China - Rubber Development Project

Document of The World Bank FOR OFFICIAL USE ONLY C(v@I C'< co>py Report No.10984 Aut 16 Up.&o 84 Cf' Jj)jj PROJECT COMPLETION REPORT CHINA RUBBER DEVELOPMENT PROJECT (Credit 1417/ Special Fund 005-CHA) Anigust 3, 1992 Agriculture Operations Division Country Department II East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their ofricial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIVALENT Currency Unit - Yuan (Y) Rate of Exchange: Appraisal US$1.00 - Y1.90 1984 US$1.00 - Y2.40 1985 US$1.00 - Y3.00 1986 US$1.00 - Y3.20 1987-88 US$1.00 - Y3.70 1989-90 US$1.00 - Y4.70 1991 US$1.00 - Y5.20 WEIGHTS AND MEASURES 1 meter (m) - 3.28 feet (ft) 1 kilometer (km) - 0.62 miles 1 hectare (ha) 15 mu 1 -on (t) - 1,000 kg 2,205 pounds 1 kilogram (kg) - 2.2 pounds PRINCIPAL ABBREVIATIONS AND ACRONYMS USED CGB - Central. General Bureau of State Farms and Land Reclamation EDI - Economic Development Institute FA0Q/CP - Food and Agriculture Organization/Cooperative Program GIS/MIS - Geographical Information System/Management Information System PCR - Proj zt Completion Report PGB - Guangdong Provincial General Bureau of State Farms and Land Reclamation FISCAL YEAR January 1 to December 31  FOR OFFCIAL USE ONLY THE WORLD SANK Washington, D.C. 20433 U.S.A. Office of Directt,-Genetal Opetations Evauation August 3, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on China - Rural Development Proiect (Credit 1417/SF 005-CHA) Attached, for information, is a copy of a report entitled "Project Completion Report on China - Rural Development Project (Credit 1417/SF 005-CHA)" prepared by the East Asia and Pacific Regional Office with Part II of the report contributed by the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This document has a restricted distribution and may be used by recipients only in the performance I of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFICIL USE ONLY PROJECT COMPLETION REPORT CHINA RUBBER DEVELOPMENT PROJECT (Credit 1417/SF 005-CHA) Table of Contents Page No. Preface . . . . ... . . . . . . . . . . . . . . . . . Evaluation Summary . . . . . . . . . . . . . . . . . . . . . . . I. PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . 1 Project Identity . . . . . . . . . . . . . . . . . . . . 1 Background ..1 Project Objectives and Description . . . . . . . . . . . 2 Project Design and Organization . . . . . . . . . . . . . 3 Project Implementation . . . . . . . . . . . . . . . . . 3 Project Results . . . . . . . . . . . . . . . . . . . . . 7 Project Benefits and Sustainability . . . . . . . . . . . 8 Bank Performance . . . . . . . . . . . . . . . . . . . . 10 Borrower Performance. . . . . . . . . . . . . . . . 11 Conclusions: Summary and Lessons Learned . . . . . . . . 11 Project Relationships . . . . . . . . . . . . . . . . . 13 Consulting Services . . . . . . . . . . . . . . . . . . . 13 Project Documentation and Data . . . . . . . . . . . . . 13 II. PART II - PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . . 14 Borrower's Experience for Project Implementation . . . . 14 Project Identification, Appraisal and Agreement Signed 14 Project Costs and Financing . . . . . . . . . . . . . . . 14 Rubber Establishment .15 Farm Sawmills and Timber Complexes . . . . . . . . . . . 16 Procurement of Materials and Equipments . . . . . . . . . 16 Infrastructure Construction . . . . . . . . . . . . . . . 17 Training, Consulting Services and Study Tours . . . . . . 17 Project Benefits . . . . . . . . . . . . . . . . . . . . 17 General Assessment ..19 Summary and Lessons Learned . . . . . . . . . . . . . . . 19 Problem and Suggestion ..20 Opinions to Part I of the Project Completion Report . 21 Opinions to Part III of the Project Completion Report . 22 Role of the World Bank ..22 Support, Direction and Help from Related Depts . . . . . 24 Relation with Other Units ..24 III. PART III - STATISTICAL INFORMATION Table 1. Related Bank Loans and Credits . . . . . . . . 25 Table 2. Project Timetable . . . . . . . . . . . . . . . 26 Table 3. Loan/Credit Disbursements ... . . . . . . . . . 27 Table 4. Project Implementation . . . . . . . . . . . . 28 Table 5. Project Costs and Financing . . . . . ... . . . 29 Table 6. Project Results . . . . . . . . . . . . . . . . 30 This document has a restricted distribution and may be used by recipients only in the perfomrance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Table 7. Statt.s of Covenants . . . . . . . . . . . . . . 33 Table 8. Use of Bank Resources . . . . . . . . . . . . . 34 ANNEX 1. BACKGROUND DATA FOR PART I Table 1. Cost Estimate ..35 Table 2. Statistical Indicators . . . . . . . . . . . . 37 Table 3. Planted Rubber Clones . . . . . . . . . . . . . 38 Table 4. Rubber Yield Projections Hainan . . . . . . . 39 Table 5. Rubber Yield Projections - Zhanjiang . . . . . 40 Table 6. Projected Rubber Production . . . . . . . . . . 41 Table 7. Rubber Yield Projections with New Techniques 42 Table 8. Cost per ha of Planting and Replanting . . . . 43 Table 9. Cost per ha of Planting Windbreak . . . . . . . 44 Table 10. Economic Price of Rubber . . . . . . . . . . . 45 Table 11. Hainan New rlanting - Financial Analysis . 46 Table 12. Zhanjiang Ne% Planting - Financial Analysis . 48 Table 13. Hainan Replanting - Financial Analysis . . . . 50 Table 14. Zhanjiang Replanting - Financial Analysis . . . 52 Table 15. Hainan New Planting - Economic Analysis . .. . 54 Table 16. Zhanjiang New Planting - Economic Analysis . . 56 Table 17. Hainan Replanting - Economic Analysis . . . . . 58 Table 18. Zhanjiang Replanting - Economic Analysis .. . 60 Table 19. Cash Flow Huali Furniture Factory . . . . . . . 62 Table 20. Cash Flow Serya Timber Complex - Scenario #1 & #2 63 Table 21. Cash Flow Zhanjiang Presswood Factory . . . . . 65 Table 22. Cash Flow Xilian Sawmill . . . . . . . . . . . 66 MAP: IBRD 16867R -Rubber Development Project Areas  PROJECT COMPLETION REPORT CHINA RUBBER DEVELOPMENT PROJECT (Credit 1417/SF 005-CHA) PREFACE This is the Project Completion Report (PCR) for the Rubber Development Project in China, for which Credit 1417-CHA and Special Fund 005-CHA in the amount of SDR 94.6 million were approved on November 29, 1983. The Credit and Special Fund were closed on December 31, 1990, one year behind schedule. It was fully disbursed and the last disbursement was on May 10, 1991. The ?CR was jointly prepared by the Agriculture Operations Division of the East Asia and Pacific Regional Office (Preface, Evaluation Summary, Parts I and III), and the Borrower (Part II). Preparation of this PCR was started during the Bank's final supervision mission of the project in June 1991, and is based, inter alia, on the Staff Appraisal Report; the Credit, Special Fund, and Project Agreements; supervision reports, correspondence between the Bank and Borrower; and internal Bank memoranda.  - {iii - PROJECT COMPLETION REPORT CHINA RUBBER DEVELOPMENT PROJECT (Credit 1417/SF 005-CHA) EVALUATION SUMARY Project Objectives 1. The project was intended to increase the production of natural rubber by assisting the Borrower's program of new planting and replanting in Guangdong Province. An underlying objective was to improve the efficiency of China's rubber production system, which had been relatively isolated from technological developments in other rubber-producing countries. The project consisted of the new planting of about 25,000 ha and replanting o! approximately 15,000 ha and establishment of about 12,000 ha of windbreaks on state farms and communes. Ir. addition, the project included vehicles and equipment; upgrading of 19 farm sawmills (for rubberwood), construction of two integrated timber processing facilities, and provision of infrastructure (buildings, utilities, roads and bridges), training, research and technical assistance in rubber production, processing and estate management. Implementation Experience 2. Credit 1417/Special Fund 005 was approved on November 29, 1983, signed on January 5, 1984 and became effective on April 13, 1984. The project was expected to be implemented over a five-year period beginning in late 1983, with rubber planting in the period 1984-87, completion by June 30, 1989 and closing on December 31, 1989. The SAR target for planting was achieved by 1988, but implementation of the timber complexes lagged behind schedule, and the closing date was extended by one year. The estimated cost at apprai3al was US$301.0 million (Y572.2 million) and the final cost was US$218.5 million (Y765.2 million)'. Implementation of the main part of the project, rubber establishment, was carried out with very good physical progress, and planting targets were increased to 52,354 ha and completed on time. 3. The project was an unqualified success in achiev'ing its major target of increasing production of natural rubber; however, the secondary objective-- improving the efficiency of the system by transfer of technology from other rubber-producing countries--was less thoroughly achieved. There was a reluctance to adopt many of the new technologies envisaged at appraisal mainly due to the conservative style of management practiced at the farm level. Project Results 4. The project generated considerable benefits as a result of productive tree plantings, institution building, technology transfer and social-economic inputs. The planting of 52,354 ha of rubber and 16,061 ha of windbreaks /I 'he Borrower reports a final cost of Y764.2 niillion.  - iv - increased rubber, timber and cash crop production; created 62,800 new Jobs, 40% of which are held by women; and at project completion in 1990, farm income had increased from Y900 to about Y2000 (in nominal terms) per worker. The quality of the planting achieved was excellent due largely to (a) planting of quality materials derived from sound nursery management; (b) good field preparation and establishment, including adequate maintenance in weed control, nutrition, application of organic manure and green mulching; (c) appropriate practices in water and soil conservation including establishment of legume covers to improve soil fertility and mitigate soil erosion; and (d) effective pest and disease management and prevention of damage by domestic animals. The ERRs for the project were estimated to be 15% for new planting, 21% for replanting, and 16% overall. The shortcomings of the project were that the diversity of planted clones was less than expected; the use of advanced planting materials was not readily adopted; windbreaks were occupying land which could be used more suitably for rubber planting; operational inputs were not as cost effective as could have been achieved; and research pr3grams were constrained by requirements for research institutes to generate income and by lack of coordination. The timber complexes, though initially lagging in establishment and later in operational efficiency, gave indications of being financially and economically viable at the time of the PCR. Sustainabil1_t 5, Two significant factors will have bearing on reaching the projected yields: a) provisior of adequate budgets to sustain normal immature phase development until all the plantings reach maturity in 1993/94 and b) maintenance of the same high management standards after 1990, as provided during project implementation from 1984 to 1990. If maintenance slips, either due to lack of budget or for any other reason, ultimate yields would be affected. Other possible problems that could affect the sustainability of the projected benefits are the overdependence on RRIM 600 and the seasonal typhoons and strong winds, which could reduce the number of tappable trees and constrain latex production. There is potential to enhance rubber yields by adapting new nursery production techniques, increasing the availability of other high-yielding clones, improving the protective effectiveness of windbreaks, and strengthening tapping management with a well defined tapping policy. Findings and Lessons Learned: 6, The main findings and lessons learned are: (a) for a tree crop project with a long gestation period, arrangements are needed to guarantee adequate financing until plantings reach maturity; and to plan phasing of interrelated components in detail; (b) research funded by a project should be coordinated by the project management entity and experimental designs reviewed by a competent body; (c) when innovations are expected to have a major impact on project results, supervision missions will have to focus on this aspect and the Bank may need to use its leverage to insure that these recommendations are adopted; (d) equipment maintenance standards might be included in contractual arrangements; (e) when procuring advanced technology equipment, ample time should be allowed for installation and training of operators; (f) linking the provision of technical assistance and coordination of study tours through  V - having one supplier provide both services was shown to be effective; and (g) both FRRs and ERRs are higher for replanting than for new planting, mainly as a result of commercial value of old rubberwood.  PROJECT COMPLETION REPORT CHINA RUBBER DEVELOPMENT PROJECT (Credit 1417/SF 005-CHA) PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE Proiect Identity Project Name: Rubber Development Project Credit No.: Cr. 1417/SF-005-CHA RVP Unit: East Asia and Pacific Country: China Sector: Agriculture Subsector: Treecrops Background 1. At the time of appraisal in 1983, agriculture accounted for some 35% of China's GDP and was the main source of livelihood for the rural population of nearly 800 million. Only about 100 million ha of the country's land area of 960 million ha was arable; nearly half the cultivated land was irrigated and more than half of that area grew at least two crops per year. Foodgrains occupied 80% of the cropland and accounted for 65% of total agricultural output. Agricultural production was carried out in communes, state farms and privately managed plots, which accounted for about 87, 5 and 8 %, respectively, of the arable land and 80, 4 and 16%, respectively, of the gross value of agricultural production. Agricultural development had been accorded high priority by the Government for more than 30 years, and despite declining per capita availability of arable land, development efforts had been broadly successful. The sector had achieved annual growth rates of 3.2% in the 1955- 79 period and more than 5% between 1979 and 1983. Industrial crops and livestock and sideline production had expanded even faster than crop production. Increases in food production had more than kept pace with population growth, and nearly all Chinese had access to adequate food supplies. It was recognized that the major task of agricultural development would be to meet the food and raw material requirements expected from further population growth and gains in per capita income. The land constraint would require steady increases in yields from already cropped areas and the growing problem of surplus rural labor would make job creation an increasingly important development objective. The Government was implementing new policies aimed at giving rural workers more incentives, and major improvements in relative prices for agriculture had been introduced. 2. State farms, having been established I the 1950s to provide food and employment in less developed areas and particularly in difficult climates k..i sensitive border areas, had subsequently become important sources of commercialized agricultural production. About 35% of their grain production was sold to the state, as compared with about 15% of the collective sector's. More than 2,000 state farms were managing almost 29 million ha, of which 4.5 million ha was under cultivation. About 8% of the farms were involved largely in rubber production and accounted for 95% of the natural rubber production. As relatively self-sufficient economic units operating in poorly developed  - ~ ~ ~ ~ 2 areas, state farms had to finance, construct and maintain a system of social and physical infrastructure (health, education, transportation, communication and power) which is usually the responsibility of central and local governments in other countries. To mset future production requirements, the Government was in the process of implementing a major land development program by the state farm system in the 1981-85 Five Year Plan, calling for development of 1.1 million ha of unused land for annual field crops, 60,000 ha for tree crops, and 2.2 million ha for improved pasture. The pro'ect was among the early projects proposed to the Bank Group as a result of the initiative of the Central General Bureau of State Farms and Land Reclamation (CGB). 3. The Bank Group's strategy in agriculture was to assist China in the priority areas for development. Since May 1980, when China resumed its seat in the Bank Group, ten projects had been approved, two of which were in agriculture--the North China Plain Project (Credit 1261-CHA) approved in June 1982 and the Heilongjiang Land Reclamation Project (Loan/Credit 2261/1347-CHA) in April 1983. The latter project was intended to develop 200,000 ha on state farms in Northeast China for production of wheat. maize and soybeans. This-- the third agricultural project--offered the opportunity to assist the Government in expanding the production of an important industrial crop by increasing the area planted with improved high-yielding clones, and improving production efficiency on state farms in South China. Project Objectives and Description 4. The project was intended to increase the production of natural rubber by assisting the Borrower's program of new planting and replanting in Guangdong Province. An underlying objective was to improve the efficiency of China's rubber production system, which had been relatively isolated from technological developments in other rubber-producing countries. The project consisted of the following: (a) new planting of about 21,000 ha and replanting of approximately 15,000 ha on 50 state farms, including intercropping during part of the rubber's immature phase on a gross area of 9,000 ha; (b) new planting of rubber on about 4,000 ha and intercropping on a gross area of 1,000 ha on nearby communes; (c) establishment of about 12,000 ha of windbreaks on state farms and communes; (d) expansion of the equipment fleets of participating state farms through procurement of trucks, wheeled and crawler tractors, other agricultural implements, and transportation and construction equipment; (e) upgrading of sawmills on the 19 farms engaged in replanting, and construction of two integrated timber processing facilities in the project area;  -3 (f) construction of about 754,000 sq m of buildings, including housing for staff and workers o2 state farms, offices, &torage facilities, workshops, schools and health clinics; (g) construction or upgrading OL bridges and culverts, about 780 km of rural roads, about 400 km of power transmission lines and about 780 km of telephone lines; (h) strengthening domestic training programs for staff and workers of state farms and upgrading of research and training programs in prefectural research institutes; and (i) provision of overseas training and technical assistance in rubber production and processing and estate management. Project Design and Organization 5. The project concept was relatively ztraightforward and understood by all the releva.it parties--China needed to produce rubber so as not to be totally dependent on imports, and production would have to take place at latitudes well beyond those of major producers. China, in the eazly 1980s, was dependent on imports for about 50% of total domestic consumption of rubber. In 1981. the total area under rubber was about 410,000 ha, with some 75% of this on State Farms and 80% in Guangdong province. The project was prepared by the Cuangdong Provincial General Bureau of State Farms and Land Reclamation (PGB), which had a well-established organizational hierarchy at the provincial, prefectural, county and farm levels. The farms had been established and settled in the 1950s, and management and workers were in place. Even though it was the Guangdong PGB's first expe:ience witn an international lending agency, it had a decided advantage from design stage to implementation in that it was an already existing entity, with competent, experienced staff, carrying out responsibilities similar to those it had normally undertaken prior to the project. Approximately 85% of the project was located on Hainan Island, separated from Guangdong Province to form a new province in 1988, while 15% was on the Zhanjiang Peninsula of mainland Guangdong. Major Bank contributions to project design during the appraisal process were adjustments in the mix of rubber clones to be planted to bette:: match clonal characteristics with weather conditions, changes in the fertilizer program to lower nutrient costs, widen spacing of windbreaks to increase timber produccion, expanded research and trials in r'Abber and windbreak development, introduction of improved timber treatment and processing facilities, exspansion of intercropping during the rubber's immature phase, and strengthening of training programs for staff and workers. Project Implementation 6. Credit 1417/Special Fund 005 was approved on November 29, 1983, signed on January 5, 1984 and became effective on April 13, 1984. The project was expected to be implemented over a five-year period beginning in late 1983. Rubber planting was expected to take place in the period 1984-87 and the pro,ect was expected to be completed by June 30, 1989 and closed on December 31, 1989. The SAR target for planting was achieved by 1988, but  -4- implementation of the timber complexes lagged behind schedule, and the closing date was extended by one year. The estimated cost at appraisal was US$301.0 million (Y572.2 million) and the final cost was US$218.5 million (Y765.2 million2), as showni in Part III Table 5A and Annex l,Table 1. This represents a 34% over-run in Yuan and a 27% under-run in $ terms. However, between appraisal and completion of the project the Yuan was devalued from Yl.9/$ to Y5.2/$. Disbursements, projected to total US$100 m actually ran to US$108.1 equivalent. The legal agreements were amended in September 1984 to increase the disbursement rates for rubber and windbreak establishment. 7. At appraisal, the main focus of the project was establishment of rubber through replanting and new plantings. The upgrading of farm sawmills and the establishment of a timber complex to utilize old rubber trees were of secondary importance. Based on an FAQ investigation, the Bank had agreed at negotiations to the Government's request to include a second timber complex; the cost of both was expected to be about 3% of the total project cost. During the course of implementation, the Bank agreed to include in the project the expansion of a particle board plant in Zhanjiang and major upgrading of a sawmill at Xilian. With these additional works, the cost of the timber complexes absorbed almost 22% of the total project cost. It should be noted that the use of rubberwood for more than rough timber and poles was in its infancy at the time of project appraisal. The CGB early on recognized the potential benefits of developing a rubber wood industry, but the SAR was correct in identifying as a possible risk the Guangdong PGB's lack of industrial experience. 8. The other risk that was ideatified in the SAR and which materialized was the uncertainty relating to full implementation of the state farm-commune joint ventures, which was acknowledged to have limited precedents3. Examination of the history of the relationship between the state farms and adjacent villages shows that on Hainan there was a long-standing antipathy between the two groups. The state farms felt that they were opening up a wilderness area and producing a high priority commodity, while the best lands, i.e. lowlands that can be developed for rice production, were given to the villages, and the villages felt that the state farms, i.e. the "outsiders", had encroached on local grazing land, provided higher wages for their workers, and had the attention of the central government in satisfying their needs. Developrent of commune rubber was stopped in 1984, and funds designated for this purpose were used to expand the rubber area on the state farms. 9. Implementation of the main part of the project, rubber establishment, waF carried out with very good physical progress and planting targets were completed on time. During the period from 1988 to 1990, the planted rubber area was further increased from 49,289 ha to 52,354 ha. The implementation Z Toe Borrower's Part [1 gives the total cost in Yuan as 764.2 million. " The Borrower's explanation (Part 11. parm 65) is that 'dispute on the problem of land utilization between some of the state fanrm and their nearby villages in Hainan Island in the past existed, but during the implementation period, i.e. at the beginning of 1985, according to the decision of Ministry of Agriculture and Guangdong Provincial Government, villages under land dispute were merged into state farms, adu'ta of the villages became the farm members. The dispute was basically settled.'  -5- success was largely due to effective coordination and administration of the project management agencies; adequate supervision and monitoring by the PGB; effective management of individual participating state farms; adoption of the responsibility (incentive) system through the organized production brigades; and expanded state farm involvement as a result of increased participating units from 40 to 65. 10. Technical Issues: The project, although well executed, was slow to adopt all the new technologies envisaged at appraisal mainly due to the conservative style of management practiced on the farms. The diversity of Rlanted clones was less than the SAR recommendation as RRIM 600 remained the dominant choice of material planted particularly in Hainan; there was, however, greater diversity of planted clones in Zhanjiang (Annex 1, Table 3). As old ways of nursery management took time to change, the new innovations4 in young green budding and polybag usage and high stump as advanced planting materials, although acknowledged as being practical, cost-effective and reducing the immaturity period by up to two years, were not readily adopted as mainly bare root, budded stumps continue to be propagated for field planting. The windbreaks (for protection against typhoons) have been well established, but are occupying land which could be used more suitably for rubber planting. The windbreak to rubber ratio remained high, in the order of 1:3, while in some locations the ratio was estimated even higher at 1:2. To improve cost- effectiveness, increase timber value and enlarge suitable land for rubber planting, project management has been advised by the Bank to plant windbreaks at a lower density and with new tree species (Casuarina, Eucalyptus camaldulensis, E. exserta, E. erandis and E. saligna); reduce the ratio of windbreak to rubber from 1:3 to 1:4; and plant at wider spacing to increase timber value and reduce cost of establishment without sacrificing its wind protection capacity. Field operational inputs were not as cost effective as could have been achieved because labor inputs remained excessively high for all field activities; clean clearing with destumping, considered technically unnecessary, continued to be practiced; fertilizer inputs including organic fertilizer, although costly, are important for tree nutrition but the large dosages applied among participating state farms were not rational in terms of appropriate type (some state farms applied fish meal) and quantity of material. As a result, production costs were considerably higher than originally appraised. 11. Site relocation and cost saving: During implementation, planting sites were chosen in locations adjacent to existing plantation establishments with sufficient infrastructural amenities. This action resulted in substantial saving in establishment cost as the requirements for access roads, communication, power and housing were significantly reduced. In Zhanjiang, the project area was shifted further inland from the typhoon-prone south to the central and north eastern regions. 4Young green budding refers to the technique of bud-grafting seedlings under four months of age contrary to th. traditional practice of bud-grafting at one year. Polybag usage refers to placing seedlings in polybags. rather than transplanting stump buddings in polybags after initial growth in the ground. High stumps refer to transplanting direct from the nursery and grafting in the field.  -6- 12. Mechanization: Project implementation benefitted from the introduction of farm mechanization. The acquisition of trucks, tractors and crawler tractors improved the pace and quality of project development, but management did not give adequate attention to maintenance and proper record keeping of vehicle operations. During supervision, the Bank drew attention to these shortcomings and urged project management to administer a properly organized system for equipment maintenance on a regular basis to ensure efficient utilization of machinery and reduce down-time. Regular maintenance programs are gradually being adopted on the participating state farms. 13. Research component: The research programs carried out by the South China Tropical Crop Research Institute, Baoting Tropical Research Institute, and Weishan Rubber Research Institute were not up to SAR expectations; design and implementation of research programs were constrained by requirements for research institutes to generate income. There does not appear to have been coordination of the research efforts and field trials carried out on the state farms, resulting in frequent repetition. Dissemination of results and adoption by farm management in their planting and maintenance programs were slow, reflecting aversion to risk. To strengthen research activity and collaboration among state farms, there is a need to give greater attention to (a) formulation of research objectives and priorities and (b) better understanding of current achievements and current problems in order to promote meaningful research in progeny and clone testing, intercropping, windbreak development (in collaboration with the Provincial Forestry Department), pruning, fertilizer rates and application (including organic fertilizer usage), planting density and pattern, tapping system and management justification for predawn tappings, use of stimulants, and pest and disease management. 14. Sawmills and Timber complexes: During the early years, implementation lagged to the point where the Bank seriously questioned the viability of this component. Logyard management at the farm sawmills was disorderly, control of blue stain was unsuccessful because of early infestation after felling, output at the timber complexes was characterized by low-quality of products, poor furniture design and lack of sales. Delays in accepting equipment and startup of the major complexes were jeopardizing financial and economic viability. As a condition for extension of the closing date, the Guangdong PGB agreed to engage consultants to provide technical assistance in preservation and drying, sawmilling and lumber yard management, particle board technology and production, paper impregnation and overlay technology, and furniture design and mass production techniques. Between October 1990 and June 1991, significant improvements were made in quality of management and production, as reflected by increasing domestic and export sales. The PCR mission made the following recommendations: (a) further training and/or consultants should be arranged for sawmilling and sawdoctoring, panel furniture production, and establishment of a Ceographical Information System/Management Information System (GIS/MIS), and if the sawyer and saw-doctor skills cannot be improved, the PGBs should look for buyers in order to recoup at least part of the cost of the equipment; and (b) the timber complexes would benefit from further exposure to international markets through participation in furniture fairs and exhibitions.  15. Technical Assistance: The technical assistance component included degree programs, short courses and study tours, and visits by foreign experts. The project did not unduly suffer from the general reluctance to use foreign exchange for TA, as noted in some other Bank-assisted projects; in total, 82% of the person months were utilized, albeit at only 49% of the expected cost. In addition, technical expertise was provided by an exceptionally talented rubber production specialist at no cost to the project other than his local expenses. 16. Procurement: The procurement actions followed Bank guidelines. The scheduling of procurement of some sawmill and timber complex equipment was not coordinated with building construction, and er 'ment had to be stored for months in temporary shelters. There were nr drx is repercussions from this, as suppliers agreed to extend their guarar_ee periods. In several cases, retention money was released before all operational difficulties were resolved; this left the buyer in a precarious position to negotiate for additional visits by the sellers' technical staff. Start-up delays might have been avoided, or at least diminished, by allowing equipment sellers more time for installation and training. 17. Progress ReDorts and Audits: Progress and audit reports were always submitted to the Bank at the required times. An interesting aspect of the audit reports, performed by the Guangdong Provincial Audit Bureau, has been a "Note to Management", which was along the lines of an internal management audit, calling attention to details of project implementation which would certainly not have been obvious to Bank supervision missions. Examples include materials unaccounted for in construction, survival rates of trees being less than the expected amount on certain state farms, etc. This information was useful to subsequent supervision missions in following up. Project Results 18. Targets and OLalitv: The project successfully completed or surpassed the SAR targets (Annex 1, Table 2). Principally, it achieved the planting of 53,254 ha of rubber and 16,061 ha of protective windbreak, exceeding the planned targets by 31% and 34%, respectively. Priority was given to new planting with 34,639 ha completed--exceeding the SAR target of 25,000 ha by 38%. Replanted area totalled 17,715 ha exceeding the SAR target by 18%. Altogether 65 state farms participated in the project, instead of 40 as envisaged at appraisal. The quality of the planting achieved was excellent due largely to (a) planting of quality materials derived from sound nursery management; (b) good field preparation and establishment, including adequate maintenance in weed control, nutrition, application of organic manure and green mulching; (c) appropriate practices in water and soil conservation including establishment of legume covers to improve soil fertility and mitigate soil erosion; and (d) effective pest and disease management and prevention of damage by domestic animals. 19. Rubber Yield: The PCR yield projections (Annex 1, Tables 4 - 6) differ from the SAR estimates: in Hainan, the projected yield is 12% less, due to 80% monoclonal planting with RRIM 600 and potential adverse effect of strong winds, but the projection in Zhanjiang is increased 5%, in consideration of  -8- the positive impact of multi-clonal planting and relocation of plantings to less typhoon prone sites. Average yield over the 27-year tapping period is projected to be 1,159 kg/ha in Hainan and 1,174 kg/ha in Zhanjiang. Based on these revised yield trends, the project's rubber output will increase substantially from 1994, peaking at more than 80,000 t/annum from 2002 to 2007 (Annex 1, Table 7). No processing problems are anticipated as there is ample capacity to pLacess the additional rubber crop among the state farms. 20. During project implementation, a few sites were planted with materials obtained with nursery techniques recommended in the SAR--green budding in polybags and high budded stumps. These plantings were well established and attained good girth increments that would allow tapping to start one to two years earlier than plantings with bare root budded stumps. This advantasge is reflected in the output projections detailed in Annex 1, Table 7. During the tapping period (1991-2018), the project will represent about 20% of total Chinese natural rubber production. Apart from the advantage of early maturity, the cumulative yields are expected to exceed conventional plantings by more than 7%. The impressive results of these small-scale field plantings are expected to have a positive impact on future rubber development programs. 21. Financial and Economic Analysis: The overall economic rate of return of the project is estimated at 16%, compared to 17% at appraisal. At completion, FRR's and ERR's were reestimated for the rubber planting and replanting subcomponents and FRR's were calculated for the timber complexes (Part III, Table 6). ERR's for the establishment of rubber plantations were about 15% for new plantings and 20-21% for replantings; phe more favorable results for the latter are mainly attributable to the high economic value of the old rubberlogs. Despite comparatively low (constant 1990) rubber prices, the overall performance of the rubber component is very satisfactory, due interalia to adoption of profitable intercropping and the high value of the timber harvested from windbreak plantings. FRR's were in the range of 14-15% for new plantings and 16-17% for replantings. Financial labor costs were chosen conservatively at Y6/day to account for all social and welfare components. The economic cost of labor was estimated at Y3.25/day (compared to YO.5 at appraisal). Two of the timber complexes showed acceptable FRR's of 11% and 14%, while Sanya Timber Complex still performs below expectations with a FRR estimated at 3.4%. However, with the exception of Sanya Timber Complex, which has had a lengthy start-up period and where further improvements are likely to be implemented within the next few years, all components show healthy financial flows. Switching values (reduction of rate of return to 12%) in the rubber component are an increase of financial labor costs of 42% (economic labor cost 74%) or a decrease of the financial rubber price of 29% (economic rubber price 46%), indicating a low risk project. Project Benefits and Sustainability 22. The project generated considerable benefits as a result of productive tree plantings, institution building, technology transfer and social-economic inputs. Highlights are: (a) the planting of 52,354 ha of rubber and 16,061 ha of windbreaks increased rubber, timber and cash crop production as shown in Part  -9- III Table 8 and created 62,800 new jobs, 40% of which are held by women; (b) the impressive achievements and success of the rubber development project have strengthened the confidence of international lending agencies in the PGB's capacity to undertake complex projects; (c) the organizational features - project preparation, implementation process and management methods - have been successfully proven under project implementation conditions--these could be adapted for the design of other projects; (d) the participating state farms gained considerable field experience during project implementation and increased their technical knowledge from interaction with technical specialists from the Bank's support program to enable them to further improve managerial competence; (e) the project's inputs in housing, roads, schools, clinics, telecommunication, water and electricity supply have markedly improved the working and social environment of the farm workers. 23. To further improve benefits, project management has been advised to focus on uRgrading of field research in clone testing, pruning, tree nutrition, tapping systems, and pest and disease management. ImRroving cultural _ractices would allow for better aeration and air movement in the very humid atmosphere under the dense canopy to mitigate potential disease infections on tapping panels, branches and foliage that could restrict tree growth and reduce rubber yield. Yields could be optimized on a sustained basis by enforcement of an aRproDriate taRDing policy to be formulated by a team of experienced managers. Improved management of farm equipment maintenance and inventory recording could sustain operational efficiency and reduce costs and delays as a result of down-time. 24. Two significant factors will have bearing on reaching the projected yields: a) provision of adeauate budgets to sustain normal immature phase development until all the plantings reach maturity in 1993/94 and b) maintenance of the same high management standards after 1990, as provided during project implementation from 1984 to 1990. The project is not without risks. If maintenance slips, either due to lack of budget or for any other reason, ultimate yields would be affected. Other possible risks that could affect the sustainability of the projected benefits are: (a) overdeRendence on RRIM 600 (which presents some uncertainty due to its inherent susceptibility to Pink Disease, Phytophthora, corynespora leaf fall, its poor response to wounding, its weak development under very high density planting, and possible Oidium infections due to sustained high humidity) could reduce the high-yield potential expected of this clone; and (b) tree damage or canopy defoliation caused by seasonal tvohoon and strong winds could reduce the number of tappable trees and constrain latex production; production estimates have already been reduced about 15% to take account of these risks.  - 10 25. Environmental ImRact: The project had a positive impact on the environment. Utilization of appropriate planting techniques--terracing, planting legume cover crop, adequate fertilizer input, organic manure application and green mulching--improved soil tilth and sustained fertility, conserved soil moisture and controlled soil erosion. The establishment of windbreaks permitted rubber planting in a typhoon-prone environment and provided timber and fuelwood, thus reducing the depletion of natural forests. During supervision, particular attention was given to ensure proper treatment of rubber effluents at state farm processing factories. Bank Performance 26. During the period when the project was under review, Bank management raised numerous doubts about the appropriateness of Bank involvement with state farms and rubber development in China. Responses included the fact that the state farm management was one of the first agencies to propose projects to the Bank, they were recognized as having a key role in introducing new technologies into agriculture and having responsibility for generating marketable surpluses of high priority commodities, and they had proven their willingness to work with the Bank in adopting technical improvements and making managerial improvements. Assistance with rubber development was considered to be one of the best oppertunities to assist China in development of a crop which had been neglected in the past and where the Bank had considerable experience and access to a wide range of international expertise and technology. Bank management also had some concern about domestic rubber prices which were above world market prices and at negotiations, "it was agreed that the Government would, over the next two years, examine those factors which affect production with a view to encouraging efficient production." While this did not result in a formal study, producer prices were not increased during the project implementation period and with each devaluation of the Yuan, the domestic price came closer to the world market price. In retrospect, the Bank's decision to proceed with the project appears to be correct. 27. It was expected in 1983 that the Bank's lending program would increasingly support agriculture outside of the state farms; this has proven to be the case. The Bank declined the Government's request for a follow-up rubber project in Yunnan Province, in view of the higher priorities attached to other projects in China's agricultural sector. However, subsequently, about $115.0 million of the Third Rural Credit Project (Cr 1871-CHA) was earmarked for tree crops, mostly rubber, in Yunnan, with a significant portion on state farms5. The Bank has continued to deploy technical specialists for supervision of that component. It remains to be seen whether subsector development can be accomplished more effectively through credit lending or, alternatively, through direct project lending, with its associated infrastructural components such as technical assistance and upgrading of management. 6 The November 1991 Supervision mission reported that total investment for rubber planting/replanting to date was Y24.4 million or about USSO million and that progress in implamentation was satisfactory.  - 11 28. In addition to refinements in project design, the Bank and the FAO/CP made considerable inputs into the project during implementation by writing technical specifications and preparing bid documents for equipment and providing the first consultants to advise on rubber establishment. EDI also contributed to the success of the project by their relationship with the PGB's Cadre Management Colleg?; EDI assisted in preparation of a case study of the project which served as the basic document for in-service training on administration and economic management for staff in eight southern provinces. The main weakness of the Bank performance might be considered to be the late intervention in improving the highly industrialized wood processing component, which eventually absorbed about 25% of the total investment instead of about 5% as projected in the SAR. However, in the event, it was the Bank that noted the poor technical and management performance of the complexes, ralzed the problems and associated solutions (including recruitment of foreign wood processing management consultants) to project, bureau, Ministry of Agriculture, and central government levels (through both supervision and country implementation reviews), eventually resulting in an impressive turnaround in performance. Borrower Performance 29. Guangdong PGB played the leading role in preparing the project and in project implementation. In 1988, Hainan Island became a separate province and its two prefectural level bureaus serving Tongzha and Haikou were merged into one provincial bureau for the whole island. While it was agreed that the Guangdong PCB would retain responsibility for project implementation, its authority was somewhat eroded as the previously lower level organization gained status as an equal. This did not present a problem for successful implementation, h-owever, because the CGB stepped up its role as overseer for the whole project, and the Hainan PGB proved that they could adapt to their additional responsibilities. The success of the project is in large measure due to the strengths of the Guangdong and Hainan PGBs. The project happened to coincide with a period of profound reforms in Chinese agriculture. The PGBs managed to introduce the new incentives for individual performance, and, at the same time, retain the corporate strengths of the state farm system. Conclusions: Summary and Lessons Learned 30. The project has successfully completed the major specific goals identified at appraisal. The planting of productive trees will provide an additional 58,800 tons of rubber a year to China's rising demand for this strategic commodity, expand Aimber and fuelwood availability and increase the supply of a variety of cash crops as a result of intercropping. The technical program has helped strengthen the PGBs and state farms to become more effective in their administrative and agronomic practices. In addition, the project made positive contributions to enhance the social and economic development of farm workers and improve their incomes. The impact on the environment is positive as the project promotes economic land use, controls soil erosion and ameliorates soil fertility. The project has achieved a satisfactory rate of return and has been successful in creating 62,800 new jobs, 40% of which are or will be held by women. The successful completion of the project demonstrates positively that the PGB has the managerial capacity  - 12 - to undertake complex projec;s and the aptitude to work as a team with international aid organizations. There is potential to enhance rubber yields by adapting new nursery production techniques, increasing the availability of high yielding clones with desirable growth characteristics, improving the protective effectiveness of windbreaks; and strengthening tapping management with a well defined tapping policy. 31. Key lessons learned as a result of the project are: (a) for a tree crop project with a long gestation period (about 8 years), the implementing agency should (i) insure the availability of adequate financing to sustain maintenance and fertilizer inputs until the plantings reach maturity; and (ii) plan in advance the phasing of interrelated components in detail to avoid interruptions and delays in project completion; (b) research funded by a project should be coordinated by the project management entity and experimental designs reviewed by a competent body to insure that research is focussed and to avoid needless repetition; (c) when innovations, e.g. new clones, new nursery practices, are expected to have a major impact on project resu'Lts, supervision missions will have to focus on this aspect in addition to general implementation progress and the Bank, if it is absolutely positive of its recommendations, may need to use its leverage to insure that these recommendations are adopted; (d) proper equipment maintenance might be assured through building in maintenance requirements in the contractual arrangements between the project entity and the end-users; (e) when procuring advanced technology equipment, ample time should be allowed for installation and training of operators; cost savings attained through minimizing time spent by the seller's representatives are negated by delays incurred as a result of technical problems in equipment operation; (f) linking the provision of technical assistance and coordination of study tours through having one supplier ?rovide both services was shown to be an effective method of technology transfer and provided a focus for overseas visits (para 34); and (g) both financial and economic analysis indicate that replanting is more viab:.e that new planting, mainly on account of the added benefit of old rubberwood. 32. It is interesting to compare several aspects of rubber production-- yields, planting density and labor requirements--in this project with that of a major producer, e.g. Malaysia. Yields in the project are expected to be lower, averaging about 1.16 t/ha (calculated on a 27 yr tapping period), compared to present estate production in Malaysia of about 1.5 t/ha. In the future, this difference may widen as new Malaysian clones, which have field- tested yields of 1.8 - 2.0 t/ha, come into bearing. The Chinese have adopted a planting density of 600 trees/ha, compared to 460 trees/ha in Malaysia, to help compensate for the lower yield/tree and for the expected wind damage from  - 13 - typhoons. Besides clonal material, the other major factor in yields is the number of tapping days; in the project area, tapping takes place for eight to nine months each year; no tapping is done when temperatures reach lower than 150 C. (even though it has been shown in Bangladesh that tapping can continue down to 10