Philippines - Tarlac Irrigation Systems Improvement Project

Report No. 521a-Pti FILE Copy Philippines RLASEQ FL COpy Appraisal of the Tarlac Irrigation Systems Improvement Project December 3, 1974 East Asia and Pacific Projects Department Irrigation and Area Development Division Not for Public Use Document of the International Bank for Reconstruction and Development International Development Association This report was prepared for official use only by the Bank Group. it may nol be published, quoted or cited without Bank Group authorization The Bank Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUIVALENTS US$1.00 = Pesos (t) 6.72 1 1.00 = US$0.149 WEIGHTS AND MEASURES - METRIC SYSTEM 1 hectare (ha) = 2.47 acres 1 kilometer (km) = 0.62 miles 1 square kilometer (km2) 0.3886 square miles 1 meter (m) = 39.37 inches 1 square meter (m2) = 10.76 square feet 1 cubic meter (m3) 35.31 cubic feet 1 million cubic meters (Mm3) = 810.7 acre feet 1 millimeter (mm) = 0.039 inches 1 kilogram (kg) = 2.2 pounds 1 cavan (paddy) = 50 kg 20 cavans = 1 metric ton INITIALS AND ACRONYMS APIP Aurora Penaranda Irrigation Project BAE Bureau of Agricultural Extension BPI = Bureau of Plant Industry CRIS = Camiling River Irrigation System DAR = Department of Agrarian Reform NIA = National Irrigation Administration NISIS = National Irrigation Systems Improvement Study PDD Project Development Division SM-ORIS San Mfiguel-O'Donnell River Irrigation System TRIS = Tarlac River Irrigation System UPRP = Upper Pampanga River Project  PHILIPPINES APPRAISAL OF THE TARLAC IRRIGATION SYSTEMS IMPROVEMENT PROJECT Table of Contents Page No. SUMMARY AND CONCLUSIONS .....................-i I. INTRODUCTION... .... 1 II. BACKGROUND.. 1 General . ......................., 1 The Agricultural Sector.. . 2 The Critical Role of Water Development .......P.... 2 Project Formulation . .e*...... 3 III. THE PROJECT AREA .................... . . 4 General ..................... 4 '.limate ........ ,. ...... 4 Topography, Drainage and Soils .... 5 Land Tenure and Farm Size . . . 5 Existing Irrigation Facilities . ......... 7 Agricultural Production .......................... 7 Transportation 7 IV. THE PROJECT ...................................... . 8 Project Works . .... ........ ... 8 Water Supply, Demand and Quality . . . 9 Status of Engineering ...................... ..., 10 Groundwater Pilot Project ....... 11 Water Management Training ... 12 National Irrigation Systems Improvement Study .... 12 Cost Estimates ...13 Financing ... 14 Procurement ................ . ,.... . .,. 14 Disbursements . .................. . 15 Accounts and Audit ... 15 Environmental Effects .. .................... 15 This report is based on the findings of an appraisal mission composed of Messrs. E.G. Giglioli, R.L.P. Harris (Bank), S.J. Baker and H.R. MacDonald (Consultants).  -2- V. ORGANIZATION AND MANAGEMENT ........................... 15 Project Management .............. . ........ 15 Supporting Agricultural Services ... ....... 17 Recovery of Cost ............... .. ........ 18 P- VI. PRODUCTION, MARKET PROSPECTS, PRICES AND FARM INCONES ................................................. 19 Production .... ................................... 19 Market Prospects ................................. 20 Prices ... ....................................... 20 Farm Incomes .. .................................. 20 VII. BENEFITS AND JUSTIFICATION ...... ..................... 21 VIII. AGREEMENTS REACHED AND RECOMMENDATION .. .............. 22 ANNEXES 1. Central Luzon Irrigation Development 2. Climatological Data 3. Land Tenure and Reform 4. Project Works 5. Water Supply, Demand and Quality 6. Groundwater Pilot Project 7. Water Management Training 8. National Irrigation Systems Improvement Study 9. Cost Estimates 10. Equipment List 11. Schedule of Expenditure and Disbursements 12. Organization and Management 13. Supporting Agricultural Services 14. Present and Projected Cropping Patterns and Production 15. Marketing and Prices 16. Crop and Farm Budgets 17. Farm Labor Analysis 18. Economic Analysis CHARTS Implementation Schedule No. 8923 Proposed Organization for Project Construction No. 8921 Proposed Organization for Operation and Maintenance No. 8920 Proposed Organization for Loan Projects Coordination No. 8922 Proposed Cropping Calendars No. 8919  - 3 - MAPS Central Luzon Basin No. 10769R Project Area: SM-ORIS and TRIS No. 11137 Project Area: CRIS No. 11138   PHILIPPINES APPRAISAL OF THE TARLAC IRRIGATION SYSTEMS IMPROVEMENT PROJECI SUMMARY i. The Government of the Philippines has requested Bank Group assistance to carry out the Tarlac Irrigation Systems Improvement E'roject located in Central Luzon. The project consists of the rehabilitation of three existing irrigation systems now serving a total area of 21,000 ha and the construction of new systems on some 13,000 ha. The project: also provides for a groundwater pilot project to assess the technical and economic feasibility of supplementing surface irrigation with groundwater - and a training program for water management staff. In addition the project includes provision for carrying out a study of the nationaL irriga- tion systems to prepare a pipeline of system improvement projects. ii. According to the Bank's Agriculture Sector Survey, an annual total of 50,000 ha of newly constructed or rehabilitated irrigation de- velopment on rice lands would have to be carried out over the remaiLnder of the decade to allow the country to achieve foodgrains self-suff:iciency. The modern high yielding rice varieties demand improved water control for optimum results. The proposed project would be the third in a ser:Les of Bank-assisted projects aimed at improving irrigation for rice cropping in Central Luzon, the largest rice producing region in the Philipp:Lnes. The first was the Upper Pampanga River Project (Loan 637-PH) and the second the Aurora-Penaranda Irrigation Project (Loan/Credit 984/472-PH). To date all Bank assisted irrigation projects in the Philippines have been aimed at providing greater water supplies for dry season irrigation by building storage dams. The proposed project would be the first Bank-assisted project to improve and expand existing run-of-the-river systems without providing additional water from storage. iii. Total project cost, including the groundwater and training elements together with the systems improvement study, is estimated at iP 228.5 million (US$ 34.0 million) of which US$12.7 million, or approximately 37%, would be in foreign exchange. The Bank would finance the foreign exchange com- ponent as well as US$4.3 million of local currency requirements. Civil works costing US$ 16.2 million would be carried out by contract. Because of their nature the works would not be suitable for international competi- tive bidding. The total cost of equipment to be put to international competitive bidding would be US$3.5 million. The Government's executing agency, the National Irrigation Administration (NIA), would employ consult- ants to provide general guidance and expertise and to assist with the training required for the groundwater pilot project, the systems improvement study and the water management training program. The project would take four years to execute.  - ii - iv. The Government of the Philippines would be the borrower and NIA would be the executing agency for the project. All elements of the project would be implemented by the Upper Pampanga River Project (UPRP) office. The UPRP is well staffed with competent personnel and with the employment of consultants would be able to implement the project successfully. An Agricultural Development Coordinating Council (ADCC) would be established in the project area to ensure coordination of the Government agencies pro- viding agricultural supporting services to the farmers. v. At full development, nine years after project commencement, annual paddy production from the project area is expected to reach 155,000 tons compared with a current level of production of 94,000 tons. The increased production would make a contribution to the national campaign for self- sufficiency by providing enough rice to feed a third of a million people per year. vi. Under the Government's agrarian reform program share cropping has been declared illegal and title to land in holdings of 24 ha or more is now being transferred to the cultivators. When the transfer is completed, ten- tatively the end of 1974, two thirds of the project area lands will be farmed by owner-operators and the rest by leasehold tenants of small landlords. The project area is cultivated by some 17,700 farm families working an average unit of 1.9 ha. The project would result in rises in annual per capita in- come on an average farm size from about US$95 at present to US$135 at full agricultural development in 1983. These levels of income would still be low in comparison with the national average. vii. The project would require a tighter cropping timetable to allow for irrigation over a larger area and would not provide for any significant increase in cropping intensity or labor requirements. The economic rate of return of the project is expected to be about 15%. The rate of return is sensitive to increases in cost and delays in benefits. However, even under extremely adverse conditions, the rate of return would not fall below 11%. viii. The proposed project is suitable for a Bank Loan of US$17.0 million for a period of 25 years, including a 7-year grace period. The borrower would be the Republic of the Philippines.  PHILIPPINES APPRAISAL OF THE TARLAC IRRIGATION SYSTEMS IMPROVEMENT PROJEC'T I. INTRODUCTION 1.01 The Government of the Philippines has requested Bank assLstance in financing the Tarlac Irrigation Systems Improvement Project in Central Luzon. The project would provide a dependable water supply to irr:Lgate about 34,000 ha of rice in the wet season and 6,200 ha in the dry season. 1.02 The National Irrigation Administration (NIA) prepared the feasibility study for the project. This report is based on the findings of an appraisal mission which visited the Philippines in April/May 1974, composed of Messrs. E.G. Giglioli, R.L.P. Harris (Bank), S.J. Baker and H.R. MacDonald (Consultants). II. BACKGROUND General 2.01 The Philippines covers about 298,000 km2 scattered over more than 7,000 islands between the Pacific Ocean and the China Sea. The 45 largest islands account for 98% of the area. The population is around 40 million (1973), growing at 3% per year. Real GNP grew at 5 to 6% during the last decade. Economic performance improved dramatically in 1973 when real GNP grew by 10% led by booming exports, strong recovery in agriculture after the 1972 floods and an improved investment climate. 1974 shows similar buoyancy despite the adverse effects of the energy crisis. Major remaining economic problems are inflation, unemployment and unequal income distribution. Per capita GNP in 1972 was about US$220. 1/ 2.02 Out of a total land area of some 30 million ha, more than half is in forests and about one-third under cultivation or in plantations. About 2.0 to 2.5 million ha of fairly level land is still available for growing crops, though some 1.0 million ha of this is cogon grassland which would be hard to reclaim. Bringing this additional land under cultivation would be insufficient by itself to meet increasing food needs or to improve rural incomes significantly. These goals call for increasing production from currently cultivated areas through yield improvements and increased cropping intensity where water is available. 1/ World Bank Atlas, 1974.  -2- The Agricultural Sector 2.03 Agriculture accounts for about one-third of net domestic product, one-half of total employment and 70% of commodity export earnings. During the 1960s the rate of growth of agricultural output accelerated gradually and averaged 4.7% per year for the 1965-70 period, stimulated by the spread of improved rice varieties. Employment in agriculture, on the other hand, leveled off toward the end of the decade. Most of the increase in the labor force between 1965 and 1970 was in non-agricultural employment, and the unemployment rate in rural areas has remained high. 2.04 With the growth of agricultural output and little change in employ- ment, productivity per worker in agriculture increased between 1965 and 1970, while non-agricultural labor productivity remained much the same. The result has been to narrow the gap in incomes between workers in agriculture and in other sectors, although agricultural incomes are still substantially lower. Farmers using improved technology, such as the new rice varieties, have shared in the higher incomes, but those continuing in traditional ways have been largely unaffected. 2.05 There is considerable pressure of people on land in the Philippines, where the population density is 131 people/km2 compared with the Asian average of 86. Lowland areas best suited for rice have been fully occupied for over a decade. Migration is heavy from the overcrowded regions of Central Luzon and the Visayas to the Cagayan Valley in northeastern Luzon and Mindanao in the south. 2.06 Agricultural sector performance will be crucial in determining whether the drive towards a more rapid but more equitable income expansion succeeds. The major goals are self-sufficiency in cereals, particularly rice and corn; expansion of agricultural exports; intensification of agrarian reform; better conservation of natural resources; and strengthening of institutional support. Self-sufficiency in cereals is important not only to strengthen the balance of payments, but also to raise incomes for much of the rural population. The Critical Role of Water Development 2.07 The Philippines cannot reach self-sufficiency in rice without substantial investment in irrigation expansion and improvement. Performance of irrigation systems in the country falls far short of their potential. The Sector Survey 1/ estimates that, out of a total of 960,000 ha which could be served by existing irrigation systems, only 630,000 ha are served in the rainy season and 254,000 ha in the dry season. Almost all of the irrigated area is devoted to rice. The NIA's gravity systems are the main component. In addition, NIA has constructed or rehabilitated a substantial 1/ IBRD Agricultural Sector Survey, Philippines, May 2, 1973 (Report No. 39a-PH).  - 3 - part of the small privately operated communal systems, averaging 250-300 ha. The Irrigation Services Unit, now under NIA's administrative super- vision, is responsible for pump irrigation schemes. The 104 NIA gravity systems, varying in size from 130 ha to 83,000 ha, are usually run-of-the- river schemes with insufficient control structures in the canals, inade- quate drainage and little provision for access. Even when the systems are new, water distribution is uneven during the wet season and limited during the dry season. Maintenance has been minimal due to shortages of staff and funds and the lack of access roads for maintenance machinery. A vicious circle has developed by which lack of maintenance discourages farmers from paying operation and maintenance charges, which in turn precludes f-urther maintenance. 2.08 This unsatisfactory situation began to change in the late 1960s. The NIA was reorganized, more advanced irrigation designs were introduced and much higher levels of water management aimed at. SimultaneousLy the need for intensified agricultural supporting services on irrigation projects was realized. The Bank-assisted Upper Pampanga River Irrigation Project (Loan 637-PH) (UPRP) and the Angat-Magat Integrated Agricultural Development Project, assisted by the Asian Development Bank, typify the new approach. The pattern of rehabilitation, new construction and operation exemplified by these projects is essential for large-scale rice production. Indeed, to meet domestic rice demand in the 1970s, a program of rehabilitation and new construction in the rice lands of 50,000 ha per year will be needed for the remainder of the decade. The proposed Tarlac Irrigation Systems Improve- ment Project would thus fit in well with Government objectives for water resources development. Project Formulation 2.09 This would be the first Bank-assisted irrigation project in the Philippines to improve existing run-of-the-river systems without providing additional water to expand dry season cropping. As such it would be a prototype for future projects to be prepared under the proposed National Irrigation Systems Improvement Study (NISIS) (paras 4.18-4.19). Such projects are low-cost, quick-yielding, reach large numbers of small farmers and are therefore of widespread relevance for all regions of the Philippines. Although the Central Luzon Irrigation Development Study (Loan/Credit 984/ 472-PH) will establish investment priorities for irrigation development in the entire Central Luzon basin, it is reasonable to proceed with the Tarlac project at this time for the following reasons: (a) the improved Tarlac systems would be able to handle additional dry season flows from either storage or groundwater sources. The proposed project would there- fore be the logical next step towards intensifying rice production in the Tarlac area. Besides being tech- nically and economically justified in its own right, it would shorten the time to full development of future projects identified by the Central Luzon Study and/or the proposed groundwater pilot project (paras 4.12-4.15);  -4- (b) in terms of soils, land use, farm size and existing level of irrigation facilities, the project area is highly suitable for modernization of rice cultivation, being similar to the various systems being rehabili- tated and expanded under the UPRP; (c) as an extension of an ongoing project, it would take full advantage of the organization and facilities set up to construct and operate the UPRP. In particular, it would benefit from economies of scale in operation and maintenance and development of coordinated agri- cultural supporting services. III. THE PROJECT AREA General 3.01 The project is located in Central Luzon, the largest rice producing region in the Philippines, which contains about 20% of the area planted to rice annually and accounts for 27% of total national production. The mean rice yield in the region is about 30% above the national average. This is due to the existence of irrigation systems in the area and the rapid adop- tion of high yielding varieties developed by the International Rice Re- search Institute (IRRI) and the College of Agriculture of the University of the Philippines at Los Banos. Irrigation development in Central Luzon and the role of the proposed project in that development are described in Annex 1. 3.02 The proposed project covers some 34,000 ha located mainly in the province of Tarlac with small portions in Nueva Ecija and Pangasinan, about 120 km northwest of Manila. The project area includes 21,000 ha of rice land in the existing Tarlac River Irrigation System (TRIS), the San Miguel- O'Donnell River Irrigation System (SM-ORIS) and the Camiling River Irri- gation System (CRIS). In addition, the systems would be expanded to include a further 13,000 ha of currently rainfed rice land (see Map 10769R). 3.03 There are a number of small towns scattered throughout the area with populations between 5,000 and 10,000. The larger towns, including the provincial capital of Tarlac, provide banking, storage and processing facilities as well as supplies of inputs to the surrounding agricultural areas. A good highway network and a railroad connecting the project area with Manila ensure an easy inflow of supplies and outflow of produce. Climate 3.04 The climate in the project area is tropical and monsoonal. Warm temperatures throughout the year allow a twelve-month growing season with irrigation. About 80% of the average annual rainfall of 2,000 mm falls in  the wet season from May through October, during which heavy rains occur, and typhoonal storms may pass through the area causing floods and some damage to crops and engineering works. The rainfall, together with river flows in the wet season, is generally adequate for a single rice crop. Dry season cropping, however, entails considerably more risk and suipple- mental irrigation supply is essential for an assured crop. Further climatic details are presented in Annex 2. Topography, Drainage and Soils 3.05 Lands in the TRIS and SM-ORIS portions of the project area are gently sloping to relatively flat. The general slope of the land is from west to east. The whole area is dissected by small creeks or channels serving as natural drainage ways, and, in some instances, as localized irrigation sources. Drainage is mainly to the Chico river forming the eastern boundary of the project. The Chico ultimately drains into the Pampanga basin. Areas adjacent to the O'Donnell and Tarlac rivers are subject to flooding during periods of heavy precipitation and high stream runoff. Lands in the CRIS portion of the project area are more undulating. Mountains flank the western side of the service area and there are several hilly areas within the CRIS boundaries. The flat irrigable area is dissected by a large number of creeks and channels draining to the north and northeast into the Agno basin. 3.06 Soils in the SM-ORIS and TRIS areas are light colored, structure- less, medium to fine textured with slightly acidic reactions and slow internal drainage. Soils in the CRIS area are dark brown to black, compact, fine textured, with neutral to alkaline reactions, and slow internal drainage. All soils in the project area have good cation holding capacity and can retain appreciable amounts of nutrients for plant growth. The soils are well suited for rice, which has been grown for many years without problems in the project area. Land Tenure and Farm Size 3.07 Since the beginning of the century successive governmenls in the Philippines have introduced a series of laws to improve the lot o.E tenant farmers. Until 1963 the main objectives were to define and regulate share- cropping, to restrict grounds for eviction and to encourage a change from sharecropping to cash tenancy. While these measures produced some improve- ments, inequitable sharecropping remained the main form of land tenture. Since 1963 under the Agricultural Reform Code, the aim has been to gradually transfer ownership of rice and corn lands to the tenant cultivators. The progression was to be from sharecropper to leaseholder, to amortizing owner 1/ to full owner-operator. Progress through 1971 was modest, with only about 5% of all sharecroppers affected by the land reform. 1/ An ex-tenant during the period of purchase of his holding under the Agricultural Reform Code.  -6- 3.08 Since the declaration of martial law in 1972, the Government has pursued a vigorous program of agrarian reform aimed at the rapid transfer of land ownership to tenant farmers on rice and corn lands. Presidential D,ecree No. 27, the basic legislation of the new program, provides for the immediate transfer to the tenant, whether sharecropper or leaseholder, of t1he land he tills up to 3 ha in an irrigated area and 5 ha in a rainfed area. The landlord may retain up to 7 ha if he tills the land himself. Since there are some 2 million rice and corn farmers on about 4 million ha, of which less than 1 million ha are irrigated, there is little prospect of achieving the 5 ha rainfed and 3 ha irrigated family farms nationwide. Furthermore, some 80% of the landlords have holdings of less than the 7 ha retention limit. The Government does not want to antagonize these small landowners and is looking for an equitable solution. The Department of Agrarian Reform (DAR) plans to complete the transfer to tenants of all land in holdings over 24 ha by December 31, 1974. The next category will most likely be the entire 7 to 24 ha range. In the meantime, to prevent abuses pending the issue of implementing legislation, evictions are forbidden and sharecropping has been declared illegal and is being replaced by cash tenancy. 3.09 DAR surveys show that some 17,700 farm families, averaging six members for a total of 1062,000 people, live in the project area. The average farm unit is 1.9 ha with about 60% of the farms, covering 64% of the area, falling between 1 and 3 ha. The farm size distribution is as follows: Farm Size Farm Holdings Cultivated Area (ha)