China - Songliao Plain Agricultural Development Project

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT STAFF APPRAISAL REPORT China: Songliao Plain Agricultural Development Project June 16, 1994 The above-captioned Staff Appraisal Report for China: Songliao Plain Agricultural Development Project is a revised version of the report prepared following the approval of the Project by the Executive Directors of the Bank and does not include information deemed confidential by the Government of the People's Republic of China.  I  Document of The World Bank FOR OFFICIAL USE ONLY /3 77P-CAII- F, ~~~11`7?5= CHA STAFIF APPRAISAL REPORT CHINA SONGLIAO PLAIN AGRICULTURAL DEVELOPMENT PROJECT February 1, 1994 IN ACCORDANCE WTH THE WORLD BAK'S POUCY D. OISCLOSURE OF INFORMATION TH16 DOIC_WEHT IS AVAILABLE TO THE PUBL. Agriculture Operations Division / 7 China and Mongolia Department East Aia and Pacific Regional Office eY  CURRENCY EQUIVALENTS I/ (January 1, 1994) Currency Unit - Yuan (Y) $1.00 = Y 8.7 Y 1.00 - $0.115 FISCAL YEAR January 1 - December 31 WIGHTS AND MEASURE I meter (m) 3.28 feet (ft) 1 cubic meter (m3) = 35.31 cubic feet I millimeter (mm) = 0.04 inch 1 kilometer (kIn) = 0.62 miles 1 square kdlometer (kmi2) = 100 hectares 1 hectare (ha) 15 mu I ton (t) 1,000 kg = 2,205 pounds 1 kilogram (kg) = 2.2 pounds 1 kilovolt OMV) = 1,000 volts I ldlowatt (W) = 1,000 watts 1/ This proect W appraisd m lune/uly 1993 whm the excane ate was $1 - Y 5.7. AUl costs and finncing hve bee raculaed gt the ate of $1 - Y 8.7, effective Januay 1, 1994. Economic and A finncial lysis baed on origal pprisal parmiete. he devaluaton would imrove economic ad finaal ruts to some extnL,  FOR OFFICLAL USE ONLY ABBREVIATIONS AND ACRONYMS ABC - Agricultural Bank of China AI - Ardficial Insemination BOD - Biochemical Oxygen Demand BOF - Bureau of Finance CATEC - County Agrotechnical Extension Center CIS - Commonwealth of Independent States DCA - Development Credit Agreement ERR - Economic Rate of Return FAO/CP - Food and Agriculturl Organization/Cooperative Program FRR - Financial Rate of Return GDP - Gross Domestic Product GOC - Government of China GVAO - Gross Value of Agricultural Output ICB - Internaitonal Competitive Bidding DA - International Development Association IPM - Integrated Pest Management ITC - International Tendering Company LCB - Local Competitive Bidding LN - Liquid Nitrogen MOF - Ministry of Finance NCPG - North China Power Grid NECN - Northeast China Network O&M - Operation and Maintenance PCBC - People's Construction Bank of China PEPB - Provincial Environmental Protection Bureau PLG - Project Leading Group PMO - Project Management Office PO - Project Office PPMO - Provincial Project Management Office ppm - Parts per Million SMC - Supply and Marketing Cooperatives SOE - Statement of Expenditure TATES - Township Agrotechnical Extension Station WCB - Water Consevancy Bureau This document has a restricted distribution and may be used by recipients only in the performance or their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   CBINA SONGLIAO PLAIN AGRICULTURAL DEVELOPMENT PROJECT Credit and Project Summary Borrower: People's Republic of China Beneficiaries: Liaoning and Jilin Provinces Amount: SDR 148.5 million ($205 million equivalent) Terms: Standard, with 35 years' maturity Objectives and Description: The major objective of the project is to increase agricultural production, farm-family incomes, rural employment and women's participation by increasing the productivity and marketability of crop, fruit, livestock and aquatic products. The project would increase hectaae of productive lands by (a) expanding irrigation and drainage ficilities; (b) developing unutilized wastelands, including introduction of soil and water conservation; and (c) developing intertidal areas for aquaculture production. It would also diversify crop production from com to rice and wheat, and invest in livestock production and agroprocessig activities to make use of surplus corn and other by-products. Benefits and Risks: The project would directly increase incomes, employment and living standards of some 518,000 farm families. At full development, the project would generate incremental annual production of 177,000 tons of grains (paddy, wheat and soyabeans) valued at $30.5 million (after adjusting for associated reduction in corn); 187,600 tons of fruits valued at $56.1 million; beef, mutton, rabbit and goose meat, and deer antlers together, including the value of processing, valued at $37.5 million; shrimp, shellfish and crabs products valued at $24 million; and the value added of $40.2 million per year from agroprocessing plants. The project's incremental annual value of production would be $188.3 million. The average farm income would be tripled or quadrupled. The economic rate of return for the total project is estimated at 32 percent. Significant employment, including for women, would be created by all components. There are few risks, which have been satisfactorily minimized.  Estimated Cost: Loa Eoreign IQ1I (S million) Irfigation and drainage 16.9 12.5 29.4 Field crop development 4.7 16.8 21.5 Orchard development 17.9 12.4 30.3 Soil and water conservation 2.7 1.3 4.0 Livestock development 39.3 19.9 59.2 Livestock processing 15.9 16.2 32.1 Agroprocessing 37.0 69.5 106.5 Aquaculture development 11.5 8.9 20.4 Project management 1.7 3.6 5.3 Base Costs La 147 6 IAL 308 7 Physical contingencies 7.3 14.2 21.5 Price contingencies 40.6 11.5 52.1 Total Proect Costs l9 S 18 81, Pbm: MA 18.2 186.8 205.0 Provincial, prefecture, municipal and county governments 62.6 0.0 62.6 Commercial banks 57.8 0.0 57.8 Enterpriss and farmers 56.9 0.0 56.9 Toul 1295 16 382. Estimated Disbusements: BRD/IDA FY 1995 1996 19972k 29 2Q1 ($million) Annual 30 42 41 41 24 19 8 Cumulative 30 72 113 154 178 197 205 Poverty Category: Not applicable Economic Rate of Return: Crops 42 percent, Orchards 47 percnt, Livestock 27 percent, Aquaculture 26 percent, Agroindustry 23 percent, Livestock procsing 27 percent, Overall Weighted Project 32 percent. La Project is exempt from taxes and duties.  CONTENTS 1 Badckound .................................... 1 A. Introduction ................................... 1 B. Agricultural Seo ............................... 1 C. Livestock Subsector .............................. 2 D. Fisheries Subsector .. 3 E. Sectoml Objectives and BaI Lending. 4 F. Agriculture in Liaoning and Jilin Provinces ................ 5 G. Rural Incomes and Poverty ........................ . 7 H. Project Formulation and Rationale ..................... 8 2 The Project Areas .. 9 A. Loction ........................... 9 B. Climate, Topography and Soils ....................... 9 C. Water Resources ................................ 10 D. Water Avaiability and Water Balance ................... 11 E. Population, Farm Size and Land Use ................... 12 F. Preset Development ............................. 12 G. Infrastucture .. 15 H. Design Considerations ............ .. .............. 16 I. Women in Agriculturl Development .................... 16 3 TheProject ..................................... 17 A. Project Objectives .............. .. ............... 17 B. Project Description .............................. 17 C. Detailed Features ............................... 18 D. Status of Preparation ....... ........ .............. 36 E. Implementation Schedule ........................... 36 F. Cost Estimates ................................. 37 This report is based on the findings of an appraisal mission in June/July 1993. Members of the mission team included R. Jaisaard (Mission Leader), W. P. Ting, U. El-Hanbali, C. De Haan, M. Sharma (IDA), D. Gue, A. Kaelin and G. Franzen (Consultants). Another involved in the preappraisal was Mr. A. Nell. Peer reviewers comprised Messrs. De Haan (AGRTN), Pritchard (SA2AG), Ochs (AGRNR), Chobanian, Zweig (ASTEN). The Division Chief is Joseph Goldberg and the acting Department Director is Zafer Ecevit.  - iv - G. Financing .................................... 37 H. Procurement .................................. 38 I. Disbursement ................. ................. 40 J. Accounts and Audits ...... ......... .............. 41 K. Environmental Impacts ............ .. .............. 42 4 Organization and Management ........................ 44 A. Project Organization ..............................44 B. management ..................................45 C. Environmental Monitoring and Management ...............45 D. Financial Management ............................46 E. Management of Production Activities ...................47 F. Operation and Maintenance .........................48 G. Project Launch Workshop ..48 H. Monitoring, Evaluation and R.or.ing...........48 5 Production, Markets and Prices ........................50 A. Production ................... ................. 50 B. Markets ..................................... 52 C. Prices ...................................... 54 6 Benefits, Justification and Risks ....................... 55 A. Benefits ..................................... 55 B. Employment and Incomes ................ 55 C. Employment Opportunities for Women ....... .. ......... 56 D. Cost Recovery ................................. 56 E. Financia and Economic Analyses ..................... 57 F. Risks ....................................... 58 7 Agreements and Recommendations. 59 TAmLS IN TE:x 3.1 Project Cost Summary .37 3.2 Procurement Profile .39  Asm 1. Basic Provincial and Project Area Statistics ................ 62 Water Supply and Demand Basic Data for Each Component Research and Training Programs 2. Project Cost Summary ............................ 85 Summary Accounts Cost Summary Summary Accounts by Project Component Project Component by Year Procurement of Machinery, Equipment and Material Estimated Disbursement Schedule 3. Cropped Areas, Yield and Production ................... 99 Crop Budgets Farm Models Livestock Agroindustries Livestock Processing Rent and Cost Recovery Main Conversion Factors Used Border Prices for Principal Products and Inputs Financial Analysis Economic Analysis Key Monitoring Indicators 4. Supeision Plan .132 5. Selected Documents and Data Available in the Project Files 133 CHART 1. Organization .................................. 136 2. Supply and Demand .............................. 137 3. Implementation Schedule ........................... 139 4. Procurement Schedule ............................. 144 IFIGURES 1. Cropping Calendar of Main Annual Crops ................ 147 MB24 IBRD 24858 IBRD 24859   1. BACKGROUND A. INIRODUCIION 1.1 The Government of China (GOC) has requested International Development Association (IDA) assistance in financing an integrated agricultural development project in Liaoning and finm Provinces. The project would cover 40 counties of 13 prefectures and municipalities. The main objectives of the project would be to increase agricultural production, farmers' incomes and rual employment. The proposed project emphasizes the effective use of existing resources to increase agricultural production and processing in response to market demands. The project would increase the hectaage of productive lands by (a) expanding irrigation and drainage facilities, (b) developing unutilized wastelands, and (c) developing intertidal areas for aquaculture production. in the course of developing hilly wasteland, programs of soil and water conservation are introduced. The project would also diversify crop production away from com to rice and wheat and would invest in livestock production and agroprocessing activities to make use of surplus corn and by-products. It would include components where women are the primary beneficiaries. The project was identified by a World Bank mission in November 1991 and prepared by United Nations Food and Agricultural Organization/Cooperative Program (FAO/CP) missions in June and November 1992. The preappraisal and appraisal missions visited the project areas in March/April and June/July 1993, respectively. B. AGCULTnuRAL SEcIOR 1.2 Agriculture in China-including crops, livestock, forestry and fisheries- provides sustenance for about 1.2 billion people; it is an important source of income for some 200 million farm families and accounts for about 30 percent of the country's gross domestic product (GDP). Only about 137 million hecures (ha) of China's land area of 960 million ha are arable. Farming systems are therefore intensive, with heavy inputs of labor, fertilizer, small machinery and water. Nearly half of the cropped area is irrigated. Foodgrains occupy about 70 percent of total cropland and account for about one third of the value of agricultural output. Intensive farming has enabled China to meet the basic food requirements of its population, about 22 percent of the world's total, with less than 11 percent of the world's arable land, and to produce an increasingly sophisticated mix of cash and commercial crops. 1.3 China's sustained rural reform program has revitalized the agricultural sector and provided impressive growth and structural change through the introduction of the production responsibility system, increased producer prices and an enlarged role for market forces. The gross value of agricultural output (GVAO) increased by 83 pecent in real terms during the 1978-91 period (6 percent per year), substntially faster than during the  -2 - previous 25-year period (3 percent per year). While significant growth in grain production was achieved in the early part of the period (eaking at 407 millon tons in 1984), stagnating grain production was the Government's central agricultural concern during the late 1980s, with production ranging between 379-402 million tons during the 1985-88 period as farmers substituted other crops for grain. Major efforts were made to increase grain production and recently production appears to have risen to a new plateau, with 446, 435 and 440 million tons in 1990-92, respectively. 1.4 The Government's strategy to increase grain production included diverse measures, such as increasing state investment in agriculture, mainly in irrigation rehabilitation and expanson, and introducing fundamental reforms in grain procurement, distribution, prices and subsidies. These reforms fixed provincial grain procurement quotas at substantially reduced levels, with steadily increasing market-based negotiated prices; increased grain quota procurement prices, so that wheat and corn farm-gate prices now approach world levels; converted most the pricing of official interprovincial grain shipments from quota to negotiated prices; and in 1991 and 1992, for the first time in 30 years, substantially increased urban ration grain and edible oil prices in real terms (132 percent to 160 percent). Recent years have also seen the establishment of fledgling grain commodity exchanges for all major grains in various Chinese cities (e.g., Zhengzhou, Changchun, Wuhan, Harbin, and Changsha). 1.5 In the context of the preparation of the Bank Group-financed Grain Distribution and Marketing Project (Credit 2518/Loan 3624-CHA), the reform program to date, involving the steady elimination of grain consumption subsidies, the substantial reduction of grain procurement quotas, the opening of the internal grain trade to all interested units and individuals, the commecializtion of grain wholesaling and retailing enterprises, and the establishment of a futures market in grain, all aim eventually at market-determined pricing of virtually all grain in China. These changes have altered the grain balance from shortage to surplus in several regions of the country, including the proposed project area in respect of com, and this has determined the design of the proposed project. C. LFso SuBscOR 1.6 The livestock subsector in China has grown rapidly since the reforms of 1978 and its share of agricultural GNP has increased from 14 percent in 1980 to 26 percent in 1991. This change reflects the incentives provided by liberalized livestock production and marketing regulation inherent in the rural reforms and specific government incentive policies. From 1988 to 1991, production of beef, mutton and poultry increased annually by approximately an average of 13 percent and that of pork by 6 percent. Similar average annual increments occurred with eggs (9 percent) and milk (7 percent). Beef production expanded due to a rising offtame rate and expanding export markets. The inr in sheep production was due to pasture improvement and increased cropflivestock integration in traditional cropping zones. Poultry production increased rapidly due to strong domestic demand and the development of export markets.  -3- 1.7 China's per capita meat consumption increased from 9 kilograms (kg) in 1978 to 21 kg in 1991. The major meat consumed is pork (17 kg per capita in 1991). Consumption of beef, mutton and poultry is still under 2 kg per capita. This level of meat consumption is still among the lowest in the world. Per-capita milk consumption of only 4 kg is also extremely low, although it is much higher in the larger cities. While low, this domestic demand for livestock products is increasing rapidly along with disposable incomes. Consumption patterns for livestock products are also changing in favor of leaner meat and dairy products, especially in urban areas. Wool consumption has also increased substantially, and China is now a major importer of raw wool. D. FsHRES SuBsEcroR 1.8 China has a mainland coastline of around 18,000 kilometers (kIn), and its many islands provide an additional 12,000 to 14,000 km. Geographically, there are four principal marine production areas, namely the South China Sea, the East China Sea, the Yellow Sea and the Bo Sea. The continental shelf down to 200 meters is around 1.5 million kIa2, and the inshore areas and mudflats suitable for coastal aquaculture are estimated to cover 1.3 million ha, of which 300,000 ha are currently used for commercial production. China's marine catch is harvested by trawling and seining in coastal waters generally down to 80 meters, and these areas are currently overexploited. Consequently, China has increased its efforts to develop a distant-water fisheries, through joint ventures and expanding its wholly owned fleet. In recent years, rapid expansion in cultured marine species has taken place, involving new propagation technology. Shrimp (mostly Peneaus orientalis), scallops, abalone, hard clams, short-neck clams, sea cucumbers and mussels are the predominant species cultured. Inland water surfaces in China cover approximately 17 million ha, composed of rivers (50 percent), natural lakes (30 percent), reservoirs (12 percent) and ponds (8 percent). It is estimated that around 5 million ha are suitable for aquaculture. Another 10 million ha of irrigated paddy fields, where aquaculture could also be practiced, are also available. 1.9 The fisheries subsector, including culture and capture production from both the marine and freshwater sources, accounts for some 6 percent of GVAO. Total fish production in China in 1991 is estimated at 13.5 million tons, of which culture fisheries accounted for just over 6.5 million tons (1.9 million tons from mariculture and 4.6 million tons from freshwater aquaculture). Between 1980 and 1991, national fish production increased at an average annual rate of 10.6 percent. This increase was mainly due to the rapid growth of marine and freshwater culture, which in turn was the result of implementing a revised fisheries development policy, characterized by liberalizing the market for fish, encouraging the development of aquaculture, and conserving offshore marine fish resources. China is now the largest producer of freshwater cultured fish and shrimp, the latter accounting for 35 percent of the world production. China is also the largest producer in the world of fish and other seafood at 13.5 million tons in 1991. This total grew 1.1 million tons in one year from 12.3 million tons in 1990.  -4 - E. SECRAL OBjEcnWE AND BANK LENING 1.10 The Government's long-term objectives for the agricultural sector are to increase production to meet the requirements created by population and income growth and to increase income and employment in rural areas. Given China's shortage of arable land (0.1 ha per capita), development planners have focused on the need to increase the productivity of presently cropped areas and to efficiently develop the few remaining areas of unutilized land. Per capita production and total value-added in the crop subsector are to be raised primarily by increasing the yield and quality of food, feed, orchard, and industrial crops and also by increasing the volume of agroprocessing. 1.11 The Government's objectives for livestock and aquaculture development are to increase production for domestic consumption (and thereby improve nutrition), increase exports and earn foreign exchange, and provide an additional source of income for the rural population. High-value livestock products (meat and exotic products) and aquatic products (shrimp, scallop, and shellfish) are being targeted for export markets. The livestock development strategy emphasizes the introduction of superior breeding stock, better-quality feed, industrial (stall-fed) management systems, pasture improvement, additional processing plants, and improved veterinary and breeding services. The aquatic development strategy emphasizes establishment of aquaculture systems on land unsuitable for crop cultivation, such as freshwater culture in swamps, floodplains, marshes and poorly drained land and marine culture in coastal lowlands, shoals and mudflats. 1.12 Bank Group agriculturl lending to date has comprised 33 operations amounting to $4.4 billion and has covered a wide spectrum of geographic areas and subsectors, with overall foci on land development, irrigation and drinage, and flood control (seven projects), upgrading of agricultural support services including agriculturl research, education, credit and seed improvement (eight projects), development of specialized subsectors including rubber, forestry, fruit and fisheries (nine projects), and area development (seven projects). It is designed to support the Government's efforts to increase and diversify agricultural production through more efficient use of land, water, capital and labor resources and through the improvement of support services such as credit, research and agricultural education. Since 1987, the Bank Group has suppted a series of provincial development projects in which an area development approach has been applied. The projects were designed for poverty alleviation and also to assist the Government in its ongoing reform process. The Rural Sector Adjustment Loan (Credit 1932-CHA/Loan 2967-CHA), which was approved during 1988, contributed to the articulation of the overall reform process, and involved the Bank Group in increasingly intensive policy dialogue with government counterparts in the agricultural, marketing and poverty alleviation areas, sustained through several major sector studies (e.g., on grain, poverty alleviation, animal feed, and management of the Yellow River) and project formulation exercises. 1.13 Implementation of most ongoing Bank Group-financed projects in the agriculture sector is on schedule. Experience in previous Bank agricultural projects in China is that physical works have been completed on time or ahead of schedule.  -5- Disbursements for agricultural projects, in fact, usually outpace those in other sectors. Notable features of all the projects are the high standard of project management, the active participation of farmers and the effective collaboration of government authorities at all levels. Twelve projects have been completed: North China Plain, Heilongjiang Land Reclaation, First and Second Rural Credit Projects, Seeds, Rubber Development, Second Agricultural Research, Red Soils, Rural Sector Adjustment, Pishihang, Freshwater Fisheries and Forestry. The completion reports for these projects indicate that implementation was successful, that economic rates of return reached or exceeded appraisal estimates, and that the technology used for land development and drainage was sound and appropriate for wider application. 1.14 Completed projects similar to the one proposed have indicated the most effective approaches to corrting waterlogging and salinity problems as well as the organizational and management requirements of integrated rural development opeations. In light of the lessens learned, the design of this project incorporates the following features: (a) use of proven irnigation and drainage technologies to correct waterlogging and soil salinity; (b) carefully balanced, joint use of surface and groundwater and alfalfa planting for salinity control; (c) rational water resource management and effective operation and maintenance of facilities to ensure susuinability; (d) supply of sufficient inputs to maintain the agricultural productivity of reclaimed areas; (e) provision of technical experts to assist in the design and management of agroprocessing facilities; and (f) effective coordination of organization units at all levels. 1.15 The World Bank has already been involved in the Liaoning and Jilin agricultural sectors through three sectoral projects-Seeds Project, Fourth Rural Credit Project and the Agricultural Support Services Project. The Seeds Project was aimed at strengthening production, processing, storage and distribution of certified seeds. The Fourth Rural Credit Project finances investments by farmers, collectives and enterprises in crops, livestock, fisheries and agroprocessing; and promotes efficiency of rural financial intermediation through introduction of sound, market-oriented policies and development of the main institutions concerned with rural savings mobilization and lending, mainly the Agricultural Bank of China. Similarly, the Agricultural Support Services Project aims at strengthening support services in several provinces including Jiln and Liaoning. F. AGRCuluRE IN ONING A JiN PROVINCES Liaong 1.16 Liaoning is located in the southern part of northeast China (Map IBRD 24858), covering an area of 146,000 kam2 with 39 million population. Agriculture contributes 12 percent of provincial GDP and employs 52 percent of the total population. The provincial GVAO in 1991 was Y 30.2 billion compared to Y 7.4 billion in 1980 (Y 14.5 billion in 1991 prices). Its average annual growth rate over the period was 6.7 percent in real terms. Within agriculture, crop production contributed 52 percent, followed by livestock (29 percent), fisheries (11 percent), sideline activities (6 percent) and forestry (2 percent). Since 1978, sectoral growth has been fastest in fisheries (24 percent),  -6 - followed by livestock (22 percent), sideline production (18 percent), forestry (16 percent) and crop production (10 percent). 1.17 Cultivated land occupies about 3.6 million ha of the provincial land area, with 30 percent under full or pardal irrigation. Nearly 3.1 million ha were sown to foodgrains, primarily corn and paddy. Per-capita gmain production was about 380 kg. Soybeans are the second most important crop next to grains, followed by other oil crops, fruit and vegetables. The yields of corn and paddy were higher than the national average. Total production of corn, paddy and wheat were 8.5, 4.0 and 0.5 million tons, respectively, in 1991. Grain production increased by 2.6 percent per year between 1980 and 1991 (despite a 8 percent reduction in cultivated land). Fruit production increased from 806,000 tons in 1986 to 1.0 million tons in 1991 (an increase of 25 percent). These increases were possible due to the availability and use of improved varieties and modern farm inputs. 1.18 The livestock subsector doubled its contribution to the GVAO from 14 percent in 1978 to 29 percent in 1991. Between 1980 and 1991, total meat production (95 percet pork) tripled from 303,000 tons to 1 million tons. Annual per-capita consumption of meat in the province (12 kg) is considerably lower than the national average of 21 kg per capita. The fisheries subsector has tripled its contribution to GVAO from 4 percent in 1978 to 11 percent in 1991. Production, comprising capture and culture of aquatic products, reached 1.1 million tons in 1991, an increase of 70 percent over 1986 production. These increases are mainly attributable to increased production of shellfish, shrimp and crab. Annual average consumption of aquatic products averages about 2.4 kg per capita. 1.19 Crop production is mainly carried out by households with small per-capita landholding (0.1 ha). Farming has to be very intensive, dependent on the availability of inputs and water. Livestock is raised mainly by individual households, with at least one or two pigs per household fed on crop residues. Along with poultry, they are raised mainly by women. As Liaoning has limited grain and oilseed for livestock feed, it suffers from a lack of quality feed. This situation highlights the need for continued promotion of crop residue-based ruminant production systems in the province. Shrimp and shelfish are produced under contract to households. The province has an enormous potential for expanding and improving aquatic production, as large suitable areas for aquaculture remain undeveloped. The main constraints are lack of funds and supporting infrastructure including hatcheries, processing facilities and cold storage. Jilin 1.20 Jun is located in the central part of northeast China, north of iaoning (Map IBRD 24858), covering an area of 187,000 kIn2, with population of 25 million, of which 60 percent are in agriculture. Unlike Liaoning, the agricultural sector in Jilin is still the basis for its economy, accounting for nearly 57 percent of 1991 provincial GDP. The GVAO in 1991 was Y 18.8 billion compared to Y 6 billion in 1980 (Y 12 billion in 1991 yuan). Its real average annual growth rte was 4.2 percent over the period. Within  -7 - agriculture, crops contributed 69 percent, followed by livestock (24 percent), forestry (2 percent), fisheries (2 percent) and sideline activities (3 percent). Crop production increased by 18 percent per year between 1985 and 1991, with grain availability of 740 kg per capita. 1.21 In 1991, 7 prcent of its 4.1 million ha of cultivated area was sown to grain crops, 8 percent to cash crops and 5 percent to other crops. Corn accounted for 56 percent of the total sown area and 64 percent of the grain area. Other grain crops are paddy, wheat, soybeans, sorghum and millet; cash crops are oilseeds, sugar beet and flax; and other crops are fruit and vegetables. Total production of corn, paddy, soybeans and wheat was 14.0, 3.0, 0.7 and 0.4 million tons, respectively. Flax is grown on a small area (3,667 ha), giving an output of 6,100 tons. 1.22 Jllin is the largest corn-surplus area in China. It is estimated that 5 of the 14 million tons produced went for farmers' use as food, seed and livestock feed and the government quota, leaving 9 million as surplus for industrial use within the province and export to other provinces or abroad. However, in 1991, only about 2 million tons of corn (or 22 percent of the surplus) were industrially utilized (for feed 34 percent, food products 31 percent, alcoholic beverages 26 percent and starch 9 percent). The eighth five-year plan envisages Jiln as becoming more active in com industry development. Emphasis is placed on com wet-milling, com starch, alcoholic beverages and feed industries. In the meantime, the province is facing problems of storage and transportation, which are being partally tackled through the Grain Distribution and Marketing Project. 1.23 Jilin is rich in forest resources, with a forested area of 8.8 million ha or 47 percent of the province, located mainly in the mountainous area in the east and south. In this area, the province grows and processes ginseng, Chinese herbs and other forestry products for export and the domestic market. Fruit crops are traditionally grown in the hilly regions of the south and southeastern part-mainly pinguoli, an apple-pear variety unique to Jilin. G. RURAL INcOME AD PovERTY 1.24 The rural agricultural population of Jilin and Liaoning is stil poor. In Jilin, average annual per capita farm income in the project counties was Y 442 in 1990, about 55 percent of the provincial average of Y 803. Eleven counties in the province are designated as poor counties, six by the national govemment and five by the province. In Liaoning, 1991 average per capita income of 26 project counties was Y 808, about 90 percent of the provincial average of Y 896 (Anne 1, Table 3). The province has 15 counties designated officially poor; three were so designated by the national government and 12 by the province. 1.25 Rural poverty can be attributed to three main conditions: (a) poor geographic location in the mountainous region of the eastern and western parts of Liaoning and the eastern part of Kerqin desert of the Inner Mongolia Autonomous Region; (b) poor natural resource endowments with significant salinity, alkalinity, sandstorms, flooding and  -8 - waterlogging; (c) poor infrastructure, especially in counties without railway connections; (d) poor communications, which limit farmers' opportunities to learn about new technologies and markets; and (e) poorly developed commercial infrastructure, which diminish farmers' production incentives. 1.26 Reducing poverty is an increasingly important development goal of the government at all levels. In pursuit of this, the national government has implemented a number of programs, including construction of roads, bridges and irrigation facilities, development of diversified production activities and provision of training and supporting facilities. Local govemments have provided grant funds to support investment by poor farmers, vocational training in specific fields and production incentives, such as tax holidays of up to five years. However, these programs are limited in scope due to a shortage of funds. One of the goals of the national government's eighth five-year plan is to increase per capita income to Y 800 in all poor counties by 1995 and to Y 1,300 by the year 2000. Development proposals include investment in crop and livestock production, agopocesing and promotion of tertiary industry. H. PRoJEcr FORmuLAION AND RATnoNALz 1.27 The proposed prqject is designed to address the key constraints limiting agricultural productivity in the project areas: soil salinity and waterlogging, wind- and sandstorm damage, shortage and poor quality of irrigation water, inadequate crop diversification, poor inputs and feed quality, limited availability of extension services and weak linkages between production, processing and marketing activities. The project design draws on IDA's extensive experience in integrated rural development projects in China. The lessons from this experience will help the project address major constraints. IDA involvement would promote the efficient use of limited resources, introduce appropriate new production and processing technologies, and promote better planning and management to respond to market demands. It would strengthen research and extension, support training for farmers, researchers, extension agents and managers, and provide technical assistance. It would also introduce environmental standards in the designs of agroprocessing plants, develop monitoring systems and promote environmental protecdon practices.  -9 - 2. THE PROJECT AREAS A. LOCATION 2.1 The proposed project would be located in the Songliao plain, which lies in central Liaoning and western Jin provinces, an area approximately 260 by 540 kin, covering 145,000 km2. The plain is named for two interlocking drainage basins, that of the Liao River which drains southward to the Bo Sea and that of the Songhua system which drains to the North. The project would cover 26 counties of 9 municipalities in Liaoning and 14 counties of 4 prefectures/municipalities in Jilin, and comprise 612 townships and 5,904 villages. Project locations showing the subcomponents, are shown on IBRD Map Nos. 24858 and 24859 and area statistics are given in Annex 1, Tables 1-3: B. CLIME, ToPOGRAIy, AmD Som 2.2 Climate. The project area has a temperate zone monsoonal climate, windy and dry in spring, hot and rainy in summer, cool and frosty in autumn and cold and dry during the long winter. In the Liaoning project area, the average temperature varies from -12