Colombia - Second Atlantico Development Project

1ILTh3M 6J l RESTRICTED Report No. PA-84b IREP3RIS U This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION SECOND ATLANTICO DEVELOPMENT PROJECT COLOMBIA June 2, 1972 Agriculture Projects Department  CURRENCY EQUIVALENTS Currency Unit = Colombia Peso (Col$) US$1 = Col$ 21.0 US$1 million = Col$ 21,000,000 Col$ 1 = US$0.0476 Col$ 1 million = US$47,600 ABBREVIATIONS mm = millimeter (1 mm = 0.039 inch) m = meter (1 m = 3.28 feet) km = kilometer (1 km = 0.62 miles) ha = hectare (1 ha = 10,000 square meters = 2.47 acres) km2 = square kilometer (1 km2 = 247.1 acre = 100 ha = 0.386 square miles) mn3 = cubic meters (1 m3 = 1.31 cubic yards = 264.2 US gallons) ton = (means metric ton in this report) = 1,000 kg = 2,205 lb kg = kilogram (1 kg = 2.2 lb) ABBREVIATIONS OF COLOM,fBIAN AGENCIES INCORA = Instituto Colombiano de la Reforma Agraria Colombian Institute for Agrarian Reform ICA = Instituto Colombiano Agropecuario Colombian Agriculture and Livestock Institute SENA = Servicio Nacional de Aprendizaje National Training Service CECORA = Central de Cooperatives de Reforma Agraria = Central Cooperative for Agrarian Reform IDEMA = Instituto de Mercados Agricolas Agricultural Marketing Institute CAC Cooperacion Agropecuaria del Caribe Caribbean Agricultural and Livestock Cooperative FISCAL YEAR January 1 - December 31  COLOIBIA SECOND ATLANTICO DEVELOPMENT PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ............................... i-ii 1. INTRODUCTION .......................................... I II. BACKGROUND ............................................ 2 III. ATLANTICO STAGE I (LOAN 502-CO) ....................... 3 IV. THIE PROJECT AREA ...................................... 4 General .......................................... 4 Climate .......................................... 4 Topography ....................................... 5 Flooding and Drainage ............................ 4 Soils ............................................ 5 Present Land Use, Agricultural Production and Extension .................................. 5 Farm Size and Land Tenure ........................ 6 Transportation ................................... 6 V. TIIE PROJECT ........................................... 7 Description ........... ........................... 7 Project Works .......... .......................... 7 Equipment . ....................................... Consultants and Training ......................... 8 Cost Estimates ......... .......................... 9 Financing, Amount and Term of Proposed Bank Loan.. 10 Procurement ........... ........................... 10 Disbursement .......... ........................... 10 Accounts and Audit .............................. 11 This report is based on a project report and material prepared and supplied by the Colombia Institute for Agrarian Reform (INCORA) and its consultants, TAHAL of Israel, and on the findings of a mission, consisting of Messrs. J.C. Douglass, H.T. Chang, and H. Rashid, which visited Colombia in October 1970. An updating mission composed of Messrs. J.C. Douglass, P. Peperzak, and G. Ablasser visited Colombia in February 1972. This report was prepared by the members of the missions.  -2- Page No. VI. ORGANIZATION AND MANAGEMENT ....... .................... 11 Project Administration ....... .................... 11 Allotments to Parceleros ....... .................. 11 Supporting Agricultural Services ..... ............ 12 Research, Extension and Farmers' Training ... 12 Farm Mechanization .......................... 13 Supply of Fertilizers, Seeds, and Pesticides. 13 Operation and Maintenance ........................ 14 Project Charges ................................ 14 VII. PRODUCTION AND FARMERS' INCOME ...... .................. 15 Farm Types and Cropping Pattern ..... ............. 15 Yields and Production ....... ..................... 15 Marketing and Storage ....... ..................... 15 Prices ........................................... 16 Farm Income . ...................................... 16 VIII. BENEFITS AND JUSTIFICATION ....... ..................... 17 IX. RECOMMENDATIONS ....................................... 17 ANNEXES 1. Bank Loans to Colombia 2. Soils and Topography 3. Present and Future Cropping Patterns 4. Present Size of Land Holdings 5. Land Acquisition and Preparation by INCORA 6. Project Civil Works 7. Construction Schedule 8. Consultants 9. Cost Estimates 10. Imported Equipment 11. Expenditure and Disbursement Schedules 12. Organization Chart 13. Development Schedule 14. Operation and Maintenance 15. Development Projections 16. Projected Farm Income 17. Economic Rate of Return MAP  COLOMBIA SECOND ATLANTICO DEVELOPMENT PROJECT SUMMARY AND CONCLUSIONS i. This report appraises a project for the continuation of Colombia's agrarian reform and agricultural development program in the Department of Atlantico, for which a Bank loan of US$5.0 million is proposed. ii. Colombia has maintained a satisfactory agricultural growth in recent years. However, 3.3% per annum population increase and uneven land distribution continue to contribute to rural poverty, exodus toward the cities, and urban unemployment. iii. Loan 502-CO, which was made to the Government's Agrarian Reform Institute (INCORA) in 1967 to develop the first stage of the Atlantico project, was aimed at two distinct types of development: irrigation of approximately 3,900 ha and protection from flooding of 6,000 ha to be dry farmed. The project also included studies to be made for additional stages of development. The proposed loan, which is based on these studies, would complete the transformation of 17,000 ha, including the 6,000 ha protected under Loan 502-CO, into land suitable for growing two crops per year by dry farming. At present, the dry farm area is subject to inundation by floods from the north and rainfall ponding on the project lands. Works to be completed by 1973 under Loan 502-CO would protect the area from floods while the proposed loan would provide for additional drainage and road facilities, land preparation, and the procurement of operation and main- tenance and farm machinery. iv. The total cost of the proposed project, exclusive of interest on the Bank loan during construction, would be US$9.7 million, including about US$2.3 million for civil works, US$1.3 million for land acquisition, US$1.3 million for imported equipment, US$1.3 million for consulting services, training, engineering and administration, US$1.3 million for contingencies, and US$2.2 million for on-farm investments for dairy produc- tion. The proposed Bank loan of US$5 million would cover the estimated foreign exchange costs of civil works, imported equipment, consulting services, training and contingencies, amounting to approximately US$3.4 million, interest during construction of US$0.9 million, and US$0.7 million for local currency expenditures. The remaining costs would be met through Government budgetary allocations. All tendering for civil works and equipment would be on the basis of international competitive bidding. v. INCORA would acquire land in the project area according to Agrarian Reform Law provisions, develop it, and allot it to smallholders in 8-ha farm units. With help from other Government agencies and consultants, it would introduce new cropping patterns and mechanized dry farming practices. It would also arrange for farmers to receive fertilizers, seeds, pesticides, machinery, credit, and marketing services.  - ii - vi. The future net production value of the 17,000-ha project is estimated at US$3.15 million annually, compared to about US$0.6 million without the project. Farms devoted to general crops would reach full development within five years after the allotment is made and dairy farms in nine years. The rate of return to the economy would be about 23Z. Export of confectionary-type groundnuts would contribute US$130,000 annually to foreign exchange earnings at full production. Other products would be consumed within the country. vii. As required under Loan 502-CO, INCORA is making a study of farmers' repayment capacity and would also make proposals to the Bank on a recovery policy for the proposed loan. Farmers should be able to pay at least operation and maintenance costs and make a significant contribution towards recovery of the investment. viii. The project is suitable for a Bank loan of US$5.0 million for a term of 25 years, with a grace period of six years. The borrower would be the Government of Colombia. All proceeds of the loan would be passed on to INCORA on the same terms as the Bank loan with the Government assuming the exchange risk.  COLOMBIA SECOND ATLANTICO DEVELOPMENT PROJECT I. INTRODUCTION 1.01 The Government of Colombia, through its Institute of Agrarian Reform (INCORA), has requested a Bank loan of US$5.0 million to assist in financing the second stage of Atlantico Project (Stage II), a land develop- ment program. 1.02 The first Atlantico Project is being financed by a Bank loan signed in 1967 (Loan 502-CO). It consists of the development of 3,900 ha to be irrigated and 6,000 ha for dry farming. Stage II of the project, which is the subject of this report, would include drainage and road construction and an increase in the dry farming area to 17,000 ha. Since all works needed to protect the dry farm area are interrelated, they are described in this report as one unit, even though they are in part financed under Loan 502-CO. Details of works being executed under Stage I are presented in Chapter III. 1.03 Including Atlantico Project Stage I, the Bank has made five loans for agricultural development in Colombia in the last six years, totaling US$69.1 million. The other four projects are discussed in Annex 1, and summarized below: (a) Loan 448-CO (May 1966, US$16.7 million) and Loan 651-CO (December 1969, US$18.3 million) were made for livestock development. Because of an unsatis- factory investment climate and failure on the part of the Caja de Credito Agrario, Industrial y Minero (CAJA) to provide sufficient short-term financing, delays in disbursement of both loans have occurred. The undisbursed balance of US$3.2 million of Loan 448-CO was cancelled, effective February 9, 1972, while progress of disbursement of Loan 651-CO is kept under close review. (b) Loan 624-CO (June 1969, US$17 million) finances a four- year supervised credit program of INCORA to improve productivity on about 2,500 medium-sized farms in the Departments of Tolima and Valle. Policy changes of INCORA concerning beneficiaries under the agrarian reform program may lead to major restructuring of the project. Pending these changes, progress has been slow, and only US$2.4 million had been disbursed as of May 31, 1972. (c) Loan 739-CO (May 1971, US$8.1 million) for the Caqueta Land Colonization Project is proceeding on schedule and a substantial number of farm credits are being made.  - 2 - 1.04 In 1967, a Bank mission reviewed INCORA's operations in Colombia. The mission's findings indicated that irrigation projects had been over- emphasized in the investment program and that priority should instead be given to less capital intensive projects such as land settlement and colo- nization schemes. Recent Bank operations in the agricultural sector have followed this strategy. 1.05 The project was appraised in October 1970 by a mission consisting of Messrs. J.C. Douglass, H.T. Chang, and H. Rashid. Negotiations took place in April 1971. However, Government approval of the loan documents was delayed pending its review of the INCORA's priorities in irrigation and settlement projects. An updating mission composed of Messrs. J.C. Douglass, P. Peperzak, and G. Ablasser visited Colombia in February 1972. This report is based on material and reports prepared by INCORA and its consultants, TAHAL (Israel) and the findings of the two Bank missions. II. BACKGROUND 2.01 Agriculture accounts for 29% of GDP and provides about 44% of Colombia's employment opportunities. In the last few years, the annual output growth rate of GDP has substantially improved, rising from 3% before 1957 to 5.3% since 1967. The output of coffee, a major export, has been deliberately restrained by taxation, because of the long-term surplus situation. Among the products involved in recent growth are cotton, soy- beans, sorghum, sugar, rice, potatoes, and cassava. 2.02 The growth of noncoffee products is reflected in more diversified earnings: non-coffee farm exports increased from US$24 million in 1960 to US$150 million in 1970 and now account for 27% of agricultural export earnings. Agricultural exports amounted to 85% of total exports in 1970. 2.03 In spite of an improved growth rate, however, Colombia's agricul- ture is still beset with some serious problems. Output has grown through expanded acreage rather than through yield improvements; production costs are high because of inefficient techniques and inadequate production and distribution of modern inputs. A 3.3% per annum population increase and uneven land distribution continue to cause rural poverty, exodus toward cities, and urban unemployment. 2.04 In recent years, the Government has introduced policy changes that have resulted in some increase in agricultural outputs: more credit has been made available to farmers on a supervised production basis; support prices for a few crops were instituted; and research and extension efforts have been stepped up. 2.05 In 1961, the Govcrnment adopted a land reform policy to correct the inequitable land situation and establiuhed INCORA to implement the program. It empowered the new agency to acquire large land holdings, develop the land, and redistribute it in smallholdings. INCORA also became  the Government's major agency for agricultural development and has underway a large program for flood protection, drainage, and irrigation. III. ATLANTICO STAGE I (LOAN 502-CO) 3.01 In 1967, the Bank made a loan of US$9.0 million to INCORA for the first Atlantico Project, under which two distinct and separate efforts were contemplated. One concerned development of about 3,900 ha for irrigated farming (Part 1), while the other was aimed at improving 6,000 ha for dry farming by providing drainage and protection from floods (Part II). 3.02 The irrigated farm area was originally divided into two separate Blocks (I and II) on the basis of their location, soils and irrigability. Deletion of unsuitable land from Part I necessitated inclusion of an adjacent area known as Block III early in the project. Implementation of the irrigation phase is behind schedule by about two years, mainly because the specific lands to be provided with irrigation had to be redefined; construction conditions at the irrigation and drainage pumping plants were very poor; and rainfall was heavy, which caused high water conditions in the Magdalena River and interfered with construction activities. Irrigation service in Block I will now commence in 1972 and in Block III about October 1972. Irrigation of Block II is expected to be postponed for an indefinite period because of excessive salinity and alkalinity conditions. The total area to be irrigated would be reduced to about 3,000 ha. 3.03 Work on protection of the dry farm area was delayed pending completion of plans for the future stage of the project to insure that works constructed would be fully compatible with the development of the second stage. The flood protection plan now adopted has three elements: (a) streams entering the project area between Guajaro Reservoir and Manati are to be collected in an elongated reservoir that would have its outlet in Guajaro Reservoir; (b) streams between Candelaria and Manati are to 'e collected in the improved Sabalo Swamp, there to be evaporated or released at controlled rates into the drainage system; and (c) streams east of Candelaria are to be intercepted and diverted into the Magdalena River by a combination of channel and storage works. Construction of these works commenced in September 1971 and should be completed late in 1972. Additional flood protection and drainage works required in this area would be constructed under the Second Atlantico Project. 3.04 In spite of the fact that there is no effective flood control yet in the project area, fair progress has been made with the introduction of improved methods of dry land farming in Part II of Stage I. About 3,000 ha are now under production, of which over 80% is double cropped. Besides the traditional crops of sorghum, sesame, and cotton; soybeans, groundnuts and tomatoes are also grown. In 1971 about Col$ 16 million worth of cash crops were marketed through the projects' Cooperative, as compared to only Col$ 3 million four years ago. As of May 31, 1972, US$4.1 million, or 46%, of Loan 502-CO had been disbursed.  - 4 - IV. THE PROJECT AREA General 4.01 The project is located in the southeast portion of the Department of Atlantico in the north of Colombia, approximately 60 km southwest of the Caribbean port of Barranquilla (see map). It is adjacent to and just north of the irrigated lands of the Atlantico Stage I project (Loan 502-CO). The overall area of the Atlantico Project is about 37,000 ha. The irrigated portion is about 3,900 ha, approximately 22,200 ha have been identified as suitable for dry farming, and the balance is considered unsuitable for developmenL. Of the 22,200 ha, rights-of-way for flood and drainage works and roads will use approximately 2,200 ha. An additional allowance of about 3,000 ha has been made for areas which may prove too saline for permanent use (para 5.03) leaving 17,000 ha net, including the 6,000 ha protected under 502-CO, as the project area to be developed for dry farming. Climate 4.02 The climate is tropical, with average monthly temperatures ranging between 25C (77