China - Shaanxi Agricultural Development Project

Document of The World Bank FOR OFFMCIL USE ONLY Repwt No. P-4921-CHA MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE IWTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 78.8 MILLION ($106 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE SHAANXI AGRICULTURAL DEVELOPMENT PROJECT I March 1, 1989 This dooment has a resricftd distibudon and may be used by reipiens ondy in the performace of teir officia duties. Its contents may not otherwise be diseloed without World Bank authorization.  CURRENCY EQUIVALENTS (January 12, 1989) Currency Unit - Yuan (Y) US$1.00 - Y 3.712 Y 1.00 - US$0.27 FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES 1 meter (m) 3.28 feet (ft) 1 kilometer (km) - 0.62 miles 1 hectare (ha) 2.47 acres ' mu 8 0.067 ha 1 ton (t) X 1,000 kg 3 2,205 pounds 1 kg 2.2 pounds  FOR OFFICIAL USE ONLY CHINA SHAANXI AGRICULTURAL DEVELOPMENT PROJECT Credit and Project Summary Borrower: People's Republic of China Beneficiaries: Shaanxi Provincial Government Credit Amount: SDR 78.8 million (US$106 million equivalent) Credit Terms: Standard, with 35 years maturity Relending Terms: From Government to Shaanxi Province: 20 years, including five years of grace, with interest at 4.52 and commitment fee of 0.5Z p.a. Shaanxi province will assume the foreign exchange risk. Financing Plan: Central Government US$ 18.0 million Provincial Government US$ 46.5 million ABC US$ 5.3 million County and Enterprise Contributions US$ 61.7 million IDA US$ 106.0 million Total US$ 237.5 million Economic Rate of Returnt 23.0? Staff Appraisal Report: Report No. 7475-CHA Map: IBRD 21111 This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorizalon.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE SHAANXI AGRICULTURAL DEVELOPMENT PROJECT 1. The following memorandum and recommendation on a proposed Credit of SDR 78.8 million (US$106 million equivalent) to the People's Republic of China is submitted for approval. The proposed Credit, which would help finance the Shaanxi Agricultural Development Project, would be on standard IDA terms, with 35 years maturity. 2. Background. Agriculture in China, including crops, livestock, forestry and fisheries, provides sustenance to over one billion, people, is a major source of income for some 190 million farm families, and accounts for about 35Z of the country's GDP. Major revisions in farm policies since 1979, most importantly, a shift from collective to household-managed farming and substantial increases in farm prices, have led to rapid growth and diversification in agricultural production. Over the period 1980-85, production increased by 102 per year compared to an average of 32 per year in the preceding 23 years. Grain output reached a record 407 million tons in 1984, 342 greater than in 1978, despite a reduction in area sown to grain. In 1985, the Government begun a new phase of reform, replacing mandatory procurement quotas with voluntary contracts, adjusting procurement prices, and greatly enlarging the role of the market. These measures, and the price fluctuations resulting from them, contributed to a decline in grain and cotton output and hectarage as farmers shifted production into higher-priced cash crops and livestock. Grain production fell from the 1984 high to 379 million tons in 1985 and 391 million tons in 1986. 3. Objectives for agriculture during the 7th Five-year Plan (1986-1990) are to maintain per capita grain consumption at current levels while continuing to diversify the overall output structure to accommodate changing consumer preferences. This means increasing food grain output to match population growth, boosting production of fruits, vegetables, meat, poultry, fish, and cash crops, and expanding output of processed products. To achieve sector growth, Chinese planners are supporting a series of systemic reforms which include: (a) creating a regulatory framework consisting of price, taxation, credit, and legal mechanisms to guide development of the rural economy; (b) allowing diverse forms of enterprise ownership; and (c) over the medium term, reducing the scope of contract procurement, reducing consumer subsidies, and increasing the role of the market. Emphasis is also being given to improvements in technology and management which would lead to increased productivity of existing cropped areas and efficient development of unused or underutilized land. Consistent with this approach, water resources development policy has given priority to increasing the efficiency of existing irrigation systems through completion and rehabilitation of irrigation and drainage structures and improved water management. The Ministry of Water Resources and Electric Power projects expansion of irrigated area by about eight million ha by the year 2000, mostly through additions and improvements to existing schemes.  -2 - 4. The Bank Group's strategy for lending in China's agricultural sector has been to support the Government's objectives outlined above (para. 3). Lending to date has included 18 operations involving a total assistance of about US$1.6 billion for land development; support services including agricultural training, research, credit and seed production; development of specialized product subsectors including rubber, forestry and fisheries; and area development projects combining crop and livestock production with locally operated agro- industry investments to maximize value-added and employment. Implementation of these projects is generally on schedule. Future Bank Group lending would continue to support projects in large and diverse subsectors, e.g. large scale water resources development, livestock, afforestation and rural credit. 5. Rationale for IDA Involvement. The proposed project would aim to raise farm production and income in one of China's poorest provinces. This would be achieved through expansion and improvement of irrigated area, raising crop yields, increasing livestock and fish production, and developing the agro-processing sector through pilot projects. The croject would also seek to alleviate health problems through improved water Apply for human and animal consumption. Apart from resource transfer, the major Bank Group contribution to the project would be assistance in introducing state-of-the-art pump technology and system layout, in designing and equipping large-scale poultry operations, and in setting up modern processing facilities. Bank Group involvement would also provide access to international experience in management of large irrigation areas, varietal and breed improvement pr'grams, and product marketing methods. Project- sponsored training and overseas study tours would enable Chinese technicians and project staff to study firsthand alternative technologies in irrigation, animal and plant breeding, and agribusiness. 6. Proiect Ob1ectives. The main objective of the proposed project would be to boost farm production and incomes in the Shaanxi Province through a program of investments in irrigation, other rural infrastructure, and in agricultural services. Project activities would focus on 39 counties in the central region which offer a broad spectrum of development opportunities. The project would also provide secure and safe drinking water to some 130,000 people in the northwestern county of Dingbian, one of the worst affected parts by poor quality water of an otherwise poor province. Project objectives are in line with the Government's strategy of making more efficient use of land and water resources, diversifying primary production and improving the standards of rural life. 7. Project Description. The proposed project would expand and rehabilitate irrigation facilities, mainly for cultivation of grains (wheat, corn, barley, etc), oilseeds, cotton, vegetables, fruits, and alfalfa. A seed production and testing component aims to improve the availability of superior seeds. The project would develop freshwater fish culture in low-lying areas along the Yellow and Wei Rivers. It would introduce large-scale poultry farming and a genetic improvement program for swine and rabbits. Small agro-processing facilities would be established to demonstrate proper methods to organize, manage and finance upgraded processing, handling and storage facilities. The project would also construct a new water supply system in Dingbian where contaminated water has caused crippling disease. The main features of the projec* are:  -3 - (a) improvement of irrigation ser-ing 123,000 ha and provision of supplemental water supply for 156,000 people ir the Central region (Donglel II area) through installation of 37 major pumping stations and construction of a network of canals and drains; (b) construction of potable water supply for 140 villages (130,000 people) and irrigation systems (4600 ha) in Dingbian county, including installation of three pumping stations and village level reservoirs; (c) establishment of 2,100 ha of fist, ponds, including. provision of reliable water service, drainage, power supply. roads and, supporting facilities such as hatcheries, feed mills and marketing and supply centers; (d) establishment of 8 breeding farms and 5 commercial farms for poultry and one breeding farm each for swipe and rabibits; (e) construction of nine seed pr3cessing and testing laboratories, provision of modern processing and testing equipment, and supply of fertilizers and other inputs; and (f) construction and equipping of three agro-processing plants for meat, fruit, and honey products and one cold storage facility. 8. The project cost is estimated at US$237.5 million, with a foreign exchange component of US$88.4 million (37.2%). The project, to be carried out over 5 years, provides funds for civil works; pumping plant, transformers and electrical equipment; poultry, seed processing, specialized transport and construction equipment; fertilizer, steel and lumber; and technical assistance and training. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and of disbursements, and the disbursement schedule are shown in Schedule B. Retroactive financing of up to US$7.0 million would be made against expenditures made after January 1, 1989. A timetable of key project processing events and the status of Bank Group operations in China are given in Schedules C and D, respectively. A map is also attached. The Staff Appraisal Report, No. 7475 dated March 1, 1989, is being distributed separately. 9. Agreed Actions. To ensure effective implementation of the project, the Government has agreed to the following: (a) an annual plan for provision of chemical fertilizer would be prepared and submitted for review prior to November 1 of each year; and (b) all effluents from agro-processing would be treated and the Provincial Environmental Bureau would clear the final designs of the treatment plants; the Bureau wvould set up a monitoring system to ensure that effluent quality is maintained through the life of the project. 10. Other actions that the Government would take are as follows: (a) the provincial government would present a plan acceptable to IDA for the collection of water charges in Donglei and Dingbian areas at rates which would recover all operations and maintenance costs and a portion of the capital costs; (b) the provincial PMO would complete a review of Phase I of the poultry program by December 31,1991 and would consult with IDA while planning for Phases II  and IIIt and (c) water quality would bo monitfred using standard health bureau practices to observe the impLuvelmenlts in dLinking water supply. 12. Benefits and Justiticat ion. At full development, the project would inerease annual production by atbiut 300,000 tons ot wheat and other 3rains, 13,000 tons of oilseeds, 11,000 tons of cutton and cottonseed, 156,000 tons of vegetables, apples and melons, 25,000 tons of fodder, 64,000 tons of eggs and 10,000 tons of poultry and oLher meats. It would benefit 180,000 families, provide an additional 65,100 full-time jotis and raise annual per capita incomes of farm families from an average of Y290 to about Y800 and of full-time employees engaged itn animal husbandry or agro-processing to about Y1000. In addition, fluoride-free water supply would enable 75,000 people who are suffering from skeletal fluorosis to fully or partially recover from the crippling effects of this disease. 13. Risks. The project faces no unusual technical, organizational or financial risks. For the irrigation and water supply components the agricultural and water resources agencies involved in the project have had considerable experience with irrigation and land developmenit projects including the nearby Donglei I irrigation project. The Shaanxi project office has performed well during project preparation. The Shaanxi Water Conservancy Bureau is adequately staffed with competent engineers and managers and has had several decades of experience with construction, operation and maintenance of large-scale water managem,nt systems. In addition, local farmers have considerable experience with the crops to be grown and livestock to be raised. Markets are well organized and reasonably efficient, demand seems to be strong and with the on-going price reforms, prices have been rising and are unlikely to fall given the strong demand situation. For the aquaculture component, the Division of Fisheries and Aquatic Products within Shaanxi's Bureau of Water Conservancy has demonstrated its capability in implementation of similar projects in the province. The Shaanxi Animal Husbandry Bureau has also demonstrated its capability to implement poultry breeding schemes and its ability to train specialized households who are already achieving high egg production yields. The agro-processing technology to be introduced for the cold storage and meat packing is of standard design and the project should not pose major problems. To ensure effective technology transfer for processing equipment, the project would have a program of local and overseas training included in the project. 14. Recommendation. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D.C. March 1, 1989  Schedule A CHINA SHAANXI AGRICULTURAL DEVELOPMENT PROJECT Estimated Costs and Financing Plan Local Foreign Total ----- (us$ million) ----- Estimated Costs:sa Donglei Irrigation 63.2 46.5 109.7 Dingbian Water Supply 15.9 11.9 27.8 Aquaculture 20.5 3.9 24.4 Agroprocessing 3.5 4.0 7.4 Livestock 19.2 8.7 27.9 Seeds Processing 2.7 2.9 5.6 -------------------------- Base Cost 125.0 77.9 202.9 Physical Contingency 7.4 4.5 11.9 Price Contingency 16.7 6.0 22.7 Total Project Cost 149.1 88.4 237.5 __________________________ Financing Plan: IDA 17.6 88.4 106.0 Central Government 18.0 - 18.0 Provincial Government 46.0 - 46.0 ABC 10.4 - 10.4 other 56.6 - 56.6 Total 149.1 88.4 237.5 /a Net of taxes and duties of about 5S  -6 - Schedule B Page 1 of 2 CHINA SHAANXI AGRICULTURAL DEVELOPMENT PROJECT Procurment Method and Disbur.ements/b (In US$ million) Procurment method Total Item lCe LCD Other cost /a Works: Civil works - 48.9 14.4 58.8 (16.1) (0.0) (16.1) Earth works - 0.0 71.2 71.2 (0.0) (28.3) (28.3) Subtotal works - 4a.9 86.6 129.6 (16.1) (28.8) (89.4) Materil*s: Construction materials 14.8 6.7 8.8 24.8 (14.8) (8.9) (0.2) (10.4) Fertilizers 4.9 - - 4.9 (4.9) - - (4.9) Breeding stock - - 0.5 0.5 - - (0.5) (0.8) Other materials 1.2 - - 1.2 (1.2) - - (1.2) Subtotal 20.4 6.7 8.8 80.9 (20.4) (8.9) (0.7) (24.9) EquIpmenut 26.6 1640 8.5 46.8 (26.8) (9.1) (0.5) (86.5) Vehciles: 2.5 - 1.0 8.5 (2.5) - - (2.5) Technlc.l Assistance and Training: - - 7.8 7.8 - - (2.7) (2.7) Land managaemnt and other: - - 19.5 19.5 - - (0-0) (0-0) Total 49.7 66.6 121.2 287.5 (49.7) (29.1) (27.2) (106.0) /a Includes contingencies but net of taxes *nddueiles of about 6 /b Numbers In 0 are IDA disbursements  -7 - Schedule B Page 2 of 2 Disbursements Amount of credit 2 of Expenditures Category (US$ million) to be financed Civil works 16.1 552 Earth works 23.3 352 Construction materials 18.4 ) ) Fertilizer 4.9 ) 3.00 foreign expenditures ) 1002 local expenditures Breeding stock 0.5 ) ex-factory. ) 752 local expenditures for ) locally procured items other materials 1.2 ) Equipment 36.5 ) Vehicles 2.5 ) Technical assistance and overseas training 2.7 1002 of expenditures Total 106.0 Estimated IDA Disbursements (USS million) IDA FY 1989 1990 1991 1992 1993 1994 Annual 0.0 25.0 40.0 25.0 10.0 6.0 Cumulative 0.0 25.0 65.0 90.0 100.0 106.0  -8 - Schedule C CHINA SHMNXI AGRICULTURAL DEVELOPMENT PROJECT Timetable of Key Project Processing Events (a) Time taken to prepares 9 months (b) Project prepared bys Government with IDA assistance (c) First presentation to Bank/IDA mission: November 1987 (d) Preappraisal mission departures March 1988 (e) Appraisal mission departuret June 1988 (f) Negotiations: January 1989 (g) Planned date of effectiveness: July 1989 (h) List of relevant PCR's and PPAR's none  1~~~~~~~~~~ Schedule D Page I of 3 STATUS OF BANK GROUP OPERATIONS IN THE PEOPLE'S REPUBLIC OF CHINA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of September 30, 1988) Loan/ Amount (US$ million) Credit Fiscal (less cancellations) Number Year BorLower Purpose Bank IDA Undisbursed One loan and one credit have been fully disbursed 2021/1167 81 PRC University Development 100.00 100.00 0.00 1261 82 PRC North China Plain Agriculture - 60.00 0.00 2207 83 PRC Three Ports 67.97 - 0.77 1297 83 PRC Agric. Education & Research - 75.40 3.45 2226/1313 83 PRC Industrial Credit I (CIB I) 40.60 30.00 4.89 2231 83 PR,, Petroleum I (Daqing) 162.40 - 20.43 2252 83 PRC Petroleum II (Zhongyuan-Wenliu) 100.80 28.68 2261/1347 83 PRC State Farms I (Heilongjiang) 25.30 45.00 1.24 1411 84 PRC Polytechnic/TV University - 85.00 27.02 1412 84 PRC Technical Cooperation - 10.00 1.12 1417 84 PRC Rubber Development - 100.00 22.53 2382 84 PRC Lubuge Hydroelectric 145.40 - 45.28 2394 84 PRC Railway 220.00 - 34.82 1462 84 PRC Rural Credit I 50.00 0.17 1472 84 PRC Rural Health & Medical Educ. - 85.00 21.80 2426 84 PRC Petroleum III (Karamay) 99.50 - 27.89 2434/1491 84 PRC Industrial Credit II (CIB II) 105.00 70.00 21.22 2444/1500 84 PRC Agricultural Education II 45.30 23.50 16.02 1516 85 PRC Agricultural Research II - 25.00 10.66 1551 85 PRC University Development II 145.00 63.78 2493 85 PRC Power II 117.00 - 38.07 2501 85 PRC Changcun (Luan) Coal Mining 120.50 - 107.09 1577 85 PRC Seeds - 40.00 15.00 1578 85 PRC Rural Water Supply - 80.00 61.41 2539/'.594 85 PRC Highway I 42.60 30.00 32.39 2540 85 PRC Railway II 235.00 - 197.21 2541 85 PRC Fertilizer Rehabilitation & 97.00 - 28.44 Energy Saving 1605 85 PRC Foyi3try Development - 47.30 34.92 2579/1606 85 PRC PiSniHang-Chaohu Area Development 17.00 75.00 54.36 2580 85 PRC Weiyuan Gas Field Technical 25.00 - 14.93 Assistance 1642 86 PRC Rural Credit II - 90.00 26.41 2659/1663 86 PRC Industrial Credit III (CIB III) 75.00 25.00 20.79 1664 86 PRC Technical Cooperation Credit II - 20.00 19.34 1671 86 PRC Provincial Universities - 120.00 71.23 2678/1680 86 PRC Third Railway 160.00 70.00 219.98 2689 86 PRC Tianjin Port 130.00 - 119.65 1689 86 PRC Freshwater Fisheries - 60.00 30.07  - 10 - Schedule D P3ge 2 of 3 Loan/ Amount (US$ million) Credit Fiscal (less cancellations) Number Year Borrower Purpose Bank IDA Undisbursed 2706 86 PRC Beilungang Thermal Power 225.00 - 184.32 2707 86 PRC Yantan Hydroelectric 52.00 30.52 2708 86 PRC Liaodong Bay Petroleum Appraisal 30.00 17.31 2723/1713 86 PRC Rural Health & Preventive Med. 15.00 65.00 69.56 1733 87 PRC Red Soils - 40.00 20.92 2775 87 PRC Shuikou Hydroelectric 140.00 - 118.47 2783/1763 87 PRC IndustriAl C'edit IV (CIB IV) 250.00 50.00 235.69 2784 87 PRC Shanghai Macnine Tools 100.00 98.99 1764 87 PRC Xinjiang Agricultural Development - 70.00 68.29 2811/1792 87 PRC Beijing-Tianjin-Tanggu Expressway 25.00 125.00 131.48 2812/1793 87 PRC Gansu Provincial Development 20.00 150.50 158.82 1835 87 PRC Planning Support & Special Studies - 20.70 19.10 2794/1779 87 PRC Shanghai Sewerage 45.00 100.00 137.10 2838 87 PRC Fertilizer Rationalization 97.40 - 96.90 2852 87 PRC Wujing Thermal Power 190.00 190.00 1871 88 PRC Rural Credit III - 170.00 119.67 2877/1845 88 PRC Huangpu Port 63.0 25.00 2907/1875 88 PRC Dalian Port 71.0 25.00 1885 88 PRC Northern Irrigation - 103.00 2924/1887 88 PRC Coastal Lands Development 40.00 60.00 1908 88 PRC Teachers Training 50.00 2943 ka 88 PRC Pharmaceuticals 127.00 2951/1917La 88 PRC Sichuan Highway 75.00 50.00 2952 LA 88 PRC Shaanxi Highway 50.00 - 1918 88 PRC Daxing An Ling Forestry 56.90 2955 88 PRC Beilungang II 165.00 - 2958 ka 88 PRC Phosphate Development 62.7 - 2967/1932 88 PRC RSAL 200.00 100.00 2968 La 88 PRC Railway IV 200.00 - Total 4.374.47 2.822.3Q of which has been repaid 83.82 - Total now held by Bank and IDA 4.290.65 2.822.30 Amount sold: Of which repaid - Total Undisbursed 2.946.46 1.03.25 4.449.71 /a Not yet signed. /b As eredits are denominated in SDRs (since IDA Replenishment VI), undisbursed SDR credit balances are converted to dollars at the current exchange rate between the dollar and th SDR. In some cases, therefore, the undisbursed balance indicates a dollar amount greate than the original principal credit amount expressed in dollars. Note: The status of the projects listed in Part A is described in a separate report on all Bank/IDA financial projects in execution, which is updated twice yearly and circulate the Executive Directors on April 30 and October 31.  - 11 - Schedule D Page 3 of 3 B. STATEMENT OF IFC INVESTMENT! (as of September 30, 1988) Invest- Fiscal Type of Loan Equity Total Ment no. year Obligor business -- (US$ million) -- 813 1985 Guangzhou and Peugeot Automobile 15.00 2.00 17.00 974 1987 China Investment Co. Investment 3.00 0.04 3.04 1020 1987 Shenzen China Bicycle 5.00 - 5.00 Bicycles Co. Ltd. Manufacture Total Gross Commitments 23.00 2.04 25.04 Less cancellations, terminations repayment and sales - - Total Commitments now Held by IFC 23.00 2.0 2.4 .24 Total Disbursed 6.50 0.04 6.54 Total Undisbursed 16.5Q 2.00 18.50  sour lOP 507' i&r lop sir I SV sir I lrv 1e 107* lo~~~~~~~is 1r 146 16o 111- 112- C H I N A SHAANXI AGRICULTURAL DEVELOPMENT PROJECT PROJECT COMPONENT LOCATIONS aroposed Prajects Riven To Bootoo ~ Aqwculture Componets_ _ River Basi, Boundriest Donglei 11(126.5 x 104 mu) Nationol Roods Dingbion Watr Supply Ara Secondary Raads Future Projecte .. Roilroods 000 3. Yumohkou Pumping lrrigation (Phase lt) + Airport Loogsaen Reservoir (Photo IV -- Pa fdu So,sdcores C)0 Yiniu Nigh Canol (Phose V) P- Piovo Beoudaries o| Sheacsos Boundary Project Completed in 1987- Intenational Boundasies | Doaglei I (97.5 x 104 mu) C/ * GP and P Loyer and Briler Farms D ' * Agroprocessinqg. Pig ond Rabbit Breeding * Seed Fores ond Ceeters For details see IBRD 21112 T. '' --- 7 YULIN(K (_,,\ yE} , \ \\ ,,) NX , , D i' t \~~~~~~SH A X N I N G X I A ' ;-( n SHANXI rjilt aP~; 1 ji \. 3 \ S HA A4BEI