China - Sichuan Agricultural Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 10322-CHA STAFF APPRAISAL REPORT CHINA SICHUAN AGRICULTURAL DEVELOPMENT PROJECT MAY 29, 1992 MICROEFICHE COPY Report No. 10322-CHA Type: (SAR) KItM, ff. / X84053 / A7 035/ RA2AG Agricultural Operations Division Country Department II East Asia and Pacific Regional Office I This document has a restlcted distuibution and may be used by redpients only in the perfonnance of their officlid duties. Its contents may not othenrise be discosed wthout World Bank authorization.  CURRENCY EOUIVALENT (As of February 5, 1992) Currency Unit - Yuan (Y) $1.00 - Y 5.38 Y 1.00 - $0.186 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) - 15 mu 1 ton (t) - 1,000 KG - 2,205 pounds 1 kilogram (kg) - 2.2 pounds PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ABC - Agricultural Bank of China ACWF - All China Women's Federation BA - Bureau of Agriculture BOF - Bureau of Finance BFO - Bureau of Forestry CAAS - Chinese Academy of Agricultural Sciences CATEC - County Agrotechnical Extension Center CMIEC - China National Machinery Import & Export Corporation CNSIEC - China National Silk Import and Export Corporation EIA - Environmental Impact Assessment EMP - Environmental Management Plan GOC - Government of China GVAO - Gross Value of Agricultural Output ICB - International Competitive Bidding ImO - Irrigation Management Office IPM - Integrated Pest Management LCB - Local Competitive Bidding LG - Leading Group MOF - Ministry of Finance MWR - Ministry of Water Resources NEPA - National Environmental Protection Agency O&M - Operation and Maintenance PMO - Provincial Project Management Office PO - Project Office at Prefecture/County Level POM - Plan of Operation and Maintenance RCC - Rural Credit Cooperatives SAAS - Sichuan Academy of Agricultural Sciences SOE - Statement of Expenditure SPC - State Planning Commission SPSC - Sichuan Provincial Silk Corporation SRIEP - Sichuan Research Institute of Environmental Protection WCB - Water Conservancy Bureau  FOR OMCIAL USE ONLY CHINA SICHUAN AGRICULTURAL DEVELOPMENT PROJECT Credit and Prolect Summary Borrower: People's Republic of China Beneficiarvy Sichuan Province Amount: SDR 107.7 million ($147 million equivalent) Terms: Standard, with 35 years maturity Qnlending Terms: Onlending rates to final borrowers (productive entities and individuals) will be no less than the Agricultural Bank of China charges for loans for similar purposes and terms. Obiectives and Description: The project's main objectives are to: (a) increase and intensify productivity of existing crops by providing a reliable water supply; (b) provide a complementary package of integrated agricultural inputs, support services, adap- tive research, training and technical assistance; (c) reduce soil and water losses to prevent long-term siltation prob- lems and maintain soil fertility; (d) expand agroprocessing activities to utilize locally available raw materials; and (e) increase incomes in poor and remote areas where farmers earn less than 50 percent of the national average, with particular emphasis on helping poor women. The project, to be carried out over six years, provides funds for: improve- ment and expansion of irrigation to 135,200 ha; establish- ment of two soil conservation demonstration areas and eco- nomic forestry; expansion of mulberry and cocoon production with expansion of supporting services; rehabilitation of tea gardens and establishment of livestock production bases combined with planting pastures; and rehabilitation and expansion of two paper mills and facilities for rabbit hair spinning, gallnut, goat and geese processing. Benefits and Risks: At full development, the project is expected to increase annual grain production by 440,000 tons, cash crops by 66,800 tons, 2.2 million m' of timber, 455,200 tons of fuel- wood, 205,200 tons of mulberry leaves for production of 1,116 tons of cocoons, and 1.9 million head of goats, rab- bits and geese. The agroprocessing component would produce 20,400 tons of paper, 254 tons of angora wool, about 2,800 tons of processed meat, 40 tons of down, 7,000 pieces of hide and 500 tons of tannic acids. The pr^ject would bene- fit over 4 million people, and create about 600,000 full- I This document has a restricted distribution and may be used by recipients only in the performance | of their official duties. Ius contents may not otherwise be disclosed without World Bank authorization.  - ii - time equivalent jobs with significant contributions toward. poverty allviation in Sichuan's poorest counties. rhe economic rate of return for the overall project is estimated to be about 26 percent. No major risks are foreseen. Estimated Costs Local Foreian Total ---------- ($ million) ---------- Irrigation 119.3 47.2 166.5 Soil Conserv&tion 12.6 2.8 15.4 Income Generation 16.8 5.3 22.1 Agroprocessing 17.6 19.9 37.5 Base Cost 166.3 75.2 241.5 Physical Contingencies 12.2 6.1 18.3 Price Contingencies 23.7 4.1 27.8 Total Proiect Cost 202.1 85.5 287.6 Financinat Plan: Local Foreian Total ---------- ($ million) ---------- Central Government 17.0 0.0 17.0 Provincial/Prefecture Govts. 45.5 0.0 45.5 Couwty Government 19.0 0.0 19.0 Local Banks 9.0 0.0 9.0 Special Poverty Alleviation Funds 10.0 0.0 10.0 Enterprises and Farmers 40.1 0.0 40.1 IDA 61.5 85.5 147.0 Total 202.1 85.5 287.6 Estimated IDA Disbursements IDA Fiscal Year 1993 1994 1995 1996 1997 1998 1999 Annual 20 32 36 26 18 12 3 Cumulative 20 52 88 114 132 144 147 Economic Rate of Return: 26 percent  - lli - ci SICHUAN AGRICULTURAL DEVELOPMENT PROJECT Table of Contents Pstes Ng. I. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . 1 A. Introduction . . . .................................a........... 1 B. The Agriculture Sector ... . . . . . .a . . . . . .a . . 1 C. Irrigation Subsector ................................... 2 D. Soil Cor.iorvation Efforts in China . . . . . . . . . . . 4 E. Sectoral Objectives and Bank Lending . . . . . . . . . . 4 P. Agriculture in Sichuan 5 G. Rural Poverty in Sick &a . 7 H. Rationale for IDA Involvement . ....... . ... . 8 II. THE PROJECT AREAS . . . . . . . . . . . . . . . . . . . . . . 9 As* Location . . . . a . a . . . . . . . . . . . . . . 9 S. Climate, Topography and Soils . . . . . . . 9 C. Water Resources and Irrigation . . . . . . . . . . . . . 10 D. Population, Farm Size and Land Use . . . . . . ... . . 11 S. Rural Incomes and Poverty. . .......... .. . . 11 F. Present Agricultural Development . . . . . . . . . . . . 12 G. Support Services 13 H* Infrastructure 14 III. THE PROJECT # . . . . . . . . . . . . . . o . . . . . . 16 A. Project Objectives . . . . . . 16 B. Project Description . . . . . . 17 C. Detaled Features . .r. . . . . . . . . . . . . . ... . 17 D. Status of Preparation ... .. ... o ..... . . . . . . . .. 28 S. Implementation Schedule .. .. . . . . .............. . 28 Fe Cost Estimates .... . . . . . . . . . . . . . . . . . 29 G. Financing .. ......... . . . . . . 30 HN Procurement ............ . . . .. ..... 31 I* Disbursements . . . . . . . . . . . . . . . . . . . . . . 33 J. Accounts and Audts ................... .................. 34 K. Environmental Impact . ................ . 34 This report is based on the findings of an appraisal mission In November/ December 1991. Members of the appraisal team iziluded H. Kim (mission leader), J. Stemp, and W. Price (IDA), J. Smyle. C. Cronberg, 0. Hong (consul- tants). Others involved in the preparation and preappralsal were B. Albinson, J. Post, R. Dayal %IDA), P. Gilchrist, H. Lea, 0. Knowless M. Bi (consultants) and A. Nameed (FAO/CP). Peer reviewers comprised H. Froderikeen, E. Chobanian, K. Yeow, N. Jones (ASTAG), H. Plusquellec, J. Srivastava and H. lisa (AGRPS). The division chief is J. Goldberg and the department direc- tor is Shahid Javed Burki.  - iv - a6seN. IV. ORGAI O AND Mt ENT . . . . . . . . . . . . . . . . . 36 A. Project Coordination and Management . . . . . . . . 36 B. Execution of Project Works .. . .. . . .. . .. ..a 37 C. Mnagement of Production Activities . . . 37 D. Vinancial Neagoement . . . . . . . . . . 38 R. Irrigation System Operation and Maintenance . . . . . . . 39 F. Project Launch Workshop ....*..*.*..... . 40 G. Monitoring, Evaluation and Reporting . . . . . . . . . . 41 V. PRDoUCTNton MA . T8 PRICES . . . . . . . . . . . . . . . 42 A* Production * o 9 oe 99 oo o9 9o* 9o 42 B. Markets and Marketing Channels . . . . . . . . . . . . . 43 C* Prices . ... . .*..* . *. . . 45 VI. BENEFITS. JUSTIFICATION AND RISKS . . . . . . . . . . . . . . 47 A* Benefits *........*.......* .. 47 B. Employment and Incomes . . . . . . . 47 C. Women in Development ................ 47 D. Rent nd Cost Recovery .......... ....... 48 e. Financial and Economic Analysis 48 F* Risks o oo 9* oooo v * o** *v * * 49 VII. AGREEMENTS REACHED AND RECOMMENDATION . . . . . . . . . . . . 50 TABLES IN TEXT 3.1 Irrigation Component: Summary of Works . . . . . . . . . 19 3.2 Soil Conservation: Summary of Works . . . . . . . . . . 21 3.3 Sericulture: Summary of Works . . . . . . . . . . . . . 22 3.4 Livestock: Summary of Works . . . . . . . . . . . . . . 24 3.5 Project Cost Summary . . . . . . . . . . . . . . . . . . 30 3.6 Project Financing Plan 30 3.7 Procurement Profile . 31 5.1 Irrigation Component: Summary of Output . . . . . . . 42 5.2 Other Components: Summary of Outputs . . . . . . . . . . 44  - v - 1. Basi4 Data 1. Provincial and Project Area Statistics 2. Climate 3. Project Locations 4. Responsibility for Project Design and Implementation S. Counterpart Funding: Amount and Sources 6. Research and Training Program 7. Summary of Agroprocessing 2. Pro1ect Cost Summary 1. Project Cost Summary by Component 2. Project Cost Summary by Category 3. Procurement 1. Procurement of Machinery, Equipment, Materials and Vehicles 2. Procurement Schedules 4. Estimated Disbursement Schedule 5. Farm Models and Croi Budgets 1. Cropped Area, Yield, and Production 2. Crop Budgets 3. Cropping Calendar of Main Annual Crops 4. Farm Models 5. Rent and Cost Recovery 6. Econwomic and Financial Analysis 1. Summary of Economic anu Financial Analysis 2. Main Conversion Factors 3. Border Prices for Principal Products and Prices 4. Historical Financial Prices of Main Products 7. Monitorint and Sunervision 1. Key Monitoring Indicators 2. Supervision Plans 8. Summary of Dam Safety Review 9. Summary of Environmental Assessment and Management Plan 10. Selected Documents and Data Available in the Pro1ect Files Chart 1 Implementation Schedule Chart 2 Organization Chart MAn Irrigations IBRD 23092 and 23094 Project Components and Sites: IBRD 23480  CRIN SICHUAN AGRlI(ULTURAL DEVELOPMENT PROJECT I. BACRGROUND A. Introduction 1.1 The Government of China (GOC) has requested IDA assistance in financing an integrated agricultural and irrigation development project in Sichuan Province. The project'. main objectives are to: (a) increase and intensify productivity of existing crops by increasing the land under irriga- tion and diversifying into more economic cropping patternos (b) provide a complementary package of integrated agricultural inputs., support services, adaptive research, training and technical assistance; (c) reduce soil and water losses, maintain soil fertility, and Improve productivity of already eroded areas; (d) expand agroprocessing activities to utilize locally avail- able raw materials; and (e) increase incomes in poor and remote areas vhere farmers' incomes are substantially less than the national average, with par- ticular emphasis on helping poor women. B. The Amriculture Sector 1.2 Agriculture in China--including crops, livestock, forestry and fish- eries--provides sustenance for over 1.16 billion peoplet it is an important source of income for some 190 million farm families and accounts for about 30 percent of the country's gross domestic product (GDP). Only about 137 million ha of China's land area of 960 million ha are arable. Farming systems intensively utilize small machinery, heavy inputs of labor, fertilizer, and where possible water. Nearly half of the cropped area is irrigated. Food grains occupy about 70 percent of total cropland and account for about one- third of the value of agricultural output. Intensive farming has allowed China to meet the basic food requirements of its population, about 22 percent of the world's total, and to produce an increasingly sophisticated mix of cash and commercial crops, from less than 11 percent of the world's arable land. China's rural reform program, initiated in 1978, also has stimulated the agri- cultural sector. This program produced impressive growth and structural change by introducing the production responsibility system, increasing pro- ducer prices, and expanding the role of the market. 1.3 The gross value of agricultural output (GVAO) increased by 83 per- cent in real terms during the 1978-90 period (6 percent per annum), substan- tially Zaster than during the previous 25-year period (3 percent per annum). While significant growth in grain production was achieved in the early part of the period (peaking at 407 million tons in 1984), stagnating grain production has been the Government's central concern in later years, with production ranging between 379 and 402 million tons during the 1985-88 period as farmers substituted other crops for grain. Recently, however, grain production appears to have risen to a new plateau, with 446 million tons in 1990 (an excellent weather year) and 435 million tons on 1991, a year of extremely severe floods in the Yangtze River Basin and quite serious flooding also in  northeast China. One major factor in this success has been China's admirable achievements in plant breeding--China was the first country to achieve the hybridization of rice--backed up by the vast network of local seed production, extension, and distribution units required to put new seeds and technology into the hands of the masses of peasant farmers. Due to this effort, nearly 40 percent of the rice now planted in China is hybrid, as well as virtually all of the corn, while most of the wheats have high genetic performance poten- tial for the various agroclimatic regions in which they are grown. The Gov- ernment's strategy to increase grain production also includes consistently increasing supplies *f chemical fertilizers, increased state investment in agriculture, mainly in irrigation rehabilitation and expansion, and introduc- tion of partial reforms in grain procurement, distributi"n, prices and subsi- dies. These reforms have recently included: the general fixing of provincial grain procurement quotas at substantially reduced levels, with ever-increasing production increments priced at market-based negotiated prices; already announced increased wheat quota procurement prices for 1992, so that wheat and corn farm-gate prices now approach world levels; the conversion of most offi- cial interprovincial grain shipments from quota to negotiated prices; in 1991, the first substantial increases (from 55 percent to 160 percent) in urban ration grain and edible oil prices in 30 years; and the establishment of fledgling grain commodity exchanges for all major grains in various Chinese cities (e.g., Zhengzhou, Changchun, Wuhan, Harbin, and Changsha). In the context of preparing a proposed Grain Distribution and Marketing Project, IDA iS discussing with the GOC a future reform program involving the further sub- stantial elimination of grain consumption subsidies, the opening of the inter- nal grain trade to all interested units and individuals, the thorough commer- cialization of grain wholesaling and retailing enterprises, establishment of a futures market in grain, and eventual market-determined pricing of virtually all grain in China. C. Irrigation Subsector 1.4 Water Resources Develooment. China's water resources are limited and unevenly distributed. About 45 percent of China's total land area is located in regions with less than 400 mm annual rainfall. A rapid expansion of irrigated farmland took place between the early 1950s and the mid-1980s which more than doubled the effectively irrigated area in the country from about 20 million ha in 1952 to 48 million ha in 1990. This growth in irri- gated area reflected the high priority attached to irrigation and agriculture in the earlier decades and the widespread introduction of tubewell technology for exploiting groundwater in the early 1970s. Today, about 82 percent of the national irrigated area is fed by surface water and about 18 percent is fed by groundwater. 1.5 The productivity of China's irrigated land is about twice that of its rainfed land. Irrigated agriculture accounts for about two thirds of total grain production and three quarters of commercial crop production. The expansion of irrigation facilities has been a major factor in the increase in grain production from about 164 million tons in 1952 to present levels. How- ever, lack of adequate control structures and the poor conditions of many on- farm warks limit irrigation efficiency. Inadequate investment in construction and maittenance of drainage systems has acted as a further constraint to pro- ductivil.y over much of the existing irrigated area.  -3- 1.6 Water Resource Asencies. As the principal department for water administration under the State Council, the central Mlinstry of Water Resources (MWR) is responsible for overall water resources management-- improvement and development of major rivers, planning of water resources for major city water supply, basic construction of irrigatior, facilities, waterl soil conservancy, rural hydroelectricity supply, and construction and manage- ment of large- and medium-size reservoirs used primarily for flood control, irrigation, water supply and rural hydroelectricity. The MWR employs about 1,337,000 workers nationwide, approximately 7.5 percent of whom work directly under the MWR and 92.5 percent of whom work under provincial and local govern- ments. The MWR also directly supervises the Water Resources and Hydroelectric Power Construction Corporation, and administers 13 institutions of higher edu- cation and seven regional river basin commissions. Each province maintains a Water Conservancy Bureau (WCB), responsible for the planning, survey, design, construction, operation and maintenance of irrigation, drainage, flood control works and rural hydroelectricity. Designs of major projects are prepared by design institutes of the WCBst projects covering areas larger than 20,000 ha must be approved by MWR. WCBs at the prefecture and county levels are directly responsible for the construction ani maintenance of most canals, associated irrigation and flood control structures and medium-size reservoirs. 1.7 Water Resource linancing. Projects for water resource development involving major river diversion or control with central government funding must be approved by the State Planning Co-ission (SPC). This approval is made in accordance with annual and five-year plans and then is channeled through the MWR to the provinces involved. In 1980, when state investment in vater resources was reduced, emphasis shifted away from new irrigation devel- opments to the rehabilitation of existing projects. At the same time, provin- cial and local governments began to assume more responsibility for initiating and funding investments and operating and maintaining water resource projects. Since 1980, rising producer prices and incomes led the MWR to encourage the WCBs to experiment with increasing water charges. In 1985, the GOC prescribed a policy requiring all industrial, municipal and agricultural end-users to pay vater charges based on full recovery of operation and maintenance expenses, major repair costs, and depreciation. The new water charge systems have sev- eral drawbacks, however. First, the provincially mandated water charges are set below national levels and are not revised regularly. As a result, infla- tion has rapidly eroded their real value. Second, prefectures and counties continue to enjoy considerable flexibility in setting water charges. This variation led to inconsistent standards of maintenance and repair. The MWR estimates that assessed agricultural water charge levels in 1988 were only 40 percent of national standards, excluding projects managed by collectives or individuals below the township level. Third, collecting water charges contin- ues to be a problem. 1.8 Current Constraints in Irr1iated Agriculture. Despite past suc- cesses, China now faces numerous problems in the irrigation sector. Many of the large schemes constructed in the 19509 and 1960s now require major upgrad- ing or rehabilitation. Many still lack drainage and irrigation networks at the tertiary and farm level--networks which were to have been constructed by local governments. Because improvement works must be planned and implemented in an integrated manner for large contiguous blocks of land, large investments are needed. The uncontrolled construction of tubewells, prompted by govern-  -4- ment subsidies, the low capital cost of construction and equipment, and low electricity charges for pumping has led to overexploitation of groundwater, excessive drawdown of the water level and land subsidence. Operation and maintenance have been inadequate in many areas. Resources allocated by the central and provincial governments frequently have not been matched adequately by funding from the counties and townships. Measures to alleviate some of these problems were curtailed by cuts In the government budget for irrigation beginning in 1980. State capital investment In irrigation has rebounded some- what since 1985 but still falls short of pre-1980 levdls. "he development of new water resources has not kept pace with the growth in - demand from agriculture, industry, and urban centers. 1.9 China has achieved notable success in its support services eector, but there is also much room for improvement. A major program is under wry to upgrade and strengthen the extension services in the country, but so far, only about one third of the 2,300 counties nationwide have established formal agro- technical extension centers and 20 percent of the counties have no formal extension program at all. Extension services need to move towards a client- supplier relationship, and offer a better-quality service to producers. Link- ages among research, training and extension remain weak. Seed production and agromachinery services also need improving. Quality control for seed produc- tion is inadequate and Improvements are still required in maintaining varietal purity in some areas and in the extension and demonstration of quality seeds. Agromachinery service centers are becoming increasingly important in helping to maintain small tractors, the type most commonly owned by farm households. There aro some 37,000 collectively operated mechanization centers providing service to individual farmers. The centers also provide training to operators of medium and large machinery used for land improvement. But most of the cen- ters still function with weak management, outdated facilities, and inadequate tools and equipment. D. Soil Conservation Efforts in China 1.10 The total land area in China subject to accelerated erosion is esti- mated to be 147 million hectares (16 percent of the total land area); an esti- mated 5 billion tons of topsoil are eroded annually. The Chinese estimate that the losses of key nutrients from this process are nearly equivalent to the nation's total annual fertilizer production. Historically, soil erosion problems have been most seve-, along the upper-middle Yellow River, with roughly one-third of the nat a' s total erosion taking place along the Yellow River alone. Despite efforts to counteract soil erosion since the 1950s, erosion problems have intensified, with an estimated 30 percent more land affected by erosion today than In 1949. Areas of particular concern are (i) along the Yangtze River, in which erosion is estimated to have doubled since the 1950s, and (11) in Sichuan Province, in which erosion is estimated to have more than quadrupled since the 1950s. In south China, where soils are generally thinner, susceptibility to erosion-caused productivity losses is much higher. E. Sectoral Obiectives and Bank Lending 1.11 The Government's long-term objectives for the agricultural sector are to Increase production to meet the requirements created by population and  - 5 - income growth and to increase income and employment in rural areas. Given China's shortage of arable land, tevelopment planners have focused on the need to increase the productivity of presently cropped areas and to develop effi- ciently the few remaining areas of unutilized lands. A major objective is to stabilize per capita grain output. Per capita and total value added In the crop subsector are to be raised primarily by increasing the yield and quality of food, feed, orchard, and industrial crops and also by Increasing the volume of agroprocessing. Although investment in agriculture (including irrigation) declined markedly during the initial reforms of 1980-85, due to the enhanced profitability of nonagricultural investments to subnational levels of govern- ment and their freedom to make these investments, agricultural investment has since rebounded at all levels due to firm national and proVincial commitment to increasing production. 1.12 Bank Group agricultural lending to date has comprised 29 operations amounting to $3.45 billion and has covered a wide spectrum of goographic areas and subsectors, with overall focuses on land development, irrigation and drainage (seven projects), upgrading of agricultural support services includ- ing agricultural research, education, credit and seed Improvement (seven proj- ects), development of specialized subsectors including rubber, forestry, fruit and fisheries (eight projects), and area development (seven projects). In recent year., the Bank/IDA has supported a series of p-ovincial development projects in which an area development approach has been applied. In these project., the responsibility for proposing, preparing and implementing the projects and repaying project funds rests with provincial and lower-level gov- ernments. A major objective of several recent Bank projects has been to assist in the Government's ongoing reform process. The Rural Sector Adjust- ment Loan (Credit 1932-CHA/Loan 2967-CHA), which was approved during 1988, contributed to the articulation of the overall reform process. Several proj- ects approved since 1989, notably the National Afforestation (Credit 2145- CUA), Mid-Yangtze Agricultural Development (Credit 2172-CHA), Fourth Rural Credit (Loan 3265-CHA/Credit 2182-CHA), and Guangdong Agricultural Development (Credit 2307-CHA) projects contain significant subsectoral reform elements. 1.13 Implementation of most ongoing Bank/IDA-financed projects in the agriculture sector is on schedule. Experience in previous Bank agricultural projectd in China is that physical works have been completed on time or ahead of schedule. Disbursements for agricultural projects, in fact, usually out- pace those in other sectors. Notable features of all the projects are the high standard of project management, the active participation of farmers and the effective collaboration of government authorities at all levels. Seven agriculture projects have been completedt North China Plain, Beilongjiang Land Reclamation, First and Second Rural Credit, Seeds, Rubber Development, and Rural Sector Adjustment. The proje'.t completion reports for these proj- ects indicate that implementation Was generally successful, that economic rates of return reached or exceeded appraisal estimates, and that the technol- ogies used were sound and appropriate for wider application. P. Agriculture In Sichuan 1.14 Sichuan Province, located in the southwest of China, is the most populous province in China with over 108 million people, 92 million of whom are in agriculture. It is a land-locked province which shares its border with  - 6 - eight provinces--Qinghai, Gansu and Shaanxi to the north, Hubei and Hunan to the east, Guizhou and Yunnan to the south and Xizang (Tibet) to its west. Of the total area of 57 million ha, 10.9 million ha (19 percent) are arable. A total of 6.6 million ha (12 percent) were cultivated in 1990, of which about 42 percent was under irrigation. Ths province is conventionally divided into three major natural regions. The first, the Sichuan Basin, which occupie3 29 percent of the total area of the province, is a rich and fertile grain belt. The second area, the West Plateau, occupies 45 percent of the total area and is important for cattle and fruit production. The third area, the southwest region, occupying 26 percent of the province, comprises a river basin area suitable for grains, sugarcane and oil seed crops and a mountainous area which supports corn, potato and cattle production. The proposed project is located in the Chengdu Plain, a part of the Sichuan Basin, which, with only 16 percent of the province's total lands produces more than 90 percent of the province's grain. Of over 33,000 irrigation schemes in the province, most of which are small-scale, the most effective is the famous Dujiangyan irrigation system built over 2,200 years ago which is still operating and at present serves over 570,000 ha. 1.15 The major grain crops in the province are rice, wheat, corn, sweet potatoes and other tubers, and rapeseed. Sichuan, with one tenth of the nation's population to feed on one sixteenth of the land, half of which is mountainous, had to develop irrigation systems from ancient times to intensify its grain production. In 1990, the province produced about 43 million tons of grain (52 percent rice, 15 percent wheat) or 10 percent of the nation's grain output. It is also the largest producer of rapeseed with over one fifth of the national output. Sichuan's production of Chinese gall, raw lacquer, wax and tung oil rank first in the country. About one third of Chinese medicine comes from Sichuan. The province accounts for 11 percent of China's total tea production. 1.16 China is the world's largest producer and exporter of silk and silk products, with 60 percent of global production and 90 percent of total exports in the world market. Sichuan, with a long tradition of mulberry planting and silkworm rearing, is the largest producer of mulberry cocoon and raw silk in China. In 1990, Sichuan Province produced over 134,000 tons and 11,000 tons of fresh cocoon and raw silk, respectively, accounting for nearly one third of national and about one fifth of global production. About 30 million people in Sichuan are engaged In sericulture, involving about 7 million households in 130 c'unties. China's share in the global market is expected to increase since, being extremely labor intensive, mulberry production and silkworm rear- ing activities are being phased out in previously active countries such as Japan and Korea. These countries increasingly rely on imports of raw silk from China for further processing. 1.17 Sichuan is the largest meat producer in China with the largest num- ber of pigs and cattle. In 1990, the province had over 56 million pigs and 11 million cattle with an annual output of pork and beef of more than 4 million tons and 70 thousand tons, respectively. Pork accounts for 70 percent of total provincial livestock production. Poultry in Sichuan includes chickens, ducks and geese plus quail and pigeon. Livestock production also included 445,000 tons of eggs, 264,000 tons of milk and 2,720 tons of wool. The prov-  - 7 - imce has about 20 million ha of pasture and grassland which are suitable for livestock grazing. 1.18 In 1990, GVAO was Y 60 billion, which accounted for about 33 percent of the total provincial output value. The relative share of agriculture has been on the decline--46 percent in 1970, 40 percent in 1980 and 33 percent in 1990. Nevertheless, agriculture remains the wost important source of income for more than 85 percent of the population in the province. Livestock produc- tion value accounts for 35 percent of the total GVAO. 1.19 An estimated 44 percent of the area of Sichuan is subject to accel- erated erosion, with 2 million hectares of cultivated land on slopes losing an average of 110 tons of soil/ha/yr .equivalent to almost 1 cm of topsoil). Traditionally, most soil conservation efforts have been directed at the high productivity, irrigated lowlands and those areas of the uplands where terrac- ing was physically possible and revegetation was economic. Recognizing the inadequacy of these traditional approaches in the uplands, the Chinese govern- ment has the stated goal within the current Five-Year Plan of consolidating research and experience to formulate improved practice in soil conservation and conservation farming for steeply sloping agricultural lands Sichuan is actively involved in these efforts. G. Rural Poverty in Sichuan 1.20 Alleviation of rural poverty remains a major development policy objective of the Government. Poverty programs were initially directed towards provision of relief but later evolved into a combination of relief and produc- tion support in order to enable farmers to develop sustainable economic means of production. Since 1986, concerted effort was made to systematically iden- tify the specific counties requiring governmental support for eradication of rural poverty. Since then, the Government has been allocating, in addition to subsidies and relief, special funds to promote income generation opportunities for the rural poor in these areas as part of an overall development effort. Special institutional arrangements have also been made at various levels of the Government to design and implement policies and projects aimed at the economic development of poor counties. The same focus is continuing during the Eighth Five-Year Plan period (1991-95). 1.21 With limited agricultural land,/ Sichuan is one of the poorest provinces in China. Farmers' annual per capita income is Y 558 ($103 equiva- lent), around 88 percent of the national rural average of Y 630 ($117). Nearly 26 percent of Sichuan's population is reported to be poor. Of 214 counties in the province, 65 counties are either provincial or nationally classified poverty counties. The criteria used in 1986 for the national clas- sification are based on the level of per capita income (less than Y 150 in 1985 prices) and the nature and significance of the areas, including remote and backward areas and localities inhabited by minorities. The Sichuan pro- vincial criteria were targeted to areas with less than Y 200 per capita incomes, barely equivalent to 200 kg of grain at market prices. I/ The average rural household in Sichuan has 0.08 ha per capita of culti- vated land, about 60 percent of the national average.  1.22 The proposed project focuses on four relatively poor prefectures-- Mianyang, Guangyuan and Nanchong in north zentral Sichuan, and Qianjiang pre- fecture in the southeast corner of the province. Qianjiang is one of the poorest regions in the province with a large population of ethnic minorities. The average incomes of the project prefectures are all lower than the provin- cial average. They range from Y 201 ($37) to Y 422 ($78), which amounts to only 32 percent and 67 percent of the national average, respectively. The project includes 27 counties, of which 11 are nationally classified poverty counties. In Qianjiang Prefecture, where all five counties are nationally classified poverty counties, of 634,000 total households, about 24 percent have per capita income below Y 200, 42 percent have income between Y 200 and Y 300, 28 percent have Y 300-500, and only 6 percent have incomes above Y 500. H. Rationale for IDA Involvement 1.23 The proposed project is designed to address the key constraints limiting agricultural productivity in Sichuan's poorest areas. Among them, the most pressing are the shortage and irregular availability of irrigation water, high water and soil losses due to erosion, inadequate and weak linkages between production, processing and marketing activities, and limited technical and extension services to farmers. TDA involvement in the project would make possible a large increase in farmers' income in these areas. Project design draws on the Bank's extensive experience in integrated agricultural develop- ment projects in China to address major constraints to increasing agricultural productivity and rural incomes. IDA involvement would promote the efficient use of limited resources, help develop technologies for soil and water conser- vation, and promote environmentally sound agricultural development. The proj- ect would improve the technical efficiency of production by extending irriga- tion canals from already completed reservoirs and main canals for relatively quick returns to investment. The project would also reduce soil and water losses by planting suitable trees, grass and legumes. The income generation component is designed to provide alternative income options to subsistence farmers. Subprojects for livestock raising, mulberry and cocoon production, and tea rehabilitation would be carried out by individual households, selected among the poorest, with priority given to female-headed households to enable women to become economically active. Poverty among female-headed households is generally greater than among male-headed households as women with limited assets for collateral, traditionally have less access to credit, inputs and other production means. The processing component of the project would allow the province to improve the linkage between raw material production and pro- cessing, capture additional value added, and permit lower production costs and higher product values by improving processing facilities and product quali- ties. Finally, the project would enhance environmentally appropriate develop- ment of agriculture through Improvement of current practices and introduction of proven environmental protection measures.  - 9 - II. THE PROJECT AREAS A. Location 2.1 The project areas are located in 26 counties of Nanchong, Mianyang and Guangyuan Prefectures in the north and Qiaujiang Prefecture at the south- east corner of the province. The project would build irrigation works in 11 counties of the three northern prefectures. The irrigsation component has three subprojects--Shengzhong (SP), Wudu (WP) and Yangjiaba (YP). SP lies between the Jialing and Fujiang rivers dividing ridge and the Jialing River in five counties and a city in Nanchong Prefecture. WP is bounded by the Fujiang, Zijiang and Xihe rivers and is located in five counties in Hianyang Prefecture, and YP is located in Jiange County in Guangyuan Prefecture. Two soil conservation demonstration areas would be located in Guangyuan and Qianjiang prefectures, while forestry subprojects would be located in seven counties of Qianjiang and Guangyuan prefectures. All of the livestock sub- projects and most of the agroprocessing with the exception of one paper mill would be located in Qianjiang prefecture. Sericulture activities would be scattered in 16 counties in three of the four project prefectures. Detailed irrigation sites and project locations are shown on IBRD Maps No. 23092, 23094 and 23480 and Annex 1, Table 3. Background provincial and project area sta- tistics are given in Annex 1, Table 1. B. Climate. ToDoaraphy and Soils 2.2 Climate. The project area has a continental monsoon climate. Monthly average temperatures range from a low of about 4