Mexico - Seventh Irrigation Project

ft""Mans-W ~FILE COPY Appraisal of the Bajo Rio San Juan and Bajo Rio Bravo Rehabilitabon Project Mexico Aprl 16, 1975 Latin America and Caribbean Regional Offce iNot for Public Use H Document of the Intaonal Snk for Recantuctn and Devebpment Intemal Doevepment Assocktlon This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization.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.  CONFIDNTIAL DRUAT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEIIIOHEXT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL REPORT MEXICO BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PRDJECT February 14, 1975 Currency Equivalents Currency Unit = Mexican Peso (Mex$) 1 Mex$ - US$ 0.08 US$1 - Mex$ 12.5 Mex$ 1 million - US$ 80,000 Measures - millimeter (1 mm = 0.039 inch) m = meter (1 m 3.28 feet) km - Kilometer (1 km = 0.62 miles) ha - hectare (1 ha = 10,000 m2 = 2.47 acres) k12 = square kilometer (1 km2 = 247.1 acres = 100 ha - 0.386 square miles) m- = cubic meter (1 m3 = 1.31 cubic yards - 264.2 US gallons) MM3 million m3 (1 Mm3 - 8.11 acre feet) kg - kilogram (1 kg - 2.2 lb) ton - 1,000 kg - 2,205 lb Abbreviations BANAGRO - Banco Nacional Agropecuario, S.A. BANEJIDAL - Banco Nacional de Credito Ejidal (official Bank granting credit to ejidatarios only) BANCO AGRICOLA - Banco Nacional de Credito Agricola, S.A. (official Bank granting credit to small private holders and colonists) CONASUPO - Compania Nacional de Subsistencias Populares (Government organization guaranteeing prices and purchases of subsistence crops) DAAC = Departamento de Asuntos Agrarios y Colonizacion (Department of Agrarian Affairs and Colonization) DGEA - Direccion General de Extension Agricola FONDO - Fondo de Garantia y Fomento para la Agricultura, Ganaderia y Avicultura (Fund-established by Central Bank to provide agricultural credit) IDB = Interamerican Development Bank INIA Instituto Nacional de Investigaciones Agricolas INIP - Instituto Nacional de Investigaciones Pecuarias PLAMEPA - Plan de Mejoramiento Parcelario (SRH group providing intensive extension service) SAG - Secretaria de Agricultura y Ganaderia (Ministry of Agriculture and Livestock) SRH - Secretaria de Recursos Hidraulicos (Ministry of Water Resourses) Fiscal Year - January 1 - December-31 CENTRAL AMERICA AND CARIBBEAN REGIONAL OFFICE  MEXICO BAJO RIO BRAVO and BAJO RIO SAN JUAN REHABILITATION PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ............................... i-ii I. INTRODWUCTION ........... ............................... 1 II. BACKGROUND ............ ................................ 1 General .......... ................................. 1 Irrigation Services .* ............................ 4 Agricultural Credit .............................. 4 Agricultural Education, Research and Extension ... 5 III. THE PROJECT AREA ....................................... 5 Location ............................. 5 Soils ............................. 6 Climate . ......................................... 6 Population and Employment ........................ 6 Present Land Use ........ . . .. . . . . .. . . . .. . . . . . ... 7 Transportation, Processing and Marketing ........ . 7 Land Tenure and Farm Size ....................... . 7 Irrigation and Drainage Systems .............. 8 Credit ............................. 8 IV. THE PROJECT............................................ 9 Description. 9 Construction Schedule ............................ 10 Water Supply, Requirements, and Utilization ...... 11 Status of Engineering ............................ 12 Cost Estimates ......... .......................... 12 Financing ............ ............................ 13 Procurement ........... ........................... 13 Expenditure Schedule ............................. 14 Disbursements ... ................................. 14 Accounts and Auditing ............................ 15 This report is based on studies prepared by the Secretaria de Recursos Hidraulicos (SRH) and its consultants, Estudios y Proyectos, S.A. of Mexico City, the findings of a Bank appraisal mission in October, and a follow-up mission in December 1974. The appraisal mission was composed of J.C. Douglass, J-J. Schul, E.P. Riezebos, A. Amir, C. Vidalon and J. Vivas.  TABLE OF CONTENTS (Cont'd) Page No. V. ORGANIZATION AND MANAGEMENT .15 Administration ................................... 15 Operation and Maintenance ........ ................ 15 Technical Assistance ............................. 16 Credit . .................................... 16 VI. PRODUCTION, FARMERS' INCOME, WATER CHARGES, AND MARKETS .................................. 17 Production ................................... 17 Income to Farmers ................................ 17 Water Charges .................................... 18 Repayment of Investment Costs ....... ............. 19 Markets . ................................... 20 VII. BENEFITS AND JUSTIFICATION .20 VIII. RECOMMENDATIONS ................................... 22 ANNEXES 1. Soils and Topography 2. Climatic Data Table 1 -- Rainfall Data -- Rio Bravo (B.R.B-1-1 Station) Table 2 -- Rainfall Data -- San Juan (SJ-2-18 Station) Table 3 -- Mean Monthly Temperatures Table 4 -- Evaporation, Evapotranspiration, Effective Rainfall and Water Deficits 3. Land Tenure and Farm Size Table 1 -- Land Tenure Pattern 4. Project Works Table 1 -- Work to be done under Project 5. Construction Schedule 6. Water Availability and Utilization Table 1 -- Bajo Rio Bravo Water Availability and Diverted Flows Table 2 -- M.R. Gomez Reservoir Inflows and Extractions Table 3 Irrigation Water Demand and Supply 7. Cost Estimate 8. Equipment and Materials Table 1 -- Operation and Maintenance Equipment 9. Expenditure Schedule 10. Schedule of Disbursement  TABLE OF CONTENTS (Cont'd) 11. Operation and Maintenance Table 1 -- Operation and Maintenance Costs Table 2 -- Expected Operation and Maintenance Annual Cost 12. Agricultural Services Table 1 -- Agricultural Education and Training Table 2 -- Agricultural Research and Extension Services, Manpower Requirements Table 3 -- Agricultural Research and Extension Services, Cost Estimates Table 4 -- Agricultural Research and Extension Services, Investment Schedule 13. Agricultural Production Table 1 -- On-farm Production Costs in Mex$/ha Table 2 -- Net Income per Hectare Table 3 -- Cropping Pattern, Production, Costs and Net Value of Production Without the Project Table 4 -- Cropping Pattern, Production, Costs and Net Value of Production With the Project 14. Farm Budgets Table 1 -- Farm Budget of a 10 ha Ejido Farm (Model I) Table 2 -- Farm Budget of a 10 ha Ejido Farm (Model II) Table 3 -- Farm Budget of a 22 ha Small Landowner Farm (Model III) Table 4 -- Farm Budget of a 13 ha Colono Farm (Model IV) Table 5 -- 100 ha Cattle Fattening Farm Table 6 -- 40 ha Dairy Cattle Farm 15. Markets and Marketing Table 1 -- Comparision of the Estimated Current National Production, Projected Demand and Supply and the Project's Production 16. Economic Rate of Return Table 1 -- Economic Cost and Benefit Streams CHARTS 7434(R) - Organization of SRH 9455 - SRH Regional Organization MAP 11389 - Bajo Rio Bravo and Bajo Rio San Juan Rehabilitation Project   MEXICO BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT SUMMARY AND CONCLUSIONS i. This report appraises a project for the rehabilitation of two irri- gation districts in Mexico serving 280,000 ha in the State of Tamaulipas on the right bank of the Rio Bravo along the border with the United States. ii. In relation to its size, Mexico has only limited agricultural re- sources. Out of a total area of nearly 200 million ha, only 35 million have potential as cropland and less than half of that area is actually cropped,-with about 4 million ha under irrigation. Inadequate rainfall or lack of suffi- cient water supplies for irrigation are the main constraints to cropping. Some 21 million of Mexico's 54 million people live in rural areas, and the number is estimated to be increasing at a rate close to 2% p.a. Considering the limited resources, the Government is faced with serious problems regarding agricultural production and rural employment opportunities. In response, the Government has adopted policies that place emphasis on irrigation as one of the most effective means of increasing production. iii. The two irrigation districts involved in the project form one con- tiguous block although they have different sources of water supply. The Bajo Rio San Juan District derives its supply from the Rio San Juan, as regu- lated by the existing Marte R. Gomez reservoir, while the Bajo Rio Bravo District utilizes Mexico's share of the waters of the Rio Bravo (also known as Rio Grande), as regulated by the international reservoirs constructed jointly by Mexico and the USA. The project works are primarily designed to allow Mexico to use this share more effectively for crop production. This would be accomplished by lining the irrigation distribution systems to reduce water losses and leveling project lands to increase efficiency of water use on the farms. The existing drainage system would be enlarged and extended to provide adequate drainage to project lands. Other facilities would be provided to bring the districts up to the standards of a modern irrigation project. An intensive technical assistance program is included in the project to assist farmers in achieving maximum agricultural benefits. iv. Total project costs are estimated at US$384 million, including an allowance for physical contingencies and an allowance of US$154 million for price increases, The proposed Bank loan of US$150 million would finance the foreign exchange component, including a proportionate share of physical and price contingencies (US$129 million) and 50% of the incremental technical assistance program, including price contingencies (US$21 million). The balance would be financed under Government budget.  - ii - v. Major civil works contracts would be let under international compet- itive bidding procedures in accordance with Bank guidelines, while land level- ing and certain small civil works contracts aggregating not more than Mex$ 100 million would be carried out under standard Government procedures. Disburse- ments under the loan would be made as 45% of the payments to major civil works contractors, to contractors on land leveling, and to the small civil works contractors engaged under the Mex$ 100 million aggregate limit. Disbursements for the technical assistance would be at the rate of 50% of actual cost. vi. The Ministry of Water Resources (Secretaria de Recursos Hidraulicos, SRH) would be responsible for constructing, operating and maintaining the project and for providing the technical assistance program to project farmers. Specialized agencies of the Ministry of Agriculture would, under agreement with SRH, be responsible for implementation of the technical assistance program. Normal banking channels would provide the credit requirements and the private sector would provide the required marketing and supply facilities. vii. At full development, about 12 years after the start of the project, the net annual value of production, valued at end 1974 farmgate prices, would reach Mex$ 1.7 billion (US$134 million), as compared to Mex$ 0.5 billion (US$44 million) under future conditions without the project. To achieve this production, about 34,000 man-years of employment annually would be required, or about twice the number without the project. viii. The annual net income of the average ejidatario farmer would increase from Mex$ 20,000 to Mex$ 50,000 at full development, while the corresponding increase for the average private farmer would rise from Mex$ 30,000 to Mex$ 75,000. The economic rate of return would be about 19%. ix. The project is suitable for a Bank loan of US$150 million for a term of 25 years, with a grace period of seven years. The borrower would be Nacional Financiera, S.A., the Government agency empowered to contract for external financing. United Mexican States would guarantee the loan and carry the exchange risk.  MEXICO BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT I. INTRODUCTION 1.01 The Government of Mexico has requested Bank assistance in financing the rehabilitation and betterment of two irrigation districts serving about 280,000 ha in the State of Tamaulipas on the south bank of the Rio Bravo (also known as Rio Grande). The loan would be made to Nacional Financiera, with the United Mexican States as guarantor. In the agricultural sector, six loans have been made to Mexico for irrigation projects, four for agricultural credit and one for integrated rural development. Progress on all of these loans has been reasonably satisfactory. One of the earlier irrigation loans (336-ME in 1964) included rehabilitation work on the two districts in this project. While work was beneficial, the expenditures of approximately US$100 per ha (of which the loan amount covered only US$33 per ha) were too limited and solved only a few of the problems involved in achieving maximum agricul- tural production values from the districts. II. BACKGROUND General 2.01 Mexico's impressive economic performance since 1960 has been accom- panied by a sharp reduction in the relative importance of the agricultural sector, in terms of its share in GDP, employment, and exports. Yet, agricul- ture remains a crucially important sector in the economy, contributing nearly 40% to commodity export earnings and employing close to 40% of the labor force. Traditionally, Mexican agriculture has provided for virtually all domestic consumption, but in the last few years, agricultural imports have dramatically increased, much more so than agricultural exports. This has caused Government to increase agriculturets share of public expenditure from 9% in 1971 to 18% in 1974. 2.02 In relation to its size, Mexico has only limited agricultural re- sources. Out of a total area of nearly 200 million ha, only 35 million ha is potential cropland, an inadequate water supply being the main constraint. Rainfall is too low in the north where most of the rural population lives, and even in the more humid south a concentration of rainfall in short periods is one of the factors limiting agricultural development. Thus, only about half of the potential crop area is actually cropped. Out of this, over 4 million ha are under irrigation and account for about half of total agricultural pro- duction.  2.03 The agricultural population can be divided into three groups: landless peasants, "ejidatarios," and private landowners. The number of land- less laborers has been increasing, despite migration to the urban centers and they now number over 1 million. Under the various agrarian reform laws, some 10 million ha of croplands were distributed between 1915 and 1960 to "ejidos," or collective land units, in which the individual members, or ejidatarios, receive a plot for their own use or farm conmunally. The ejidatarios now number about 1.8 million. Land distribution has continued, but living standarcds have improved little because of the inadequacy of inputs and poor supporting services. Only since 1971 have steps been taken to transform the ejidos into efficient production units. 2.04 Some 10 million ha of cropland are privately owned, but about 90% of the 1.2 million private landowners have less than 10 ha of cropland, and are thus in much the same position as the average ejidatario. Only 1% of , private farmers (17,000) have more than 100 ha of cropland. Their land totaled 7 million ha in 1960, about 30% of the country's total crop area, but part of this has since been distributed and more is likely to be distributed in the future. 2.05 While the land tenure pattern is thus less uneven than in many other Latin American countries, there are still large differences in income within the sector. In 1969, the last census year, the average rural income per family was about US$1,260 equivalent; but 40% of rural families had incomes of less than US$800 equivalent. However, even the better-off 60% of rural families still have incomes considerably below those of non-rural families. 2.06 In recognition of this situation, the present Government has pledged to improve the lot of the poorer farmers. Among the actions already taken, the following should be noted: (a) The new Federal Agrarian Reform Law recognizes the legal status of the ejidos, which enables them to obtain credit; gives power to the Departmento de Asuntos Agrarios y Coloni- zacion (DAAC) to carry out land reform; determines the maximum and minimum sizes of farms to be held privately; fixes a ceiling on taxes to be paid by ejidatarios; provides for redistribution of funds from production taxes paid by private farmers; and encourages ejidos to diversify into small-scale industries. (b) The Federal Water Law regulates the distribution of water and land in Irrigation Districts in a more equitable way. Under this law, the Government can set up new Irrigation Districts and expropriate, with compensation, land in the new Districts. The law also stipulates the procedure for fixing water charges, requiring that the social and economic situation of individual farmers in each district be taken into consideration when establishing charges.  - 3 - (c) Supporting services to agriculture have been stepped up. For example, from 1970 to 1974, the number of extension workers increased from 770 to 2,750. Proper extension services can result in 10% higher rice and soybean yields and 25 to 30% higher maize and bean yields as compared with the same crops not attended by extension services. (d) Agricultural credit has increased, partly financed by IBRD loans. In 1955, the Fondo de Garantia, a trust fund in the Bank of Mexico, was set up, and the Banco Nacional Agropecuario was subsequently created. The total agricultural loan portfolio of the banking system has in- creased fourfold since the mid-1960s and there are plans to enhance the efficiency of the banking system by reducing the number of banks operating in each region. (e) The public budget for the rural sector has more than doubled between 1971 and 1975 and amounted to US$1.2 billion equivalent in 1974. About one-third of this goes into productive investment, virtually all into irrigation infra- structure, as a result of which the irrigated area has more than trebled since 1950. 2.07 The Government has two major objectives for agriculture in the years ahead: to keep pace with the growth of domestic consumption 1/ and to reduce income disparities among the rural population. These objectives are not mutually exclusive nor do they entirely overlap. Some actions, such as investment in social infrastructure, 2/ contribute less to the production objective than would investments in large irrigation schemes, but they help to reduce income inequalities and underemployment. 3/ Since food production needs to be increased to cater for an increasing population and rising ex- pectations of consumption, it is apparent that increased agricultural pro- duction must remain a major objective along with the promotion of social equity. The proposed project is consistent with these objectives. 1/ With population growing at 3.4% p.a. and per capita disposable income by roughly 3%, domestic demand for agriculture products is likely to grow by at least 5% p.a. 2/ This category of investment has increased from US$70 million equivalent in 1970 to US$280 million in 1974. 3/ IBRD recently approved a project benefitting the low income areas of Papaloapan and has another rural development project under consideration.  -4- Irrigation Services 2.08 The Secretaria de Recursos Hidraulicos (SPIT) was established in 1947 as a Federal Ministry, directly responsible to the President of the Republic, with powers to control and develop the country's water resources. Due to GDvernment emphasis on agriculture and on irrigation as a means to increase production, SRH grew rapidly, and has now become the main agricul- tural organization in the country. It has, to date, developed over 3 million ha of irrigated land. 2.09 At headquarters there are three subsecretaries concerned with plan- ning, construction, and operation of projects and a Senior Official who directs administrative activities. Field responsibility lies in regional offices, and there are one or more irrigation districts within each region. The regional office concerned in the proposed project covers the northern portion of the State of Tamaulipas. It would have direct responsibility for construction and operation of the project. 2.10 lexican law requires that each irrigation district have a Management Committee (Comite Directivo) to advise and coordinate operations. This committee is made up of representatives of SRH (chairman), the Secretaria de Agricultura y Ganadaria.(SAG) (secretary), the Department responsible for agrarian affairs, credit institutions and private banks, and farmers. Nacional Financiera may have a seat on the committee if it requests. Commit- tee duties include setting up cropping patterns, approving irrigation water schedules, coordinating credit needs, and fostering crop marketing. 2.11 SRH also has the responsibility and authority to provide technical assistance to farmers in the irrigation districts. It does this with the Plan de Mejoramiento Parcelario (PLAMEPA) program. Results have been satisfactory, particularly with ejidatarios. The Interamerican Development Bank (IDB) has granted a US$23 million loan to help finance the first phase of a US$47 mil- lion project intended to extend PLANEPA's activities over about 1 million ha of ongoing irrigation projects. Where SRH lacks competence or needs assist- ance, it enters into agreements with other organizations, particularly those of the Ministry of Agriculture, for such services. Agricultural Credit 2.12 Farm credit is provided by both official and private institutions. The Government's Banco Nacional de Credito Ejidal S.A. de C.V. (Banejidal) lends to ejidatarios, the Banco Nacional de Credito Agricola, S.A. (Banco Agricola) concentrates on lending to small-scale farmers, and the Banco Nacional Agropecuario (BANAGRO) lends to any farmer who obtains technical assistance. About 70% of agricultural lending is by these official institu- tions and is short term. Medium- and long-term credit from the Government has become significant only in the last few years through the Fondo de Garantia y Fomento para la Agricultura, Ganaderia y Avicultura (FONDO), which  - 5 - is managed by the Bank of Mexico. It has been financed mostly by IBRD, IDB and USAID loans. Until 1972, less than 5% of the most needy farmers had received credit, but the Government has since announced its intention to guarantee at least 60% of the long-term loans made by private financial in- stitutions to groups of ejidatarios or other small farmers. Also, in Bank Loan 910-ME, US$25 million has been reserved for lending to low income pro- ducers. Agricultural Education, Research and Extension 2.13 Agricultural education at university and secondary levels has already reached acceptable standards in both quantity and quality to meet, in the near future, the country's manpower requirements for trained personnel. The Govern- ment is now emphasizing post-secondary, non-university, agricultural education in order to fill the existing gap between middle level technicians and univer- sity graduates. Training courses for agricultural service staff, farm machin- ery operators, farmers, homemakers and young farmers, are offered in adult training centers, agricultural schools and by the extension service. Agri- cultural research, although presently limited due to financial constraints and lack of qualified personnel, has achieved considerable success, especially with irrigated crops. 2.14 The Agricultural Extension Service has been extremely poor in the past, but since 1970 it has been expanded considerably. In spite of expan- sion, however, it covers only 16% of the cultivated area and 12% of the ejidatarios, mainly because of financial and manpower constraints. To com- pensate for this deficiency, official and private banks and farm input sup- pliers provide some technical assistance to their clients. III. THE PROJECT AREA Location 3.01 The project covers two separate and distinct but contiguous exist- ing irrigation districts lying in the State of Tamaulipas on the Mexican side of the Rio Bravo. The Bajo Rio San Juan District (No. 26) derives its water from the San Juan River as regulated by the existing Marte R. Gomez Reservoir. Two main canals, the San Pedro on the left bank and the Rode on the right bank, distribute irrigation water to the approximate 70,000 ha making up the district. The Bajo Rio Bravo District (No. 25) lies dowinstream and to the east of the Bajo Rio San Juan District, and gets its water supply from the Mexican share of the Rio Bravo which forms the boundary between the United States and Mexico. For the most part, this share comes from water stored in the two international dams of Amistad and Falcon located on the Rio Bravo. One main canal, the Anzalduas, carries water diverted at the international Anzalduas Diversion Dam to serve approximately 210,000 ha of district lands.  -6- Both districts include other lands served by pumping either from ground water or from the river. However, such areas are presently irrigated by individu- ally owned pumps and distribution system and are not therefore included in the rehabilitation project, which covers only the 280,000 ha served by gravity. Soils 3.02 Project lands lie between 5 m and 65 m above sea level and slope gently towards the Gulf of Mexico. They are generally flat, with only minor undulations, but some 200,000 ha would benefit from slight to moderate land leveling to smooth out the micro relief. The parent materials are limestone and sandstone, and the soils were laid down as alluvial clays and clay loams of medium to heavy textures. The soils are generally fertile with adequat,e internal drainage, although some 40%'of the area, primarily the low-lying land near the sea, is affected by relatively high water table, low permeabil- ity and, to some extent, salinity. Work accomplished under the Second Re- habilitation Loan (336-ME) arrested the spread of salinity but did not solve all problems. About 54,000 ha are best suited for permanent pastures, but the balance of the area (about 226,0'00 ha) can grow a wide variety of crops such as cotton, maize, sorghum, wheat, beans, and vegetables. Annex 1 gives details concerning soils. Climate 3.03 The climate is dry sub-tropical. Annual precipitation varies be- tween 400 and 700 mm. Rain can occur in any month, although the period from November 1 through March tends to be drier than the summer months. Seven tropical hurricanes directly affected the area between 1941 and 1972, most of them occurring in September or October. Temperatures vary from a minimum of -10