Philippines - Medium Scale Irrigation Project

Document ofFIEC P The World Bank FOR OFFICIAL USE ONLY Report No. 2811-PH STAFF APPRAISAL REPORT PHILIPPINES MEDIUM SCALE IRRIGATION PROJECT February 25, 1980 Projects Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Philippine Pesos (P ) P1 = US$0.135 US$1 = P 7.4 WEIGHTS AND MEASURES 1 ha = 2.47 acres 1 km = 0.62 miles 1 sq km 0.386 sq mile I m = 3.28 ft 1 sq m = 10.76 sq ft 1 cu m = 35.31 cu ft 1 M cu m 810.7 ac ft 1 mm 0.039 in 1 kg 2.2 lb 1 cavan = 50 kg 20 cavans 1 m ton ABBREVIATIONS ADB - Asian Development Bank RAE - Bureau of Agricultural Extension BPI - Bureau of Plant Industry FSDC - Farm Systems Development Corporation JOCV - Japanese Overseas Cooperation Volunteers MAR - Ministry of Agrarian Reform MCM - Million Cubic Meters MES - Malaria Eradication Service MOH - Ministry of Health NEDA - National Economic and Development Authority NFAC - National Food and Agriculture Council NGA - National Grain Authority NIA - National Irrigation Administration NISIP - National Irrigation Systems Improvement Project O&M - Operation and Maintenance PDD - Project Development Department SPO - Special Projects Organization UPRP - Upper Pampanga River Project WMT - Water Management Technician GOVERNMENT OF THE PHILIPPINES FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY PHILIPPINES STAFF APPRAISAL OF THE MEDIUM-SCALE IRRIGATION PROJECT TABLE OF CONTENTS Page No. 1e BACKGROUND . . . . . . . . .. . . . . . . . . . . . . . . . . 1 General . . . . . . . . . . . . . . . . . . . . . . . . . . I The Agricultural Sector . . . . . . . . . . . . . . . . . I 1 Project Formulation . . . . . . . . . . . . . . . . . . . . 3 2. THE PROJECT AREA . . . . . . . . . . . . . . . . . . . . . . . 5 General. 5 Climate . . . . . . . . . . . . . . . . . . . . . . . . 5 Topography, Drainage and Soils . . . . . . . . . . . . . . . 6 Land Tenure and Farm Size . . . . . . . . . . . . . . . . . 7 Existing Irrigation Facilities . . . . . . . . . . . . . . . 11 Transportation . . . . . . . . . ... . . . . . . . . . . . . 11 3. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . 12 Project Description . . . . . . . . . . . . ... 12 Project Works . . . . . . . . . . . . . . . . . . 12 Water Supply, Demand and Quality . . . . . . . . . . . . . . 16 Status of Engineering . . . . . . . . . . . . . . . . 18 Input-Output Monitoring ... . . ..... . . . . . . . . 23 O&M Study and Training . . . . . . . . . . . . . . . . . . 23 Strengthening of Malaria Control Unit in Palawan . . . . . 24 Cost Estimates . . . . . . . . . . . . . . . . . . . . . . . 25 Financing .... . . . . . . . . . . . . . ...... . . 29 Procurement . . . . . . . . . . . . . . . . . . . . . . . . 29 Disbursements . . . . . . . . . . . . . . . . . . . . . . . 30 Accounts and Audit .... . . . . . . . . . ....... . 30 Environmental Effects . . . . . . . . . . . . . . . .. . 30 4. ORGANIZATION AND MANAGEMENT ... . . . ..... . . . . . . 31 Project Management . . . . . . . . . . . . . . . . . . . . . 31 Agricultural Supporting Services . . . . . . . . . . . . . . 32 5. AGRICLTLTURAL PRODUCTION ... . . . . * .... . . . . . . . 35 Present Cropping Pattern . . . . . . . . . . . . . . . . . . 35 Future Cropping Pattern . . . . . . . . . . . . . . . . . . 35 Yields and Production . . . . . . . . . . . . . . . . . . . 35 Cropping Calendar . . . . . . . . . . . . . . . . . . . . . 38 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be discksed without World Bank authorization.  -2- Page No. Farm Mechanization . . . . . . . . . . . . . . . . . . . . . 38 Drying, Storage and Processing . . . . . . . . . . . . . . 38 6. MARKET PROSPECTS, PRICES, FARM INCOMES AND PROJECT CHARGES . . ............................. ............... .... ...... 40 Market Prospects . .. . . . 40 Prices .o. . .... . 40 Far Incomes . . . . . . . . . . . . . . . . . . . . 42 Cost and Rent Recovery . . . . . . . . . . 43 7. BENEFITS, JUSTIFICATION AND RISKS . . . . . . . . . . . 46 8. AGREEMENTS REACHED AND RECOMMENDATION . . . . . . . 54 ANNEXES 1. Climatological Data, Project Features, Equipment List, Annual O&M Cost, Price Increases, Expenditures, Disburse- ments and Allocation of Loan Proceeds 2. Input Prices, Production Costs, Labor Costs, Crop and Farm Budgets 3. Schedule of Early Events 4. Accounting Procedures for Force Account Work and Minor Contracts 5. Related Documents, Cost Estimate Tables and Other Data Available in the Project File LIST OF TABLES IN MAIN TEXT Table No. 2.1 Land Ownership Distribution . . . . . . . . . 9 . . . . . . . 9 2.2 Land Tenure . . . . . . . . . . . . . . . . . . . . . . . 10 3.1 Diversion Structures . . . . . . . . . . . . . . . . . . . . . 13 3.2 Project Water Requirements Summary . . . . . . . . . . . . . . 29 3.3 Estimated Cropping Area, Water Requirements and Supply . . . . 20 3.4 Present and Future Irrigated Areas . . . . . . . . . . . . . . 21 3.5 Cost Estimate .............. . . . 27 3.6 Irrigation Service Area - Cost Estimate . . . . . . . . . . . 28 5.1 Present and Projected Yields . . . . . . . . . . . . . . . . . 36 5.2 Present and Projected Paddy Production . . . . . . . . . . . . 37 6.1 Price Structure for Rice . . . . . . . . . . . . . . . . . . . 41 6.2 Fertilizer Prices . . . . . . . . . . . . . . . . . . . . . . 42 6.3 Farm Incomes . . . . . . . . . . . . . . . . . . . . . . . . . 42 6.4 Cost and Rent Recovery . . . . . . . . . . . . . . . . . . . . 45 7.1 Net Value of Production . . . . . . . . . . . . . . . . . . . 50 7.2 Labor Supply.. ................ 51 7.3 Economic Costs and Benefits . . . . . . . . . . . . . . . . . 52 7.4 Sensitivity Analysis . . . . . . . . . . . . . . . . . . . . . 53  -3- Page No. LIST OF FIGURES Figure 3.1 - Implementation Schedule . . . . . . . . . . . . . . . . 85 Figure 4.1 - NIA Organization . . . . . . . . . . . . . . . . . . . 86 Figure 4.2 - Proposed Organization for Project Construction . . . . 87 Figure 4.3 - Proposed Organization for Operation and Maintenance . . 88 Figure 5.1 - Proposed Cropping Calendar . . . . . . . . . . . . . . 89 LIST OF MAPS IBRD 14589 - Medium Scale Irrigation Project, Mindoro Systems IBRD 14590 - Medium Scale Irrigation Project, Palawan Systems  I  PHILIPPINES MEDIUM SCALE IRRIGATION PROJECT 1. BACKGROUND General 1.01 The Government of the Philippines has requested the Bank to assist in financing irrigation development in the islands of Mindoro and Palawan. The project would provide for the construction of irrigation facilities to benefit about 38,000 ha of rice land, spread over seven irrigation systems. The two islands are relatively unaffected by typhoons, are areas of immigra- tion from the overcrowded islands of Luzon and the Visayas, and contain some of the few remaining, easily developed substantial areas of irrigation potential in the Philippines. The project would also support the Govern- ment's policy of a more geographically balanced development program. 1.02 The project was prepared by the Project Development Department (PDD) of the National Irrigation Administration (NIA). This report is based on the findings of a preappraisal mission in May 1979 comprising Mr. A.N. Khan and Ms. V. Mackrandilal (Bank) and Messrs. R. Campbell and A. Yambao (consultants) and an appraisal mission consisting of Messrs. A.N. Khan, M. Cox, and Ms. V. Mackrandilal (Bank), and Messrs. A. Yambao and G. Cazaux (consultants), which visited the Philippines in September 1979. Messrs. E. G. Giglioli and R. O'Sullivan assisted in writing the report. The Agricultural Sector 1.03 Agriculture is the predominant sector in the Philippine economy, accounting for about one third of net domestic product, over one half of total employment, and more than half of export earnings. Over 70% of the 9 million ha of land under cultivation is used for the production of cereals, of which rice and corn are the most important. About 1.2 million ha are irrigated. The remaining land is taken up by the major export crops: sugar, coconuts, abaca, pineapples, and tobacco. 1.04 The performance of the agricultural sector is crucial in deter- mining whether the Philippines can increase incomes both rapidly and equitably. At present, the domestic market for industrial products is limited by relatively low rural incomes. Although in recent years there has been a substantial change in the terms of trade in favor of agriculture, the problems of poverty and income distribution continue to be acute in rural areas; of the 15 million people in the lowest 40% of the income scale, 12 million live in rural areas. To deal with this problem the Government has initiated a number of programs designed to assist the rural poor. 1.05 A major Government objective is to increase rice and corn produc- tion as a means of raising the income of small farmers and of attaining national self-sufficiency in food grains. After experiencing substantial deficits in the early 1970s, rice production grew by 5% p.a. during crop  -2- years 1974-77 and the Philippines was able to provide for consumption solely from domestic production during the crop years 1975-77. In 1978, the Government exported 270,000 tons and built stocks to supply about four months of domestic consumption. The major factors contributing to the recent sharp rise in production appear to be the continued expansion of irrigated area and the use of high yielding varieties on both irrigated and rainfed land as well as a run of particularly favorable weather. With the continued growth in population and incomes, the demand for rice is expected to rise by about 3.0% annually over the period 1978-90. Given average weather conditions, the Philippines should be able to sustain an annual growth rate of 3.7% in produc- tion and is expected to be, by 1985, in a position to export between 100,000 and 125,000 tons annually. By 1990 the Philippines could export from 350,000 to 375,000 tons. Exports of this magnitude, about 3% of projected world rice trade in 1990, could be accomodated without adversely affecting prices. This would require an increase in irrigated harvested area of about 425,000 ha between 1977 and 1985 and an increase of about 200,000 ha between 1985 and 1990. World Bank-assisted projects for which financing has been arranged or is contemplated would provide about 240,000 ha of irrigated harvested area. 1.06 The Government recognizes that in order to increase production in both irrigated and rainfed areas further improvements in supporting services will be necessary beyond those initiated in recent years. In 1973, the Government instituted a national program for supervised credit for rice production, Masagana 99, which greatly increased the availability of produc- tion credit and technical assistance, mainly to smaller farmers. However, the levels of arrears under the program have been very high in the last several years and as a result the credit coverage of the program has declined sharply. The Government is aware of this problem and is presently reviewing a study of the causes of the high arrears undertaken by the Technical Board for Agricultural Credit under the provisions of Loan 1399-PH. In the meantime, efforts are continuing to enable farmers to make the most effective use of the lower level of inputs they are able to afford using their own cash and from non-institutional sources of credit. The Government is also taking steps to bring about improvements in the national extension service through the recently initiated National Extension Project which is in part financed by the Bank (Loan 1626-PH). The Bank is presently helping the government to prepare a project to provide assistance to the agencies dealing with agricultural research, crop protection, soils and agricultural economics. 1.07 Since 1969 the Bank Group has financed eleven irrigation projects designed to increase rice production in the country. These projects - three in Central Luzon, four in the Cagayan Valley of Northern Luzon, one on Mindoro Island, one in the Visayas and two for smaller systems throughout  -3- Northern Luzon, the Visayas and Mindanao /1 - have set the pattern for the type of irrigation rehabilitation, new construction, and operations needed to increase rice production. The projects are providing improved irrigation and drainage facilities, better road systems for efficiency of operation and for the marketing of farm products, stronger supporting services to assist farmers in adopting the new irrigation techniques needed to increase production, and technical assistance and training to help the National Irrigation Administration (NIA) expand and improve its irrigation program. These projects would bring about substantial increases in rice production on about 400,000 ha and would benefit over 200,000 farmer families, most of whom are smallholders. 1.08 Work on the first Bank-assisted project, the Upper Pampanga River Project (Loan 637-PH), is completed. Progress on all the irrigation projects has been generally satisfactory and the NIA has proved itself to be a well managed and technically competent organization. The total cost of the first two projects was about 70% over appraisal estimates in the case of the Pampanga project (Loan 637-PH) and 55% in the case of the Aurora-Penaranda Irrigation Project (Loan 984-PH and Credit 472-PH) largely because of rapid inflation following the oil price increase in 1973. However, as a result of considerable increases in the projected world market price of rice and earlier than anticipated irrigation benefits, the rates of return on both projects have not changed significantly. Prolect Formulation 1.09 The development of Mindoro and Palawan has lagged behind that of the more populous and larger Luzon island. Mindoro is well endowed with land and water resources and both islands have favorable climates being largely free from typhoons. They are also relatively underpopulated and are areas of active immigration from Central Luzon and the neighboring Visayas where population pressures on land are intense. While NIA has had plans for the development of the irrigation potential in Mindoro and Palawan for many years, implementation has been delayed because of the need to give priority to the /1 The Upper Pampanga River Irrigation Project (Loan 637-PH), Aurora- Penaranda Irrigation Project (Loan 984-PH, Credit 472-PH), Tarlac Irri- gation Systems Improvement Project (Loan 1080-PH), Mindoro Rural Devel- opment Project (Loan 1102-PH), Magat River Multipurpose Project Stage I (Loan 1154-PH), Chico River Irrigation Project Stage I (Loan 1227-PH), Jalaur Irrigation Project (Loan 1367-PH), National Irrigation Systems Improvement Project I (Loan 1414-PH), National Irrigation Systems Improvement Project II (Loan 1526-PH), Magat River Multipurpose Project Stage II (Loan 1567-PH) and Magat River Multipurpose Project, Stage II Irrigation (Loan 1639-PH).  -4- traditional rice bowls in Central Luzon, Cagayan Valley and Mindanao. Irriga- tion development in Mindoro and Palawan has been confined in the past to private and/or communal schemes of 50 to 300 ha located on small streams. The Mindoro Rural Development Project, initiated in 1975 with Bank assistance (Loan 1102-PH), included provisions for the improvement and expansion of two national irrigation systems of about 12,000 ha in Mindoro Oriental and helped to focus attention on the island's irrigation potential. By 1978 the Mindoro Project Office had identified an irrigable potential of about 70,000 ha spread over the two island provinces. At-the same time the Region 4 Office of the National Economic Development Authority (NEDA) proposed a project for the development of infrastructure in Palawan, including irrigation development. As both islands are in the same administrative region, NIA decided to combine the two sets of proposals into a Medium Scale Irrigation Project. The proposed project, prepared by NIA's Project Development Department (PDD), consists of the construction of seven new national irrigation systems covering a total area of about 37,800 ha, with three systems and 22,000 ha in Mindoro Oriental two systems and 5,800 ha in Mindoro Occidental, and two systems and 10,000 ha in Palawan.  THE. PROJECT AREA General 2.01 The project would build seven irrigation systems with a total irri- gable area of 37,800 ha on the islands of Mindoro and Palawan, which are southwest of the main Philippine island of Luzon. These systems can be divi- ded into three distinct subproject areas. The Mindoro Oriental subproject includes three systems while the 1{indoro Occidental and Palawan subprojects include two systems each. Mindoro is separated from Luzon by a sea crossing of about 45 km. Palawan is some 300 km to the southwest of Mindoro (Map 14589). Both islands are rugged and mountainous with large areas of unin- habited forest. Mindoro, with a land area of 10,250 sq km and a population of about 550,000, is divided administratively into two provinces Mindoro Oriental and Mindoro Occidental. Palawan, which has a land area of 15,000 sq km and a population of some 350,000 forms one province, the largest in the Philippines. Presently, rice is the main crop grown in the project lands. However, in addition to some small areas of corn and tobacco scattered in the different subprojects, there are 2,500 ha of old and low yielding coconuts in Mindoro Oriental as well as 3,200 ha of uncultivated brushland in Palawan where the project areas lie mainly within a Ministry of Agrarian Reform (MAR) land settlement. Population density in all three provinces is substantially below the national average and per capita incomes range from 92% of the national average for Mindoro to about 65% for Palawan. The population lives mainly in the rural areas, but there are a number of small towns around the periphery of both islands. In Mindoro the most important town is Calapan in Mindoro Oriental where there is an important port and where banking, storage, and processing facilities are to be found, as well as supplies of agricultural inputs. In Mindoro Occidental similar facilities are available in the town of San Jose. In Palawan the towns are generally smaller and the services are less developed. Puerto Princesa on the eastern shore of the island is the most important urban center. Climate 2.02 Four distinct climatic types are found in the Philippines, depending on the amount and distribution of rainfall. Three of these types, the first, third, and fourth, prevail in the project provinces. The first type, found in Mindoro Occidental, is characterized by a very pronounced wet season between May and October and a dry season for the rest of the year; the third type found in Palawan, is relatively dry between January and April and wet for the remaining months of the year; while the fourth type, found in Mindoro Oriental, has no maximum rainy period and no dry season. Average annual rainfall varies from a low of about 1,600 mm in Palawan to nearly 2,200 mm in Mindoro Occidental. There is little monthly variation in temperatures and relative humidities throughout the year or between the three provinces. The rainfall, together with river flows in the wet season, is generally adequate for a single rice crop. Dry season cropping, however, entails a greater risk and irrigation is essential to ensure a crop. A large proportion of the  -6- typhoons that occur in the Philippines do not hit the three provinces directly and pass through south of Mindoro island, sometimes touching the northern edge of Palawan. Climatological data in a summarized form are given in Annex 1. Topography Drainage and Soils 2.03 Although the three subproject areas are separated geographically, they have generally similar characteristics. The proposed systems are located on the coastal plains ranging in width from 4-5 km in Palawan to 10-15 km in Mindoro Oriental. The plains are not continuous on either island and in places the mountainous central ranges extend to the coastline. In Palawan the gently sloping coastal plain abuts directly onto the steep slopes of the central mountain spine of the island while in Mindoro the transition from plain to mountain is less abrupt. The land is flat within the project area with generally good surface drainage, except for the extreme lower reaches of the rivers near the coast and in the vicinity of lake Naujan on the south- eastern edge of the Mag-asawang Tubig system in Mindoro Oriental. This parti- cular area also has a moderate incidence of schistosoniasis. Provision would be made under the project to deal with the drainage problem. The rivers serving the proposed systems are short, ranging in length from 10 km up to 70 km. Due to the short river lengths, steep slopes in the upper mountainous range with abrupt transition to flat plains and very high seasonal variation between wet and dry season flow, most rivers in IMindoro have developed wide, abraided, gravel-filled channels over their lower reaches. Channel shifting in these reaches is not uncommon. 2.04 Soils in the Mindoro subproject areas are variable, but loams and silt loams, clay loams and clays of the Agustin, San Manuel, Quingua and Tagulod series predominate. These soils are of alluvial origin, moderately deep and generally have good internal drainage. Soils of the Agustin and San Manuel series are brown, dark brown and grayish brown, loose and friable with good fertility, good internal drainage and are suitable for diversified crops. Soils of the Quingua and Tagulod series are silty clay loams and clays and are of dark grayish brown to gray color with weak angular blocky structures, sticky when wet and friable when dry, slightly acidic reactions, slow internal drainage, occasionally low phosphoric acid specially in Mindoro Oriental, adequate cation-exchange capacity and no salinity problems. The predominant soil type in the Palawan subproject areas is a clay loam of the Bugsuanga series. Soils of this type are developed from transported terrace soil materials, are of shallow depths, and are of dark grayish brown color with a weak, fine granular structure, good internal drainage, moderately acidic to neutral reactions, fairly high organic matter, low phosphoric acid, adequate cation-exchange capacity and no salinity problems. Preliminary results obtained from 1975-79 rice production experiments on paddy soils in Palawan indicate a deficiency in phosphorous. An application of about 40 kg/ha of phosphoric acid, is recommended for these soils. The soils of the three subproject areas are well suited for rice which has been grown on them for many years.  -7- Land Tenure and Farm Size 2.05 Since 1972 the Government has pursued a program of agrarian reform aimed at the transfer of land ownership to tenant farmers on rice and corn lands. Presidential Decree No. 27 (PD 27), the basic legislation of the new program, provides for the transfer to the tenant, whether sharecropper or leaseholder, of up to 3 ha in an irrigated area and 5 ha in a rainfed area. According to PD 27, the landlord may retain up to 7 ha if he tills the land himself. Since there are some two 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 nation wide. The Ministry of Agrarian Reform (MAR) completed the issue of land transfer certificates to tenants for all lands in holdings over 24 ha in 1975. In November 1974, the Government decided to proceed with the transfer of land in holdings between 24 and 7 ha. In October 1976, the Government extended the provision of PD 27 to holdings of less than 7 ha, belonging to landowners with more than 7 ha of other agricultural land, or belonging to landowners with residential, commercial or urban land from which they derive adequate incomes to support themselves. At present it is not known how many landlords and tenants would be affected by the new legislation. 2.06 NIA surveys show that about 11,600 farm families live in the project area. More than 80% of these families live in Mindoro, mostly in the Oriental province. In Palawan the average farm size is 5.2 ha, in Mindoro Oriental 2.8 ha, and in Mindoro Occidental 3.1 ha. The farm size distribution in the three subproject areas is as follows: Mindoro Oriental Mindoro Occidental Palawan No. of No. of No. of Farm size farms Area farms Area farms Area (ha) -