese economy depends heavily on agriculture, which accounts for about 40% of the gross domestic product and almost all export earnings (Annex 3). It employs more than 80% of the working population. While there is underemployment generally throughout the Sudan, labor is scarce during harvesting (December-March). Cotton (60% of exports) is the dominant cash and export crop, with gum arabic (9%), sesame 1/ (8%) and groundnuts (6%) I/ Sesamum orientale: an oilseed; arabic Simsim.  - 3 - also significant. Sorghum, the staple food, is grown on nearly half the cropped area. 2.03 Less than two percent of Sudan's total area is cultivated, i.e. about 11 M fd, including about 3.3 M fd under irrigation. Half the country, being desert or swamp, is unsuitable for agriculture. Most of the vast remainder is sparsely populated, mainly because permanent water is lacking and communications are poor. Much of it could be developed, given improved water supplies and communications and the introduction of appropriate land preparation and farming techniques. B. Mechanized Farming 2.04 In an attempt to bring some of this area into production, Govern- ment encouraged mechanized farming of sorghum, sesame and medium-staple cotton on the central clay plains by allotting land to qualified applicants at nominal rents, reflecting the low value of unimproved land, and providing water and roads. "Mechanized Crop Production Schemes" (MCPS) began northwest of Gedaref in 1945. Initially based on sharecropping, they proved unsuccess- ful; but a 1953 change to farming by private entrepreneurs produced better results. Further details are in Annex 2, Part I. 2.05 Hand cultivation of heavy clays is arduous and unrewarding. During the short intervals when soil moisture is right, it is difficult for a family to prepare land manually even for bare subsistence. Brief and variable rainfall leads to high risk of failure. It is only practical and economic to grow crops on these clay plains by extensive cultivation with modern tractor-drawn equipment, preparing and planting the maximum area, while soil conditions allow, and hiring labor as necessary for weeding and harvest- ing. Conditions are harsh, and the farmer and his workers generally live on rainfed farms only during cultivation (May-July) and harvest (November- January). There is nothing for them to do on the farm for the rest of the year. Fertilizer and pesticides have so far not proved economic because erratic rainfall makes incremental benefit too uncertain. 2.06 While large rainland areas are technically suitable for mechanized farming, those reasonably close to villages, roads and water are already fully used and mostly overcropped. As Government provides new facilities, especially water, a great deal of land is illegally occupied and cultivated. Uncontrolled, this trend degenerates into mechanized shifting cultivation spreading outward as soil is depleted and yields decline. 2.07 Government sought to arrest this trend by leasing uncleared plots for a maximum of four years' cultivation, then substituting new plots so that the first could regenerate under fallow (rested land); but much intended fallow land, instead of resting, remained under crop, or was brought into premature cultivation when crop prices were high, and yields declined to the extent that large areas were left unharvested when prices were low. 2.08 Government tried another approach with the First Project, on land with heavier and more reliable rainfall. It broadened participation by  -4- making cleared land and credit available to farmers with limited resources, instead of renting land only to those with the substantial capital needed to clear and cultivate it, and established the Mechanized Farming Corporation (MFC) on Bank advice, to provide technical services, research and demonstra- tion, and to lease farms on condition that fallow and crop rotations were maintained. This approach proved successful (see Annex 2, para 2.03). 2.09 New MCPS were also developed, on land that farmers could clear themselves, subject to similar lease conditions, but with farm machinery supplied and financed by the Agricultural Bank of the Sudan (ABS). ABS is largely dependent on supplier credit and barter deals for machinery which tends to cost more and to be less satisfactory, when so acquired, than if purchased freely in the open market. ABS customers' repayment record is poor. 2.10 The Project would extend mechanized farming into new higher-rainfall land, based on experience gained from the First Project. Like the first, it would improve on the MCPS pattern, mainly by providing farm machinery on credit supervised by MFC, together with servicing and combine harvesting facilities in the relatively remote project areas; but also by closely controlling crop rotations and fallow. III. PROJECT AREAS A. General LDcation 3.01 The project areas comprise 270,000 fd at iJmm Seinat in Kassala Province and 150,000 at Habila in Kordofan Province, near the Nuba Mountains. Umum Seinat adjoins the eastern boundary of the First Project and is some 65 km south of Gedaref (population 70,000). The Habila area is about 45 km east of Dilling (population 15,000) in two blocks of about 50,000 fd north and 100,000 south of a 185,000-fd MCPS, now being developed by MFC (see Mfap). The Farm Machinery Training Center at Tozi is located in Blue Nile Province, 70 miles south of Singa. Climate 3.02 The project area has hot, humid, rainy summers (June-September) and rainless winters. Normal temperature range is 31'-40'C in sunmer and 1 7-24'C in winter. Prevailing southerly sumer winds gust up to 50 kph, but storm damage is not serious. Annual rainfall varies greatly: at Urn Sieinat estimated to average 750 mm; at Habila about 650 mm, though with smaller annual variation, a better chance of vital early showers, and higher suLumer humidity (Chart 1). The incidence of low rainfall suggests severe crop shortfall about once in ten years. Very high rainfall may also be expected about once in ten years at Umm Seinat, which could present serious localized drainage problems and cause lower production when it occurs.  -5- Topography and Soils 3.03 Both areas are generally flat (average gradient 0.1% to 0.2%; but up to 1% near isolated hills and rocky outcrops), with Habila having more uniform very gentle slopes. Drainage lines follow shallow valleys ("khors"), often inconspicuous until it rains, when they frequently carry flash floods. Depressions cause waterlogging after long continuous rain, especially in Simsim/Umm Seinat. They can probably be filled with soil gradually by light tractor dozing, though this has not yet been attempted. 3.04 Soils are generally heavy, deep, black cracking clays. Soft, sticky and impervious when wet, very hard when dry, they can only be worked for short periods when moisture is right. Soils in western Umm SeinEt have been surveyed; the rest are expected to be surveyed shortly. Vegetation 3.05 Vegetation varies from grassland with scattered trees, to tree and shrub savannah with a tree density of 80 to 150/fd. Acacia seyal, generally less than 300 mm in diameter, is the most common tree while the larger Balanites, difficult to clear by hand, is quite frequent, especially in higher rainfall areas. Grasses of many kinds grow tall and dry out quickly. Water 3.06 Data are scarce on the underground water that may be present in eastern Umm Seinat. Underlying geology elsewhere in the project areas is not favorable to underground supplies. Surface water disappears completely by harvest time (October/November) and does not reappear until the next rains six to eight months later. The general method of providing water is to dig large reservoirs (hafirs) fed from natural drainage ways. Habila has a very good example holding 50,000 m3 and there are three in the Umm Seinat project area, two of which need attention. Drainage ways through Umm Seinat and Habila promise good opportunities for storage. Small farm hafirs (about 100 m3), similar to those on some First Project farms, can also be dug. Communications and Services 3.07 Simsim/Umm Seinat are serviced from Gedaref, the railhead and principal market center, by a poor 100-km dry-weather road through Wad el Huri. On a clay base, this and other roads like it are often impassable during the rains, through saturation aggravated by lack of bridges, fords or drainage. It can carry heavy loads in the dry seasons when most crops are moved, but wet weather damage and poor maintenance make it barely adequate. Umm Seinat is reached by connecting bush tracks. Simsim has a dry-weather light airstrip and a radio telephone. Post and telephones are available in Gedaref and Doka where, also, are located the nearest proper schools, medical facilities and stores. 3.08 lHabila is serviced from Dilling by a poor 45-km dry-weather road. A 150-km all-weather gravel road connects Dilling with El Obeid, an lmportant market center. The nearest railhead is Dubeibet, 65 km north of Dilling  -6- on ithe all-weather road (usually bypassed in favor of adjacent dry-weather tracks because of its poor condition). Other communications are an airstrip for medium aircraft at Dilling, a radio telephone, and nearby direct telephone connections. Fanner Availability 3.019 260 applications, were received in 1969 for the first 40 farms on the First Project. Farmer interest then cooled in a political atmosphere antagonistic to private investment. Prospective tenants also disliked the restrictions imposed, in particular planting 25% to cotton (which proved unprofitable), and the prohibition against use of tractors outside the project area, limiting cultivation to 750 fd when experience suggested at least 1,000 would be possible. Interest is expected to revive with the increase in farm size, longer notice of successful application, more flexi- bility in paying for land clearance, improved roads and, above all, the more settled and responsive political conditions. At March 15, 1972, two weeks before the closing date, 40 farmers had applied for the 24 First Project extension farms advertised. Labor Availability 3.10 Agricultural employment in the Sudan is seasonal and there is much temporary internal movement. Peak demand is for weeding in August/September and harvesting in October/February, particularly harvesting of sesame and cotton. Immigrant labor is now restricted, and labor supply is often tight, especially in a good crop year. For this reason, combine harvesting of sorghum has been encouraged in the First Project and would be extended to the Second; but sesame cannot yet be harvested mechanically and is critically dependent on timely labor supply. Sufficient labor is expected to be available for the limited amount of sesame on the project. 3.11 Each farm would need a full-time tractor driver with a second part- t1me during peak cultivation. Recruitment of drivers has not proved difficult and would be further facilitated by the expansion of the Farm Machinery Training Center at Tozi (para 4.24). Nor has it proved difficult to recruit labor for land clearing, which takes place during the off-season, and is not then required for other operations. 3.12 Umm Seinat is more vulnerable to periodic labor shortages but enough is expected to be available, if combine harvesting is adopted as proposed. Habila is near the Nuba Mountains, where labor is relatively pletntiful. Land Use and Cropping Patterns 3.13 Land tenure is governed by the Land Settlement and Registration Orcinance of 1925, under whicn most agricultural land is State-owned. First Project land was vested in MFC and leased to farmers conditionally for 25 years, with an MFC option to require delivery of crops (from the proceeds of which rent, land clearing costs and loan repayments would be deducted). MFC: has found its crop lien inadequate as security however, and a revised  -7- form of lease with more effective powers, to secure ia.-id .,d rops it. repay- ment of loans, is being drafted. Boundaries of the project would ze defined by public notification; and land required for the project would be gazetted under the Ordinance. 3.14 Sorghum has been grown near project areas for many years, generally further north, on land with rather less rain. If g--owt. continuously on the same soil, yields steadily decline, though fallowing, or a break in mono- culture with a different crop, checks this trend. In areas where rasnfall is heavier and more reliable, but tree cover also heavier and more e:spensive to clear, the temptation to shorten unproductive fallow is strong. 3.15 On 1,000-fd farms at Simsim, instead of four-year crop foliowed by four-year fallow (para 2.07), the rotation comprised 45% sorghum, 5% sesame, 25% cotton, and 25% fallow (250 fd), with sorghum/sesame following cctton/ fallow in a three-year rotation. Inclusion of sesame and cotton helps main- tain soil fertility; but cotton proved uneconomic and was dropped, leaving a virtual sorghum monoculture with 25% fallow. The First Project extension will have 1,500-fd farms with about 60% sorghum, 7% sesame and 33% fallow (500 fd) and as already agreed, MFC will redemarcate the existing fa:cms into 1,500 fd units. The Second Project would follow this pattern. The iarger area permits not only more fallow but also more cultivation per tractor unit (1,000 fd, close to the limit for one unit, instead of 750 fd). B. Present Production, Marketing, Storage and Prices 3.16 Details of production, marketing and prices for sorghum and sesame, the principal project crops, are in Annex 4. About 25% of Sudan's annual sorghum production (10-year average 1.2 M tons) comes from the Gedaref area and 15% from the Nuba Mountains. It is generally sold at Government-supervised public auctions. The Agricultural Bank, which controls a large amount of storage, notably the 100,000-ton Gedaref silo, is a direct buyer mainly for the national reserve and for export through State-owned trading corporations. Production and prices have fluctuated widely during the last ten years, low and high production being 0.87 and nearly 2.00 M tons; low and high Gedaref market prices, ESd 8.00 and 18.15/ton. Sorghum exports ranged between 70,000/100,000 tons in the early 1960's but then became erratic, with net imports in two exceptional years (Annex 4, Table 1). Government is attempting to safeguard supplies through the national reserve, and to stabilize prices by fixing a floor at which it enters the market (based on estimated average production costs - currently LSd 9.25/ton, delivered silo). Road transportation is possible for six to eight months each year, but railways carry most of the traffic. The railways do not easily move the crop in a good year, but new rolling stock, about to come into service, the new Gedaref silo, and further planned storage, will improve crop handling. The recent Economic Mission considers furthel railway improvement possible and suitable for Bank Group financing; a Transportation Projects railway appraisal is therefore contemplated for the fall of 1972.  Sesame Production, Marketing and Storage 3.17 Annual sesame production is about 160,000 tons, of which about 24% comes from Gedaref and 22% from Kordofan Province. About half Sudan's production is exported, averaging about 85,000 tons annually during the past decade. Production has been stagnant, in spite of Government efforts to stimulate it, and Gedaref prices have remained around ESd 50/ton. Storage is adequate. IV. THE PROJECT A. General Description 4.01 The project is the development, over five years, of about 420,000 net fd of uncultivated land. It would create about 280 farms of 1,500 fd each - 180 at Umm Seinat and 100 at Habila - leased to entrepreneurs, companies and cooperatives (see para 1.02) for mechanized cultivation of sorghum, sesame and other rainfed crops. It would include: land use planning and clearing; construction and rehabilitation of main and farm roads; provision of domestic water; selection of farmers and land alloca- tion; on-farm investment, mainly in equipment and land clearing, financed by supervised credit; technical services and project administration, together with provision of staff housing, offices and workshops. It would also include an expanded program of research for rainfed agriculture based on existing facilities, a feasibility study to identify further areas for mechanized rainfed farming, consultancy services for MFC and a smallholder experiment. It would further include expansion of the Farm Machinery Center at Tozi to increase the annual output from 50 to 250 machinery operators. It would be a continuation of the First Project with larger farm size, a changed crop rotation, and a higher proportion of fallow. 4.02 Phasing would be (in thousand feddan): -------Year---------------- Umm Seinat 1 2 3 4 Total Land Planning 300 /1 260 - - 560 (Gross) Farm Planning 90 90 90 - 270 (Net) Land Clearance 60 60 90 60 270 Farms Allocated (No.) - (60) (60) (60) (180) llabila Land Planning 80 170 /2 - - 250 (Gross) Farm Planning 60 90 - - 150 (Net) Land Clearance 30 /3 To be carried out by 150 tenants Farms Allocated (No.)(20) (40) /4 40 - (100) /1 300,000 fd already surveyed. /2 More land would need to be surveyed per farm in the second (southern) phase because there is more unsuitable land there. /3 Already cleared by MFC. /4 Farmers clear lard in the first year, cultivate in the second.  - 9 - B. Detailed Features 4.03 Land Use Planning would comprise demarcation of 300,000 fd already surveyed at Umm Seinat into farms of 1,500 fd, and soil survey and demarcation of the remaining Umm Seinat area and of Habila. Land unsuitable because of soil or topography would be excluded. Detailed farm plans and lease diagrams would be prepared, together with an overall plan for each area showing farms and phasing, roads, water supplies and village sites. 4.04 Land Clearance would be carried out by MFC at Umm Seinat and in first year at Habila and by farmers themselves in the second and third year at Habila, where clearing is less difficult. Past experience suggests a blend of mechanical and hand clearing would be most economical for Umm Seinat. Where tree cover is suitable, and soil conditions allow mechanical clearing, trees are felled with a heavy chain towed between tractors, burnt when dry and cleaned up by hand. About half Umm Seinat would be suitable, using existing MFC machinery with additions provided under the project. MFC would hire labor or employ contractors for the remaining hand clearing, as it did for the First Project. Staffing for Land Development is shown in Annex 5. 4.05 MFC would clear 1,000 fd from each Umm Seinat farm before allocation, and undertake to clear the remaining 500 in time for third-year cultivation, when 500 fd from the first 1,000 would be put under fallow. Clearance in two stages would preserve fertility until the land was needed, delay clearing cost as long as possible, and avoid regrowth in newly cleared but uncultivated land. In the First Project, farmers paid an annual development fee for land clearing, based on recovery of cost over 25 years at 6-1/4%. Farmers, however, wanted the financing charges to be specified. In this project, therefore, MFC land clearing cost, estimated to average E Sd 3.9/fd, would be regarded as a loan, repayable over 25 years at 8% annual interest with one year of grace, interest being capitalized. This compares with 9% charged by the Agricultural Bank for medium-term loans and is reasonable, considering the greater security offered to MFC as owner of the cleared land and the borrowers' leases being conditional on prompt repayment. It also compares with the 5% per annum charged to MFC by Government to finance land clearing loans. 4.06 Habila farmers would receive credit of ESd 2 for each feddan cleared by them, repayable over ten years at 8% annual interest without grace period. Hand clearing is estimated to cost not more than ESd 3.5/fd. Borrowers would be required to have cleared at least 250 fd before the credit was released, and would undertake to clear at least 500 fd per year thereafter. First year Habila farmers, for whom MFC cleared the land, would receive credit on same terms as Umm Seinat farmers. 4.07 Road Work would be carried out by MFC, with technical staff seconded from the Roads Department of the Ministry of Communications, for reasons given in Annex 6, para 6 - mainly MFC superior knowledge of area roads and its obligation to maintain them. Suitable assurances were obtained during negotiations. A road survey is being carried out by the Department itself, under MFC control and at MFC expense, including a study of existing main roads  - 10 - to the project area and their improvement, and recomendations for new road alignment. Main roads would be good dry-weather standard which is adequate for the project, but would be suitable for later conversion to all-weather standard should this become justified. Drainage would comprise ditches and concrete pipe culverts, and fords or Irish bridges would be included. Farm roads would be minimum dry-weather construction. 4.08 Road maintenance has to be carried out by MFC, which would use machinery remaining from construction for this purpose. Assurances were obtained that Government would provide MFC regularly with road maintenance funds. Road machinery would include motor graders, tip trucks and four-wheel drive passenger vehicles, water tankers, mobile workshops, and other equip- ment (Annex 6, Table 2). Other costs would include salaries and wages and machinery operation. 4.09 Domestic Water would be provided from hafirs (para 3.06) constructed by the Rural Water Development Department of the Ministry of Cooperation and Rural Affairs. A detailed survey, including cost estimates, is being prepared, and its completion is a condition of effectiveness. 4.10, In addition to water already provided, Umm Seinat would need 120,000 m3 and Habila 90,000 m3 of storage. Estimated cost is ESd 0.500/m3 stored water, including fencing, silt trap, troughs and pumps. In addition, farm hafirs of about 1,000 m3 would be constructed at farmer request and cost, as M[FC equipment became available (Annex 7). 4.11 The Farming System would include rotations based on past research and recent experience; though research would continue, to find alternative crops, and also to find ways of growing rainfed cotton profitably and impioving use of fallow land. The cropping pattern would be 880 fd sorghum, 120 fd sesame and 500 fd fallow in a 3-year rotation. Farmers would be able to grow other crops, by agreement with MFC, and additional sesame, if sufficient labor would be available to harvest it; but a minimum 120 fd sesaLme and 500 fd fallow would be mandatory. Initially a limited number of farmers (about 30) would also be permitted to graze sheep on their fallow, with credit for their purchase provided by MFC. 4.12 Basic farm equipment would be a 65175-hp tractor, a wide level disc harrow with seed box, and a trailer. A first discing would follow weed germiination after the early rains; a second discing and simultaneous sowing wou]Ld take place 10-14 days later, following further weed growth. An addiitional discing would be needed in the first year after clearing, because weeds and regrowth would then be heavier. No further sorghum weeding should be necessary. Sesame would need one hand-weeding. 4.1:3 Combine Harvesting of sorghum has proved popular with First Pro:ject farmers, though combinable varieties command a lower price; but MFC was unable to find private contractors, as had been expected, and suffered froma inexperienced part-time operators and faulty maintenance. To correct this, MPC decided to keep master operators on the payroll throughout the year, traLn them with the help of suppliers' representatives, obtain technical ass-istance from suppliers and consultants, and hire engineers specializing  - 11 - in combine maintenance. Master operators would drive trucks and trac:,ors for MFC, when not harvesting or training. MFC charges (E 1.5/fd) are based on cost, including depreciation and interest (total f 1.3/fd) an" a margin for reserves, which may be reduced if justified by experience. Although private contractors would be sought, it is likely that MFC would own a large fleet. Assurances were obtained that MFC would extend credit to farmtBrs on terms acceptable to IDA for hiring MFC's or contractors' combining services. Government confirmed that satisfactory arrangements have been made foc operation and maintenance of MFC combine harvesters and that private contractors would be sought. 4.14 Combine harvesters would be required approximately as follows: Year 1 2 3 4 Total Umm Seinat - 21 21 21 63 Habila 7 6 14 8 35 This assumes 80% of project sorghum would be combined and is based on the area one harvester can cover under Sudanese conditions, with a reserve to allow for servicing, breakdown and farm to farm transit (Annex 8). 4.15 On-farm Investments in machinery would be financed, as in the First Project, by five-year loans from MFC of up to 75% of the cost, at the ABS medium-term rate of interest (currently 9% per annum). As with the First Project, remoteness and lack of alternative servicing facilities preclude free farmer choice of machinery; nor would farmers normally be permitted to bring their own machinery onto the project because it would be difficult to check their condition and to maintain many different makes. Applicants would pay a machinery deposit as soon as their applications were approved. Details are in Annex 8. 4.16 Technical Services would include 12 agriculturists to disseminate the latest techniques and act as Inspectors to check on performance of lease covenants, timely cultivation and maintenance of fallow. They would mionitor and evaluate project performance, mainly by carrying out a regular sanple census of crop production. They would also include two agricultural engineers to advise on farm machinery operation, care and maintenance (Annex 9). These services would be more intense than regular Government extension. Assurances were obtained that they would be financed by annual contributions from the Government Budget. 4.17 Machinery Repair. Farm tractors purchased urder the First Eroject are serviced at commercial rates by MFC Simsim workshop, which also takes care of MFC vehicles and heavy machinery. It was hoped that a private firm would take over tractor servicing; but none has so far shown interest. 4.18 No Umm Seinat farm would be more than 40 km from the Simsim work- shop, which would therefore be expanded as shown in Annex 10, includirrg pro- vision of low-load trailers fitted with emergency repair equipment and spares. Umm Seinat would have minimum workshop facilities. A new workshop woxld be  12 - established at Habila, mainly for the project, but also for existing MCPS farms. Workshop charges would cover the cost of servicing farmers' and MFC machinery. However, during the first four years, while the machinery is relatively new, volume of business would be insufficient to cover the full cost and the shortfall is included as start-up expenses in project cost. 4.19 MFC Administration would require additional housing and office accommodation at Gedaref, Umm Seinat, Dilling and Habila, together with office equipment and machinery, vehicles, and the services of 6 professional and 40 general service staff over four years (Annex 11). 4.20 Demonstration and Research, including training of project staff and farmers, would continue and expand under the project, on farms run by MFC and by the Government Research Corporation. Objectives would be improved husbandry, including mechanization and alternative crops and rotations (para 4.11). Other objectives are outlined in guidelines which were agreed during negotiations (Annex 12) subject to cabled confirmation. An annual research program for mechanized farming would be prepared by the Research Corporation, agreed with MFC, and sent to IDA for comment, together with an evaluation of the previous year's program. Suitable assurances were obtained. Housing, transportation, machinery, equipment and chemicals would be included. 4.21 Consultancy Services, satisfactory to IDA, similar to those employed for the First Project, but less intensive, would assist MFC with execution of, and training in, land development and farm layout, combine harvesting, and accounting. A land development consultant would visit the project for three moonths in each of the first three years. A combine harvesting consultant would visit MFC operations for three months during the first harvest and one month in each of the two succeeding harvests. In addition, manufacturers' representatives would provide at MFC expense, a mechanical engineer, to assist with servicing for two months after harvesting, and a senior mechanic, to help with routine operational maintenance for three months during the harvest itself. A firm of accountants would study MFC accounting, with terms of reference similar to Annex 13, and make recommendations for conversion to a commercial system. The same, or another, firm would provide regular accounting advisory services (para 5.07). Consultancy services would also undertake the feasibility study to identify further areas, with terms of reference following guidelines in Annex 14, to be submitted to IDA for approval before consultants are selected. Suitable assurances were obtained. Smallholders 4.22 Previous Government attempts to help smallholders in the clay plains, by providing essential mechanical cultivation services on contract, were not encouraging and so were not provided for in the First Project. Mainly because of the harsh living conditions, Government often found itself carrying out almost all farming activities, paying smallholders a surplus, when there was one, and suffering the deficit, when there was not. The experience now gained by MFC, and the close supervision possible under the project, may make smallholder operations feasible and a total of 20 plots of 75 fd each would be offered to smallholders in Habila, as an experiment. Smallholders would weed and harvest the crop with family labor and MFC would cultivate their land for a fee.  - 13 - 4.23 Environment. The project would convert tree!shrub savannah to culti- vated land, on which the use of dangerous or persistent chemicals is not expected. No deterioration of the environment would result from the project. 4.24 The Farm Machinery Training Center at Tozi, established in 1964 with USAID assistance, has rainland for training purposes available at the Center and irrigated land nearby. The annual output of 50 machinery operators, while being sufficient for the First and proposed Second Mechanized Farming Projects, would not meet the increased demand caused by the proposed Rahad Irrigation Scheme (400 tractors) and the 1,000 tractors recently purchased by Government for other schemes. The Center's annual output would be raised to 250 by extending dormitories, class rooms and workshop facilities; by providing agricultural machinery and equipment, teaching equipment and specialist staff and consultants for four years. Assurances were obtained that, six months after signing of Credit Agreement, a project manager and two agricultural engineers, acceptable to IDA, would be appointed and details of training program be sent to IDA; that in trainee selection, tractor or combine drivers from First and Second Mechanized Farming Projects and the Rahad Irrigation Project would have priority; that Government would arrange for annual training of at least 50 agricultural mechanics at Wad MedanL Vocational Training Center. Details are given in Annex 15. C. Cost Estimates 4.25 Total five-year project cost is estimated at ESd 6.8M (US$19..5M1 of which about US$8.4M (437) would be foreign exchange. Estimates are based on experience with the First Project and appraisal findings. Physical con- tingencies, amounting to about 2% of the total, apply only to road development and technical services (20% and 10% respectively), which are difficult: to quantify precisely. Quantities are reasonably certain for other items, since they are based on fixed farm numbers. Price contingencies of about 10O overall are made up from a cumulative annual 5% addition to local and foreign costs and an additional 5% to technical services to cover possible salary increases. Cost details are in Annexes 5-11, with totals in Annex 16, summarized below:  - 14 - Foreign Summarized Project Cost Estimates Ex- ESd (thousands) US$ (thousands) change 1973/77 Local Foreign Total Local Foreign Total % I. Mechanized Farming Corporation Land and Water Devel- opment 1,436 454 1,890 4,130 1,300 5,430 24 Road Development 356 289 645 1,020 830 1,850 45 On-farm Investment 735 1,114 1,849 2,110 3,200 5,310 60 Technical Services 153 66 219 440 190 630 30 Workshop Services 210 205 415 600 590 1,190 50 Consultancy Services 10 16 26 30 50 80 60 Project Administration 320 102 422 920 290 1,210 24 3,220 2,246 5,466 9,250 6,450 15,700 41 Contingencies - Physical 37 42 79 110 120 230 45 - Price 381 265 646 1,090 760 1,850 35 3,638 2,553 6,191 10,450 7,330 17,780 41 Feasibility Study 40 60 100 120 170 290 60 Subtotal (I) 3,678 2,613 6,291 10,570 7,500 18,070 42 II. Farm Machinery Training Center Agricultural Machinery 37 107 144 106 308 414 74 Vehicles 19 11 30 55 31 86 36 Buildings and Equipment 63 65 128 181 187 368 51 Furn. and Teaching Mtls. 14 16 30 40 46 86 53 Specialists and Consultants 29 111 140 83 319 402 79 Subtotal 162 310 472 465 891 1,356 66 Price Contingencies 8 16 24 23 46 69 67 Subtotal (II) 170 326 496 488 937 1,425 66 TOTAL PROJECT COST 3,848 21930 6,787 _t,058 8,437 19,495 43 D. Financing, Procurement and Disbursement Financing 4.26 Government would provide 27% of project cost, farmers 15% and IDA 58%, comprising the foreign exchange cost (43%) and 25% of local cost (15% of total cost). Summarized project financing (including contingencies) would be:  - 15 - Cuteot ----------US$ (thousands) ----------- Farmers Government IDA Total I. Mechanized Farming Corporation Infrastructure 720 2,700 4,830 8,250 On-farm Investment 2,220 510 3,280 6,010 Services - 760 1,680 2,440 Project Administration - 660 710 1,370 Subtotal (I) 2,940 4,630 10,500 18,070 (Percent) (17) (25) (58) (100) II. Farm Machinery Training Center _ - Agricultural Machinery and Vehicles 191 339 530 Buildings, Equipment and Furniture - 383 92 475 Specialists and Consultants - 101 319 420 Subtotal (II) _ 675 750 1,425 (Percent) - (47) (53) (100) Total Project 2,940 5,305 11,250 19,495 (Percent) (15) (27) (58) (100) In addition to the above US$2.9M, farmers would subsequently contribute US$6.9M equivalent through loan repayments and the US$3M project cost of combine harvesting and workshop services, through payment to MFC of its charges for these services. Farmers would also be contributing indirectly through taxes on fuel and other inputs and would generate the substantial production tax revenues shown in Annex 17. 4.27 Government would provide funds for on-lending to farmers, as a loan to MPC for 20 years, with three years' grace, at 5% per annum, the rate at which it lends to ABS and the Industrial Development Bank. Government would provide MFC with funds for other capital purposes as an equity contri- bution. Suitable assurances were obtained during negotiations. Retroactive financing of machinery and land clearing (worth about US$600,000) for 20 farms at Habila to enable cultivation to start in June 1972 was agreed during negotiations, under condition that IDA procurement and other criteria are met. Government would provide the funds for the Farm Machinery Training Center tlhrough the Ministry of Agriculture. Financial Implications for Government 4.28 A project cash flow for MFC is in Annex 18 and the financial implications for Government are illustrated in Annex 17. If Government provides MFC with road maintenance funds (para 4.08) and the annual contribution to Technical Services (para 4.16), MFC would be self-financing from Year 3. Government would need to provide net funds during the first two years, but thereafter MFC net annual surpluses and deficits would be In virtual balance. Wzith taxes generated by the project, Government receipts  - 16 - would reach a peak of about tSd 400,n0n (IISS1.2 M) In Year 5 and level otut: at about tSd 300,000 (IJS$0.595 M) from Year 7 onwarts. Procurement 4.29 MFC's procurement of tractors, farm machinery, road construction, land clearing and workshop equipment and vehicles (total US$6.3M) would be by international competitive bidding, following Bank/IDA guidelines, but firms would only be eligible if they already had, or could satisfactorily provide, adequate servicing facilities and spare parts supply. International tendering wouLld not be appropriate for small purchases, such as office equipment (US$35,000), which would be obtained off the shelf in Khartoum. Buildings (US.$0.9M), few in number and in five different locations, would be put out to local tender, though it is likely that construction would be carried out by Government force account at Habila and Umm Seinat, because the sites are remtote and suitable contractors would not be available. For similar reasons, water supply US$0.6M would be provided by the Rural Water Development Department, which has unrivalled experience in the Sudanese rainlands, and roads (US$1M, excluding equipment) would be built by MFC, which lhas constructedI roads to the required standards and is familiar with the terrain. Landl clearing (US$5.3M) would be carried out by MFC and farmers. The rer.aining costs, over the five-year project period, would be start-up costs and spares (US$2M), technical services and administration (US$1 .6M) and the feasibility study (US$0.3M). 4.30 Assurances were obtained that MFC would bulk orders for vehicles and other equipment, wherever possible, and purchase them through international competitive bidding; that draft tender documents for all contracts for vehicles, machinery and equipment exceeding US$10,000, and all other contracts exceeding US$50,000, would be submitted to IDA for approval before invitations were issued; that bid analyses and recommendations for award would be submitted to IDA for comment, before contracts were awarded; and that all other pro- curement would follow standard Government procedures, which are satisfactory. 4.31 Tozi Traininig Center's procurement for agricultural machinery (US$0.42M) would be on basis of negotiated contracts with manufacturers who had been successful under the First and the proposed Second Mechanized Farming Project. This departure from normal IDA procedures is necessary to assure drivers' training on makes of tractors, combines and agricultural equipment they will have to operate in the field. The vehicles of different types would be purchased locally as they would not attract international bids due to the small numbers concerned. Buildings (US$0.45M) would be constructed as a result of local coupetitive bidding or on Government force account as their number and location would not attract international bids. Dislbursement 4.32 IDA would disburse 100% against cif documents for imported items (US$5.55M), pay 80% of the cost of selected items, other than imports, and the foreign exchange costs of specialists and consultants for Tozi Training Center, listed in Annex 19, Table 1. A disbursement schedule is at Antnex 19, Table 2.  - 17 - V. ORGANIZATION AND MAUNAGEMENT 5.01 The project, except the Farm Machinery Training Center at Tozi which would be run by the Ministry of Agriculture, would be run by MFC, operating at three levels: under the General Manager at Khartoum headiquarters, Regional Managers at Gedaref and Dilling, and Pro4ect Managers at Umm Seinat and Habila. The MFC Board, set up under the FirsL ProJect, was disbanded following the 1969 change of Government, but would be reconstituted in a manner satisfactory to IDA, including the appointment of farmer represientatives. This is a condition of effectiveness. The general manager, as chief executive, would be assisted by three deputies responsible for Technical Services, Projects (Schemes) and Administration. MFC organization is illustrated in Chart 2. 5.02 A coordinator, reporting through a deputy general manager would be responsible for overseeing IBRD/IDA financed projects. Headquarters staff already include a chief engineer, responsible for MPC mechanical engilieering, and a land development officer, responsible for land planning and pre,aration. MFC already has experienced project managers at Simsim and Habila, and other senior staff at headquarters. There should be no difficulty in finding a project manager for Umm Seinat. Staffing 5.03 Many MFC staff are seconded from Government, which creates 1problems of loyalty but, until MFC becomes more firmly established, secondment is likely to continue. New salary scales and a retirement plan are under con- sideration to make permanent MFC employment more attractive. In the meantime, given the priority accorded by Government to this project, it should be possible, though not easy, to obtain the staff needed. Assurances we.re obtained that appropriately qualified and experienced staff, comprising the chief executive, the coordinator (IBRD/IDA projects), the finance division chief and the managers IBRD/IDA projects, mutually acceptable to Government and IDA, would at all times be appointed, and IDA would be immediately informed if any difficulty arose, with a view to assisting with recruitment. T'he Ministry of Agriculture would supply the staff for the Farm Machinery Training Center at Tozi. Farmer Selection 5.04 Farmer selection (which implies creditworthiness) would be based on applications examined by local Land Allotment Board comprising the MFC Regional Manager, the local ABS manager and the Local Government Executive Officer, or his representative. Similar a?rrangements would be made for applications received in Khartoum. All applicants would be interviewed and final approval would be given by MFC Board. Expected to be similar to those for the First Project (para 1.02), applicants would be individuals or groups able to raise about ESd 2,500 (US$7,500) in addition to the credit provided under the project. The farming season is short (6-7 months) and most applicants would also be engaged in other activities related to farmi;g, such as produce trading and transportation. Criteria for selection would be previous agricultural experience, ability to provide funds, fitnes.3,  - 18 - character and creditworthiness. Forward planning would ensure that applicants were notified not later than March 1 in the year they were expected to begin operations in Um Seinat and not later than October 1 in Habila. Suitable assurances were obtained and, a revised form of lease, improving MFC lien (para 3.13), was agreed and assurances were given that it would not be amended without IDA consent. Project Timing 5.05 Timing of MFC's project activities is shown in Chart 3. After having cleared the land MFC will allot 20 farms in Habila for cultivation in 1972/73. Demarcation of Umm Seinat farms would take place in 1972/73 for 1973/74 cultivation. Estimates are, that the expansion of training facilities at Tozi Center will be completed by end of 1974. YFC Legal Status 5.06 It was agreed during negotiations that any repeal or revision of the Mechanized Farming Corporation Act 1968, or any issuance of regulations materially and adversely affecting the project, made without IDA consent, would be an event of suspension of withdrawals. It would be a condition of effectiveness that boundaries had been defined and land gazetted and allotted (as in para 3.13). Accounts and Audit 5.07 To strengthen MFC accounting, until a commercial system is fully Introduced and a deputy general manager with adequate commercial accounting experience takes charge, an accounting firm acceptable to IDA would be appointed to advise the general manager full-time on all financial and accounting matters, and to see that accounts were prepared for auditing quarterly. The cost of this firm's services for 30 months is included in ithe project. MFC annual accounts are audited by independent auditors acceptable to IDA. The accounting system is being brought into line with normal commercial practice and the books are being audited quarterly. Suit- able assurances were obtained and it is a condition of effectiveness that the accounting firm had been appointed. The Tozi Center would be audited by Lndependent government auditors. VI. PRODUCTION, MARKETING AND FARMERS' BENEFITS Yields and Production 6.01 Yields in the Sudan are measured in kilograms per feddan (kg/fd), not kilograms per hectare, and this is the measurement used in this report. Ylield estimates are not very accurate, but yields are recorded as averaging f'or the First Project (Simsim), compared with Kassala Province, in which It is situated:  - 19 - Sorghum Sesame Simsim Kassala Simsim Kassala kg/fd (lb/ac) kg/fdWbiF7CY kg/fd (lb/ac) kg/fd (lb/ac) 1968/69 450 (960) 286 (607) 180 (360) 122 (259) 1969/70 435 (920) NA 150 (320) NA 6.02 1969/70 sorghum yields at Simsim, though better than the Provincial average, were depressed by late planting on some farms. This was partly due to poor farmer selection and partly to late farm availability. Better farmers regularly achieve 700 kg/fd (1,500 lb/ac) or more, and demonstration plots have consistently produced 1,100 kg/fd. Sesame yields depend greatly on labor supply, which farmers expect to organize more effectively with Govern- ment help (on recruitment and transportation). 6.03 Project yield estimates are based on Simsim experience, having regard to expected technical improvements from project-financed research and demonstration. Project advisory services would particularly aim to raise the standards on below-average farms. 6.04 Sorghum average yield estimate at Umm Seinat is 450 kg/fd for the first three years on each farm, and 500 thereafter, allowing for one poor crop year in ten. At Habila, where crop failure is less likely, averages of 475 kg/fd and 525 kg/fd are used. The higher yield in later years would result partly from better application of known techniques, especially by below-average farms, and partly from application of research and demonstration findings. An average of 880 fd sorghum would be cultivated on each farm producing, at the yields quoted, from 400 to 440 tons at Umm Seinat and 420 to 460 tons at Habila. 6.05 Sesame average yield estimate is 150 kg/fd for the first three years on each farm, 170 thereafter for both Umr Seinat and Habila. Higher yield is expected as farmers improve timing and mobilization of labor for harvesting. The sesame area would depend on labor available (para 4.11), but 18 to 20 tons would be produced at these yields from the minimum 120 fd per farm. 6.06 Other Crops, such as cotton, would very likely be introduced on some farms and improve profitability; but the extent of such introduc- tion is uncertain and the benefit is not included in project estimates. 6.07 Sheep, as stated in para 4.11, would be introduced optionally by some farmers. In view of the uncertainties and the low value of output involved (less than US$100,000), no livestock benefit is allowed for. Marketing 6.08 Sorghum. Production and domestic consumption of sorghum have been close to balance in recent years, erratic exports and occasional imports having taken the place of the regular small exports of the early 1960's (Annex 4, Table 1). Sudan urgently needs exports to finance development and ease the strain of foreign loan repayments. Sudanese domestic consumption  - 20 - -s forecast to grow at a cumulative 3% annually, which would readily absorb Project production in about four years. However, non-project production is expected also to increase and project output would enable the Sudan to release additional foodgrain sorghum of export quality for sale to neighboring Arab countries, up to an estimated annual limit of 50,000 tons. The remaining 75,000 tons would be sold locally. Project production would thus help to feed a growing population and to maintain a more regular export surplus. No difficulty is expected in selling this production and the railways would be able to carry it, if other production is kept within the Ilanned increased capacity of the railways to handle it. If planned .levelopment of an additional 2.8M fd for mechanized farming is all devoted ^o sorghum production, there could be serious oversupply. Assurances were obtained that Government plans for increased sorghum production would take ,-ully into account the capacity of markets and transportation and storage facilities to absorb the increase. 6.09 Sorghum prices have fluctuated widely; but, with new and planned storage, they should be liable to less violent change, though still strongly influenced by weather-dependent production. The latest five-year average Gedaref market price was ESd 12.90/ton. This included a year when over- production reduced the price to ESd 8, but also included a year of shortage, when it reached ESd 18.25. In 1970/71, when there was a good harvest and also no pressure for restocking, the price was ESd 13.20. The five-year average, equivalent to farmgate ESd 9.65 for the combinable varieties most farmers would grow, is used in Umm Seinat farm budgets (Annex 19 and Annex 4, paras 7 and 8). Habila is further from its local market at El Obeid, and from Port Sudan, but it supplies a sorghum deficit area, in which prices are significantly higher than at Gedaref (900 km distant), particularly in a bad crop year. The project would not meet the grain deficit completely, but allowing for some softening of prices with increased Habila production, farmgate ESd 11.50/ton is assumed for Habila farm budgets for the first six yeavrs. Thereafter, Habila is forecast to be at least self-sufficient and fanmgate ESd 9.50 is assumed (as for Umm Seinat, after allowing for higher transport cost). 6.10 Sesame. Sudan exports about half its sesame production and supplies 40-60% of the world trade. Project production would add about 7% to these exports, and about 3% to world trade which has been increasing at an annual rate of about 3% over the last ten years. No difficulty is-therefore expected in selling the project crop - or even a threefold increase, which would be possible with improved harvesting, permitting a larger area to be grown. 6.11 Based on average Gedaref sesame prices over the last few years a price of ESd 51/ton was assessed, equivalent to farmgate fSd 49. This price is expected to be maintained, on average, and is used in project estimates. Habila would have higher transportation costs to market and the price is estimated to be slightly lower at ESd 46.50 farmgate. 6.12 World Markets. Information on world markets for sorghum and sesame was provided by the Bank's Economics Department, which advises that the quantities to be exported from the project would be absorbed without affecting world price levels. The FAO Study Group on Grains is nevertheless being informed of the project.  - 21 - Farmers' Benefits 6.13 In the farm models (Annex 20), net annual cash income after debt service, on the 1,500 fd farms, averages about ESd 730 (US$2,100) at Umm Seinat and ESd 1,400 (US$4,000) at Habila; without debt service, it rises to ESd 2,300 at Umm Seinat and ESd 2,400 at Habila (about US$7,000) (Annex 20, Tables 2 and 4). Net income reflects the return from management and labor as well as capital invested. Financial Rates of Return 6.14 Financial rates of return to farmers on total on-farm investment (with sensitivity to a 10% price variation in parentheses) would be about 16% (11%-21%) at Umm Seinat, and 21% (15%-26%) at Habila. These returns are not excessive for the risks involved and, as might be expected in a developing country, not out of line with alternative opportunities for investment by entrepreneurs of this class. The reward for improved performance is a powerful attraction; with a yield of 700 kg/fd, which about 10% of Simsim farmers are believed to achieve, the financial rate of return would exceed 40%. VII. ECONOMIC BENEFITS AND JUSTIFICATION 7.01 The main economic benefit of the project would be annual produc- tion of 125,000 tons sorghum, increasing exports by about 50,000 tons, and of 5,700 tons sesame, all for export (Annex 21). The project would provide annual gross foreign exchange earnings of about US$5M at present exchange rates compared with estimated annual foreign exchange costs of US$1.4M. Additional benefits are savings in transport costs due to the proposed road improvement, estimated at about US$200,000 per year, excluding benefits from non-project traffic. Not included are unquantified benefits, such as expansion in trade and services due to opening up new areas, the demonstration effect of improved farming methods outside the project area, and the incre- mental value of other crops, e.g. cotton, that probably would be grown, and livestock that would be raised, on some farms. 7.02 The increase in annual output of the Farm Machinery Training Center at Tozi by 200 would yield further economic benefits as the trained operators would use machinery more efficiently and would save time and costs through better maintenance. The present training facilities would be suffi- cient to serve the First and proposed Second Mechanized Farming Projects. The enlarged facilities would serve mainly the proposed Rahad Irrigation Project (400 tractors) and the 1,000 tractors recently purchased by Govern- ment on supplier's credit. Therefore, costs and benefits of the Tozi Center have been omitted from rate of return calculations for this project. 7.03 Foodgrain sorghum of export quality, and sesame, are valued at forecast FOB Port Sudan prices, less real costs from farmgate to port. These forecast prices are ESd 12.80/ton and ESd 57.90/ton respectively. The Sudanese import/export market for other qualities of sorghum is affected by high freight and other charges that make imports from the distant overseas  - 22 - sources costly (above WSd2O) and exports to the distant markets of low value (about MSdMO). This is especially true of combinable varieties, which can be sold as food locally but only as animal feed overseas. It would, therefore, be inappropriate to value locally consumed (combinable) sorghum at world market prices. The five-year average Gedaref and equivalent El Obeid market prices for combinable sorghum, with taxes added back, ESd 11.10 and ESd 13.30 respectively, are considered to be the true economic values. On-farm costs of production, the value of sorghum lost from areas already under cultivation in the project areas (ESd 80,000/year) and a small annual net value of charcoal lost through tree clearance (ESd 35,000) are included in project economic cost. Actual wage rates are used, since alternative employment opportunities exist. Employment at full production would be provided for about 6,000 persons, rising to a peak of 8,000 during May - December cultivation and harvesting, together with year-round employment for about another 1,000. The 25-year economic life of the project approxi- mates the farm lease term. 7.04 Based on the above assumptions, the estimated rate of return to the economy of the Sudan would be 17%. The effects on the rate of return of proposed changes in import duties and export subsidies, which Government recently discussed with IMF, but which have not yet been put into effect would be negligible. Sensitivity to crop price change of 10% has been tested and would produce higher/lower rates of return of 21% and 13%. Yield variation would produce rate of return changes of about the same magnitude. Sensitivity to capital cost changes of 10% has also been tested and would produce lower/higher rates of return of 15% and 19%. The project is risky and benefits would be liable to wide annual fluctuation due to weather and price changes beyond project control. An error is sowing time, or unseasonal rain or drought would sharply reduce a farmer's yield and return, in the year in which it occurs. Such risks have been taken into account in estimating the economic effects of the project, which would nevertheless make a worth- while contribution to the Sudanese economy. VIII. AGREEMENTS REACHED AND RECOMMENDATIONS 8.01 During negotiations, agreement was reached on the following principle points: (a) Agricultural Research Corporation. Clearance of annual research program based on the guidelines for research by MFC and IDA (para 4.20 and Annex 12); (b) Road Construction. Government to provide funds for MFC to maintain roads (para 4.09); MFC to carry out road construction with technical staff seconded from Roads Department (para 4.08); (c) Rural Water Development Department to complete ongoing water survey in Rabila and Umm Seinat (para 4.09);  - 23 - (d) Farm Machinery Training Center at Tozi. Wad Medani Vocational Training Center to train at least 50 agricultural mechanics per year (para 4.24); international recruitment of project manager and two agricultural engineers (para 4.24); (e) Government Plans for Increased Sorghum Production to take fully into account capacity of markets and transportation and, storage facilities (para 6.08); and (f) Consultancy Services for MFC for combine harvesting, land development, accounting and feasibility study; mechanical engineer and senior mechanics for servicing combines (para 4.21); appointment of accountancy firm (para 5.07). 8.02 Conditions of effectiveness are that: (a) the water survey has been completed (para 4.09); (b) MFC Board of Directors had been reconstituted in a manner satisfactory to IDA, including the appointment of farmer representatives (para 5.01); (c) boundaries of the project had been defined by public notification and land required for the project had been gazetted and had been allotted to MFC (para 5.06); and (d) the accounting firm had been appointed (para 5.07). 8.03 The project is suitable for an IDA credit of US$11.25 million on standard terms. April 6, 1972  I  ANNEX 1 Page 1 SUDAN SECOND MECHANIZED FARMING PROJECT The Project in Relation to Sudan's Development Plan The Development Plan 1. The current Sudan Government Development Plan covers the five years, July 1, 1970 to June 30, 1975. It succeeds the Ten-Year Plan which ended on June 30, 1970. Planned Growth 2. The target for GDP growth is 7.6% per annum, against less than 5% realized during the decade to 1970. Such an improvement in the rate of growth would be dramatic and is unlikely to be achieved. According to a study made by the Ministry of Planning, Development Plan implementation - in terms of investment and number of projects brought under execution - was about 50% of Plan expectations during July/December 1970. The agricul- tural sector performed less well than the others, except the small industrial sector. Nevertheless, although below Plan targets, the production of major crops was impressive during 1970/71, the first year of the Plan, helped by good rainfall and weather conditions: Actual Percentage of Plan Target Production Target ---Production in Thousand Metric Tons-- Cotton (lint) 724 707 97 Sorghum 1,557 1,529 98 Groundnuts (with shells) 437 351 80 Sesame 303 282 93 Wheat 179 135 75 The May 1969 revolution led to severe dislocation in the Civil Service, nationalization of the private sector (including a sizeable part of agricul- tural production and trade) and acute political uncertainties. Growth rate and development were retarded, as a result. Plan Portfolio 3. The Plan project portfolio is large and includes as many as 105 projects in the agricultural sector. Many of these were brought forward from previous plans and few have been fully prepared. The resource allocation for agriculture of ESd 80 M in the public sector is 66% larger than the ESd 48 M actually invested during 1965/69. It is, as in past Plans, the largest sector allocation. Its relative share, however, is smaller than in previous Plans. The agricultural project content is similar to previous plans  ANNEX 1 Page 2 and concentrated on a few large projects. Three of these, Expansion of Irrigated Agriculture (including the Rahad Project), Promotion of Mechanized Farming (including the Mechanized Farming Project) and Exploitation of Animal Wealth, account for the bulk of the allocation. Projects of this nature have been, and are still, the central theme of development, but neither resources (men and money) nor market outlets (local and foreign) are readily available for the planned production, over five years, from 0.7 M acres of irrigated lamd (cotton and groundnuts) and 2.8 M acres of rain land (sorghum and sesame). A general pruning of the 105 agricultural projects and phasing the three major over a longer period of time, are necessary to make the Plan more effective. 4. In summary, planned investment is excessive; financial resources, both local and foreign, after meeting rapidly increasing current expenditure (nearly doubled in the last five years), are limited; and implementation malchinery, never too strong, has been weakened by dislocations in the Civil Service. There is, therefore, need to scale down the size of the Plan and match it with resources and capacity. The Project 5. The Mechanized Farming Project has a high priority because it satisfies most of the basic development criteria peculiar to the Sudan. For example, it would: - facilitate commercial farming in areas presently only suitable for very marginal subsistence agriculture; - embrace regions of the country that have not benefited much from public investment, concentrated in the past on irrigated schemes along the Nile; and - take development activity further into relatively remote rural areas. 6. In addition: - investment costs, at approximately ESd 15 per acre, are about one-fifth of the ESd 80 needed for development of an irrigated acre; and - the cost of production of a ton of sorghum (dura), which the project would mainly produce, is estimated by Government, countrywide, at less than ESd 11.0/ton in sack at market, compared with at least ESd 16.5/ton (including cost of water) in an irrigated scheme. 7. At present, about 400,000 acres of sorghum are located in irrigated schemes, about 70% of which is in Gezira-Managil. The level of yields is not too different from mechanized schemes, and in good rainfall years (as in 1962 and 1969) it may be lower. With increased and cheaper production of  ANNEX 1 Page 3 rainland sorghum, it should be possible to replace sorghum in the irrigated areas with more valuable cash crops, such as groundnuts. While this is technically possible and economically desirable, it is difficult to break the social tradition by which farmers produce their own food. Financial incentives must provide the impetus for change. To replace sorghum by ground- nuts in the Gezira, it is essential to organize marketing so as to reflect the true economic value of this crop and to provide an efficient supply organization to replace the sorghum now grown there. It is the principal food grain and, in addition, is the main security pledge for credit. 8. Other economic merits of the project are that: - it is within the capability of the Sudan to execute, as demonstrated by implementation of the First Project, and mechanized cultivation of sorghum, which began in 1945, is now an accepted mode of cultivation, practiced on a million acres annually; - following the 1969/70 nationalization of irrigated pump schemes, there are few agricultural investment opportunities available to private capital and initiative and mechanized farming is perhaps the most attractive for a large number of Sudanese. - Sudan, requiring about 1.3 M tons annually, is normally self-sufficient in sorghum; it exports in good years, when production may reach about 2 M tons, and imports (three times in the past fifty years) in years of severe drought, when production may fall to 0.8 - 0.9 M tons (See Annex 4, Table 1); expected production of sorghum from the proposed project would increase the margin of safety in "medium-good" years, and would release an exportable surplus in good years; and - there is an urgent need for exportable crops to finance development and improve the foreign exchange repayment capacity of the country, which has been highly strained (repayment of foreign loans jumped from tSd 7 M in 1970 to ESd 11.2 M in 1971); project production, estimated at 125,000 tons sorghum and nearly 6,000 tons sesame, would steadily increase gross annual foreign exchange earnings to about US$5 M in about five years, against annual foreign exchange expenditures of about US$1.4 M. Constraints 9. The number of farmers applying for land under the First Project declined during the last two years. This is believed to have been due mainly to the political situation, which was antagonistic to private participation in development. Following the July 3, 1971 Coup, the Government has declared that the private sector will again be encouraged.  ANNEX 1 Page 4 10. The current Development Plan envisages the opening up of 2.8 M acres of mechanized rainland farming over five years, by State farms, cooperatives and private enterprise, including the project. If this vast area were developed, which is unlikely because it would be too big to organize, the additional annual production of sorghum would be at least 700,000 tons. About 150,000 tons would be lost if marginal and irrigated land were taken ouLt of sorghum production, as planned. Population increase might absorb perhaps 200,000 of the remaining 550,000 tons annually by the end of the Plan period. The balance of 350,000 tons could find a ready market overseas (see Annex 4) but, at present exchange rates, Sudanese sorghum for animal feed would not be competitive. More seriously, Sudanese railways would be quite unable to move so large a tonnage, in addition to other expected increases in export commodities. Sudan has never previously moved more than 200,000 tons of sorghum for export in any one year and, although there are plans to increase railway capacity (a Transportation Project Appraisal is planned for the fall of 1972 for this purpose) careful phasing of new sorghum production, and the introduction of new rainland crops, is needed if the project is not to be vitiated. February 18, 1972  ANNEX 2 Page 1 SUDAN SECOND MECHANIZED FARMING PROJECT First Mechanized Farming Project I. Introduction 1.01 Wide areas of the Sudan are virtually unused and are sparsely populated, although rainfall exceeds 600 mm annually and many of the soils are suitable for arable agriculture. Settlement in these areas has been prevented by the lack of year-round water supply and the difficulties of cultivation with a brief and variable rainfall, combined with a clay soil structure that is hard to prepare for cultivation by hand or draft animal. 1.02 "Mechanized Crop Production Schemes" (MCPS) were first established north-west of Gedaref in 1945. Initially based on share-cropping they proved unsuccessful, but in 1953 Government decided to allot farms to private entrepreneurs who cleared the land themselves. Development was then -apid, especially in the 1960's, and although there are no accurate statistics, the total area now devoted to mechanized farming is probably about 2M fd. 1.03 Farming operations can only be carried out for short periods of time; cultivation, including weeding, from May to July, and harvesting from November to January, with a possible extension for crops which are harvested by hand. The farmer and his workers live in towns or villages, some distance from the farming area, and stay overnight only when farming operations require it. Low cost, extensive farming methods are used. The maximum acreage is cultivated and planted with modern tractor-drawn equipment at minimum cost. Fertilizer and pesticides are not used because they have not yet been proved economic, and labor is only hired for operations which cannot be mechanized, notably weeding and the gathering and threshing of crops that cannot be harvested mechanically. The official farm size on the MCPS was 1,000 fd. In practice, many entrepreneurs acquired control, through nominees, of more than the legal maximum of two farms, or cultivated land illegally without obtaining a lease. This was not discouraged by local authorities who received market taxes on the produce grown. In Gedaref in 1968, at the time the First Project began, only about 870 leases had been issued, although the total number of mechanized farms was thought to be about 1,200 with an average of about 1,350 fd under crops. 1.04 Virtually the only crops grown on mechanized farms are sorghum, sesame and cotton. Few, if any, MCPS farms follow a proper rotation, and sorghum monoculture is a common practice. To rest and regenerate the land, Government arranged for MCPS plots to be divided into rectangular 1,000 fd lots. The local Land Allotment Board issued leases for half the total  ANNEX 2 Page 2 number available, the remainder being left fallow. After about four years' cropping, every farmer was supposed to put his plot under fallow and receive a lease to a new plot taken out of fallow. This system was unpopular with farmers who faced the high cost of clearing 1,000 fd of fallow land every fourth year and of transferring their operations from one farm to another more distant. Farm investment, beyond the bare minimum in muchinery and clearing, was discouraged and little care was taken to preserve soil fertility. Moreover, Government staff were unable to enforce the rules, especially since farmers acquired a legal right as squatters after culti- vating the same piece of land for five years. A great deal of land in,tended to be under fallow is in fact under cultivation, espec:Ially when crop prices are high. Continuous cropping has reduced yields to the extent that large areas of sorghum are left unharvested when prices are low. 1.05 Farm machinery distributors discontinued credit sales in 1960 because lengthy legal action was needed to collect overdue payments or to repossess machinery. The principal official source of medium-term credit, for clearing or for the purchase of machinery, is the Agricultural Bank of the Sudan, which recently relaxed its stringent security requirement of mortgages on property for loans to individuals. Many entrepreneurs are able to raise the considerable capital needed for farming in the clay plains, on the security of their other interests or from close relatives. 1.06 Government wished to broaden participation in mechanized farming by making cleared land and credit available to farmers with limited resources, but with potential managerial and agricultural skill. The First Project made a major contribution in this direction by providing roads, domestic water supplies, credit and the technical services necessary for efficient permanent mechanized farming on a sound crop rotation/fallow basis. Most project farms were allocated to individuals, cooperative and companies comprising members of farm families with substantial resources, merchant farmers and ex-civil servants with agricultural background. A few of the cooperatives were societies with 30 or more members, investing capital in a mechanized farm with a paid manager. II. Preparation of the First Mechanized Farming Project 2.01 The Sudan Government requested Bank/IDA finance in January 1964 for land clearance and mechanized cultivation of 600,000 feddan (fd) in the central clay plains near Gedaref and the Nuba Mountains. A Bank mission appraised the project in 1965 and recommended an initial 110,000 fd in the Abu Irwa area, southwest of Gedaref, which had fairly good road access and about 30,000 fd already cleared and farmed. The project included land clearing and establishment of an independent authority for provision of extension services and credit for farm machinery purchase. Negotiations for a US$3.3 M loan were completed in November 1966, but effectiveness was detlayed by Constituent Assembly rejection of legislation establishing the authority. Meanwhile, unauthorized settlers cleared large parts of Abu Irwa and started mechanized farming there.  ANNEX 2 Page 3 2.02 Government then suggested transfer of the project to a new site at Simsim, south of Gedaref, where full soil and vegetation surveys had been completed, but road access was poor. A Bank reappraisal mission visited the Sudan in October 1967 and recommended a project comprising land clearing and the establishment of about 140 farms, each of 1,000 fd at Simnim. Estimated cost was US$8 M of which the Bank's share was US$5 M. The loan agreement was signed in September 1968 and the loan became effective in January 1969. 2.03 Field development was completed in July 1971, a year ahead of schedule, and there were substantial savings. Project costs were US$2.2 M (28%) less than appraisal estimate and disbursements US$1.4 M (29%) less, mainly because machinery and equipment was cheaper than expected, probably due to keen competition. 260 applications were received for the first 40 farms made available in 1969, but farmer interest cooled in a political atmosphere that had become antagonistic to private investment and only 35 of the 50 farms made available in 1971 were taken up, the Mechanized Farming Corporation (MFC) temporarily farming 11 of the remainder. Farmers also disliked the restrictions imposed, in particular MFC insistence on planting cotton (which proved unprofitable) and the prohibition against use of tractors outside the project area, in which they were restricted to 750 fd annually, which farmers considered much below their capacity. The new Government warmly encourages mechanized farming and publicly supports private enterprise. With this change in the political climate, larger farn size and less rigid restrictions, farmer interest is expected to revive. It has there- fore been agreed to use First Project savings for an extension of 75,000 fd, which will be allocated to 24 new farmers and to existing farmers to enlarge their holdings to 1,500 fd. III. The Mechanized Farming Corporation 3.01 In drafting and enacting legislation for MFC, major criteria were the Corporation's functions and autonomy, procedure for appointing the managing director, and the relationship between the corporation and lessees. Since its establishment in 1968, MFC has taken over from the Ministry of Agriculture and Forests the responslbility for mechanized farming projects in rainfed areas throughout the Sudan. 3.02 MFC is now, responsible for: - Mechanized Crop Production Schemes (MCPS), where MFC surveys and demarcates land and allocates it uncleared to farmers, but does not provide intensive extension service. The Agricultural Bank gives credit for machinery purchase, but only rarely for land clearing; - Mechanized Farming Projects, sponsored by the World Bank Group, in the first of which MFC does, and in the second of which it would, carry out or supervise land clearing, advise/supervise farmers and provide credit for machinery purchase and land clearing carried out by farmers-  ANNEX 2 Page 4 - State farms, which MFC operates and for which the Agricultural Bank lends funds for machinery purchase. 3.0)3 Government allots land to MWC for clearing and allocation to farmers and sets conditions for farmer selection. These are, in particular, previous agricultural experience, ability to provide funds (including working capital) fitness, character and creditworthiness. Provided enough local applicants were available and acceptable, 60% of the land was to be allotted to local inhabitants; and cooperative societies were to be encouraged. A tenant is not supposed to work more than one farm, though intra-family arrangements often make this possible. IV. Cropping Patterns, Yields and Returns 4.01 The cropping pattern for a 1,000 fd farm, agreed during appraisal, was changed after the first year of cultivation because cotton prices were lower and pest control costs higher than estimated, which made cotton unprofitable. Cotton was finally excluded from crop rotation in 1971/72. The attached Table gives estimated and reported cropping patterns, yields and returns for different years. It shows that crop yields and production costs have, for the first two years, been close to appraisal estimates and that income, in a good year, can well exceed those estimates. Attached: Table February 18, 1972  ANNEX 2 Table SUDA SEC(ND MECHANIZED FARMING PROJECT Yields, Prices and Returns for Average First Project Farm of 1,000 Feddan Unit Appraisal Estimates Cultivation Tear 1-3 4 1969/70 1970/71 Sorghum Yield kg/fd 450 544 4501"/ 435-/ Farm gate price LSd/ton 8.2 8.2 15.9 14.5 Gross return LSd/fd 3.69 4.46 7.16 6.31 Area Feddan 450 450 5103/ 480 Gross income from sorghum LSd 1,650 2,010 3,650 3,030 Sesame Yield kg/fd 180 180 1502/ Farm gate price .Sd/ton 38.0 38.0 50.4 43.7 Gross return LSd/fd 6.84 6.84 9.10 6.56 Area Feddan 50 50 100_/ 120 Gross income from sesame 1Sd 345 3L5 910 790 Cotton Yield kg/fd 142 170 1594/ 915 Farm gate price iSd/ton 54.3 52.0 35.7 32.2 Gross return LSd/fd 7.70 8.84 5.68 2.93 Area Feddan 250 250 250 120 Gross income from cotton ESd 1,920 2,215 1,420 350 Net Income Gross farm income ESd 3,915 4,570 5,980 4,170 Cost of production and debt service6/ LSd 3,200 3,430 3,800 3,500?.! Net cash farm income LSd 715 0 2,180 670 1/ Result of sample survey. 2/ Estimated. 3/ Part of fallow planted to sorghum. 17 On basis of actual cotton sales '/ Average amount harvested; not all cotton was harvested because of high labor cost. E/ Excluding allowance for farmers' management and for depreciation February 23, 1972   ANNEX 3 Page 1 SUDAN SECOND MECHANIZED FARMING PROJECT Agriculture in the Sudan The Pattern of Agriculture 1. Rainfall, the River Nile, and soil distribution determine the pattern of agriculture in the Sudan. Annual rainfall varies from virtually nil in the north to 1,400 mm in the extreme south, along the Nile-Congo divide. Seasonality and seasonal variability tend to decrease as annual rainfall increases. In the north, agriculture is confined to limited areas of suitable soil close to the Nile, where pump or flood irrigation is possible. Further south, areas of good soil become more widespread, and rainfed farming is possible. 2. Away from the Nile, irrigation areas are small, mainly in Kassala Province which has the Khashma el Girba scheme and two flood irrigation areas on the rivers Gash and Baraka. Where seasonal rainfall approac'ies 600 mm, there are very large areas of the clay plains suitable for rainfed agri- culture, mainly sorghum, sesame, cotton and, on the lighter soils, groundnuts. On their northern fringe, in particular, the clay plains adjoin deep, rain- receptive reddish sandy soil, much used for the growing of dukhn (bullrush rush millet - after sorghum, the most important grain crop), sesame and groundnuts. Cropped Areas 3. The central Provinces dominate agricultural production, providing about 90% of total cropped area. Blue Nile Province includes most of the irrigated area. Cotton production there and in Kassala (93% of the national total), is nearly all irrigated. By contrast, Kordofan (4%) grows most of the rainfed cotton. Blue Nile, Kassala and Kordofan are the main sorghum producing areas (90% of the total). Dukhn, the second grain crop, is grown mostly in Darfur and Kordofan, where its area exceeds that of sorghum. Wheat is grown mainly in Blue Nile and Kassala. 4. The total cultivated area is about IIM fd of which about 3.3M are under irrigation. Total cropped area moved from 7.8 M fd in 1966/67 to 9.7 M in 1967/68 and back to 7.9 M in 1968/69 due largely to rainfall changes (and, in turn, price changes due to rain-induced fluctuations in output).  ANNEX 3 Page 2 Principal Crops 5. The principal crops, and their production in recent years are: Area Production 1967/68 1968/69 1969/70 1967/68 1968/69 1969/70 --million feddan ------- ---- thousand tons ------ Sorghum 4.45 2.82 4.35 1,980 870 1,499 Millet 1.45 1.44 1.50 369 268 384 Sesame 1.23 1.32 1.36 187 154 175 Cotton 1.15 1.16 1.26 195 228 239 Groundnuts 0.85 0.72 1.08 297 164 408 Importance of Agriculture 6. Agriculture provides the Sudan with roughly 40% of its GNP and 90% of its exports, principally: Average 1959-1969 Exports ---ESd million--- Cotton Lint 39.4 Gum Arabic 6.8 Groundnuts 6.2 Sesame 5.4 Cotton Seed 4.1 Oil and Oil Cake 2.2 Sorghum 1.5 Animals and Animal Products 6.5 7. Sorghum. Both area harvested and yield of sorghum show wide variation, due mainly to changes in rainfall and price. The project areas have rather better rainfall than other sorghum growing lands, but project production would also be strongly influenced by rainfall variation. Gum Arabic 8. The project areas do not contain a high proportion of Acacia senegal, the principal source of the beat gum arabic; they have much Acacia seyal., a source of a less important variety. The large areas of woodland being cleared for agriculture give rise to some anxiety for gum arabic production, but it has not, in fact, declined, on average. Animal Industry 9. In the animal industry sector, camels are the most important export followed by sheep. It is not expected that project development would have a significant effect on this sector, though some sheep would be introduced. January 21, 1972  ANNEX 4 Page 1 SUDAN SECOND MECHANIZED FARMING PROJECT Marketing of Project Production A. Introduction 1. This Annex is based on Sudanese trade statistics, discussions with State export trading corporation and private merchants in the Sudan, field observation, and consultation with the Bank's Economics Department. 2. The project is estimated to produce an annual average 125,000 tons of sorghum and 5,700 tons of sesame. The sorghum would help feed a growing population and maintain regular exports of the grain; the sesame would expand Sudan's oilseed exports. The project would increase Sudan's sorghum production approximately 10%; sesame production 3-4%. B. Sorghum 3. Sorghum in the Sudan is of two main types: traditional -- medium priced feterita, together with higher priced safra, mugud and dabar; and non-traditional -- lower priced combinable. The main reason for price differences is that traditional varieties constitute an important foodgrain both in Sudan and as an export to neighboring Arab countries, While combin- able sorghum is less favored as a foodgrain and can be exported only for animal feed, competing with maize in the world markets. 4. Annual sorghum production in Sudan averaged 1.2 M tons over the past decade, with wide fluctuations (Table 1). Sudanese sorghum exports ranged between 70,000 and 100,000 tons in the early 1960's. Shortfall in production and internal stocking resulted in virtually no exports in 1967, 1969 and 1970. Fear of a food shortage actually led Government to import 55,000 tons in 1966/67 and 27,000 tons in 1969/70 (which proved enough to bring out domestic stocks and prevent runaway high prices). In 1967/68 and 1970/71 exports were 55,000 and 60,000 tons respectively, almost all to Saudi Arabia. 5. The potential for export of foodgrain varieties is estimated by Sudanese exporters at 100-120,000 tons yearly, based on the demand indicated during trade negotiations over the last three or four years. In 1965, when the exportable surplus last exceeded 100,000 tons, actual sales to these countries were about 80,000 tons. In the wider world market for animal feed sorghum, total trade varies between 4 and 10 M tons. The big exporters are the USA and Argentina, with Australia becoming important, and the principal importer Japan, taking 2-4 M tons. World demand is also  ANNEX 4 Page 2 largely dependent upon the price relationship between sorghum and other animal feedgrains, notably maize. 6. Sudanese sorghum is sold to merchants at Government supervised auctions. The main auction centers for the project are Gedaref for Umm Seinat; Dilling and El Obeid for Habila. Merchants for the domestic trade are private entrepreneurs. The Agricultural Bank of Sudan (ABS) enters the market on its own and on Government behalf. On its own behalf, ABS uses its right to secure delivery from farmers to whom it has made short- and medium- term loans. On Government behalf, it aims to procure grain for national emergency storage and/or to promote cropping of selected grains, e.g. Government decided in August 1971 that ABS should purchase 100,000 tons sorghum for storage at ESd 26/ton (in bags, production tax paid). All grain exports are handled by five state-owned corporations i/ who buy from merchants and ABS. 7. At the Gedaref market, average prices paid to farmers during the laist six seasons have fluctuated between ESd 8.00 and 18.25 per ton (Table 2), lairgely due to sharp changes in output. The high average price of ESd 18.25/ton in 1969/70, despite a good crop that year, reflected re-stocking after a low crop in 1968/69. The five-year average Gedaref price was ESd 12.90/ton and is used for price projections. Average price differences between sorghum varieties over the last five years indicate that mugud, safra and dabar sell at a premium of ESd 1.00/ton, and combinable qualities at discounts of ESd 0.50-1.00/ton, compared with feterita. Taking ESd 12.90/ton fcor feterita as standard, mugud, safra and dabar would be ESd 13.90/ton and ccmbinable ESd 11.90/ton at Gedaref market. 8. The farmgate price for sorghum is market price less sack charge of IE Sd 0.55/ton (based on re-use four times) and average transportation farmgate/market of ESd 1.70/ton for Umm Seinat and ESd 1.85/ton for Habila. With a standard price of ESd 12.90 therefore, Umm Seinat farmgate prices would be ESd 10.65 for feterita, ESd 11.65 for mugud, safra and dabar and ESd 9.65 for combinable sorghum. Sorghum prices in El Obeid are higher than in Gedaref because the area has a deficit in sorghum. A premium of ESd 2.00/ton through 1980 representing the transport cost from Gedaref, has been used in farm model and economic return calculations. 9. Calculations of equivalent prices FOB Port Sudan and CIF Saudi Arabia and Japan are in Table 3. Fixed exchange rates of August 15, 1971, gave equivalent prices per ton CIF Saudi Arabia of E Sterling 33.70 for foodgrain sorghum (Feterita) and CIF Japan, the most important world market, of US$69.00 for animal feed sorghum (Combinable). The equivalent foodgrain price is slightly less than actual 1970/71 prices of