Mexico - Third Integrated Rural Development (PIDER III) Project

Document of The World Bank FOR OFFICIAL USE ONLY t Report No. 3231-ME STAFF APPRAISAL REPCORT MEXICO INTEGRATED RURAL DEVELOPMENT PROJECT - PIDER I June 30, 1981 Agriculture and Rural Development Department 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 = Mexican Peso (Mex$) US$1 = Mex$23.0 Mex$l = US$0.0434 Mex$1 million = US$43,478 WEIGHTS AND MEASURES Metric System 1 hectare (ha) 10,000 m2 = 2.47 acres 1 kilometer (kin) 0.62 miles 1 square kilometer (km2) = 0.39 square miles = 100 ha 1 kilogram (kg) = 2.2 pounds 1 liter (1) - 0.26 gallons 1,000 kg = 1 metric ton = 0.98 long ton GOVERNMENT OF MEXICO FISCAL YEAR January 1 to December 31 PIDER PROGRAM FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY GLOSSARY OF ABBREVIATIONS (English and Spanish) BANRURAL - National Bank for Rural Credit (Banco Nacional de Credito Rural) BORUCONSA - Rural Warehouse System (Bodegas Rurales CONASUPO) CAPFCE - Administrative Committee for the Federal School Construction Program (Comite Administrador del Programa Federal de Construccion de Escuelas) CECADE - Training Center for Development (Centro de Capacitacion para el Desarrollo) CFE - Federal Electricity Commission (Comision Federal de -Electricidad) CIDER - Research Center for Rural Development (Centro de Investi- gacion para el Desarrollo Rural) CONAFRUT -' National Fruit Development Commission (Comision Nacional de Apoyo a la Fruticultura) CONASUPO - National Company for Popular Subsistence (Compania Nacional de Subsistencias Populares) COPLADE - State Committee for Development Planning (Comite de Planeacion para el Desarrollo Estatal) COPLAMAR - General Coordination of the National Plan for Depressed Areas and Marginal Groups (Coordinacion General del Plan Nacional de Zonas Deprimidas y Grupos Marginados) CUC - Master Coordination Agreement (Convenio Unico de Coordinacion) DGCSA - Directorate General of Soil and Water Conservation (Direccion General de Conservacion de Suelo y Agua) DGDRI - Directorate General of Integrated Rural Development (Direccion General de Desarrollo Rural Integrado) DGDUT - Directorate General of Rainfed Districts and Units (Direccion General para los Distritos de Temporal y sus Unidades). FICAR - Trust Fund for Credit to Irrigated Areas (Fideicomisos Instituidos para Credito para la Agricultura de Riego). FIRA - Agriculture Trust Fund of the Bank of Mexico (Fideicomisos Instituidos en Relacion a la Agricultura) This document has a restricted distribution and may be used by recipients only in the performance of heir official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Glossary of Abbreviations (Continued) IDB - Inter-American Development Bank (Banco Inter-Americano para el Desarrollo) IFAD - International Fund for Agricultural Development (Fondo Internacional para el Desarrollo Agricola) IGC - Coconut Promotion Agency of Guerrero (Impulsora Guerrense de Cocoteros) IMSS - Mexican Social Security Institute (Instituto Mexicano de Seguro Social) INI - National Indigenous Institute (Instituto Nacional Indi- genista) INIA - National Insitute for Agricultural Research (Instituto Nacional de Investigacion Agricola) INIP - National Institute for Livestock Research (Instituto Nacional de Investigacion Pecuaria) INMECAFE - Mexican Coffee Institute (Instituto Mexicano del Cafe) JEAP - State Potable Water Board (Juntas Estatales de Agua Potable) NAFINSA - Nacional Financiera, S.A. OHDR - Directorate of Hydraulic Works of Rural Development (Direccion de Obras Hidraulicas para el Desarrollo Rural) PIDER - Integrated Rural Development Program (Programa Integrado de Desarrollo Rural) PLANAT - National Plan for Rainfed Agriculture Development (Plan Nacional de Agricultura de Temporal) PPM - Department of Fisheries (Productos Pesqueros Mexicanos) SAHOP - Secretariat of Human Settlements and Public Works (Secretaria de Asentamientos Humanos y Obras Publicas) SARH - Secretariat of Agriculture and Water Resources (Secretaria de Agricultura y Recursos Hidraulicos) SHCP - Secretariat of Public Finance (Secretaria de Hacienda y Credito Publico) SPP - Secretariat of Programming and Budgeting (Secretaria de Programacion y Presupuesto) SRA - Secretariat of Land Reform (Secretaria de Reforma Agraria) SSA - Secretariat of Public Health and Assistance (Secretaria de Salubridad y Asistencia)  MEXICO INTEGRATED RURAL DEVELOPMENT PROJECT - PIDER III STAFF APPRAISAL REPORT Table of Contents Chapter Page I. INTRODUCTION ............................................... 1 II. MEXICO'S RURAL DEVELOPMENT STRATEGY ........................ 2 A. Background - Mexico's Rural Poverty Problems .... ....... 2 B. The PIDER Program - Evolution of the Program and Process .......................................... 3 C. Recent Development Programs in Mexico .... .............. 8 III. THE PROJECT AREA ........................................... 10 A. Selection of States .................................... 10 B. Micro-regional Selection Criteria ............. i ........ 10 Table 3.1: Project Area, Population, Agricultural Area, Average Farm Size and Rainfall .......... .. ............... 11 IV. THE PROJECT ................................................ 12 A. General Description .................................... 12 Project Objectives .................................. ; 12 Project Strategy ..................................... 13 Implementation Strategy and Distribution of Responsibilities ................................... 14 Project Composition .................................. 16 B. Detailed Features .................. .................... 17 B.1 Directly Productive Investment .... ................ 17 B.2 Productive Support Investment ..................... 25 B.3 Social Infrastructure ............................. 31 This report is based on the findings of an appraisal mission which visited Mexico in May/June 1980, comprised of Messrs. A. Schumacher and R. Cuca, Misses C. Hamann and W. Stickel (Bank), Messrs. W. Mactier and J. Pines (Consultants). A post-appraisal mission comprised of Ms. C. Hamann, Mr. V. Freeman (Bank), Messrs. W. Mactier, E. Miller and K. Swanberg (Consultants), visited Mexico during August 1980. This report was prepared by Misses C. Hamann and C. Mejia, with contributions from Mr. K. Swanberg (Consultant).  Table of Contents (Continued) Chapter Page V. ORGANIZATION AND MANAGEMENT .................................. 33 Organizational Structure ..................................... 33 Project Implementation .............. ......................... 36 Monitoring and Evaluation .......... .......................... 37 Chart 1: Organization at Federal Level ..... ................. 38 Chart 2: Project Organization ........ ....................... 39 VI. COST AND FINANCING ........................................... 40 Financing ........................... 40 Budget Authorizations ........................... 40 Project Cost Summary ........................... 41 Accounts and Auditing ........................... 42 Procurement ........................... 43 Disburs'ement ........................... 44 VII. ECONOMIC JUSTIFICATION ................................... 45 A. Production ........................... 45 B. Marketing ........................... 46 C. Beneficiaries' Income ......... .................. 46 D. Nutritional Impact ....... .................... 47 E. Employment Impact ........................... 48 F. Environmental Impact ........ ................... 48 *G. Economic Analysis ........................... 48 H. Project Risks ........................... 50 I. Sensitivity Analysis ........ ................... 50 J. Cost Recovery and Fiscal Impact .......................... 50 VIII. SUMMARY OF MAIN AGREEMENTS REACHED AND RECOMMENDATION .... ..... 51 ANNEXES ANNEX 1: The PIDER Program: Assessment of Impact A. Institut4onal Impact B. PIDER Physical Impact ANNEX 2: Description of the Micro-regions  Table of Contents (Continued) ANNEX 3: Components, Main Executing Agencies, and Disbursement Categories ANNEX 4: Agricultural Production, Benefits, and Crop Budgets Table 1: Crop Budgets by State: A. Sinaloa B. Guerrero C. Zacatecas D. Yucatan Table 2: Mocorito: Crop Production Without PIDER Table 3: Mocorito: Crop Production With PIDER - Area Cultivated Table 4: Mocorito: Crop Production With PIDER - Yields Table 5: Mocorito: Crop Production With PIDER - Volume of Production Table 6: Mocorito: Crop Production With PIDER - Value of Production Table 7: Mocorito: Crop Production With PIDER - Costs Table 8: Mocorito: Crop Production With PIDER - Incremental Benefits and Costs ANNEX 5: Project Cost Estimates Table 1: Total Costs and Phasing of Investments - Summary Table: Seventeen Micro-Regions Table 2: Cost Estimates and Phasing by Class of Accounting Category Table 3: Total Investments Programmed - By Eight Micro-Regions Table 4: Mocorito: Total Costs and Phasing of Investments Table 5: Sur de Yucatan: Total Costs and Phasing of Investments Table 6: Estimated Disbursement Schedule ANNEX 6: Table 1: Incremental Volume of Production - Crops Table 2: Incremental Livestock Production Table 3: Farm Income With and Without the Project by Micro-Region (Crops Only) Table 4: Farm Labor Generated by the Project by Micro-Region Table 5: Economic Rate of Return and Sensitivity Analysis Table 6: Economic and Financial Prices MAP: IBRD 15264 - Mexico: Integrated Rural Development Project - PIDER III   MEXICO INTEGRATED RURAL DEVELOPMENT PROJECT - PIDER III STAFF APPRAISAL REPORT I. INTRODUCTION 1.01 The PIDER program (Integrated Program for Rural Development) was initiated in 1973 to focus the activities of Government agencies on selected rural areas (micro-regions) which have substantial productive potential, but whose populations lack the resources necessary to tap this potential. The Government of Mexico continues to give priority to improving the incomes and welfare of the nation's twelve million rural poor, who make up 50 percent of the rural and 20 percent of the total population. By January 1980, Mexico had invested US$1.6 billion in 119 micro-regions estimated to include 50 percent of its rural poor. PIDER investments are curently running at an annual rate of US$450 million. 1.02 Early in PIDER's development (1973), the Government requested World Bank support for the PIDER program. A loan for US$110 million was approved by the Bank in May 1975 to assist activities in thirty micro-regions (PIDER I). A second loan of US$120 million assisting development in twenty micro-regions was approved in July 1977. A separate appraisal of two micro- regions in the state of Oaxaca was made by the Bank for the International Fund for Agricultural Development (IFAD) and a loan for US$22 million was approved by their Board in May 1980. The Inter-American Development Bank (IDB) is supporting the program in an additional fifteen micro-regions. The Government has now requested a third loan to support the consolidation and extension of activities in seventeen micro-regions (PIDER III). Looking at the larger context of overall Bank lending to Mexico, as of October 31, 1980, Mexico had received 66 loans from the Bank amounting to US$4,243.9 million net of cancellations and terminations. Of these, 24 loans for US$1,864.4 million, or 43 percent of total lending, had been for agriculture and rural development. 1.03 Based on the experience gained from PIDER I and II, PIDER III is a departure from the usual rural development project in Mexico. The preparation and programming periods for PIDER III have begun a process of devolution of authority for planning and implementation of federally funded rural development programs to the state level. This process of decentrali- zation of authority is especially significant in the Mexican context, in which the federal Government is extremely strong and in which federal funding has until recently been synonymous with central planning. In the context of the PIDER program, this process has meant a surge of new interest and energy at the local, micro-regional, and state levels--for the first time, communities, line agencies, and state governments have been actively involved in planning the investments which each will have an important role in implementing. The investment plans resulting from the first programming process are judged by both Mexican authorities at the federal level and by the Bank appraisal team better adapted to both local conditions and the expressed needs and wants of beneficiaries.  - 2 - 1.04 The Government recognized that to make such a decentralized planning process both effective and efficient, a workable mechanism would need to be implemented initially on a controlled scale. For this reason, four states with demonstrated planning capability were chosen to initiate the new planning process. The seventeen micro-regions selected within these four states are representative of the variety of difficult ecological conditions for which Mexico is seeking technological solutions suitable for small-scale use and of the varied socio-cultural characteristics of its rural poor population. The goals of PIDER III (outlined in detail in paras 4.01-4.02) include developing such technological solutions, and coincide with both state and federal goals of raising the productivity of both human and natural resources and the welfare of the rural poor. II. MEXICO-S RURAL DEVELOPMENT STRATEGY A. Background - Mexico's Rural Poverty Problems 2.01 While Mexico has obtained a high growth rate of GDP (an average of 7.0% per year since 1960), not all Mexicans have shared equally in the fruits of this growth. In the early twentieth century, Mexico sought to promote rapid economic development through high profits, low wages, forced saving via inflation, regressive taxation, and minimal expenditure on social projects. The resulting income distribution and investment patterns produced large productivity differences between the rural and urban sectors. These differences have tended to perpetuate themselves. Mexico's average GDP per capita in 1978 was about US$1,350, but 50 percent of the rural population earned less than US$100 per person. 2.02 A similar pattern of uneven development has characterized growth within the agricultural sector itself. Over the last thirty years, a well- organized public agency for hydraulic resources developed large-scale irrigation, while the Ministry of Agriculture had little effect on rainfed areas. While the one third of Mexican cropland that is irrigated produces 55 percent of total agricultural output, small farmers in rainfed areas have not adopted modern agricultural techniques. As a result, half of the country's five million farmers produce only 4 percent of total agricultural output, some not growing enough to feed their own families. 2.03 One effect of this dualistic growth pattern in the rural sector is an increasing dependence on imported foodstuffs. In the 1940s, Mexico imported about 15 percent of its cereal grains. From 1950 to 1965, with the adoption of "Green Revolution" seed varieties by large farmers and a rapid increase in irrigated area, output burgeoned, growing at an average annual rate of 5 percent. Increased population pressure and the onset of diminishing returns to high-yielding varieties resulted in a slowdown in this rapid growth. Between 1965 and 1978, the agricultural growth rate averaged about 1.4 percent annually, and production is once again lagging behind demand-- Mexican grain imports more than quadrupled between 1976 and 1980, and Mexico now ranks among the world's four largest importers of grain.  - 3 - 2.04 Population growth has been so rapid that one third of the agricultural labor force is landless. Many of these landless laborers are the sons of peasants with inherited tenure to ejidos /1 too small to support their increasing population of ejidatarios. In 1975, the rural population was distributed among 1.5 million ejidatario families farming 22,500 ejidos, 1.2 million privately owned farms, and 1.3 million landless families. 2.05 Increased under- and unemployment in rural areas has led to a dramatic rise in rural-urban migration. United Nations projections indicate that Mexico City will be the most populous urban area in the world by 1990. Other urban areas in Mexico are also growing at a rapid rate. At the other extreme, more than one third of the population live in some 20,000 rural localities with populations of 300-2,500 where the prospects for productive employment and a decent income are poor. 2.06 Social infrastructure in these areas is minimal. According to recent estimates, more than half of rural families had no access to potable water. Excreta disposal systems meeting acceptable sanitary standards were generally not available. Thus, while the national average infant mortality rate is about 60 per 1,000 live births, the infant mortality rate for rural areas is significantly higher, over 100 per 1,000 in some zones. Gastro- intestinal diseases, pneumonia, and malnutrition are the principal factors leading to infant and preschool deaths. B. The PIDER Program - Evolution of the Program and Process 2.07 In the early 1970s, Mexico began to focus on the productive potential of the poorer segments of the rural population, while continuing to support large-scale agriculture. Up to this time, the principal public investment effort for rural development was sporadic and consisted primarily of small-scale irrigation and credit. However, these efforts were not coordinated nor well focused. In 1973, the Government shifted its strategy to focus on small, well-defined regions, called micro-regions, where a number of complementary programs could be coordinated through planning and supervision. The Investment Program for Rural Development (PIDER) was established to channel resources for this purpose. 2.08 When PIDER began, its principal strategy for alleviating rural poverty was through social infrastructure investments. By 1975 it had evolved into a more comprehensive program aimed at increasing productive and production-support activities through selected packages of goods and services, while continuing to improve social infrastructure. The goals were to increase levels of employment, incomes, and living standards in poor rural areas with productive potential. /1 The term ejido is derived from the Spanish equivalent of the village "common". In present Mexican law, the ejido is basically a group of families with joint--and inalienable--rights of usufruct to land. The head of such a family is called an ejidatario. Ejidos accounted in 1979 for 43%, or 60 million hectares, of Mexican farmland.  - 4 - 2.09 PIDER is a coordinating program, not an institution, and as such was never intended to make investments nor provide servi^es directly. Rather, it is an administrative and financial mechanism, within the Secretariat of Programming and Budgeting (SPP), which serves to coordinate the rural develop- ment activities of a number of separate agencies. In PIDER I and II, SPP staff assigned to PIDER planned the package of investments for each micro-region. Each executing agency was then requested to make those investments which fell under its purview, and was provided with PIDER funds in order to carry out the work. 2.10 In 1978, the Government, with Bank assistance, undertook a mid- term evaluation of PIDER I (Annex 1). The report examines the progress of PIDER I as representative of the program as a whole, on the sub-project, component, and organizational, or institutional, levels. The report was done only four years after the beginning of PIDER, before most of the productive investments had reached full development. Therefore, most of its conclusions regarding impact are qualitative. The few cases in which an attempt is made to quantify results are indicative of the results of a small sample of sub- projects rather than of program-wide impact. The summary in this section and in Annex 1 is largely based on the mid-term evaluation and should not be interpreted as a final evaluation of PIDER's impact. 2.11 In general, the early-financed components which required least organization of beneficiaries and coordination among agencies for their operation (e.g. roads, electrification, schools) were most likely to be operating with few problems. Those requiring a high degree of beneficiary training or cooperative management (e.g. large livestock, rural industries, water supply) were more likely to be functioning at an unsatisfactory level. 2.12 Productive Projects. Productive investments under PIDER I emphasized small-scale irrigation (the largest volume of productive projects) and, to a lesser degree, livestock development. Small-scale irrigation works have usually resulted in significant increases in production and income and created additional jobs, most of which were taken by landless individuals. In general, livestock projects financed under PIDER I had a relatively small effect on production, income and permanent employment. A number of livestock units have encountered serious technical and organizational problems and have not resulted in the expected benefits. In general, problems have been encountered because large units with 15-50 participating farmers have been proposed and the organizational problems have proven too difficult. In other cases, livestock programs attempted were not fully appropriate on technical grounds; the lack of alternative technologies hampered planners who sought to increase farm productivity. These difficulties were compounded in those cases where construction or installation of infrastructure was carried out by one agency, while credit for stocking or assistance for making the project productive was provided by another.  - 5 - 2.13 Changes are being made in PIDER's livestock program to take advantage of experience--both the problems mentioned above and the successful cases. Smaller units are being promoted; greater emphasis is being placed on the generally more successful small-stock projects (goats, pigs) and api- culture, where organizational problems are fewer. Technical support has been increased through major improvements in the Secretariat of Agriculture and Water Resources' Rainfed Agricultural Districts Program which will help ensure the viability of future livestock investments and strengthen the involvement of credit institutions (paras 4.40 and 4.48). Better criteria for design and operation of livestock sub-projects are being developed and would be applied under the project (para 4.40). 2.14 Productive Support. The quality and impact of productive support programs (e.g. extension, beneficiary organization, roads, and credit) under PIDER has been uneven but improving. Agricultural extension, for example, has been strengthened by the reorganization of the service along the lines of the training-and-visit system through the rainfed agricultural districts (DT) program (para 4.51). The DT program has been particularly useful in promoting involvement of agricultural credit institutions in development programs of SARH, thereby ensuring that credit is provided to complement extension and infrastructure programs. The rural roads component of PIDER has accounted for the bulk of productive support investments. CIDER evaluations found that road investments typically resulted in 70% reduction in cost of goods transport, making feasible the use of purchased inputs and the marketing of agricultural surplus. Roads have also had an important, but transitory effect in generating jobs. 2.15 Social Infrastructure. Benefits from social infrastructure are difficult to quantify, but evidence is that communities have valued access to potable water, schools, and health clinics. Improved health services may have substantial financial benefits, since very often sickness is the major cause of family financial problems. Easier access to water has improved family health, enabling many families to start small irrigated vegetable gardens, and giving women additional time to devote to raising of small animals or employment in cottage industries. Water supply projects have, in a large number of cases, been troubled by poor operation, inadequate maintenance, and breakdown of the systems. Inadequate attention was devoted to the organi- zation and training of villages to operate and maintain the systems once installed and beneficiary communities did not fully understand that collection of adequate water charges was necessary to pay for the upkeep of the system. Both PIDER and the Secretariat of Human Settlements and Public Works (SAHOP) have taken corrective measures. Beneficiary participation in the planning of water supply projects has increased with the decentralization of micro-region planning (para 2.17); maintenance and operation requirements are reviewed with the beneficiaries before works are started; and local management--State Potable Water Boards--has been strengthened. With these measures, there has been a marked improvement in the performance of potable water systems. This trend would be consolidated under the proposed project (para 4.77).  2.16 Based on the results of this evaluation, SPP began to consider several important strategy questions regarding the future of the PIDER program. In a report to President Lopez Portillo dated January 18, 1980, SPP proposed that rather than continue to expand geographically at a rapid rate, PIDER should be reprogrammed and "consolidated" in the existing 119 micro-regions. The report also noted the need for a new strategy that would eliminate a number of problems, including: (a) a lack of capability for multi-year investment programming at the state level; (b) poor individual project preparation, particularly in the productive sphere; (c) limited beneficiary participation, especially in program and project selection; and (d) poor federal- and state-level inter-agency coordination. 2.17 It was decided that several of these problems could best be solved by giving state governments a larger role in the planning and implementa- tion of PIDER activities and by assigning responsibility for coordinating the programming process at the micro-regional level to state-level SPP staff. The result of this decision was the decentralized programming process which was initiated in 1980 to plan investments for PIDER III. The process began at the community level,. Groups of beneficiaries in the communities included in the micro-regions were asked by SPP micro-regional coordinators to draw up lists of community needs and to arrange those needs in order of priority. The line agencies, assisted by state-level SPP planners, were then asked to draw up investment plans which would meet those needs. Coordination and guidance was provided by SPP state delegates. Overall state policy for the rural sector was provided by the State Committee for Development Planning (COPLADE). This was a much more complex planning process than that attempted in PIDER I and II (para 2.09) and in all other rural development projects in Mexico. As already mentioned, however, the extra effort is providing dividends in the form both of greater commitment from the communities, the state and municipal authorities, and the agencies, and of plans tailored more closely to beneficiaries- felt needs. 2.18 It was recognized that to successfully carry out this process, considerable guidance would be required, so that plans prepared in the states would be consistent with PIDER objectives and with sound planning methodology. The following steps were taken: (a) a policy paper outlining new directions and objectives for the PIDER program was prepared;  - 7 - (b) a manual for multi-year micro-regional programming was issued jointly by PIDER and the Research Center for Rural Development (CIDER). This manual was revised after the first eight micro-regions had been programmed; (c) a series of regional meetings of senior federal- and state- level SPP staff was held to discuss aspects of the consoli- dation process and to review the proposed programming methodology; (d) a strategy which proposed the sequential reprogramming of investment plans for the existing (119) micro-regions was developed. This strategy was to begin in March 1980 with a "pilot" phase involving eight micro-regions in four states. The lessons learned from this pilot phase of the reprogramming would be incorporated in a second phase involving, first, nine micro-regions in the same states, and then all the other states with PIDER micro-regions; and (e) a series of seminars were held with Mexican officials at various levels and Bank staff, both in Mexico and at the Bank, to review the reprogramming process. The Bank was asked to participate in the financing of the investment programs in seventeen micro-regions. 2.19 The appraisal mission reviewed the reprogramming process and investment plans produced in the four pilot states: Sinaloa, Yucatan, Zacatecas and Guerrero (see para 3.01 for selection criteria). The state delegations then modified the plans on the basis of this review. The revised drafts of the plans were finally revised jointly by the state planners, SPP federal planners and members of the Bank mission. This assured that each met a set of standard requirements. The final stage of this process was a comprehensive review of the programming manual by the planners who had used it. The manual was then thoroughly revised on the basis of this feedback, so that it could be used in the next phase-- reprogramming of all the other PIDER micro-regions nationwide. 2.20 At the same time that the work of reprogramming was going on, institutional changes were effected on a higher level as well. The role of PIDER in relation to other rural investment programs was re-examined, and in July 1980, it was decided to incorporate PIDER into the investment plan called Master Coordination Agreement (CUC), while retaining PIDER's distinctive characteristics. Agreements which define procedures, function, and scope of the two programs are being signed by the state Governors and representatives of the federal Government. Within SPP, revised regulations were prepared and approved, which defined the responsibilities of the separate SPP directorates concerned with PIDER and the relationship among them.  2.21 The past year, then, has been one of reassessment for the PIDER program. The program-s objectives have been clarified, the strategies for reaching those objectives have been redesigned, and the new strategies have been put into action. C. Recent Development Programs in Mexico Master Coordination Agreement (CUC) 2.22 CUC was begun in 1977 as a centrally coordinated system of development works programmed and implemented by the state governments. Funding for these infrastructure works is drawn from federal revenues (60%), state revenues (30%), and village cash, materials, or labor (10%). From 1977 to 1980, the principal works financed were roads, schools, water supply systems, and public buildings. General Coordination of the National Plan for Depressed Areas and Marginal Groups (COPLAMAR) 2.23 COPLAMAR was begun on a limited scale in 1977 to coordinate activities of line agencies in areas with very limited productive potential, where programs such as PIDER and Rainfed Districts had little chance of success. The focus of public investments channeled through COPLAMAR was on directly improving living conditions and social services, such as health and education. In 1979, President Lopez Portillo approved expansion of the program. The sectors to be financed are: rural roads, potable water, health clinics, housing improvements and rural stores. Rainfed Districts Program 2.24 Initiated in 1977, the purpose of the Rainfed Districts Program under the General Directorate of Rainfed Districts and Units (DGDUT) of the Secretariat of Agriculture and Water Resources (SARH) is to coordinate all productive agricultural activities receiving Government support to 123 Rainfed Districts. About 70% of Mexico-s farm families live in rainfed areas, but these areas have received only 10% of all public investment funds for the agricultural sector since 1945. 2.25 In recent years, there has been a gradual policy shift in Mexico away from large-scale irrigation projects and toward the promotion of rainfed agriculture. The reasons for increased attention to rainfed areas are threefold. First, in areas of adequate rainfall (above 700 mm annually) there is still important potential to increase productivity of rainfed crops and livestock through application of available technology, and to increase cropped areas through improved drainage. The average costs of bringing about these changes in some cases are lower than those of large-scale irrigation. Second, investments in rainfed agriculture are an important means to redress the social imbalance now evident in Mexican agriculture; while rainfed  - 9 - areas produce only 50% of the value of agriculture output, their population includes 87% of all farmers. Third, the Government has been particularly concerned about the steadily increasing imports of basic staples, due to inefficient domestic production of these commodities; nearly 80 percent of rainfed cropped area is given to maize and bean production, but yields have grown very little in the past decade. 2.26 The Rainfed Districts program aims primarily to reinforce extension, research, and credit services and to provide a structure to ensure participation of farmers, the various Government agencies, and the banks to coordinate the planning (carried out in a bottom-up process, beginning at the community level), budgeting, and execution of local development activities. More than twenty agencies are directly or indirectly involved in promoting agricultural production in rainfed areas. Mexican Food Plan (SAM) 2.27 In March 1980, the President of Mexico announced a new Mexican Food Plan--a national policy calling for self-suffiency in corn and beans by 1982, and elimination of net imports of these staples by 1985. The policy also calls for special emphasis on improving the declining nutrition levels of some 35 million poor in both rural and urban areas. The work to date has involved analysis of the problem and identification of "Critical Nutrition Zones". These are defined as areas "in which the federal Government should take the responsibility for supplying food--either gratis or at subsidized prices--in order to eliminate malnutrition in those groups whose alternatives for improvements are severely limited." In the urban areas, the critical zones include the "belts of poverty" surrounding the major cities, areas in which inadequate distribution of food and low incomes make malnutrition a serious problem. In the rural areas, the zones include primarily areas where agricultural productivity is either limited by soil and terrain or is highly vulnerable to drought. 2.28 The strategy called for by SAM emphasizes an expansion of applied research, credit, use of inputs (especially fertilizer and insecticides), technical assistance, annual increases in the guaranteed prices of maize and beans, and readjustment of the price ratios between maize and beans and competing crops to encourage cultivation of these staples. 2.29 On the side of food marketing and distribution, the SAM strategy for eliminating malnutrition consists of nutrition education campaigns and provision of more facilities for the distribution of food through a network of small stores. Together with the Rainfed Districts program, PIDER will play an important role in helping to achieve SAM's goals, particularly in the seventy or so PIDER micro-regions which wholly or partly coincide with "critical zones" indicated by SAM. Of the thirty programs financed by PIDER, thirteen contribute to achievement of the goals stated in SAM.  - 10 - III. THE PROJECT AREA A. Selection of States 3.01 The project area is comprised of seventeen micro-regions located in the states of Sinaloa, Zacatecas, Yucatan and Guerrero (see map). The four states were chosen to represent widely different socio-economic conditions and ecological areas of the country, as well as for the experience of their planning personnel and institutional capability (para 3.02 (d)). Sinaloa, a highly productive state on the central Pacific coast with very uneven income distribution, is characterized physically by sharp transition from coastal plain up through the hills and valleys of the piedmont and into the cool- temperate, jagged sierras. In Zacatecas, a poor state in the central zone, plains predominate, interspersed with steep ridges and valleys. Scattered throughout the state are extensive areas of moist organic soil, though rainfall is generally low. Yucatan, located in the tropical southeastern part of the country, has a very limited resource base with which to support its very rapidly growing population. The state presents a unique combination of conditions: dry flatlands of shallow soil with severe rock outcroppings undermined by subterranean caverns and pools, where the Mayans farm the milpa system/l. Guerrero, a poor, mountainous state, presents additional contrast, with a highly productive tropical coastal belt, bordered by steep foothills where maize and associated crops are cultivated. This area is followed abruptly by the low mountains, where the economy is based on coffee. In the lower portion of the state, the coastal belt extends inland to include extensive areas of fertile soils where flood control and drainage are major agricultural problems. Basic information on the micro-regions is presented in Table 3.1, page 11. B. Micro-regional Selection Criteria 3.02 Micro-regions are comprised of three or more adjacent municipalities within a state. In the four states described above, micro-regions were selected on the basis of: (a) productive resources, but lack of infrastructure to exploit this potential; (b) a high proportion of the economically active population with total net annual family income less than 500 times the regional minimum daily rural wage (para 4.07); (c) size of target villages ranging from 500 to 5,000 inhabitants, but including smaller communities when these involve the grouping of small, scattered villages below 500 in population; (d) capability of the state-level staff for programming, coordinating, and executing multi-year investment programs. /l Slash-and-burn mixed maize and bean cultivation using planting sticks, with a fifteen-year fallow per