China - Henan Agricultural Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 19504 IMPLEMENTATION COMPLETION REPORT CHINA HENAN AGRICULTURAL DEVELOPMENT PROJECT (CREDIT 2242-CHA) June 30, 1999 Rural Development and Natural Resources Sector Unit East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = Yuan (Y) At Appraisal (1990): $1.00 = Y 4.72 Completion Year (December 31, 1998): = $1.00 = Y 8.3 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS BoF Bureau of Finance DAP Diammonium Phosphate ERR Economic Rate of Return FAO/CP FAO/World Bank Cooperative Programme FRR Financial Rate of Return GWDS Ground Water Development Scheme ICB International Competitive Bidding ICR Implementation Completion Report IDA International Development Association I&D Irrigation and Drainage Component M&E Monitoring and Evaluation MTR Mid-Term Review NCB National Competitive Bidding O&M Operation and Maintenance PMO Project Management Office PPMO Provincial Project Management Office PLG Project Leading Group RMB Renminbi (Chinese Currency) SAR Staff Appraisal Report SDR Special Drawing Rights TSP Triple Superphosphate WCD Water Conservancy Department YRDS Yellow River Diversion Scheme Vice President: Jean-Michel Severino, EAPVP Country Director: Yukon Huang, EACCF Sector Manager: Geoffrey B. Fox, EASRD Task Managers: Zhong Tong and Rapeepun Jaisaard, EASRD CONTENTS FOR OFFICIAL USE ONLY PREPA C E ........................................................................................................................ i EVALUATION SUMMARY ........................................................................................ PART I: IMPLEMENTATION ASSESSMENT .........................................................1 A. Project Objectives and Description............................1 B. Achievement of Project Objectives............................2 C. Implementation Experience.................. ...............3 D. Project Impact...........................................8 E. Major Factors Affecting the Project............................9 F. Project Sustainability....................... ..............10 G. IDA Performance....................................... 1 H. Borrower Performance....................................12 I. Assessment of Outcome...................................13 J. Future Operations.......................................13 K. Key Lessons Learned..................................... 14 PARTIL STATISTICAL TABLES................................... 16 Table 1: Summary of Assessment............................... 16 Table 2: Related Bank Loans/Credits.............................17 Table 3: Project Timetable.................................... 17 Table 4: Credit Disbursements: Cumulative Estimated and Actual.. ....... 18 Table 5: Key Indicators for Project Implementation...................18 Table 6: Key Indicators for Project Operation....................... 22 Table 7: Studies Included in Project ....................................................................... 24 Table 8A: Project Costs............ 26 Table 8B: Project Financing ........................... .........26 Table 9: Economic Costs and Benefits.... ..................... .......27 Table 10: Status of Legal Covenants ............................. 28 Table 11: Compliance with Operational Manual Statements..................29 Table 12: Bank Resources: Staff InputsI...ndicaors.fr.Proect.........................29 Table 13: Bank Resources: Missions ....................................30 ANNEX A: ICR MISSION'S AIDE MEMOIRE ............... ........32 ANNEX B: BORROWER'S CONTRIBUTION TO THE ICR .............42 ANNEX C: DOCUMENTS IN PROJECT FILE .............................49 ANNEX D: PHOTOGRAPHS OF PROJECT AREAS ............................................ 50 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. i IMPLEMETATION COMPLETION REPORT CHINA HENAN AGRICULTURAL DEVELOPMENT PROJECT (CREDIT 2242-CHA) PREFACE This is the Implementation Completion Report (ICR) for the Henan Agricultural Development Project in China for which Credit 2242-CHA in the amount of SDR 81.4 million (US$110 million equivalent) was signed on April 14, 1991, and made effective on August 23, 1991. The original financing plan was extended by a year to December 31, 1998. Final disbursement occurred on March 18, 1999, when the credit was disbursed 99.86%. This ICR draft was prepared by a joint World Bank and FAO/World Bank Cooperative Program (FAO/CP) mission,' which visited China on April 19-30, 1999. The Henan Agricultural Development Project Management Office has prepared a draft ICR including a general report and specific reports for each component. These reports included data on actual investment costs, physical implementation completion, and basic analysis required for project evaluation. The mission undertook field visits to inspect on- site physical accomplishments and intensive discussions were carried out between the mission and the project management offices, government offices, and technical bureaus. 1 Z. Tong (the World Bank Mission Leader, Agricultural Economist); D. Gue (Agro-Industry Specialist, Consultant); M. Sandoz (FAO/CP, Irrigation Engineer); and A. Bueno (FAO/CP, Agriculturist). ii HENAN AGRICULTURAL DEVELOPMENT PROJECT (CREDIT 2242-CHA) CHINA EVALUATION SUMMARY Project Objectives 1. The project was designed to help finance an integrated agricultural development project in areas along Yellow River in Henan Province. The main objective of the project was to accelerate and diversify agricultural development in order to alleviate poverty, raise farmer incomes and increase rural employment. Specific project objectives were to: (a) provide additional irrigation water and alleviation of soil salinity and waterlogging through the construction of four Yellow River diversion schemes (YRDS), a ground water development scheme (GWDS), the Yuxiayong drainage and well irrigation scheme, the Dongshahe regulation scheme, and the Quncun pilot recharge/storage scheme; (b) increase the productivity of existing low-yield farms by crop intensification and diversification, and development of waste land for crops and orchards; (c) expand livestock production through the effective use of crop residues; (d) develop low-lying areas for fish production; (e) invest in agro-processing and agro-industry; (f) improve in the province's ability to manage water resources effectively; and (g) strengthen research, extension and environmental protection programs. 2. Project objectives were clear, well-formulated and based on considerable preparation work by the Bank and the Borrower. These objectives were consistent with the strategic emphasis on agricultural development by the Henan Provincial Government and also supported the Bank's Group's country assistance strategy in the agricultural sector. In general, the design for the project components made realistic assumptions regarding availability of improved technologies for water resource use, agriculture and livestock production. Selection criteria for agro-processing factories ensured technical and financial viability. Implementation Results and Experience 3. The project has successfully reached full targets for all components as presented in the SAR (or revised by the mid-term review). The irrigation and drainage component completed construction, with total area benefited reported at about 274,000 ha, 97% of the target. Overall, the project's irrigation objective was substantially achieved. The agriculture component completed targeted procurement of fertilizer. Construction of tunnel greenhouses exceeded targets by 18%. Improvements at agricultural extension stations at county and township level were fully realized. Planting of windbreaks, wickers, orchard development for apple, pomegranate, plum, apricot, grape, rehabilitation iii of Chinese dates, and mulberry plantation all reached 100% of the corresponding SAR target. The livestock component surpassed SAR targets with solid results of 153% and 279% respectively, for goat and sheep households. Fish ponds completed 101% of the mid-term revised target. The construction of 11 agro-industrial or agro-processing plants and 16 seed processing centers were completed. All agro-processing plants and 11 of the seed processing plants are in commercial operation. The remaining five seed processing plants have just completed commissioning. All scientific research projects under each component were completed. Some research projects received provincial awards and some results have been extended to production areas. Training for technicians, farmers and PMO staff achieved SAR targets. Financial analysis shows that all components have reached a higher financial rate of return than estimated in the SAR. The overall economic rate of return is estimated at 40% compared to the SAR estimate, 35.8%. 4. Implementation began smoothly, and over the first two years, the credit disbursed faster than planned. At mid-term review in 1994, some technical and financial changes were required. The project also experienced some delays due to: (a) lack of timely allocation of counterpart funds; (b) lack of working capital for agro-processing factories; (c) delayed delivery of equipment for agro-processing factories. The project was extended twice and was finally completed on December 31, 1998. The total expenditure by loan closing was $245.6 million, of which IDA financed $116.5 million equivalent to SDR 81.3 million. 5. IDA's performance in project preparation, appraisal, and implementation was highly satisfactorily as rated by the PPMO. IDA helped the government design the project and provided technical assistance for implementation problems which occurred from time to time and provided sound advice for the operation. Borrower performance was satisfactory. The PPMO, concerned provincial technical bureaus, and the "Henan Technical Advisory Group" set up implementation regulations and coordinated well. The project was well managed. About 56,000 farm households directly benefited from the project and the borrower complied promptly and completely with the covenants prescribed in the legal agreement. Summary of Findings, Plans for Future Operations, and Key Lessons Learned 6. Overall Findings. Establishment of an integrated system linking production, processing, and marketing is the cornerstone of the project's success. Irrigation and drainage schemes provided infrastructure to farmers in crop production, while planting of windbreaks reduced natural disasters (sandstorm, flood and drought) and improved soil fertility and the agro-ecological environment. The participating companies are undergoing reform of their ownership structures and forming joint ventures with commercial companies to expand their marketing networks. The model of linking companies to farm households benefited both parties and reduced market risk. The advanced technology introduced to the project enabled the products to compete in the market place. However, irrigation and drainage schemes need further improvement to some structures and the gate system. Also, water charges do not cover the full O&M costs and some enterprises need to improve financial and commercial management. Lastly, a lack of working capital still exists for some agro-processing factories. iv 7. Project Impact. In general, the project was successful in increasing farmers' income, creating employment opportunities and generating local tax revenue. It promoted local economic development along the Yellow River and achieved the objective of poverty alleviation. In the project areas over the past six years, farmer net per capita income increased from Y550 to Y2,179 on average, at an annual growth rate of 25.8%, while in the same period, the provincial average was 21.5%. A total of 26 research projects have been completed under the project, some of them receiving provincial awards. The results of this research have been applied or adopted into practice and have had a positive impact on yields and income. The project has also had demonstration effects in non-project areas. Many non-project farmers have adopted project technology: for example, tunnel greenhouses have spread over large areas. The agro-processing factories also developed production bases involving large numbers of farmers. The integrated approach linking production to processing has indicated an interesting future direction for rural development in this region. The project had a positive environmental impact. 8. Sustainability. The project is potentially sustainable. Implementation of the project has provided excellent facilities for production, processing and marketing of agricultural, livestock and aquaculture products. Agro-processing factories are in commercial operation. The irrigation and drainage systems are in place, operating well and benefiting crop production; farmers' incomes have increased through their livestock, orchard, and aquaculture production. Government policies promoting agricultural development provide strong incentives for commercialized development under the project. Thus stakeholders have good reason to maintain facilities and continue operations developed under the project. However, long-run sustainability will depend on future operation plans. Government support remains important. In response to market variations, the structure and variety of products need to be continually re-assessed and adjusted. However, poor management of some enterprises still exists and successful management experiences still need to be further disseminated. Assurance of working capital will continue to be necessary for agro-processing factories and subloan repayment schedules still need to be enforced. 9. Future Operations. The model of company links to farm households should be extended to other areas. However, to maintain and increase project impact, the project would still need support from the provincial government in carrying out policies, providing technical assistance, and securing funding for future operations. In particular, adequate funding needs to be provided for agricultural support services. Those county revolving funds that have been successfully implemented will continue to be used for project participants to support expansion to more farm households in surroundin areas. Further gradual increases of the water charge from 0.04 yuan/m3 to 0.08 yuan/m by the year 2001 is under consideration and should be implemented. The YRDS water balance study should continue to be used to formulate sound water resources management plans for the region. The O&M plan, especially thorough maintenance, needs to be implemented. Research on efficient water saving techniques should be completed and the results applied. Successful project experiences in enterprise management should be introduced throughout the province. Each of the processing plants has provided ample evidence of the advantages of the linkage approach to plant operation and commercial activities. v 10. Lessons Learned. The key lessons learned from the project include: (a) a comprehensive design approach establishing an integrated system to link production, processing and marketing is highly beneficial and conducive to foreign capital investment in agricultural projects; (b) stable project management at all levels and good coordination among the project management offices and involved technical bureaus, is essential to success; (c) good plant design and excellent equipment are key factors in attracting private sector partners to processing plants. Also, adequate and timely availability of working capital has to be ensured for processing plants; (d) management of revolving funds needs to be ensured; (e) decentralization of responsibility for implementation of irrigation and drainage works, and subsequent O&M, requires substantial support from provincial authorities in order to develop local capabilities for water resource management; (f) the incorporation of windbreaks in irrigated areas in Henan offers sound environmental protection; and (g) adequate and timely allocation of counterpart funds is a prerequisite to smooth implementation. CHINA HENAN AGRICULTURAL DEVELOPMENT PROJECT (CREDIT 2242-CHA) PART 1: PROJECT IMPLEMENTATION ASSESSMENT A. PROJECT OBJECTIVES AND DESCRIPTION 1. The Henan Agricultural Development Project was designed to provide assistance to finance an integrated agricultural development project covering 20 counties in Jiaozuo, Xinxing, Puyang, Kaifeng, and Shangqiu Municipalities of Henan Province. The main objective of the project was to assist the government in accelerating and diversifying agricultural development in order to alleviate poverty, raise farmer incomes and increase rural employment. Specific project objectives were to: (a) provide additional irrigation water and alleviate soil salinity and waterlogging problems. The project developed four Yellow River diversion schemes (YRDS); a ground water development scheme (GWDS); the Yu- Xia-Yong drainage and well irrigation scheme, the Dongshahe regulation scheme for protection against river floods and the Qucun pilot recharge/storage and irrigation scheme. (b) increase the productivity of existing low-yield farms by crop intensification and diversification and development of waste land for crops and orchards. A major effort was placed on converting all rainfed land into fully irrigated farms and 'providing them with improved packages of support services. The project also supported seed production and processing activities, diversification of crop production, construction of greenhouses, and development of wastelands for fruit production. (c) expand livestock production through the effective use of crop residues. The project supported planting of alfalfa on wasteland to provide feed for cattle and small ruminants, promoted the raising of small ruminants, introduced superior breeding stock and improved feed, financed broiler meat processing and strengthened animal disease control and veterinary services through provision of medicines, modem production equipment and training. (d) develop low-lying areas for fish production. The project' financed construction of fish ponds and associated water supply, water discharge and electrical facilities; constructed and equipped hatcheries and feed mills; and supported research and training programs. 2 (e) invest in agro-processing and agro-industry. Agro-processing and agro- industries were included in the project to provide linkages from farm production, through processing and storage to marketing operations and to provide locally-produced agricultural inputs (seeds, plant growth hormones and veterinary antibiotics). (f) improve the province's ability to manage water resources effectively. The project strengthened skills in water resources monitoring, planning and management. (g) strengthen research, extension and environmental protection programs by providing equipment, technical assistance and training. 2. These objectives were clear and well-formulated, based on considerable preparation work by the Bank and the Borrower. The objectives were consistent with the strategies emphasized by Henan province during the eighth and ninth national "Five-year Plans" to more rapidly increase farm incomes, address poverty, and guarantee a sustained increase in the production of basic agricultural products. The emphasis on the integration of production, processing and marketing is regarded as the project's distinguishing characteristic, and this emphasis is being replicated in subsequent (non-World Bank) projects in the province. The project objectives also supported the Bank Group's country assistance strategy in the agricultural sector, with emphasis on increasing and diversifying agricultural production through more efficient use of land, labor and capital resources and through the improvement of support services such as credit, research, and agricultural education. 3. In general, the project component designs made realistic assumptions regarding availability of improved technologies for water resource use, agriculture, horticulture, aquaculture and livestock production. Concerning the agro-industries components, choice of investment components was based on selection criteria developed to ensure consistency with project objectives as well as sufficient FRR to service debts and provide dividends to local investors and capital growth for the companies. B. ACHIEVEMENT OF PROJECT OBJECTIVES 4. The project has successfully met full SAR (or mid-term review revised) targets for all components. The irrigation and drainage component completed construction, with the total area benefited reported at about 274,000 ha, 97% of the SAR target. Overall, the project's irrigation objective was substantially achieved. The agriculture component provided 21,500 t of DAP and TSP fertilizer (108%) to farmers. Construction of tunnel greenhouses completed its target by 118%. Improvement in agricultural extension stations at county and township levels was fully realized. Planting of windbreaks and wickers, and orchard development for apples, pomegranates, plums, apricots and grapes and rehabilitation of Chinese date orchards and mulberry plantations all reached 100% of the corresponding SAR target. The livestock component surpassed the SAR targets, with solid results of 153% and 279% for the goat and sheep sub-components. Fish ponds completed 101% of the mid-term-revised target. The construction of 11 agro-industrial 3 or agro-processing plants and 16 seed processing centers financed by the project was completed. All agro-processing plants and 11 of the seed processing plants are in commercial operation. The remaining five seed processing plants have just completed commissioning. All scientific research under each component was completed. Some research projects received provincial awards and some results have been extended to other for production practices. Training for technicians, farmers and PMO staff conducted under the project reached their SAR targets. C. IMPLEMENTATION EXPERIENCE 5. The Credit became effective on August 23, 1991 and project implementation was completed on December 31, 1998 (with a one-year extension). In general, project implementation in its early stages closely followed planned schedules. The Provincial Project Management Office (PPMO) promptly established after project effectiveness implementation regulations for management and inspection, organized training on procurement and prepared procurement documents. The technical bureaus concerned closely collaborated with PMOs and provided technical support during implementation. 6. A mid-term review in 1994 made some adjustments in component composition and size, responding to the market changes and other factors. The major adjustments were the following: (a) exchange rates had changed such that the SDR depreciated relative to the US$ and the US$ appreciated with respect to the RMB; (b) a reduction of ICB and NCB costs for equipment, materials and civil works and cancellation of well pumps, diesel generators and pesticides. These reductions provided additional funds for the project and allowed significant, desirable adjustments. 7. Irrigation and Drainage (I&D). The I&D component took six years to complete construction (a half-year longer than planned). Project irrigation and drainage works within the four YRDS covered establishment of new and improved main canals, head reach desilting basins, main and branch systems (canals, drains and structures), and lateral and sublateral and on-farm irrigation systems including wells and pumps. Areas served by the works totaled 138,000 ha at 94% of the target value. These levels of achievement are similar for all four of the individual YRDS, but there were significant deviations from target values in the case of canal linings and wells. For canal linings, only minimal provisions were made in the SAR for one scheme (Shitouzhuang). However, substantial lining works were executed under the project for two further schemes (Xiangfuzhu and Qucun), primarily as leakage reduction measures for canal sections in fill. For shallow conjunctive-use wells, there were provisions for these to be created or rehabilitated in all of the scheme areas, but only about 50% was achieved of the larger well-number targets set for two of the schemes (Zhaokou West and Qucun). The system concepts and designs are generally adequate and appropriate to local conditions, and the quality of works is generally acceptable, although further improvement is needed in some structures and gate systems. The basic routine canal cleaning and light maintenance activities have been undertaken very satisfactorily, but non-routine heavy maintenance and repair needs are not as well attended. Some significant water saving successes have been obtained with experimental lateral and sublateral systems. 4 8. Ground Water Development Scheme (GWDS) works included installation of tubewells and pumps together with corresponding electric power transformation, distribution and control systems. Areas served by the works totalled 84,000 ha, 100% of the target value. In general, the numbers of submersible pump sets provided also significantly exceeded target values, but centrifugal pumps provided generally represented only a small fraction of the corresponding targets. This was because farmers preferred to obtain or retain their own pumps rather than become dependent on communal pumps. 9. Queun Pilot Recharge/Storage and Irrigation Scheme. Areas served by the works totalled 5,500 ha, 82% of the planned value. Reported results include reduced ground water pumping, and stabilized or rising ground water table levels, as was intended by the project. From a site visit at completion, it was evident that the pilot lateral and sublateral irrigation network is working as an orderly communal system, contrasting notably with the somewhat inefficient individualistic mobile-pump irrigation practices in adjacent areas. 10. Drainage and Flood Protection. The objective of this subcomponent has been substantially achieved. Some of the project's drainage and flood protection interventions occurred within the YRDS sub-components. All of these works have also been reported as complete and operational. Physical works targets were well achieved, as were the physical impact objectives. The Dongshahe scheme works comprised dredging and embanking along the river, and provision of bridges, all for river control and regulation. The length of river attended to was about 91 kin, and the area of benefit is 11,500 ha, both values being equal to the planned values. 11. The institutional development objectives linked to the I&D component were only partially achieved, as there was only a moderate improvement in provincial water resources management capabilities. Specific areas identified for project activities included water resources planning, water resources research and O&M preparations. Provision was made for corresponding technical assistance and training, but the training and technical assistance did not raise management capabilities as much as anticipated. 12. Work was carried out on a total of six I&D component studies, or groups of studies, addressing to some degree most of the topics identified in the SAR. A particularly noteworthy completed study activity led to the production of comprehensive O&M guides for each project scheme or scheme type, as was called for at appraisal. It was concluded from a rapid sample review that these are sensible and practical documents that should be put to use. Training activities relating directly to the I&D component included seminars on the design of well irrigation and on-farm works, O&M of project works, and water resources management in the Yellow River basin. Two study tours to view irrigation projects in the USA were also conducted; the opportunity to view water resource developments outside of China was noted to have been very valuable. 13. Agriculture. Estimates at appraisal called for the construction of 20 seed centers to produce, process and market good quality seed of wheat, rice, maize and soybean. The seed processing sub-component was not well identified as, in the early years of the 5 project, the county seed companies could see no advantage to processing seeds while there was no competition for their products in the market place. Four of the seed companies withdrew from the project. Sixteen centers were completed, but only 11 entered commercial production. Five centers have just completed equipment installation and commissioning. 14. The project procured 21,500 tons of DAP, 1,575 tons of TSP, and 136 tons of agro- chemicals to improve soil in the project areas and pesticides for use in major grain crops and fruit trees. During the mid-term review, the PPMO cancelled the remaining pesticide procurement of 344 tons due to the high price of imported products. 15. Plans at appraisal called for the construction of 1,125 improved tunnel greenhouses to allow cultivation of vegetables all year around. The number of greenhouses actually constructed was 1,325 (118% of SAR). During mid-term review, the PMO proposed to add 10,000 greenhouses since farmers showed high interest in them, however this was not possible due to other competing use of funds. Later many farmers invested their own funds in simpler, less-costly plastic greenhouses of a modified design. 16. Windbreak and Orchard Development. Targets set at appraisal aimed at planting fast growing poplar trees as windbreaks for protection of 5,600 ha of cropland. This target has been reached with beneficial effects on improvement of soil conditions and crop yields. The triangular plant disposition of the windbreak introduced by the project has been found to be more effective than traditional one-row planting of trees around canals and roadways. The project rehabilitated 2,000 ha of low-yielding Chinese dates and established 7,200 ha of various fruit orchards in wastelands (100% of SAR target). The project supported the use of improved technologies developed by the Bureau of Forestry, including improved apple, apricot and plum varieties; closer spacing to promote higher plant density and yield; improved pruning techniques; optimum use of organic and chemical fertilizers; and improved irrigation. These interventions were successful, but the yields were lower than the levels estimated at appraisal, except for grapes that surpassed appraisal estimates by about 4 t/ha. Apple orchards established under the project are well managed, show healthy and vigorous plants, are well pruned, have good flower setting and should produce a high yield of good-quality apples. Farmers seem to be knowledgeable about most aspects of orchard management. Support services are in place and accessible to farmers. 17. The project strengthened agricultural extension centers in 20 counties and 80 townships. Funds were also provided for conducting eight research studies and technical workshops on annual crops, and two studies on agro-forestry to strengthen linkages between research and extension services. Funds were provided for an extensive training program for technical staff, and for farmers to upgrade their skills in crop production. All necessary extension equipment has been acquired, and eight research studies on crops and two on agro-forestry have been completed. In total more than 95,000 persons (approximately 98% of the farmers in the project area) have been trained in improved technologies for crop production. Additionally, training in orchard management, disease control, silkworm raising and other forestry related subjects were provided to 23,739 farmers, 45% of whom were women. Most research completed has been published, some in English. Research results, especially with regard to improved varieties and hybrids, 6 cropping and fertilization practices and pest control, seem to have been effectively transferred to farmer's fields. 18. Livestock. The project planned to support the planting of 10,500 ha of alfalfa in wastelands by 1,200 households to provide improved feed for cattle and small ruminants. At the time of the mid-term review, only 384 households had planted about 1,920 ha. Alfalfa production was then cancelled because of heavy floods in the production area, low net profit and lack of interest by participating farmers. The cancellation did not affect livestock production since farmers used crop by-products and ammoniated straw as feed. 19. Specialized households for raising cattle, goats, sheep, pigs and broilers were supported under the project. Targets set for establishment of specialized cattle households have been met. The 3,000 specialized households (100% of SAR estimate) have an actual inventory of 39,000 heads of cattle (173% of SAR). The project supported the establishment of 5,700 specialized goat households (114% of SAR) and 3,000 sheep households (100% of SAR). These households marketed, in 1998, 216,600 head of goats (153% of SAR) and 138,000 head of sheep (279% of SAR). All targets set at appraisal for pig production have been reached or exceeded. In 1998, specialized households marketed 272,000 lean pigs (fifteen-fold above the SAR estimate) and commercial farms 50,000 pigs (131% of SAR). Two breeding farms provided 48,000 weaned pigs to specialized households. Targets set for broiler production during SAR were the construction of seven processing plants and participation of 1,800 specialized households, but during mid-term review these targets were revised to three processing plants, the involvement of 2,400 households and the addition of one breeding farm. All modified targets have been reached. Specialized households produced 5.85 million birds (111% of SAR) for the market, and the breeding farm was able to deliver 4 million one-day old chicks to specialized households in 1998. 20. Five research studies under the livestock component were completed (with four planned at appraisal), 1,343 technical staff were trained (112% of SAR) and more than 31,300 farmers (261% of SAR) participated in various types of livestock training activities. 21. Aquaculture. This was a new type of production for farmers. The Provincial Aquaculture Bureau provided technical assistance and sent technicians to the villages to supervise farmers and help to solve problems. The accomplishments reported were the construction of 1,426 ha of production ponds (including 446.7 ha added during the mid- term review), 78 ha of nursery ponds (some built in conjunction with fish ponds) and 4 feed mills that produced a total of 18,300 tons of fish feed (106% of SAR). The fishponds are well constructed and maintained and productivity is good, except for silver carp, which is not profitable due mainly to low market prices. Although construction of nursery ponds fell below appraisal estimates, the current production of fingerlings is enough to stock all production ponds. Among several research studies on aquaculture funded by the project, one received an award for excellence from the Provincial Water Conservancy Department. Research results indicate the potential to increase yields from 10 t/ha to 15 t/ha/year. A total of 3,643 persons, including farmers and technicians, have been trained under the aquaculture component. 7 22. The agro-processing plants were well selected and in retrospect no changes would have been made to the selection criteria. During appraisal, seven plants were selected and at mid-term review four additional plants were approved. Implementation of the eleven agro-processing plants has been excellent and the processing plants have been constructed to a high standard and are in profitable commercial operation. The factories are closely linked to the production activities of the project and create a demand (or a market) for the agriculture and livestock components, and thereby address the main project objectives of increasing rural incomes and employment opportunities. One company has been less commercially successful due to over-investment. Wuzhi Sheepskin Plant decided to expand its construction scale without reference to the Bank, to include tanning 240,000 cattle hides per year. This increased its borrowing to more than 90% of investment cost. The plant is in commercial operation but has to pay most of its profits to the local banks for debt servicing. 23. Procurement. Before project effectiveness, the PPMO organized procurement training for staff responsible, covering procurement procedures for goods, civil works, and consultants and preparation of bidding documents. This speeded up the procurement process, which is a common source of delays in overall project progress. The ICB tendering company was Chinese National Machinery Import and Export Corporation (MACHIMPEX), which organized in coordination with the PPMO the bidding, evaluation and contract awards for goods. NCB procurement for goods was conducted by the Henan Provincial Machinery and Equipment Bureau. Other goods procurement was handled by the project participants themselves. NCB for works was conducted by the project participants themselves under the PPMO's supervision. There were 99 ICB contracts including equipment, vehicles and materials valued at Y279.3 million. The remaining goods were procured through 83 NCB contacts valued at Y138.2 million. Civil works was procured through 36 NCB contracts valued at Y294.1 million, and the remainder was procured by direct shopping or carried out under force account. In general, equipment procured met the technical standards. Ex-post procurement review of local procurement was done during Bank's supervision missions. They are found acceptable. 24. Disbursement. In the first two years, the project began disbursement more rapidly than expected (167% and 109% respectively), and slowed down in the following two years, basically returning to the planned schedule. The last IDA credit disbursement was on March 19, 1999, following by credit closure on December 31, 1998. The total amount disbursed was $116.5 million, higher than the original credit amount of $110 million equivalent due to the depreciation of the dollar against SDR. SDR 81.3 million was disbursed with a cancellation of SDR 114,625. 25. Project Costs. Due to dual exchange rates, which changed during the implementation period, the investment costs actually expended totalled Y1.81 billion, equivalent to $245.6 million, of which the IDA financed SDR 81.3 million, or $116.5 million equivalent. Compared to the SAR estimates of project investment costs and IDA credit, the former totalled 112 percent of estimates in terms of US dollars, but 156 percent in terms of local currency (RMB), due to appreciation of the US dollar relative to the RMB; and for the IDA credit, 99.9 percent in SDRs and 103.8 percent in US dollar terms. 8 D. PROJECT IMPACT 26. Increasing Income and Employment. The objective of the project was to alleviate poverty in several of the poorest counties by increasing crop, livestock and fish production and agro-processing. The significant expansion and improvement of all irrigation schemes resulted in increases in cropping intensity from 167% to more than 192% in most areas; and in better irrigation. The availability of and accessibility to improved seeds, fertilizer and pesticides resulted in a yield increase in major crops and farmers' incomes. There were about 56,000 farm households involved in livestock, orchard development, and fish pond production. Farmers earned on average Y7,000- 10,000/household/year additional income from raising animals and poultry. The development of greenhouses has substantially increased income to farmers by an average of Y 4,000/household/year. The income generated from livestock, vegetables and fruit is in addition to that from grain production, and is therefore a second major source of income. The agro-processing factories provide 6,780 full-time jobs, of which 56% went to women, and seasonal jobs for 230,400 people, of which 60% went to women. 27. Poverty Reduction. Most of the project areas are located in poor counties. The project activities have promoted local economic development by changing the economic and agricultural production structures, which have increased the proportion of high- valued crops, livestock, and aquaculture. The agro-processing factories in some counties are the first industrial factories, which created non-farming employment opportunities. The farmers' net per capita income on average in the project area increased from Y550 before the project (1991) to Y2,179 (1998); annual growth rate of incomes reached to 26%, while it was 21.5% for provincial average during same period. 28. Integration of production, processing, and marketing. The project was designed to establish an integrated system linking production, processing and marketing, in which the processing plant is the core of the system and contracts with farmers for raw material supply and establishes a market network to ensure sales of processed products. A similar model was applied to livestock production, in that breeding farms contracted with farmers to provide either sows or piglets and took responsibility for selling fattened pigs with a (similar approach for chicken breeding farms). The breeding farms provided credit and technical assistance to the farmers. The Bank encouraged all processing enterprises to find commercial partners to take equity positions in their processing plants, and also to form commercial companies that could take better advantage of market opportunities. 29. Dissemination of Research Results. The project has completed 26 scientific research projects covering water resource conservancy, agriculture, forestry, aquaculture, and livestock. More than one third of the research received awards. Some of the results have been applied in production practice, helping producers to increase yield and benefits. 30. Demonstration Impact. The project activities have shown great impact on surrounding areas. Non-project farmers learned from the project. For example, tunnel 9 greenhouses provided an additional opportunity to expand production and income sources, and a lot of farmers expressed their interest, so during mid-term review, an additional 10,000 units were proposed. Some 83,200 farm households have built their own greenhouses. The integrated system established under the project has exhibited its vitality. This kind of integrated approach will be the basis for future development of the rural economy. 31. Environmental Impact. The irrigation and drainage system is functioning in providing sufficient water for crop production, and an improved local agro-ecological environment through reduced natural disasters and improved soil fertility. Windbreaks and orchard development, and manure from livestock production also largely improved soil fertility. The design for the environmental pollution control system for agro- processing plants has been approved by the PEPB, and treatment effectiveness has been established during plant trials. All tests have passed the provincial environmental inspection. The plants have been issued with the relevant certification. E. MAJOR FACTORs AFFECTING THE PROJECT 32. Factors Not Generally Subject to Government Control. Natural floods resulted in low alfalfa yields and alfalfa production was subsequently withdrawn from the project due to a lack of interest by participating farmers. Two equipment suppliers to the project delayed the delivery of equipment, causing a cost increase to the factories as a result of construction delays. 33. Factors Generally Subject to Government Control. Local governments at all levels paid a great deal of attention and provided strong support to the project, which played a key role in its success. However, implementation of the seven agro-processing plants was delayed due to difficulties in raising counterpart funding and working capital at the county level. The absence of these funds substantially delayed the awarding of NCB civil works and equipment contracts. ICB bidding was also slower than anticipating due to complex clearance procedures for internal processing. Indecisive directives in revolving fund management by the provincial BOF affected the effectiveness of these revolving funds. During implementation, revolving funds for livestock raising, and well construction and rehabilitation were established but not well managed by the county BOFs. This contributed to limited re-lending of the proceeds from the revolving funds, as designed by the project. Water charges providing for O&M of I&D works were increased during the period of the project, as foreseen at appraisal. However, there were indications at completion that water charges still did not cover all O&M costs, in particular those for heavier non-routine repairs as opposed to routine maintenance activities. 34. Factors Generally Subject to Implementing Agency Control. The establishment of implementation administrations at the PMOs ensured a clear responsibility chain for staff as well as procedures for implementation and acceptance during the implementation period. Pre-prepared procurement documents accelerated implementation and avoided some delays. In general, implementation was well managed by the PPMO and PMOs at all levels and most facilities set up under the project are working well. With one 10 exception, all processing plants are well managed and their managers have autonomy as commercial enterprises. The processing sub-components are well selected and form close linkages between agricultural and livestock production under the project, and the market place. The processing plant designs are all based on good quality international standards equipment, that would provide processing efficiencies equivalent to those in developed countries, and products that can compete in quality and price with the equivalent imports. The technology level at each processing plant is of a very high standard, and project personnel are trained, mainly by the process engineering contractors, to operate and maintain all of the processes and equipment. F. PROJECT SUSTAINABILITY 35. The project is potentially sustainable. Implementation of the project has provided excellent facilities for production, processing and marketing of agricultural, livestock and aquaculture products, but sustainability depends on measures taken to ensure future operation. First, the government agricultural development policy will continue to support the project through promotion of the household responsibility system, support to the social service system, and development of the rural market economy. Second, the production facilities developed under the project have begun full-scale operation, the irrigation and drainage system is in place and operating well and of benefit to crop production, farm household incomes have increased through their livestock raising activities, and agro-processing factories are in commercial operation and making profits. Thus, stakeholders have every reason to maintain facilities and continue operations developed by the project. Third, the project has improved the local ecological system, including flood and drought control, soil fertility and reduction of wind erosion. The Henan Provincial Government has demonstrated an adequate capacity to handle the project. Several IDA missions have discussed with the PMOs the project's future operation and their recommendations were well-received. 36. Although the project has laid down a good foundation, Government support is still essential. Specifically, the following recommendations are made for a continued government role: (a) technical inputs need to be provided from the relevant technical bureaus on a regular basis; (b) training of personnel on production techniques, enterprise management and product marketing should be organized and continued on a regular basis; (c) key personnel of the PMO should continue to be available for this important coordination role in the future; (d) the successful management experience of project enterprises should be disseminated to the entire project; (e) adequate funding for support services for O&M should be provided; (f) loan repayment schedules for loan recipients need to be kept and enforced; and (g) an appropriate water charge system, which can cover maintenance costs for I&D system, needs to be adopted. 37. The processing factories have each been given support at provincial level in financing, manpower and material resources, and this has been followed through at county level. Official support for sustainable commercial operation is, therefore, fairly secure, and favorable tax benefits are available to the plants. In order to benefit fully from the commercial potential of the factories, all of the enterprises have restructured into limited liability companies, and have been seeking partners or shareholders to inject 11 equity and working capital. Injection of equity should reduce debt burdens and bring the factories into higher profitability early in their operating life. At the present level of commercial operation, the sustainability of the factories is fairly well assured. 38. Overall sustainability of the I&D component is considered likely, for several reasons: (a) the project works are of simple and adequate design and construction, and are therefore amenable to easy repair and maintenance; (b) irrigation in the region is a sporadic event, so that the irrigation works will probably have low usage levels and therefore extended useful lives; (c) the long off-season periods provide sufficient time and opportunity to undertake needed repairs and maintenance tasks without interfering with irrigation operations; (d) there is considerable local commitment to routine upkeep and maintenance, generated in part by the realization of significant financial benefits as a result of the project; and there is visual evidence that completed works are being well looked after to this extent; and, finally, (e) local WCB O&M institutional facilities, structures and commitments are in place, as is the appreciation at provincial level of the outstanding requirements for achieving satisfactory long-term performance of the I&D systems and the benefits to be gained from them. 39. Major yield increases have been achieved in the production of annual crops, fruit trees, livestock and fish, which have resulted in higher net farm income. This has been possible through the correct and large-scale use of improved technologies, supported by strong research/extension programs and the timely delivery of other important support services such as chemical inputs, irrigation, credit, training and marketing. The sustainability of these requires that the concerned line bureaus maintain similar or higher levels of support to agricultural development in the project areas. Most infrastructure is in place, personnel is well trained, initial momentum has been gained, but constant attention should be given to field implementation of production practices. 40. The adoption rate of improved technologies, including improved crop varieties, high quality seeds, correct use of chemical inputs, better designed tunnel greenhouses, construction of fishponds and livestock raising facilities, has been substantial within and outside project areas. However, a number of these activities may require initial capital not available to many poor families. An adequate credit scheme, using revolving funds created under the project or other schemes, must remain in place for the continued application and further expansion of these profitable practices. G. IDA PERFORMANCE 41. Project Design and Appraisal. The IDA performance has been assessed by the Provincial Project Management Office as 'highly satisfactory'. The PPMO ICR report details the Bank's inputs in providing technical advice and guidance at many key periods in project preparation, appraisal and implementation, particularly concerning process plant design, equipment specification, and procurement. A number of detailed discussions on project design for each component and evaluation of the project's technical and financial viability and impact were carried out by IDA missions and the borrower. The success at project completion has strongly proven its design to be sound. 12 42. Supervision. IDA had scheduled eight supervision missions to the project. The supervision missions, comprised of technical specialists and economists, have provided assistance to PPMO to solve technical problems and conducted a dialogue with senior government officials to motivate counterpart funding and settlement of other issues. Assistance with procurement procedures was provided by IDA Headquarters. IDA has also provided commercial and operational guidance in getting the project supported factories into profitable production. Bank recommendations to commercialize these companies, and assistance in finding partners to take equity in the plants and provide financial and commercial strength to the enterprises, has been effective, and is continuing. The project task team and the project management staff have established a close and harmonious collaborative working relationship. H. BORROWER PERFORMANCE 43. The borrower's performance throughout the project has been rated as 'highly satisfactory'. The PMOs at various levels have performed well throughout the project, providing an essential link between the implementing agencies and the government departments and line bureaus with which they have needed to interact. The Provincial Government has paid great attention to the project and formed a Project Leading Group (PLG) to instruct, supervise, and coordinate project preparation and implementation. The PPMO and involved technical departments have worked closely with IDA preparation missions to design, prepare, and evaluate every component. The "Henan Provincial Technical Advisor Group", comprising technical experts has provided technical assistance to the project during preparation and implementation. The PPMO has been particularly active in the implementation and follow-up of procurement and training, and in providing IDA with clear data and reports during supervision missions. The quality and performance of their work has been good, and an important aspect has been the stability of the counterpart team. The agro-industries team has been with the project since its onset, and has carried out their tasks with considerable expertise. The PPMO and technical department have prepared an excellent ICR and supporting data, which were very helpful to IDA's ICR mission. The Bank ICR mission has congratulated them on the excellent outcome of their work. 44. Particular mention is merited on the good work done and expertise provided by CITICAD (Beijing) during project appraisal, and also on the international processing experts that were employed by Henan PPMO to assist with preparation of the technical specifications and process plant designs. The Finance Bureaus have also played a key role in successful implementation of the agro-industries component. 13 I. ASSESSMENT OF OUTCOME 45. The project's physical construction targets were successfully achieved. The project has demonstrated its economic, social, and environmental impacts in. the project as well as surrounding areas. Agro-industrial factories have been in commercial operation and generating significant cash flows. The Province, the Prefecture and the County administration, the farmers and the workers in the processing plants, are satisfied with the success of this project. 46. The integrated system which links processing backward to production (the farm households) and forward to marketing has demonstrated its viability and has set an example for rural development. Female participation in project production activities and training has reached over 45%. The farm households engaged in livestock, orchards, and aquaculture activities have benefited from the project, not only through increases in income averaging over Y 10,000 (US$ 1,205) per annum, but also through assimilation of advanced production techniques. The poverty status of the project areas has thus significantly improved. The results of scientific research under the project have been applied to production practices, and the training of farmers and project management staff has promoted human resource development. The overall economic rate of return of the project is estimated at 40%, compared to 35.8% as estimated at appraisal. Overall, the project achievement is rated satisfactory, with highly satisfactory ratings for the livestock, aquaculture and agro-processing components. J. FUTURE OPERATIONS 47. In order to maintain and increase project impact, the project would still need support from the provincial government in carrying out policies, providing technical assistance, and securing funding for future operations. In particular, adequate funding needs to be provided for agricultural support services. County-based revolving funds that have been successfully implemented will continue to be used for project participants to support expansion to more farm households in surrounding areas. A further gradual increase of the water charge from 0.04 yuan/m3 to 0.08 yuan/M3 by the year 2001 is under consideration and should be implemented. The YRDS water balance study should continue to be used to formulate sound water resources management plans for the region. The O&M plan, especially thorough maintenance, needs to be implemented. Research on efficient water saving techniques should be completed and the results applied. Successful project experiences in enterprise management should be introduced throughout the province. Each of the processing plants has provided ample evidence of the advantages of the linkage approach to plant operation and commercial activities. 48. In response to market variation, the production structure and variety of products needs to be continuously reassessed and adjusted. Current demand for fish and meat (including chicken and pork) is declining, which has driven market prices down. The PMO's and technical bureaus should provide market information to the project areas and assist enterprises and farmers to react to market changes with adjustment in their production and product ranges. Establishment of a market information network would be of great value to enterprises and farm households. 14 K. KEY LESSONs LEARNED 49. To stimulate foreign capital investment in agricultural projects, a comprehensive approach to design is essential. The establishment of an integrated system that links production, processing and marketing is necessary for the optimum utilization of resources and maximum benefit. This should be the preferred direction for future development for the agricultural sector. Contractual relationships establishing forward and backward linkages between companies and farm households, companies, production bases and farm households, can mutually benefit all parties and reduce market risk, thereby addressing the main project objectives of increasing rural income and employment. 50. Throughout project implementation, leadership, management and technical support has been stable at each component, with very few changes in senior staff. This stability in the organization has undoubtedly been a significant favorable influence on the outcome of the project. The establishment of comprehensive and detailed implementation procedures has also helped to assure a successful project. These procedures include the specification of staff responsibilities, inspection requirements, and procedures for project planning, procurement, civil works construction, finance, monitoring and evaluation (M&E) and training. 51. The selection of superior plant design and excellent equipment has been a key factor in attracting private sector partners to invest in the processing plants. The provision of initial working capital for agro-processing has also been essential to assist factories to start operations after the installation and commissioning of equipment. Initial working capital can be arranged either from the project or from commercial banks. The project overestimated the availability of working capital for factories, which caused some factories to operate under capacity. Ownership reform for agro-industrial companies, either through the formation of limited liability companies or shareholding companies, has helped them to focus on commercial operations, expand their marketing networks, and resolve shortages of equity and working capital. 52. The management of revolving funds needs to be improved. The project set up revolving funds for well construction and livestock raising. Because of lack of understanding by key players in the provincial Bureau of Finance, and in some counties of the purpose of the revolving funds, many of the county funds were not allowed to revolve and therefore did not make the projected contributions they were supposed to make. Despite close supervision, the situation did not improve as much as it should have. While the revolving fund concept remains viable in China, as demonstrated in other projects, this project has shown that, unless strong support is given by bureau of finance officials, the funds are unlikely to be fully effective. 53. The decentralization of responsibility for implementation of irrigation and drainage works, and subsequent O&M, requires substantial support from the province to develop the necessary local technical, managerial and financial capabilities. Project support should extend beyond the preparation of water resources management, and O&M plans to cover technical and institutional implementation. For the technically efficient and cost 15 effective piloting of new irrigation technology, use should be made of the best available international expertise. 54. Environmental improvement under the project was based on the combination of irrigation and windbreaks. This successful combination should be implemented in other areas prone to wind erosion. 55. Adequate and timely allocation of counterpart funds is a prerequisite to smooth implementation on schedule; lack of counterpart funds inevitably leads to implementation delay and increases in project cost. 16 PART II. STATISTICAL TABLES TABLE 1: SUMMARY OF ASSESSMENTS A. Achievement of Objectives Substantial Partial Negligible Not Applicable Macroeconomic policies X Sector policies X Financial objectives X Institutional development X Physical objectives X Poverty reduction X Gender issues X Other social objectives X Environmental objectives X Public sector management X Private sector development X B. Project Sustainability Likely Unlikely Uncertain x C. IDA Performance Highly Satisfactory Deficient Satisfactory Identification X Preparation assistance X Appraisal X Supervision X D. Borrower Performance Highly Satisfactory Deficient Satisfactory Preparation X Implementation X Covenant compliance X Operation (if applicable) X E. Assessment of Outcome Highly Satisfactory Unsatisfactory Highly Satisfactory Unsatisfactory x 17 TABLE 2: RELATED BANK LOANS/CREDITS Loan/Credit Title Purpose Year of Status Approval Preceding Operations 1. North China Plain Agriculture Irrigation Development FY82 Complete (Cr.1261-CHA) & Land Improvement d 2. Gansu Provincial Development Irrigation & Agriculture FY85 Complete (Cr.1793-CHA/Ln.2812-CHA) Development d 3. Shaaxi Agricultural Development Irrigation & Agriculture FY89 Complete (Cr.1997-CHA) Development d 4. Hebei Agricultural Development Irrigation & Agriculture FY91 Complete (Cr.2159-CHA) Development d Following Operations 1. Sichuan Agriculture Development Irrigation & Agricultural FY92 To be (Cr. 241 1-CHA) Development completed in 12/99 2. Anning Agricultural Development Irrigation & Agricultural FY99 Active (Cr. 3165-CHA/Ln. 4436-CHA) Development TABLE 3: PROJECT TIMETABLE Steps in Project Cycle Date Planned Date Actual Identification May 7, 1989 May 15, 1989 Pre-appraisal May 19, 1990 May-June, 1990 Appraisal October 12, 1990 Oct.-Nov., 1990 Negotiations March 18, 1990 April 1-14, 1991 Board Presentation May 23, 1991 May 14, 1991 Signing June 20, 1991 June 20,1991 Effectiveness August 23, 1991 August 23, 1991 Mid-Term Review October 31, 1993 July 1994 Project Completion December 31, 1996 December 31, 1998 Credit Closing December 31,1997 December 31, 1998 18 TABLE 4: CREDIT DISBURSEMENT: CUMULATIVE ESTIMATED AND ACTUAL (US$'000) FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 Appraisal estimate 10,000 26,000 50,000 77,000 94,000 105,000 110,000 Actual 15,829 28,327 46,013 69,728 99,948 110,227 115,968 116,547 Actual as% ofadjusted 158 109 92 91 106 105 105 106 estimate Date of final disbursement 3/18/99 TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION Project Key Implementation Indicators Unit SAR MTR Actual Component in SAR/President's Report Estimated Adjusted IRRIGATION, DRAINAGE & WELLS 1. YRDS, Drainage & River Regulation Schemes A. Development Areas ha 146,500 146,500 138,093 B. Earth Works Desilting Basins No. 10 3 3 Main Canal Linings '000M3 25,143 25,143 20,643 Gates & Buildings No. 2,635 2,535 2,956 Branch Canals '000M3 23,245 23,245 20,127 Gates & Buildings No. 46,905 46,905 37,574 C. New Structures Regulators/offtakes No. 984 984 1,280 Bridges No. 1,640 1,640 2,137 Lateral/sublateral/on-farm No. 45,600 43,341 45,440 D. Installation of Equipment Pumps/motors Sets 4,300 Canceled E. Well Irrigation Shallow Wells No. 4,900 4,900 3,104 2. Groundwatei Well Irrigation A. Development Area ha 84,000 84,000 83,700 B. Well Construction Shallow Wells - New No. 8,932 8,932 9,557 Shallow Wells - Rehab. No. 3,617 3,617 4,021 19 C. New Pump Sets Submersible No. 8,366 8,366 6,689 Centrifugal/electric No. 4,058 4,058 1,185 3. Yu-Xia-Yong Drainage and Well Irrigation Scheme A. Development Area ha 40,200 40,200 40,200 B. Surface Drainage/canals Improved Main/canal km 160 160 160 New Lateral/sublaterallon-farm km 800 800 682 C. New Structure Bridges/culverts No. 122 122 126 Lateral/sublateral/on-farm No. 2,160 2,160 2,598 D. Well Construction Shallow Wells - New No. 1,280 1,280 1,300 Shallow Wells - Rehab. No. 1,672 1,672 1,703 4. Dongshahe Regulation Scheme A. Development Area ha 11,500 11,500 11,500 B. Construction River Control/regulation km 91.4 91.4 91.4 Dredging/embanking mil.M, 4.5 4.5 4.5 Bridges No. 74 74 79 5. Qucun Pilot Recharge/Storage and Irrigation Scheme A. Scheme Area ha 6,700 6,700 5,500 B. New Canal/drains New Lining km 35 35 20 Main/branch km 100 100 100 Lateral/sublateral/on-farm No. 217 217 173 C. New Structure Main/branch No. 48 48 98 Lateral/sublateral/on-farm No. 718 718 3,877 AGRICULTURE: 1. Inputs Procurement DAP Imports Tons 21,500 21,500 21,500 TSP Imports Tons 100 100 100 Urea Tons 1,575 1,575 1,575 Pesticide Imports Tons 480 135.8 135.8 2. Construction & Rehabilitation Seed Processing Centers No. 20 16 16 Greenhouses No. 1,125 11,125 1,325 3. Agricultural Support Services 20 Township Extension Station No. 80 80 80 County Plant Protection Station No. 20 20 20 County Extension Station No. 20 20 20 FRUIT & TREE DEVELOPMENT 1. Orchards Apple ha 6,354 6,868 6,687 Apricot ha 800 800 800 Grape ha 200 200 200 Plum ha 400 400 400 Pomegranate ha 800 466 466 Dates Rehabilitation ha 2,000 2,000 2,000 MulberrYla ha - 2,667 2,667 2. Windbreak ha 5,600 5,600 5,601 3. Wickers ha 1,500 1,500 1,500 4. Mulberry Plantationa ha - 2,667 2,667 LIVESTOCK Beef Cattle HH 3,000 3,000 3,300 Sheep HH 1,500 3,000 3,540 Hide Goat HH 4,000 5,500 5,700 Alfalfa Production HH 1,200 384 384 Boiler Production HH 2,100 300 2,400 Pig Raising HH 300 3,400 3,800 Commercial Pig Farm No. 6 8 6 Pig Breeding Farmia No. - 2 2 Chicken Breeding Farmna No. - 1 1 Chicken Slaughter Line No. 7 3 3 Chicken Slaughter Line No. 7 3 3 ACQUACULTURE Fish Ponds ha 1,014 1,481 1,493 Hatchery ha 63.5 63.5 77.6 Feed Mill No. 4 7 4 Fish Meal Procurement Tons - 1,893 1,893 AGRO-INDUSTRY Changyuan Paper Mill ton/year 11,000 15,000 13,500 Wuzhi Paper Mill ton/year 30,900 25,000 5,200 Wenxian Cornstarch ton/year 15,000 17,000 10,600 Puyang Bio-products ton/year 110 3,000 15,000 Wuzhi Cold Store ton/year 1,500 1,500 1,000 Tongxu Cold Store ton/year 1,500 1,500 1,000 Yuanyang Cold Store ton/year 1,500 1,500 1,000 Kafeng Board Milla ton/year - 30,000 38,000 Jiyuan IQF Plant' ton/year - 5,000 24,000 Puyang Silk Milla ton/year - 100 80 Wuzhi Sheepskin milla '000piece/year - 510 240 16 Seed Processing plants ton/year 78,900 78,900 50,836 21 TECHNICAL ASSISTANCE & TRAINING 1. Domestic Training Agriculture County Technicians Person-day 632 632 816 Township Technicians Person-day 1,280 1,280 1,285 Farmers Person-day 109,161 109,161 102,995 Forestry County Technicians Person-day 540 540 818 Township Technicians Person-day 11,300 11,300 16,974 Farmers Person-day 3,900 3,900 5,947 Livestock County Technicians Person-day 931 931 980 Township Technicians Person-day 156 156 350 Farmers Person-day 24,513 24,513 30,000 Aquaculture Technicians & farmers Person-day 3,600 3,600 3,643 Water Conservancy Technicians Person-day 50 50 50 Agro-industrial Plants Changyuan Paper Mill Man-year 500 500 680 Wuzhi Paper Mill Man-mon 500 500 170 Wenxian Cornstarch Man-mon 156.4 156.4 300 Puyang Bio-products Man-mon 700 700 258 Wuzhi Cold Store Man-mon 5 5 3 Tongxu Cold Store Man-mon 8.9 8.9 4.5 Yuanyang Cold Store Man-mon 8 8 4 Wuzhi Sheepskin Mill"* Man-mon 100 100 0 Kaifeng Board Mill" Man-mon - 3,024 166 Jiyuan IQF Plant" Man-mon - 150 977 Puyang Silk Milla Man-mon - 200 480 2. Overseas Training Study Tours No. 6 6 6 Participants No. 34 34 34 3. International Consultants Man-time 12 12 14 4. Project Management Procurement Person-day 250 250 260 Launch Workshop Person-day 720 720 720 Engineering Management Person-day 1,340 1,340 1,345 Application of Computer Person-day 1,400 1,400 405 Project management Person-day 1,400 1,400 1,440 /a Added at mid-term review. /b Training was provided by the equipment supplier. 22 TABLE 6: KEY INDICATORS FOR PROJECT OPERATION Item Description SAR Estimated Actual for Year 1998 Incr. Area Yield Incr. Incr. Area Yield Incr. ('000ha) (ton/ha) Production ('000ha) (ton/ha) Production ('000 ton) ('000ton) A. Crop (1) Zhaokou West YRDS 1. Wheat 50 4 65 55 5.69 114.4 2. Corn 15 4.5 30 15.3 7.2 41.5 3. Sweet Potato 2 4 1.6 4.3 6.8 10.32 4. Cotton 19 1 5.7 21.1 1.05 6.33 5. Peanuts 18 2.5 18 19.4 3.44 30.1 6. Soybean 4.5 1.6 1.35 3.4 3 4.76 7. Rapeseed 3.3 1.7 1.65 0.47 1.88 0.53 8. Water melon 2.5 30 12.5 2.1 31.6 44.6 9. Vegetables 1.9 30 11.4 1.9 44.3 65.2 (2) Xiangfuzhu YRRD 1. Wheat 17 4 22.1 20.9 6.17 47.4 2. Corn 5.6 4.5 11.2 6.95 6.69 13.1 3. Paddy 6 4.5 9 6.17 7.51 12.3 4. Sweet Potato 0.2 4 0.16 1.02 6.54 2 5. Cotton 4.2 1 1.26 4.07 0.93 0.32 6. Peanuts 3 2.5 3 2.6 4.35 6.5 7. Soybean 1.6 1.6 0.48 1.21 1.9 1 8. Rapeseed 2 1.7 1 0.43 1.5 1.4 9. Water melon 0.21 29.1 1.8 10. Vegetables 0.9 30 5.4 1.46 39.26 22.86 (3) Shitouzhuang YRDS 1. Wheat 12 4 15.6 15.4 5.86 36.3 2. Corn 4 4.5 6.8 7.18 5.43 5.96 3. Sweet Potato 0.2 4 0.16 0.73 6.8 0.37 4. Cotton 3 1 0.9 2.13 0.8 3.62 5. Peanuts 1.7 2.2 1.19 1.45 3.74 0.83 6. Soybean 0.7 1.6 0.21 0.92 1.8 0.37 7. Rapeseed 1.4 1.7 0.7 0.34 1.6 0.14 8. Water melon 0.13 30.8 1.08 9. Vegetables 0.8 30 4.8 1.24 36.4 20.3 (4) Shangqiu D& Well 1. Wheat 18.0 4 23.4 37.8 4.92 55.94 2. Corn 10 4.5 17 24.9 5.65 39.34 3. Sweet Potato 0.9 4 7.2 2.7 4.2 2.6 4. Cotton 6.8 0.9 1.36 4 0.82 0.8 5. Peanuts 1 2.5 1 1.35 2.9 0.61 6. Soybean 1.2 1.6 0.48 2.21 1.95 1.1 7. Rapeseed 1.4 1.7 0.7 8. Water melon 1.15 21 4.6 9. Vegetables 1 30 7 4.9 31.6 38.22 23 Item Description SAR Estimated Actual for Year 1998 Incr. Area Yield Incr. Incr. Area Yield Incr. ('000ha) (ton/ha) Production ('000ha) (ton/ha) Production ('000 ton) ('000ton) B. Forestry (1) Apple Orchard 6,687 22.5 150.5 6,687 22 147 (2) Apricot Orchard 800 15 12 800 9.75/a 7.8 (3) Plum Orchard 400 15 6 2,000 12.8a 5.1 (4) Grape Orchard 200 22.5 4.5 200 45 9 (5) Pomegranate 466 15 7 466 6.4 3 (6) Date Rehab. 2,000 1.9 3.8 2,000 1.65 3.3 C. Aquaculture (1) Fish Pond 1,049 10 10.5 1,493 15 22.4 (2) Fish Feedmill 4 2,500 8.5 4 2,500 8 Item Description SAR Estimated Actual for Year 1998 No. of Animal/ Total No. of Animal/ Total House- House- Production House- House-hold Production holds hold holds D. Livestock (1) Sheep 1,500 10 15,000 3,540 12 42,480 (2) Goat 4,000 10 40,000 5,700 12 68,400 (3) Cattle 3,000 10 30,000 3,300 10 33,000 (4) Broiler 2,100 2,500 5,250,000 2,400 2,438 5,850,000 (5) Pig 300 60 18,000 3,400 36 122,400 (6) Pig Breeding Farm 2 2,000 4,000 2 2,000 4,000 (7) Chicken Breeding 1 40,000 parent chicken, Farm 4 million checks /a Yields at various stages of fruit trees which are not in full production. 24 TABLE 7: STUDIES INCLUDED IN PROJECT Study Purpose as Defined Status Impact of Study at Appraisal/Redefined 1. Approaches for Increasing Increase farmers' Completed Applied to farmers' practice and Farmers' Income. income Awarded provided policy accordance. 2nd Place 2. Improvement of Fertility of As title Completed Adopted the result in 0.6 million ha, Sandy Soil and Increase Crop increased 37,270 tons of wheat, and Yield. 22,626 tons of peanuts. 3. Technique for Utilization of As title Completed Adopted the result in 0.66 million Fertilizer for Wheat and ha, grain yield increased by Maize Rotation. 560kg/ha. Fertilizer utilization efficiency increased by 10%. 4. Identifying Variety and As title Completed Adopted new varieties in 20,950 ha, Cultivated Technique of increased production of 82,950 tons. Water Melon. 5. Breeding and Adoption of As title Completed Adopted new variety in 0.133 New Variety of Hybrid Maize million ha. Increased production of and Cultivated Technique for 112,000 tons. Plating Seed. 6. Identification and Adoption of As title Completed Adopted new varieties to 7,200 ha, New Varieties of Peanuts and increased yield by 10-15%. Soybean. 7. Disease and Pest Prevention As title Completed Adopted and demonstrated in 3,500 for Wheat, Cotton, and Rice. 1st Place ha, reduced cotton production cost. 8. Study on Pig and Chicken As title Completed Adopted the technique to farm Feed Formulation and households. Feeding Technique. 9. Raising Technique of Cross- As title Completed Introduced to farm household breed Beef Cattle and 2nd Place practice. Demonstration. 10. Experiment of Feeding Cattle As title Completed Applied at farm households. with Ammoniated Straw at Household Level. 11. Development Livestock As title Completed Provided information to policy Resources and Market 3rd Place makers. Projection for Livestock Products. 12. Raising Technique As title Completed Introduced to farm households. Improvement and Demonstration for Goat and Sheep. 25 Study Purpose as Defined Status Impact of Study at Appraisal/Redefined 13. High-nutritional Apple As title Completed Applied in production practice. Characteristics and Cultivated 2nd Place Technique Demonstration and Adoption. 14. High-yield Cultivated As title Completed Applied in production practice. Technique for Multi-fruit Production. 15. Study and Application of As title Completed Applied in fish pond production, Comprehensive High-yield 1St Place increased yield and prevent disease. Technique for Fish Pond. 16. Qucun Recharge/Storage As title Completed Applied in production practice. Irrigation Experiment. 3rd Place 17. Water-saving Irrigation As title Completed Applied in production practice. Technique. Progress Award 18. Program of Operation and As title Completed Implemented in the YRDS. Maintenance of Irrigation Progress System. Award 19. Water Resource Management As title Completed Provide information for policy Plan. Progress makers. Award 20. Pilot Experiment for Water As title Completed Applied in YRDS areas. Resource Management in Qucun YRDS. 21. Equilibrium of Water As title Completed Provided information to policy Demand and Supply of makers. Yellow River Comprehensive Development. 22. Comprehensive Research for As title Completed Being disseminated. Agricultural Technique. 2nd Place 26 TABLE 8A: PROJECT COSTS ($ million) Item Appraisal Estimate Mid-term Review Adjustment Actual/Latest Estimate Local Foreign Total Local Foreign Total Local Foreign Total costs costs costs costs costs costs A. Irrigation & Drainage 55.82 32.20 88.02 48.15 29.77 77.92 58.83 23.54 82.37 B. Agriculture & Forestry 8.09 11.38 19.47 8.11 15.80 23.87 7.39 12.57 19.96 C. Livestock Development 11.98 8.11 20.09 17.64 18.46 35.91 16.06 16.59 32.65 D. Aquaculture Development 5.77 3.90 9.67 8.91 8.78 17.69 10.93 7.15 18.08 E. Agroindustry 14.34 20.13 34.47 27.31 43.94 71.25 35.86 55.72 91.58 F. Project management 0.64 0.95 1.59 0.45 1.19 1.64 0.98 0.98 Base Costs 96.64 76.67 173.31 110.57 117.94 228.51 129.07 116.55 245.62 Physical Contingencies 5.53 6.14 11.67 Price Contingencies 2.69 8.36 11.05 Total 104.86 91.17 196.03 110.57 117.94 228.51 129.07 116.55 245.62 TABLE 8B: PROJECT FINANCING ($ million) Appraisal Estimate Actual/Latest Estimate Source Local costs Foreign costs Total Local costs Foreign costs Total IDAa - 117.9 117.9 - 116.5 116.5 Provincial 31.5 - 31.5 22.4 - 22.4 Government Prefecture 7.8 - 7.8 9.3 - 9.3 Government County 16.2 - 16.2 8.2 - 8.2 Government Commercial Banks 9.1 - 9.1 19.1 - 19.1 Beneficiaries 46.0 - 46.0 70.0 - 70 Total 110.6 117.9 228.5 129.1 116.5 245.6 /a It was $ 110 million at appraisal and became $117.9 at mid-term review due to depreciation of SDR to US$. 27 TABLE 9: EcoNoMIC COSTS AND BENEFITS Economic Rate of Return Net Present Value @12% at ICR At ICR At SAR At ICR At SAR (%) (%) (Y'000) (Y'000) 1. Crops - Zhaokou YRDS Area 45.1 34.6 502,720 474,735 - Qucun YRDS Area 36.6 36.7 95,500 190,362 - Xiangfuzhu YRDS Area 43.2 37.0 90,800 143,979 - Shitouzhuang YRDS Area 45.1 42.4 152,090 116,158 - Ground Water Area 57.8 49.7 197,660 425,733 - Yuxiayong Drainage Area 30.8 26.9 234,300 41,056 - Dongshahe Area 35.2 29.8 109,350 66,518 Total Crop Component 50 38.4 1,539,764 1,467,279 2. Fruit and Tree Crops 47.6 36.7 465,894 266,249 3. Livestock Component - Beef cattle 35.0 27.8 34,267 29,013 - Sheep 31.8 29.3 3,692 5,523 - Broiler 57.2 49.3 19,122 17,771 - Goat 35.5 34.0 19,948 8,167 - Pig farm 32.6 39.0 21,003 42,095 - Pig Households 29.8 39.9 28,113 2,545 Total Livestock Component 35.2 28.6 239,040 91,761 4. Aquaculture - Xinxiang Municipality 39.6 26.0 17,660 13,568 - Jiaozuo Municipality 22.0 20.6 3,028 7,833 - Shangqiu Municipality 49.8 30.8 13,240 11,513 - Puyang Municipality 37.0 27.4 4,208 5,670 - Jiyuan City 22.7 5,111 - Kaifeng Municipality 43.6 4,442 Total Aquaculture 34.7 25.6 41,313 38,764 5. Agro-industry 25.6 31.2 401,053 246,858 Total Project 40.0 35.8 2,348,781 2,063,473 28 TABLE 10: STATUS OF LEGAL COVENANTS Agreement Section Covenant Present Original Revised Description of Covenant type status fulfillment fulfillment date date Credit Article 11 2.02(b) 01 C Government to open and maintain special account. Project Article II2.02(b) 01 C Establish and maintain four revolving funds at ABC. Schedule 2-4(a) 06 C Agro-chemicals to be approved by IDA. Schedule 24(b) 06 C All project activities comply with environmental standards acceptable by IDA. Schedule 2-4(c) 06 C Henan EPB's approval of the final designs of effluent treatment from agro-industries. Schedule 24(d) 06 C Agro-industries maintain a system in accordance with the designs approved by HEPB. Schedule 2-5(a) 09 C Submit semi-annual progress reports by January 31 and July 31 of each year. Schedule 2-5(b) 09 C 10/31/1993 07/20/1994 Conduct a mid-term review no later than October 31, 1993 Schedule 2-5(c) 09 C 12/31/1993 09/30/1994 Submit progress of the mid-term review no later than December 31, 1993. Schedule 2-6(a) 13 C Resale prices of imported fertilizer and pesticides are determined using methodology accepted to IDA. Schedule 2-6(b) 13 C The exercise in 6(a) to be done annually. Schedule 2-7(a) 10 C 12/31/1992 06/30/1993 Submit water resources management plan for review by December 31, 1992. Schedule 2-7(b) 10 C 12/31/1992 Submit operation and maintenance plan by December 31, 1992. Schedule 2-7(d) 10 C 11/01/1996 06/01/1997 Provide revised water charges rate to cover all operating and maintenance costs by Nov. 1, 1996. Schedule 2-8(a) 10 C Provide draft operational guidelines of agro-industries for review. Schedule 2-9(a) 05 C All overseas training and study tours to be approved by IDA. Schedule 2-10(a) 03 C Submit a statement of proposed budgetary allocation by January 31 and if approved budget by April 30. Covenant Class: Status: 1 = Accounts/audits 8 = Indigenous people C = complied with 2 = Financial performance/revenue generation 9= Monitoring, review, and reporting from beneficiaries 10 = Project implementation not covered by 3 = Flow and utilization of project funds categories 1-9 4 = Counterpart funding I1 = Sectoral or cross-sectoral budgetary or 5 = Management aspects of the project or executing agency other resources allocation 6 = Environmental covenants 12 = Sectoral or cross-sectoral policy/regulatory/ 7 = Involuntary resettlement institutional action 13 = Other 29 TABLE 11: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS The project is in compliance with the applicable Bank Operational Manual Statements TABLE 12: BANK RESOURCES: STAFF INPUTS Planned Actual Stage of project cycle Weeks $ Weeks $ Preparation to appraisal n.a. n.a. 184.2 550.7* Appraisal n.a. n.a. 49.6 149.4 Negotiations through Board approval n.a. n.a. 9.1 28.5 Supervision n.a. n.a. 152.3 472.9 Completion 16 40.2 19.8 64.7 Total 415.0 1,266.2 * This amount includes FAO estimated average of $3,050/week as actual figures were not available for FY89 and FY90. 30 TABLE 13: BANK RESOURCES: MISSIONS Performance rating Number Specialized Develop- Stage of Month/ of Days in Staff skills Implement- ment Type of Project cycle Year Person Field represented ation Status Objectives Problems Identification May 1989 3 6 Irrigation Engineer Agronomist Agronomist Preparation Nov. 1989 10 25 Agric. Economist Economist Irrigation Engineer Agronomist Economist/Project Analyst Livestock & Aquaculture Spec. Meat Processing Spec. Agro-processing Spec. National Water Resources Consultant Operations Agriculture Spec. Pre-appraisal May 1990 7 30 Agric. Economist Irrigation Engineer Agronomist Livestock Specialist Agro-Industries Spec. Environmental Engineer Aquaculture Specialist Appraisal Oct. 1990 8 22 Irrigation Engineer Agronomist Livestock Specialist Agro-Industries Spec. Aquaculture Spec. Agro-Environmental Protectionist Biologist, Env. Consultant Agric. Economist Division Chief Supervision July 1991 5 6 Agric. Economist S S Irrigation Engineer Agro-Industries Spec. Aquaculture Specialist Meat Processing Spec. May 1992 3 11 Livestock Specialist S S Irrigation and Sr. Agric. Economist drainage component - Irrigation Engineer water not reaching farmers' fields October 1992 2 7 Agro-Industries Spec. S S Slow progress under Aquaculture Specialist aquaculture component. July 1993 6 8 Aquaculture Specialist, S S Delay in the Livestock Specialist implementation of Agro-Industries Spec. agro-industries Procurement Analyst component Sr. Agric. Economist Irrigation Engineer 31 Performnance rating Number Specialized Develop- Stage of Month/ Of Days in Staff skills Implement- Ment Type of Project cycle year person Field represented ation status Objectives problems July 1994 5 10 Agro-Industries Spec. S S Delay in procurement Aquaculture Specialist of materials and Sr. Agric. Economist equipment under Livestock Specialist agro-processing Irrigation Engineer component June 1995 5 10 Aquaculture Specialist S HS Slow disbursement on Livestock Specialist agro-processing and Agro-Industries Spec. irrigation and Irrigation Engineer drainage components Water Resources Spec. June 1996 5 12 Aquaculture Specialist S S Lack of counterpart Livestock Specialist funds on additional Agro-Industries Spec. components. Water Resources Spec. Irrigation Engineering May 1997 7 12 Irrigation Engineer S S Delay in the Agricultural Economist construction and Agro-Industries Spec. equipment installation Aquaculture Specialist of two agro- Agricultural Economist processing plants. Livestock Specialist Procurement Assistant March 1998 3 7 Sr. Agric. Economist HS HS None Agro-Industries Spec. Agricultural Economist ICR April 1999 4 12 Ag. Economist S S Irrigation Engineer Agronomist Agro-Industries Spec. 32 ANNEX A CHINA HENAN AGRICULTURAL DEVELOPMENT PROJECT ICR Mission (April 19-30, 1999) Aide-Memoire A. Introduction 1. A joint World Bank (IDA) and FAO/World Bank Co-operative Program (FAO/CP) mission consisting of Mme. Zhong Tong (agricultural economist, IDA, mission leader), Messrs. Michael Sandoz (irrigation specialist, FAO/CP), Alvaro Bueno (agriculturist, FAO/CP), and David Gue (agro-industry specialist, consultant) visited Henan province, China during April 19-30 to prepare the Implementation Completion Report (ICR) for the Henan Agricultural Development Project. The mission visited Kaifeng, Puyang, Wuzhi and Jiyuan with selected sites covering irrigation, agriculture, forestry, livestock, aquaculture, and agro-industry. The field visits provided the mission with an opportunity to observe the effects of project implementation and operation. The mission also held intensive discussions with the PPMO, provincial BoF, and related technical bureaus. The project management offices prepared an overall ICR report and individual ICRs for each component, with supporting data. These were very helpful for the mission to prepare the Bank's ICR. The wrap-up meeting was held in Zhengzhou on April 30, 1999. 2. The draft of Aide Memoire summarizing findings, primary conclusions, and recommendations from the ICR mission has been given to the PPMO after wrap-up meeting. The finalized Aide Memoire will be sent from IDA headquarters and will be attached to the ICR. 3. The mission would like to express its sincere thanks to PMO's at all levels, provincial DoF, and all technical bureaus and governments of Kaifeng, Puyang, Wuzhi and Jiyuan for their support, cooperation, and hospitality. B. Background 4. Project Origin. The Government of China requested IDA to finance an integrated agricultural development project in the Province of Henan. The Province formed the Project Leading Group (PLG) and project management offices at all levels from provincial to prefecture and county to take responsibility for project preparation and implementation. The project was identified in May 1989 and prepared in November/December 1989 by the Henan Provincial Government with assistance from FAO/CP. A pre-appraisal mission visited the project area in May/June 1990, and appraisal took place in October/November 1990. 5. Project Objectives. The main objectives of the project were to assist the government of Henan in accelerating and diversifying agricultural development in order to alleviate poverty, raise famner incomes and increase rural employment. The project specifically was to: (a) provide additional irrigation water by completing construction of 33 four Yellow River Division Schemes (YRDS) and sinking wells; (b) alleviate soil salinity and water-logging problems by investing in drainage and flood protection schemes; (c) increase the productivity of existing low-yield farms by crop intensification and diversification; (d) develop wastelands for crops, alfalfa and orchards; (e) expand livestock production through effective use of crop residues; (f) develop low-lying areas for fish production; (g) invest in agro-processing and agro-industry; (h) improve the province's ability to manage water resources effectively; and (i) strengthen research, extension and environmental protection programs. 6. Covenants were limited and well-focused on: (a) establishment of a special account at the provincial DoF and four revolving funds (for ground water development, farm inputs, orchard development, and livestock development) at county BoF; (b) water resource management plan for new and rehabilitated wells; (c) operational guidelines for the agro-processing and agro-industrial enterprises; (d) environmental aspects (effluent control for agro-industries and approval of agro-chemicals by environmental authority); and (e) reporting on water charges and their revision for surface irrigation schemes, annual project progress, and resale prices for imported fertilizer and pesticides. 7. Project Organization. The government of Henan was responsible for overall project implementation. Senior officials from concerned provincial agencies served in the Provincial Project Leading Group (PPLG) which set policy for the project and guided the Provincial Project Management Office (PPMO), the project executing body in policy matters. Similar PLGs and PMOs were established at municipal/prefecture and county levels to carry out project policies and activities respectively at these levels. Also five Engineering Headquarters (EHs) were established for each of the four YRDS and the Dongshahe River Regulation Scheme to direct the technical aspects of the irrigation earth works and civil works, including construction supervision and quality control. Scientific and Technical Committees (STCs) were established to make recommendations on technical aspects to PLGs and PMOs. 8. Project Implementation. The project became effective on August 23, 1991 but implementation of irrigation and drainage, aquaculture, and livestock components began after appraisal using retroactive-financed funds totaling US$4.45 mission. A mid-term review in 1994 made some adjustments in component composition and size in response to the market changes and other factors. The major factors were: (i) the exchange rate changed such that SDR depreciated relative to USD and USD appreciated with respect to RMB; (ii) reduction of ICB and NCB costs for equipment, materials and civil works, and cancellation of well pumps, diesel generators, and pesticides. These made more project funds available and entailed a quite substantial adjustment: besides the cancellation of the procurement mentioned above and elimination of the sub-component of alfalfa production households, the number of livestock specialized households for raising pigs, chicken, goat, and sheep was increased and five agro-processing factories, four fish feed mills, four chicken breeding farms, and two pig breeding farms were added to the project. Later on, with the Bank's approval, the project made further adjustment by canceling four chicken slaughtering/processing operations, three chicken breeding farms, four fish feed mills (constructed using own funds) and two agro-processing factories (Mengxian DDGS and Yongcheng reeling mill). These timely adjustments enable the project to avoid unnecessary delay and costs. The PMOs established implementation regulations for 34 management and inspection. The concerned technical bureaus closely collaborated with PMOs and provided technical support during the implementation. The project also experienced some difficulties from changes outside its control, for example, in the government policy on import duties (removed the exemption for Bank-financed projects), domestic approval procedure for procurement documents, and working capital availability. However, the PMOs tried with considerable effort to overcome these problems to get the project going. IDA also provided technical advice and assistance. The project was successfully implemented and completed. C. Mission Findings 9. Irrigation and Drainage. Irrigation and drainage infrastructure provided under the project has been generally suitable and effective in terms of concept and adequate in terms of design and construction quality. Also commendable have been the joint efforts of the responsible local bureaus and beneficiary farmers in ensuring the satisfactory execution of vital basic maintenance activities on the completed works. 10. Zhaokou West YRDS. System concepts and designs appear to have been adequate and appropriate to the local conditions. Earthworks do not appear to be very compacted in some embankment fill areas but are otherwise of good quality; in any case canal sections are primarily in cut, requiring that irrigation be effected by pumping from the canals. The quality of structures is considered acceptable but somewhat rough. Basic routine maintenance within earth channel sections (weeding, desilting and some restoration of slopes) and at structures (painting and lubricating) generally seems to be carried out in a good and timely manner, which is commendable. On the other hand, it is not apparent that such attention is given to some heavier maintenance/repair needs (structure and gate system repairs, and road grading). The contrast in performance between relatively easy routine maintenance and somewhat more demanding non-routine maintenance and repairs is noticeable here and elsewhere, and should be addressed. To a large but not exclusive extent this reflects the division of responsibilities for maintenance between farmers and local WCB operation and maintenance (O&M) offices; budget limitations will also be a factor, since water charges may not cover much more than WCB staff salaries and operational expenses. There is farmer satisfaction with the improved irrigation facilities. 11. Qucun YRDS. A total of three desilting basins along the upper reaches of the main canal was prepared under the project in 1993, 1996 and 1998 respectively. As with previous desilting basins, the project basins once filled with silt will be restored to agricultural production, and the process will continue at new sites. The linings viewed were generally sound and intact, but that was not the case in at least one location. Since a small failure can lead rapidly to a major one, proper repairs to embankments and linings should be undertaken at such locations without delay. Unlined earth channel sections are well maintained. The same cannot be said about a main drain discharge control structure built under the project in 1993, where the gates are not in a good state of repair. At the lateral, sublateral and on-farm levels of the system, two distinct experimental water- saving systems were built in 1997 under the project, as trial alternatives to the traditional unstructured and individualistic mobile-pump approach to farm-level irrigation. It is suggested that some alternative low-cost physical and organizational measures, to 35 improve directly the efficiency of the currently dominant farm-level irrigation methods, could be explored. Positive project impacts were observed at the site of a project that excavated drains in 1995 for relief of waterlogging. 12. Qucun Pilot Recharge/Storage and Irrigation Scheme. Indications are that the pilot scheme has achieved success; results reportedly show that (i) ground water pumping in the project area has markedly reduced, (ii) water table depths below ground level in the project area have stabilized at 15-20 m, (iii) the water table in areas downstream from the project area has risen by 3 m, and (iv) the water table in other adjacent areas, which are unaffected by the project, is dropping by 0.7 m per year. The lateral/sublateral level system, which is similar in many respects to the first Qucun YRDS experimental system referred to above, seems well conceived. 13. Wuzhi GWDS. The project interventions occurred in 1992-1993. They were planned to be financed by loans to farmers via a project revolving fund arrangement, but as noted above this was not achieved; farmer contributions to investment costs were normally limited to provision of labor. The pump and/or electrical connections and controls at most locations are removed by the wellmaster for safekeeping when not in use, leaving exposed wiring; this and other electrical system features may constitute safety hazards and should be reviewed. It was noticed that basic care and maintenance activities within the capacity of the wellmaster are generally performed as needed, but that more major tasks (such as repair of a broken wellhead plinth) are not. This mirrors the pattern of repair and maintenance deficiencies noted above. Problems noted with some of these systems include (i) some lack of acceptance by farmers of the communal system when it cannot accommodate irrigation needs outside of the normal pattern, and (ii) little attention given to detail, quality, and appropriate assembly and use, in the case of a locally initiated, installed and operated sprinkler system. For most areas it is considered that the original basic well irrigation arrangement, preferably with buried electricity cables and not necessarily including pump houses, together with earth channel distribution systems, is suitably simple, practical and appropriate for the local conditions. Villagers met with at two of the locations indicated that there was much satisfaction with the impact of the original project installations. 14. Agriculture component includes seed centers, greenhouses, and inputs. Seed centers supported by the project are fulfilling their responsibility to provide farmers with improved seeds of the most important crops. The high quality of the seed is, undoubtedly, one of the major factors responsible for the steady increase in yield. 15. There is measurable evidence that the improved design of tunnel greenhouses is contributing to diversification of production, increased crop output and total household income. But, it is important that an adequate credit scheme, using revolving funds established under the project, be in place for this technology to reach a larger number of farmers. 16. The emphasis given to farmer's training will contribute significantly for improvement of technical capability and social conditions in rural communities supported by the Project. 36 17. Forestry/Horticulture. The plant disposition of the improved windbreak is better than traditional one-row planting of trees around canals and roadways and can serve as demonstration site for training of other farmers. The windbreak will have a long lasting beneficial effect on improvement of soil conditions and fertility, fundamental factors for sustainablility of farming in small landholding. Orchards visited are well managed and can be used as demonstration sites for training and extension purposes. The package of assistance provided by the project has a high degree of replicability in other similar agro- ecological and market conditions. 18. Livestock. Raising cattle, goats, and sheep is a good opportunity to use more rationally crop residues available in the farm, especially leaves of peanut and sweet potato that have good nutritional value. The manure produced is an excellent organic fertilizer, especially for vegetable production. The net profit generated will contribute significantly to raise farm household income. 19. The pig operation in Jiyuan represents an well-organized integrated system of production. It is a profitable business and helps farmers to diversify production, make better use of resources, add value to farm products and increase household income. The integrated scheme of broiler production observed in Wuzhi is very successful. This system should be tested also for other livestock species, especially lean pig production. 20. Aquaculture. Fish ponds visited by the mission are well constructed and have good productivity, but the investment necessary to built similar ponds is quite high and most poor families can not afford it without some form of assistance. Operating costs are relatively high, especially feed, therefore, studies on alternative feeding procedures are warranted. 21. Agro-processing. Implementation of the eleven processing plants has been excellent and all processing plants have been constructed to a high standard and are in profitable commercial operation. These units are a good example of Bank investments in small and medium size industries, providing close linkages to the production activities of the project. The seed processing and poultry processing plants have been less successful in implementation and in commercial operation. About 70% of the seed centers are now in commercial operation after a number of quality problems with equipment, and although the poultry processing plants have been well constructed with good equipment, commercial operation is a major problem. These units are looking for commercial partners to take over the operations. 22. Cold Stores for Meat, Fruit and Vegetables. The three plants are well managed and are in profitable commercial production. These units are an excellent example of small scale enterprises: All three plants are making a substantial profit storing and selling meat, fruit and vegetables, and are performing better than expected. All three plants have expanded (at their own cost) into small-scale slaughterhouses, and one plant has applied for registration as the official city slaughterhouse. The units are making an average 22% FIRR after tax, with average post tax 1988 income of Y1.08 million at each plant. These are excellent results if they can be maintained. 37 23. Jiynan IQF Vegetable Factory. This plant was completed in 1996, and is a model of excellent design and construction. The plant was equipped through ICB procurement with two vegetable preparation lines and two Instant Quick Freeze (IQF) fluidized bed vegetable freezing units. The company has expanded with a vegetable production base of 5,000 mu and vegetable fanners under contract, and provides seeds, fertilizers and advisory inputs, and buys the produce at contracted prices. The company has installed one additional processing line and a vegetable preparation area (at their own cost). The commercial operation of this company is very well managed -- a good example for other agro-industries to emulate. The FIRR is 14% after tax and the company made YO.762 million post-tax profit in 1998. 24. Wenxian 12,000 t/y Starch Mill. The corn starch plant has been in commercial operation since October 1994 and in 1997 produced 9,600t of starch powder and 5,000t glucose. The plant has won several awards for product quality, energy efficiency, good process design, and commercial management. Production costs are among the lowest unit costs in China, and the unit has full effluent treatment facilities to meet NEPB standards. Both implementation and commercial operation are highly satisfactory, but there are underlying financial problems: (a) the plant received virtually no counterpart funding from local authorities, and has raised funds through its own resources at high interest rates. The factory is, in effect, working at very high production levels only to cover the debts; and (b) to increase output the plant needs an additional working capital of Y 6.5 million, but there is a shortage of working capital (and the necessary collateral for more loans) that constrains the production. 25. Changyuan 15,000t/y Paper Mill. This mill has been in operation since October 1996, and produced 13,500 tons of writing paper in 1998, which reached 90% of its capacity. It has upgraded the process to double sided coated writing paper. Shortages in working capital constrain the commercial operation, which passed the break-even point in 1997, and made Y14 million post tax profits in 1998. The civil works are well constructed, the equipment is of good quality, and the mill is well managed. The market for paper is good but competitive at present, and sales prices have dropped substantially in the past three years. The company has a strong order book. The effluent treatment plant is comprehensive and functioning well. The power station smoke precipitator is so effective that there is no visible discharge from the smoke stack. The plant has been awarded PEPB approval and met all design effluent and emission targets. 26. Wuzhi Dogbane 25,000 t/y Paper Mill (visited). This plant was commissioned in 1998 and is one of the first paper mills in China to use the Alkali Recovery System (ARS) and continuous pulp digesters, and is specifically designed to be environmentally friendly by producing very little effluent. The civil works are of a very high standard, the equipment is of good quality, and the management is well experienced. The plant started commercial operation in February 1999, and is operating under contract to a Beijing printing company. Discussions on a joint venture operation with this company are in progress. The plant has the potential to generate 15% FIRR after tax with Y57 million per year post tax profits. 38 27. Kaifeng Particle Board Mill. This plant is the largest single investment in phase two of the project, and has been completed and put into commercial operation during 1998. The civil works and equipment are of a high standard and the processing lines were procured by ICB from Bison/Kvaemer of Germany. The overall quality of the plant is excellent, and the quality of management is very good. The plant has commenced commercial operation and has contracts with five major clients that purchase the full production output. Product quality is to international standards, and clients currently pay in advance for their orders, obviating the need for most working capital. Production from start-up in July 1998 to end of March 1999 was 22,000 m3 and peak production achieved was 136 m3/day against the designed rated capacity of 110 m3/day. 28. Puyang Giberellin Mill. This plant was designed to produce crystallized and liquid plant growth hormones from corn starch and glucose, but can produce any bio products that require sterilization, fermentation, concentration and drying processes. The quality of construction and equipment was good. The products achieved the designed National Standard GB15955-1995. The sponsors have since formed a shareholding company in which shares are held by the Giberellin Plant (10%), Beijing Hong Tian Pharmaceutical Co. (80%) and Beijing Bio-Pharma Research Institute (10%). The company has the necessary permits for bio-products production and has invested an additional Y8 million in additional processing and packing equipment. The plant is currently in commercial production of veterinary antibiotic feed additives for poultry. 29. Puyang 100t/y silk reeling mill. The civil construction work is good. The equipment was commissioned in 1997 and achieved 22% capacity in the first nine months of production, and in 1998 increased output to 80% of capacity. Silk grades have increased from 3A in 1997 to 80% 4A in 1998, and the market is currently buoyant for the higher quality 4A silk. The company owns 1500 mu mulberry and cocoon production and buys the remainder of raw materials from contracted farmers, where the company provides all inputs to the farmers including eggs, frames, and technical support. The cocoon farmers in the project area have converted to modem sericulture techniques that produce significantly better cocoons with better results in the semi-automatic reelers. The plant is generating a post tax profit in 1998 of Y2.7 million and should achieve an FIRR of 16% at full capacity. 30. Wuzhi Sheepskin Plant. The tannery started commercial operation in April 1997 and includes an effective effluent treatment facility. Two production lines are installed, one tanning line, and one machine shop for sheepskin and leather products. The plant received no funds or working capital from local authorities and has a debt to equity ratio of 90%. Production in the tannery reached 40% capacity in 1997 and increased to 50% in 1998. The product is good quality and the demand is strong. The plant broke-even in 1998, with a small post tax profit. 31. Poultry Slaughterhouses. Three plants at Kaifeng, Yanjin and Yucheng were completed with facilities to process 1000 birds/hour, and each with 100t cold stores. The facilities and ICB equipment were of good quality, and functioned well but the plants have been very little used largely due to lack of managerial and commercial experience. Efforts 39 are being made to find commercial partners to operate the plants, and these efforts will continue. 32. Seed Processing. After withdrawal and cancellation of nine seed processing lines, eleven plants are in commercial operation, and five have been installed and tested but have not commenced commercial production. The eleven seed companies operated their plants commercially in 1998 and processed a combined 50,836 tons of seeds. NCB equipment quality problems combined with poor management and slow implementation by the seed companies have been a continual source of concern throughout the project implementation. The main components of the plants were made functional although requiring high maintenance levels. Several seed companies modified the equipment, at their own cost, and achieved satisfactory processing from the plant. 33. Environmental Aspects. The mission was pleased to learn the project has positive environmental impact on the project and surrounding areas. The irrigation and drainage schemes reduced frequency of occurrence of drought, flood and sandstorm and improved soil fertility. The well irrigation combined with more efficient utilization of surface water increased underground water level and prevented soil salinity. Windbreak trees blocked or reduced strong winds from the north, while increasing vegetation coverage area. 34. Manure from livestock production is either used for organic fertilizer or for fish feed in the fish pond. Use of ammoniated straw for feed (ruminate animals) reduced air pollution due to straw burning. All agro-processing factories have installed effluent treatment facilities, meet the environmental protection standard, and have been approved by the environmental authorities. 35. Sustainability. The mission has considered that Henan Province has sufficient capacity and resources to continue with the developments that have been commenced under the project, but the mission has made the following recommendations for future operation for the project sustainable development: 36. Implementation of the project has provided excellent facilities for production, processing and marketing of agricultural, livestock and aquaculture products, but sustainability depends on future operation. Technical assistance should, therefore, continue to be provided from the relevant technical bureaus. Training of personnel in production techniques, enterprise management and product marketing should be continued and organized on a regular basis. Key personnel of the PMO should continue to be available for this important coordination role in the future of the project. 37. Management. The mission's site visits indicated significant differences in management ability among various production bases and commercial enterprises, ranging from excellent management at most of the locations to fairly poor results at a few. Good management is essential to ensure successful commercial profitability. The experience of the very successful business models such as Jiyuan Pig Breeding Farm, Wuzhi Chicken Breeding Farm, and Jiyuan Lukang Fast-Frozen Vegetable Company, should be introduced to all enterprises under the project. 40 38. Marketing. In response to market variation, the production structure and variety of products needs to be continuously re-assessed and adjusted. Currently demand for fish and meat (including chicken and pork) is declining, which has driven market prices down. The PMO's and technical bureaus should provide market information to the project areas and assist enterprises and farmers to react to market changes with adjustment in their production and product ranges. 39. Linkages. The project was designed to establish an integrated system with close linkages between production, processing and marketing in all project components. A model of "company + farm households" was designed and developed for this project and has been a powerful tool that has created mutual benefit for producers and commerce, and has reduced risks for both companies and farmers. The mission recommends the extension of this model in other areas. 40. Repayments. The project has already commenced repayment of the loans, and these commitments are the obligation of the project participants. The mission observed that the project has adequate capacity for loan repayment, and many of the farms and enterprises are already operating above their break-even point and have substantial post- tax profits. The PMO's and the finance bureaus, at all levels, need to make adequate loan repayment plans with all project participants, to ensure that the Provincial BoF can meet its commitments to MoF and IDA. 41. The Project Future Operation Plans. The future long term success of all project components will be dependent on good management and administration by the bureaus and enterprises attached to the project. Their long term operating plans should include enabling and facilitating policies, and are important to the sustainability of the project. The operation plans need to make appropriate technical, financial, commercial and institutional arrangements to ensure the continuing effectiveness of project operation. The plan should include the timely provision of necessary inputs; adequate staffing (including training) and management; production plans, management systems, and marketing strategy. 42. Maintenance and Repairs for Irrigation and Drainage Schemes. Basic maintenance of completed works is being undertaken satisfactorily but not in the case of heavier and non-routine maintenance and repairs. To ensure long-term sustainability of infrastructure performance, these tasks will require proper and timely attention. Every effort should be made to secure the necessary funds and resources for this and to effect the corresponding work. For the future developments, the application of advanced irrigation technology has been noted in several small but significant areas. In many instances this can be a high- cost venture that fails to succeed. Caution in the promotion of such developments on a large scale is urged, but a continued focus on pilot projects is encouraged, as long as these can be methodically monitored, analyzed and reported on over extended periods. Also encouraged would be some research attention to low-cost physical and organizational interventions aimed at improving already established and accepted irrigation practices. 41 D. Lessons Learned 43. This agricultural development project was a comprehensive project involving multi- sectors (horizontal) and various level of administration (vertical). Some key lessons to be learnt from its implementation are summarized as follows: * Establishment of an integrated system that links production, processing and marketing can reach optimum utilization of resources and achieve maximum benefit. It is the direction of future development for the agricultural sector. * Contractual relationships establishing forward and backward linkages between company and farm households, or company, production base and farm households, can mutually benefit both and reduce market risk, thereby addressing the main project objectives of increasing rural income and employment opportunities. * Provision of initial working capital for agro-processing is essential to help factories start operation after installation and commissioning of equipment. Initial working capital can be arranged either from the project or from commercial banks. * Management of revolving funds has to be improved. A monitoring system or regulatory structure needs to be established. The project set up revolving funds for well irrigation and livestock households. The utilization of these did not show the great contribution they were supposed to make. * Establishment of comprehensive and detailed implementation procedures is an assurance of a successful project. The procedures should include staff responsibilities, inspection requirements, and procedures for project planning, procurement, civil work construction, finance, monitoring and evaluation (M&E), and training. E. Follow Up 44. The mission will prepare the ICR and will send it to the PPMO for review and comments. The ICR prepared by the PMOs will be attached to the World Bank's ICR. The Operation Evaluation Department (OED) of IDA would randomly select the completed projects for post-review. Henan ADP would have a chance to be selected. 42 ANNEX B: BORROWER'S CONTRIBUTION TO THE ICR A. Actual Implementation Progress of the Project 1. A total investment of 1,810 million yuan has actually been expended, 104.6% of SAR target. Among it, IDA credit is 884 million yuan and 926 million yuan is counterpart funds (147 million yuan from provincial level, 438 million yuan from commercial banks and 341 million yuan from municipalities, counties, and other sources. 2. From August 8, 1991 when the Project started to be implemented to December 1998 when it's totally finished, the project targets have been achieved or even surpassed. And, all the subcomponents have been implemented well. 3. Disbursement of IDA credit for SDR 81.2854 million has been completed, 99.86% of the appraised target. B. Achievement of Objectives (a) Irrigation and Drainage. At appraisal, the planned irrigation area of the eight subcomponents is 288,600 ha. From implementation to the end of 1997, 278,990 ha has brought about benefits, 96.7 % of the SAR. (b) Agriculture. 23175 tons of quality fertilizers and 135.8 tons of high- efficiency chemicals were imported under the project, 100% of plans. 1,325 green tunnels were constructed, 117.7% of the plan. Implementation of green tunnels has realized scaled and commercial operation, playing a role of demonstration and extension. Farmers beyond the project area have followed up and 83,200 households have constructed tunnels for production of unreasonable vegetables. Twenty county seed centres were to be supported under the project; 16 have been completed and 4 have been canceled. Eleven are in commercial operation while five plans have been installed and tested but have not commenced commercial processing. On agricultural support, developed and improved 20 county agro-extension centers and plant reservation stations and 80 township extension centers. On scientific research and training, completed seven studies and a technology seminar, 100% of SAR target. Trained 105,016 people (among them, the province trained 901 agro-technicians from counties, the county trained 1,200 technicians from townships, the township trained 31,200 farm technicians and 71,795 plant reservation, 94.5% of SAR target. (c) Livestock. The project has totally completed 236.60397 million yuan of investment, 181.05% of SAR target. Among it, 123.12203 million yuan is loan from the Bank, 113.50894 million yuan of counterpart funds from domestic (13.943 million yuan from provincial level, 26.377 million from counties, and 73.19494 million yuan from farmer labors). A total of 3,400 pig households have been developed, 100% of the plan; six commercial 43 and two breeding piggeries have been constructed, 100% of the plan. One breeding chicken farm and 2,400 chicken households, 3000 cattle households and 3000 sheep households have been developed, all figures above are 100% of those in SAR. On hide goat, 5,700 households have been developed, 101.7% of the plan. 384 alfalfa households have been developed, 32% of the appraisal target. (d) Forestry and Fruit Trees. A total of 20,166.67 ha of trees have been planted and rehabilitated, with an expenditure of 51.47008 million yuan, 123.7% and 147.6% of SAR targets, and 99.74% and 99.24% of the mid- term review plans. The training under forestry and fruit component has completed 1.266 million yuan of investment, 147.9% of the mid-term review plan and 23,739 people have been trained, 145.6% of the mid-term review plan. Among them, 10,625 trainees are women. Research of two tasks, namely, Demonstration and Extension of High-Yield Cultivation Techniques of Apple and Research, and Extension of High-Yield Cultivation Techniques of Nuts have been developed successfully. (e) Aquaculture: After seven years of implementation, 1,492.83 has of fish farm and 77.6 ha of hatchery farm were constructed up to the end of 1997. The capacity of feed mill reaches up to 18,300 tons annually in one shift. 3,643 people have trained. Research tasks have been fully completed and even exceeded the targets. (f) Agro-processing. Eleven agro-industrial plants have completed construction and in commercial operations. They have passed the break- even point and have made profits. C. Major Factors Affecting the Project 4. The following factors have played sustainable, active, and important effects and influences on successful implementation and achievement of objectives. (a) Governments of different levels paid great attention to the project. (b) Efficiency of Project Selection. (c) Efficiency of Project Organization and Operation. 5. The following factors have caused the delay in the implementation progress of some agro-industries. (a) Lack of working capital (b) Delay in ICB procurement which caused implementation delay in two processing plants (Wuzhi dogbane mill and Kaifeng MDF board mill) D. Assessment of Project Effects 6. Successful implementation of the Project shows the regional efficiency of agricultural development project by utilizing foreign fund in large scale, making its 44 economic, social and ecological benefits in a harmonious whole. The economic, environmental and social effects are evaluated respectively as follows: (a) Assessment of Economic Effect. Having powerfully promoted the process and development of agro-industrialization in the project area. The project has arranged the distributions and organized the implementation according to the target model of industrialization and up to now, the following projects have been industrialized, forming the models of Company which links to Farm Households, Company which links to Production Base plus Farm Households. Having greatly promoted the adjustment and improvement of agriculture and rural economic structure in the project area. Cross-connection efficiency of industrialized projects in the project area has increased employment opportunities and raised farmers' income level. The 11 agro-processing industries, eight commercial piggeries, one breeding chicken farm, three poultry slaughterhouses, and 16 seed centers under the Project have supplied 6,780 fixed employment positions, 55.5% for women. Additionally, 234,000 people have been involved in the Project indirectly for seasonal works and 60% are women. Import of advanced equipment speed up to technology progress and transference. (b) Assessment of Social Effect. Since its implementation has increased agricultural productivity of the area along the Yellow River, improved the economic development and ecological environment, the Project has an important effect and profound historic significance. In addition, objectives of the Project are in conformity with government's strategies for developing rural economy and regional development of the area along the Yellow River, so the governments at the provincial, municipal, and county levels have paid great attention to it. (c) Environmental Impact Assessment. Based on the principle and policy of integrated project measure with biological measure and reformation with utilization, and the individual control with comprehensive control for agriculture, forestry, livestock and fishery, the optimized ecological benefit have been achieved through the implementation of the project, and it will benefit the environment quality and ecological environmental quality in the long run. The main environmental impacts of the project are as follows: (i) the completion of the construction of the Yellow River Diversion Scheme and the drainage facilities had greatly reduced the frequency of the natural disaster, such as drought, flood, and sand storm and minimized the harmful effects of the drought, food, water-logging and saline alkali; (ii) the plantation of windbreak and high yield forest and the transform and development of orchard, controlled the sand storm, increased the percentage of forest cover, achieved the goal of water and soil conservation and the improvement of ecological environment for cropland; (iii) two methods for the disposal of animal manure in the livestock component. One to use it as fertilizer and second to use it as fish feed. Additionally, straw ammonia technology has been extended under the project, thus migrating the pollution cased by burning of straw and 45 stalks and improving agro-ecology quality; (iv) aquatic projects utilized the waste land, low and water-logging land for excavation of fish pond, thus increasing the land utilization rate and being helpful for improvement of local ecological environment; (v) implementation of Xiangfuzhu YRDS and well irrigation works have improved the underground water level and caused no worse effect on the wetland; and (vi) environmental quality of cultural and historic remains in the project area. D. Sustainability of the Project 7. Project sustainability refers to the consistent progress toward the set objectives and the achievement of the expected goal of the project. The macroeconomics policy, the inherent property of the project and other social, economic factors laid a solid foundation for the sustainable development of the project. 8. Sustainability of the project depends on policy, economy, production, ecology, and social sustainability. (a) Economic Sustainability: From the high financial rate of return (FRR) and internal rate of return (ERR) of this project and the financial benefit of each project components of economic contribution, we can see that the farmers, enterprises, and local government in the project are have a stable income increment from the project. (b) Production Sustainability: The result of the project monitoring indicate that, owing to the project water conservancy and irrigation facilities and the construction removing the water-logging project drainage has successfully removed the restriction factors that hinder the development of the local farm production. (c) Sustainability of Ecology: The implementation of this project especially lays stress on the reasonable development and utilization of the natural resources and the protection of natural resources, and lays stress on the improvement of ecological environment, thus produce a long-term beneficial influence on the implementation and further development of the project, and makes the rural economy and agriculture production get on a virtuous cycle. (d) Sustainability of Society: The sustainability of this project has established the foundation providing the reliable assurance for the social sustainability. E. Performance of the Bank 9. From April 1989 to March 22, 1998, the World Bank has sent 13 project investigation and supervision missions which composed of different officers and specialists, totalling 73 people. 46 10. The proper identification of the project by the WB. The World Bank and the PPMO reach agreement on the determination of project area, the goal of the project and the objectives of the components, the institution, management production models, the linkage of the components, technology and financial issues based on the proposal of the PPMO. The result of the implementation of the project indicated that - the goal of the project is accord with the short-term then requirement of the economic environment and the objectives of the Eight Five Year Plan of Henan Province then, but also accord with the objective of the Ninth Five Year Plan and the projected objects for the year 2010 for the development of agriculture. The selection of the project area is a decision with foresight. The areas along the Yellow River in Henan Province possess the most productive potentials, and the development of this area is critical to facilitate the development of rural economy in Henan Province. Especially the integration model that links the components together is very creative. It not only improves the efficiency of the component, but also optimizes the overall efficiency of the whole project. Furthermore, the integration model has been determined by the Chinese government as an important way to improve the productivity of agriculture and to increase the farmers income. 11. The full preparation of the project. The WB made further review of the project objectives, models, techniques, economical, financial, operational, institutional and environmental protection and social development issues based on the feasibility study reports of the whole project and the project component presented by the PMO, make the project plan, suitable and advanced technology and good economic benefit and the guarantee of the repayment of the loan had been achieved. Thanks to the WB officials and experts' hard working, responsibility, high efficiency and professional skills (the WB sent preparation missions to Henan province twice). F. IDA's Performance 12. The successful appraisal of the project. In appraisal and pre-appraisal, the WB mission inspected each aspects of the project systematically through on-the-spot investigation. They made a thorough review of the project preparation works and document and a thorough study on the key economical and technological issues, exchanged views with the PPMO. 13. The efficiency of project supervision by the Bank: During the period of the project implementation, the WB sent project supervision missions, about 38 people to Henan (accounting for 62% and 52% of the Bank's input in this project), which ensured the effective supervision for the project. G. Assessment of Achievements 14. Successful implementation of the project has achieved or even exceeded the expected targets, with great fruits, remarkable benefits and profound significance. 15. Economic benefits. Each year, the project increments over 4,802 million yuan of output value. Among which, 2,665 million yuan from irrigation and drainage (grain, cotton, oil and vegetable) about 27 million yuan from agriculture, 316 million yuan from 47 forestry and fruits, 371 million yuan from livestock, 163 million yuan from aquaculture and 960 million yuan from agro-industries. 16. Social Benefit. The project has totally provided employment opportunities for 47,672 people. The specialized household models defined under the project are proved to be in line with agricultural development status of the project area and to have good demonstration efficiency for neighboring area. Implementation of irrigation and drainage schemes has improved and strengthened the infrastructure status in the project area, making a solid base for sustainable development of local agriculture. The personnel training has a remarkable effect, providing a personnel guarantee for local economic development in the future. 17. Environmental Benefit. Project implementation has brought about and will sustain a long-term favourable effect on the project area and its neighbouring areas. H. Future Management and Operation 18. The life period of the project designed by the Bank is 20 years and its future management and operation depend on guarantee of the following conditions: (a) Successful implementation of the project has created great economic, social, and ecological benefits and showed vigorous vitality potential. (b) Henan Project Management Office (PMO) acts as the only one executing agency of Henan for utilizing foreign fund for integrated agricultural development, and its continuous existence will ensure future management and operation of the project from organization stand. (c) Continuously depending on monitoring and evaluation institution and systems established by PMO, to continuously improve the indexes of monitoring and evaluation and strictly monitor the project operation. (d) Utilization plan, recycle and relending plan. By using the established revolving fund, to continue strengthening support for the relevant projects. I. Main Experiences and Lessons 19. Under the leadership of project leading group, having set up a set project management system, with PMOs at provincial, municipal, and county levels as executing agencies, financial bureaus as project management agencies, technical departments as technical guide and service agencies and auditing units as the supervision agencies. The practice shows that the arrangement of this organization is effective and successful. 20. For integrated agricultural development project utilizing foreign fund, selection, establishment and arrange of project should pay full attention to connection among the components. Taking industrialization as the linkage, to connect the production, processing and marketing of agro-products into a whole, thus better arranging all 48 necessary productive factors, making the whole project achieve the most economic benefits. 21. Complete perfect rules and regulations must be set up and improved continuously, doing the works under strict, scientific, standardized and systematic management. 22. As for state-owned enterprises for processing agricultural or livestock products, restructuring must be promoted according to reform directions. And for newly added enterprises, attention must be paid to import of diversified investors to improve their competitive ability and the economic benefit. 23. Attention must be paid to tendering and procurement. One year earlier before the project becomes effective, some works such as personnel training and preparation of bidding documents must be done, thus ensuring the project implemented smoothly and speeding up the physical progress. 24. When importing equipment, attention must be paid to the combinations between complete equipment and unit equipment with key technologies, advanced technologies, and applicable technologies, technical-intensive equipment and labor-intensive equipment. 25. Attention must be paid to training, especially for farmers, important effect of technical assistance and task research, willing to invest in these aspects. This is also an important factor for the project to achieve success. 26. Main Lesson: At appraisal, we underestimated the difficulties of working capital financing. In addition to local economic situation, some agro-industries can't achieve the designed capacity after they were put into operation causing these enterprises can't achieve the full benefits. 49 ANNEX C: DOCUMENTS IN THE PROJECT FILE Appendix 1: Borrower's Comments on the ICR Appendix 2: Water Resources Component ICR by FAO Appendix 3: Agriculture, Aquaculture, Livestock, and Forestry Components ICR by FAO Appendix 4: Agro-industries Component Appendix 5: Economic Analysis Appendix 6: ICR by Henan Provincial Project Management Office 50 ANNEX D: PHOTOGRAPHS OF PROJECT AREAS Qucun recharge/storage irrigation scheme Wheat field in Zhaokou West YRDS 51 Jiyuan Taihang Pig Breeding Farm AAR h An Apple Orchard in Wuzhi County 52 Cocoon collected from drying centers ready for processing Reeling machine at Puyang Silk Mill 53 -- Mr. Gao Xiucai's old house before the project - , BMma IL 47 Mr. Gao Xiucai showing his new house built recently with his incremental income from project participation