Mexico - San Fernando Rainfed Agricultural Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3764-ME STAFF APPRAISAL REPORT MEXICO SAN FERNANDO RAINFED AGRICULTURAL DEVELOPMENT PROJECT June 2, 1982 Regional Projects Department Latin America and Caribbean Regional Offices 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 US$1 = Mex$ 46.00 Mex$ 1 = US$0.022 Mex$ 1 million = US$21,739 WEIGHTS AND MEASURES 1 hectare (ha) = 10,000 m = 2.47 acres 1 kilometer (km) 2 0.62 mile 1 square kilometer (km ) = 0.39 sq mile = 100 ha 1 kilogram (kg) = 2.2 pounds 1 liter (1) = 0.26 gallon 1 metric ton (m ton) = 1,000 kg = 0.98 long ton ABBREVIATIONS ANAGSA - National Crop and Livestock Insurance Agency Inc. (Aseguradora Nacional Agricola y Ganadera, S.A.) ANDSA - Conasupo's National Storage Facilities (Agencia Nacional de Servicios de Almacenamiento) BANRURAL or BNCR - National Rural Credit Bank (Banco Nacional de Credito Rural) BORUCONSA - Conasupo's Rural Storage Facilities (Bodegas Rurales Conasupo S.A. de C.V.) CIAGON - Center for Agricultural Research for the Northeast Region (Centro de Investigacion Agricola del Golfo Norte) CONASUPO - National Marketing Corporation for Basic Foods (Compania Nacional de Subsistencias Populares) DGCSA - General Directorate for Soil and Water Conservation (Direccion General de Conservacion del Suelo y Agua) DGDUT - General Directorate of Rainfed Districts and Units (Direccion General de Distritos y Unidades de Temporal) DGPEA - General Directorate for Production and Agricultural Extension (Direccion General de Produccion y Extension Agricola DT - Rainfed District (Distrito de Temporal) FEGA - Guarantee Fund for Ejidos (Fondo Especial de Garantia y Asistencia Tecnica) FICART or FICAR - Trust Fund for Credit in Rainfed Areas (Fideicomiso para Credito en Areas de Riego) FIRA - Agricultural Trust Funds of the Bank of Mexico (Fondo de Garantia y Fomento para la Agricultura, Ganaderia y Avicultura del Banco de Mexico) ICRISAT - International Crops Research Institute for the Semi-Arid Tropics  FOR OFFICIAL USE ONLY ABBREVIATIONS (Cont'd) NAFINSA - National Finance, Inc. (Nacional Financiera, S.A.) PIDER - Investment Program for Rural Development (Programa de Inversiones Publicas para el Desarrollo Rural) PLANAT - National Plan for Rainfed Agriculture Development (Plan Nacional de Apoyo a la Agricultura de Temporal) PRONAGRA - National Promotion of Basic Grains (Prnv4uctora Nacional de Granos) SAHOP - Secretariat for Human Settlement and Public Works (Secretaria de Asentamientos Humanos y Obras Publicas) SAM - Mexican Food System (Sistema Alimentario Mexicano) SARH - Secretariat of Agriculture and Water Resources (Secretaria de Agricultura y Recursos Hidraulicos) SHCP - Secretaria de Haciendas y Credito Publico (Secretariat of Finance and Public Credit) SPP - Secretariat of Programming and Budgeting (Secretaria de Programacion y Presupuesto) SRA - Secretariat of Agrarian Reform (Secretaria de Reforma Agraria) SSA - Secretariat of Health and Social Assistance (Secretaria de Salubridad y Asistencia) USDA/SCS - United States Department of Agriculture--Soil Conservation Service 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.   MEXICO SAN FERNANDO RAINFED DEVELOPMENT PROJECT Table of Contents Page No I. THE AGRICULTURAL SECTOR ............................................ 1 General ............................................................ 1 Government Policies and Strategies in Agriculture .................. 2 Performance Under Previous Bank Projects .......................... 3 II. THE PROJECT AREA .................................................. 5 Location .......................................................... 5 Climate .......................................................... 5 Soils ............................................................. 6 Hydrology ......................................................... 6 Population, Employment and Income ................................. 6 Land Use .......................................................... 7 Present Land Tenure ............................................... 7 Agrarian Reform ................................................... 8 Present Production and Practices .................................. 9 Agricultural Support Services ..................................... 10 Health Service .................................................... 12 Education ........ 13 Roads, Railroads, Transportation and Communication ................. 13 Electrical Power ................................................... 13 Strategy for Development ........................................... 13 III. THE PROJECT ...................................................... 14 Introduction .................................................... 14 Brief Description ............................................... 14 Detailed Features .................................................. 15 Civil Works - Earthmoving ..................................... 15 Civil Works - Buildings ....................................... 16 Equipment for Operation and Maintenance ....................... 17 On-farm Works ................................................. 17 Training ...................................................... 17 Studies ...................................................... 19 This report is based on the findings of an appraisal mission which visited Mexico in August 1981. The mission consisted of Messrs. F. Sands, J. Dumoulin, and J. Fernandez of the Bank, and Oscar Perez and F. Adams, Consultants.  - ii - Table of Contents (Continued) Page No Rights-of-Way ......................................... ......... 19 Operation and Maintenance ..................................... 19 Costs .............................................................. 19 Financing .......................................................... 21 Procurement ........................................................ 21 Civil Works ................................................... 21 Goods ......................................................... 21 Contract Review ............................................... 22 Disbursements ...................................................... 22 IV. PROJECT ORGANIZATION, MANAGEMENT AND IMPLEMENTATION .... ............ 23 Project Organization and Management ................................ 23 Project Implementation ............................................. 24 Operation and Maintenance ........................................ 24 Technical Assistance ............................................. 24 Research ......................................................... 25 Studies .......................................................... 26 Credit ........................................................... 27 Accounts and Auditing .............................................. 27 Monitoring and Evaluation .......................................... 27 V. AGRICULTURAL PRODUCTION AND MARKETING ............................. 29 Changes in Agricultural Production ................................ 29 Yields and Production ............................................. 29 Crop Production and Incremental Value .............................. 30 Labor Demand--Employment ........................................... 31 Farm Production .................................................... 31 Farm Models ...................................................... 31 Farm Income ........................................................ 32 Marketing and Grain Movement ....................................... 33 VI. ECONOMIC ANALYSIS ................................................ 34 Benefits and Justification ................................... 34 Economic Rate of Return ....................................... 35 Sensitivity Analysis .............................................. 35 Environmental Impact .............................................. 36 Project Risks ..................................................... 36 Investment Analysis ................................................ 37 Cost Recovery ...................................................... 37 VII. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION ................... 38  - iii - Table of Contents (Continued) Page No ANNEXES 1. Supporting Tables and Chart T.1 Annual Rainfall ........................................... 39 T.2 Distribution of Soils in the Project Area ................ . 40 T.3 Land Use in the Project Area - Present Situation .... ...... 41 T.4 Land Clearing ............................................. 42 T.5 Drainage Network (884 km) ................................. 43 T.6 Feeder Road Network (884 km) .............................. 44 T.7 Service Road and Ditches (394 km) ......................... 45 T.8 Main Field Offices and Laboratories (3 units) .... ......... 46 T.9 Training Center ........................................... 47 T.10 Agricultural Research Center .............................. 48 T.11 Equipment for Operation and Maintenance - Major Civil Works 49 T.12 Operation and Maintenance of Main Field Offices (3 units) 50 T.13 Operation and Maintenance of Water and Soil Conservation Offices ................................... 51 T.14 Technical Assistance Program .............................. 52 T.15 On-farm Investments ....................................... 53 T.16 Training ........... ....................................... 54 T.17 San Fernando II Study ..................................... 55 T.18 Grain Movement/Storage Study .............................. 56 T.19 Rights-of-Way ............................................. 57 T.20 Project Cost .............................................. 58 T.21 Schedule of Investments ................................... 59 T.22 Project Financing ......................................... 60 T.23 Disbursement Schedule ..................................... 61 T.24 Implementation Schedule - Completion Percentage by Zone and by Year ............................................. 62 T.25 Proposed Land Use ......................................... 63 T.26 Yield Levels by Crop and Development Year .... ............. 64 T.27 Crop Production Total and Value by Year .... ............... 65 T.28 Total Demand for Labor by Crops and Year .... .............. 66 T.29 Model 1 - 200 ha, Heavy Soils: Cropping Pattern, Yields, Production and Production Value ......................... 67 T.30 Model 1 - 200 ha, Heavy Soils: Operating Expenditures .... 68 T.31 Model 1 - 200 ha, Heavy Soils: Farm Budget Analysis ...... 69 T.32 Model 2 - 1,000 ha, Heavy Soils: Cropping Pattern, Yields, Production and Production Value ......................... 70 T.33 Model 2 - 1,000 ha, Heavy Soils: Operating Expenditures .. 71 T.34 Model 2 - 1,000 ha, Heavy Soils: Farm Budget Analysis .... 72 T.35 Model 3 - 1,000 ha, Heavy Soils, New Ejidos: Cropping Patterns, Yields, Production and Production Value 73 T.36 Model 3 - 1,000 ha, Heavy Soils, New Ejidos: Operating Expenditures .74 T.37 Model 3 - 1,000 ha, Heavy Soils, New Ejidos: Farm Budget Analysis .75 T.38 Model 4 - 200 ha, Light Soils: Cropping Pattern, Yields, Production and Production Value .76  - iv - Table of Contents (Continued) Page No ANNEXES 1. Supporting Tables and Chart (Continued) T.39 Model 4 - 200 ha, Light Soils: Operating Expenditures 77 T.40 Model 4 - 200 ha, Light Soils: Farm Budget Analysis .... 78 T.41 Model 5 - 1000 ha, Light Soils, New Ejidos: Cropping Pattern, Yields, Production and Production Value 79 T.42 Model 5 - 1,000 ha, Light Soils, New Ejidos: Operating Expenditures .80 T.43 Model 5 - 1,000 ha, Light Soils, New Ejidos: Farm Budget Analysis . . 81 T.44 Model 6 - 1,000 ha, Light Soils: Cropping Pattern, Yields, Production and Production Value .82 T.45 Model 6 - 1,000 ha, Light Soils: Operating Expenditures 83 T.46 Model 6 - 1,000 ha, Light Soils: Farm Budget Analysis 84 T.47 Producer Prices at Farmgate Level .85 T.48 Incremental Economic Analysis .... .86 T.49 Sensitivity Analysis and Switching Value .87 Chart 1 - Organization Chart: San Fernando Rainfed District 88 2. Drainage, Soil and Water Conservation Systems - Concept, Design and Costs ..89 3. Grain Movement and Storage . 96 4. Selected Data and Documents in the Project File .101 Map IBRD 16100  MEXICO SAN FERNANDO RAINFED DEVELOPMENT PROJECT I. THE AGRICULTURAL SECTOR General 1.01 Mexico has a land area of 197 million ha of which about 30 million are considered cultivable, 78 million are classified as range land and 44 million are suitable for forestry. The remaining 45 million ha are either too dry, too poorly drained and saline, or too steep for any form of agricultural development. Of the estimated 30 million ha of potentially arable land, about 15 million are presently being cropped, including approximately 5 million under irrigation. Since 1965, the cropped area has increased slightly and agricultural production has risen at an average annual rate of about 2.3%. Livestock production, however, has expanded during the same period at an annual rate of approximately 4%. Because other sectors of the Mexican economy have developed at a faster rate, agriculture's share of the GDP declined from 14% in 1965 to around 7.4% in 1980. Agriculture remains an important source of employment, accounting for about 40% of the total labor force. Although a significant proportion of the labor force is linked to agriculture, compared to other sectors, family income in the sector is relatively low. About two-thirds of the agricultural labor force have earnings below the minimum wage. 1.02 Demand for agricultural products has remained very strong throughout the past decade. With a population of 67 million growing at about 3% per annum, and with an average per capita GDP growth of 2% to 3.5% per year, annual con- sumption increases ranged from about 3% for maize to 6% for wheat, 7% to 10% for meat products, especially pork and poultry, and 8% to 12% for fruit and vegetables. Buttressed by petroleum development since the late 1970s, high rates of GDP growth are expected to be maintained, enhancing the demand for food in general and for higher resource-cost foods in particular. 1.03 The strength of the demand outlook has contrasted sharply with recent output trends for agricultural produce, which (including livestock) slowed down to about 3% in the 1970-78 period. Leading the way in the declining growth rate was the important grains sector (grains cover about two-thirds of all cultivated land in Mexico; maize alone covers about half). Rice, maize and wheat production grew only 1.9%, 2.0% and 2.4% per annum, respectively, i.e., well below increases in domestic consumption, while sugar and cotton production actually declined. The agricultural trade balance reflected these trends: while still favorable overall, exports in the 1970s rose by only 8% while imports doubled, reducing the favorable net agricultural trade balance by 50%. Mexico changed from a small net exporter of wheat in the 1960s to an importer of about 45% of its domestic requirements, while maize imports rose from 7% to 20% of domestic requirements.  Government Policies and Strategies in Agriculture 1.04 The foregoing trends in production and consumption led to a growing concern within Government that fundamental changes in the direction of ongoing policies were necessary. Expansion of irrigated areas, which for decades has been the most important single element in Government agricultural policy, has slowed down, from about 160,000 ha per year to 100,000 ha per year, mainly because the scope for further expansion under large-scale schemes has become more limited and costly and more emphasis needs to be given to rehabilitation of existing irrigation systems and technical services. Consequently, the increase in production due to expanded irrigation, has also slowed down. On the other hand, development opportunities in rainfed agriculture have for a long time been neglected. Land surveys have shown that areas similar in size to the present cultivated area, with adequate climatic and soil conditions for rainfed cropping or more intensive livestock activities, have been vastly underutilized. The major bottlenecks to upgrading land use appear to be land tenure conditions and the need to improve drainage, especially on the humid tropical areas along the Gulf and southern Pacific coasts. Furthermore, an important potential exists to improve farming methods and improve yields in existing rainfed cropped areas: these areas, while producing only 50% of the value of output, mostly in grains, comprise 87% of all farmers. 1.05 Meanwhile, a convergence of several events brought the need for changes into even sharper focus. One was the upturn in the supply of develop- ment resources caused by the growth of the petroleum industry, allowing for more monies to be allocated to support agricultural development and help the rural poor. Another was the occurrence of two successive drought years, in 1978 and 1979, resulting in grain and bean imports reaching the highest levels ever and turning the agricultural trade balance negative for the first time. 1.06 In 1977, the present administration took the first major step toward increased public investment in rainfed areas by merging the Secretariat of Water Resources with the Secretariat of Agriculture to form a new Secretariat of Agriculture and Water Resources (SARH). This action was followed in early 1978 by a presidential decree establishing the General Directorate of Rainfed Districts and Units (DGDUT) within SARH, with specific responsibilities for coordinating, expanding, and promoting rainfed production at the district level. Following the organizational pattern of irrigation districts, DGDUT has established 124 rainfed districts (DT) whose main objectives are to expand extension, research and credit services and to encourage the maximum participa- tion of all local groups involved (producers, banks, commercial technical services, input and marketing organizations as well as other infrastructure agencies) in order to increase output of rainfed crops, livestock and forestry products. 1.07 A further major step was taken in 1980, when the Government announced a significant expansion of guaranteed price support and input subsidies for a number of basic commodities. Foremost among them were maize and beans and, to a lesser extent, wheat and sorghum. The aim was to achieve a high degree of  national self-sufficiency in the production of these commodities and also to improve the nutritional well-being and living levels of low-income urban and rural people. This system, known as the Mexican Food System (SAM), had its first full year of operation in 1980, and the use of subsidies as its main development device is continuing. 1.08 Finally, in early 1981, a significant move by Government was the enactment of the Agricultural Development Law (ADL). The ADL updates and supplements the basic agrarian legislation already existing, namely, the Agrarian Reform Law and the Federal Water Law from 1971 and 1972, respectively. The ADL provides for the expropriation of lands in stock farms in rainfed areas that are suitable for crop production under rainfed conditions (para 2.12). In addition, it provides the legal basis for establishing rainfed districts (para 1.06), legally accepts associations between ejidos and individual farms, provides enforcement procedures for the cultivation of idle land, permits (under slightly less rigorous conditions than hitherto) the owners of pasture land to produce crops themselves without threat of expro- priation, allows the merging of minifundia; and establishes a trust fund for shared risk which assures small-scale farmers participating in public produc- tion expansion programs a specified level of income. SARH was given the responsibility and power to carry out the above. Performance Under Previous Bank Projects 1.09 The Bank has supported the Government's strategy to increase food production, promote a greater level of diversification and alleviate poverty in depressed rural areas. During the past nine years (FY 1974/82), Bank participation in the Mexican agricultural sector totaled US$2,155 million distributed among 17 projects as follows: (a) Irrigation (Panuco-1974; Sinaloa-1974; Fuerte/Sinaloa-1979; Bajo Bravo/Bajo San Juan-1975; Small Scale Infrastructure-1979; Apatzingan-1980; Ocoroni-1981; and Bajo Bravo/Bajo San Juan II-1982) - US$714 million; (b) Rural Development (Integrated Program for Rural Development (PIDER) I-1975; II-1977; and III-1981; Papaloapan Basin-1975; Tropical Agriculture-1978; Rainfed Development-1981) - US$791 million; and (c) Agricultural Credit Projects: (FIRA V-1976, FIRA VI-1979 and FIRA VII-1980) - US$650 million. Implementation of irrigation projects was delayed initially mainly because of budgetary constraints. Accentuating these delays were large construction cost increases unforeseen at appraisal. Thus, the Government and Bank agreed that the projects should be financed over a longer period of time and it was decided to reformulate the Bajo Bravo/Bajo San Juan project, with subsequent cancellation of US$100 million (from an original loan of US$150 million). To assist in financing cost overruns of the Panuco Project, a supplementary loan of US$25 million was approved by the Bank on July 11, 1978 and the project  - 4 - is now progressing satisfactorily. The Rio Fuerte/Rio Sinaloa Irrigation Project, which became effective on October 5, 1979; the Apatzingan Irrigation Project, which became effective on December 19, 1980, and the Ocoroni Irrigation Project, which became effective on July 1, 1981, are all on schedule, but there will be some cost overrun on the Ocoroni project. The Bajo Rio Bravo/Bajo Rio San Juan Irrigation Rehabilitation II was appraised in early 1981 and was approved by the Board in February 1982; it is not yet effective. 1.10 PIDER I, II and III are multi-sectoral projects designed for improv- ing living conditions and increasing productivity in depressed areas. After some difficulties inherent in the nature of such projects and decentralization of the decision-making process, overall progress is improving. The Papaloapan project had a slow start, partly due to shortage of funds and a difference of concept with implementing authorities, a situation that was corrected beginning in early 1979. Implementation and disbursements have since been stepped up. Pider III was approved by the Bank on July 21, 1981 and should be in operation soon. The disbursement pace of the Fifth and Sixth Credit Projects, which are fully disbursed, was faster than projected. A Seventh Credit project was approved by the Board on July 8, 1980 and became effective November 17, 1980. This project is expected to be fully disbursed earlier than foreseen at the time of appraisal. The Tropical Agriculture Project became effective on January 12, 1979, and, although implementation was initially behind schedule, the pace has since accelerated. The Small-Scale Agricultural Infrastructure Development Project that became effective on April 13, 1979 is proceeding on schedule. On July 1, 1980, the Rainfed Agricultural Development Project became effective and project administration and implementation in the DTs are progressing as planned. The proposed project would be the second loan made exclusively for the rainfed area and thus it is in line with Government's increased emphasis on improving the productivity of farmers in such areas. 1.11 The Bank has completed audit reports on the first four agricultural loans to the Agricultural Trust Funds of the Bank of Mexico (FIRA), and completion reports on the fifth and sixth loans are now being prepared. The trend in Bank lending has stressed increased lending to low-income producers, institutional building, more emphasis on crop production than livestock, and less emphasis on models and more emphasis on sector orientation. Altogether, the credit loan series has absorbed US$925 million of Bank funds, making the program one of the largest in the Bank's agricultural portfolio. An audit report prepared on the Third Irrigation Project (Loan 450-ME) showed that performance of the borrower was generally satisfactory and that no technical, organizational or managerial difficulties were experienced. The audit cited, however, that the borrower had not fully complied with two loan conditions: controlling groundwater extraction and recovering operation and maintenance costs in part of the project area and recovering additional investment charges in the whole project area. These points have been addressed in sub- sequent projects, and the Bank has been engaged in a protracted dialogue with Government to increase cost recovery under irrigation projects. 1.12 In general, recognized difficulties have been overcome in that technical services and on-farm investments, which are essential in meeting project objectives, are now included in project costs, and sensitivity  -5- analyses are made on construction delays and on the effects of price changes and benefits. Also, the Bank has become more involved in project preparation and in the determination of the readiness of projects for preparation and implementation than it has been previously. Finally, the Bank has endeavored to obtain a satisfactory recovery of water charges in the irrigation projects it finances. II. THE PROJECT AREA Location 2.01 The project area is located in the northern part of Tamaulipas State and is bounded by the Rio Bravo and the Rio San Juan Irrigation Dis- tricts in the north, the Gulf of Mexico in the east, the San Fernando River in the south and the State of Nuevo Leon in the west. The project area is triangle shaped, with the base of the triangle in the north, extending from Reynosa, about 80 km in the west, to Matamoros in the east. The town of San Fernando is at the vertex of the triangle, approximately 145 km to the south. The total area of the San Fernando Valley is about 1,115,000 ha, of which, based on the latest soil survey, about 486,522 ha are in the project area and approximately 453,000 ha are available for agricultural purposes. The area is generally flat, with a 2% slope toward the southeast and is 200 m above sea level. 2.02 The main watercourse in the southern end of the project area--the San Fernando River--is small and of relatively high salinity. Also, explora- tion of groundwater reservoirs has been disappointing because of the unsuitable quality of the water. The San Fernando Valley has little irrigation potential, but a high potential for rainfed agriculture. Climate 2.03 The climate is warm subtropical, with an average annual rainfall of 565 mm. There are eight meteorological stations in the area, one with observations that cover 48 years (1932-79) (Annex 1, Table 1). About 74% of the precipitation occurs during May to October, with September usually being the month of highest rainfall and July the month that is driest. Rainfall, however, is erratic and variations in San Fernando. can extend from a total of 346 mm to 1,454 mm in any one year, the latter being almost three times the annual average. This phenomenon is caused by cyclonic disturbances that occur in summer and the beginning of fall. They are not frequent and, although accompanied by flooding, they are not a major threat to the area. Precipitation also varies within the project area, from an average of 438 mm annually in the northwest (Reynosa) to 648 mm in the south (San Fernando). 2.04 The median annual temperature is 23.60C, with a variation from 150C to 280C. The average maximum varies from 320 to 400C during March to August, and an average minimum of 20C occurs from November to March. During  - 6 - the winter months (December through February), temperatures can reach as low as -20C to -90C, resulting in frost, which, at times, may be harmful to crops grown in the late cycle. In the project area, the evapotranspiration rate is high (1,395 mm) and exceeds the annual rainfall. The evapotranspiration range is from around 32 mm in January to over 200 mm in July and August. This factor has an important bearing on crop production and emphasizes the significance of residual soil moisture. The winds are generally from the south-southwest most of the year, but from December to February, they shift and blow from the north and northwest. Wind velocity ranges from 7.2 to 21.6 km/hr. Soils 2.05 In June 1981, a semi-detailed survey was made on an area of 500,210 ha by the Agricultural Subdirectorate/General, Directorate of Studies/Planning, Undersecretariat of SARH. Only 486,522 ha, however, are in the project area. Forty-six soil series were identified and are divided into seven groups: 71.6% are heavy, intermediate and friable clays; 22.0% are fine to coarse loams; 1.8% are fine sands; and 4.6% are thin light soils. Land use classifi- cation is based on the USDA Soil Conservation Service and eight classes have been identified. Most of the soils (90%) are good, classified as Classes II and III (Annex 1, Table 2). 2.06 Predominant in the project area are deep alluvial soils of fine, intermediate and heavy clays with very low permeability (0.03 to 0.48 m/day to 0.48 to 1.5 m/day) and slow infiltration rates (0.12 to 2.0 cm/hr to 2.0 to 6.25 cm/hr). Surface drainage is poor since the slope is flat (0.5% to 2.0%) and the water table is somewhat shallow, ranging from 80 to 200 cm. Those soils below the 3-meter contour and not included in the project are severely affected by salinity, while those above this level have varying degrees of salinity. Fertility is medium to high and the pH is around 7.5 to 7.8. Full details are outlined in Annex 2 and in the Project File (Annex 4). Hydrology 2.07 There is no watershed per se in the project area, which lies between two river basin systems, the Rio Bravo (or Rio Grande) in the north and the Rio Conchos or San Fernando in the south. There are, however, a series of shallow depressions or "lagunas" where water accumulates in periods of rainfall. There are several aquifers under almost the entire project area, but, being saline and low in quantity, they have no potential for agriculture. Because of the rainfall pattern, soils of slow permeability on about 56% of the project area, and a 2% gentle southeast slope toward the Gulf of Mexico, surface flooding is frequent, accompanied by surface runoff. Hydrological conditions are based on up to 30 years of rainfall records from 16 hydrometric stations located in the project area. Population, Employment and Income 2.08 Population in the project area is estimated (1980) at 58,482 persons of which more than half (58.9%) are in the San Fernando municipality, which has 30 of the 52 existing ejidos and one colonia. With agriculture  being the major industry, approximately 65.4% of the population is classified as rural. The urban population is located mainly in San Fernando and Reynosa municipalities. Population density is low at 12.2 persons/km2, which compares to 24 persons/km2 for the state and 33 persons/km2 for the country. 2.09 The work force in the project area is estimated at 49% of the total population. Income is poorly distributed, a relationship directly linked to land ownership. In 1980, the largest group of proprietors (4,353), averaging 18.0 ha, had an average monthly income of Mex$ 5,045 each (US$202), whereas the smallest group (five), with holdings averaging 5,000 ha, had average monthly incomes of Mex$ 202,390 each (US$8,096). Land Use 2.10 Of the 486,522 ha in the project area, about half (245,800 ha) is planted with crops. Livestock grazing land in brush, natural and artificial pastures, as well as recently cleared brush land, amount to 44.5% of the area, or 216,390 ha. Land unsuitable for agricultural purposes, being either too low (below the 3-meter contour), too saline or too shallow, totals 13,370 ha, or 2.8%. Swamps, urban areas, roads, drains and trails cover 10,830 ha (Annex 1, Table 3). Present Land Tenure 2.11 Of the total land area of over 486,500 ha, 95% is under some form of citizen ownership. Private farmers owning less than 200 ha make up 19% of the total farmers and 19% of the total land. Their average holding is 55.3 ha. Farmers owning more than 200 ha comprise 2.5% of the farm population and their average holding is 1,035.6 ha. Ejidatarios are the largest group, constituting about 63.2% of the farm families, with an average holding of 21.8 ha. The colonias comprise only 15.2% of the population and their average family holding is 14.5 ha. Data are presented below in tabular form: Present Land Tenure System Total Average Total Number of Percent of Land Holding Land Ownership Families Families (ha) (ha) (%) 1. Private Less than 200 ha 1,707 19.1 94,482 55.3 19.5 Greater than 200 ha 219 2.5 226,790 1,035.6 46.6 2. Ejidos 5,642 63.2 123,196 21.8 25.3 3. Colonias 1,356 15.2 19,656 14.5 4.0 4. Rancho El Canelo 1/ - - 3,609 - 0.7 5. Other - - 10,829 - 2.2 6. Federal Land - - 8,050 - 1.7 TOTAL 8,924 100.0 486,612. 100.0 1/ Gross area of Government-owned research center.  -8- Agrarian Reform 2.12 Under the Federal Water Law of 1972, SARH was given the authority to expropriate land in irrigation and drainage districts for agrarian reform purposes, and it established, within the proposed project area, the San Fernando Drainage District. The Agricultural Development Law, dated December 1980 and declared effective January 1981 (para 1.08), specifies that land devoted to livestock but which has possibilities of being used for crop production can be expropriated by SARH/SRA for agrarian reform purposes and can be designated as rainfed districts. At the same time, the law allows a person or family owning more than 200 ha of grazing land to keep 200 ha for himself or the family. With this authority, SARH/SRA has started to proceed with land expropriation and designated the proposed project area as the San Fernando Rainfed District. 2.13 Under the Federal Water Law, which has been widely published in the San Fernando Valley, the SRA/Department of Social Promotion has, since May 1980, been working and negotiating with farmers whose land was eligible for expropriation and with farmers who anticipated receiving land under the project. Opposition by farmers was initially intense, but it subsided when, in early 1981, agreement was reached on purchase prices per hectare for different types of expropriated land. Purchase prices for 1982 are: uncleared land, Mex$ 14,500; pasture land, Mex$ 22,000; and crop land, Mex$ 24,000. These are true market prices and they will be adjusted in later years in line with the inflation rate. The expropriation program is directed exclusively at private land owners holding more than 200 ha devoted to livestock grazing. Such holdings will be reduced in size to a maximum of 200 ha, with the remainder used for ejidos, on which new settlers (ejidatarios) will be located on 20-ha plots per family. The average ejido size will be about 1,000 ha. Land expropriation has begun and is scheduled to take six years, progressing at the rate of about 18% for years 1 to 5 of the project and 8% in the sixth year. The future land tenure situation is presented below, as is a schedule for land expropriation and settlement.  Future Land Tenure System Total Average Total Families Families Land Holding Land Ownership (no.) (%) (ha) (ha) (%) 1. Private Less than 200 ha 1,707 10.0 94,482 55.3 22.0 Greater than 200 ha 219 1.0 25,762 117.6 6.0 120,244 28.0 2. Ejidos Present Ejidatarios 5,642 33.0 123,196 21.8 29.0 New Settlers 8,196 48.0 163,920 20.0 38.0 287,116 67.0 3. Colonias 1,356 8.0 19,656 15.2 5.0 Subtotal 17,120 100.0 427,016 /1 100.0 4. Non-agricultural n.a. 59,596 n.a. Total 486,612 /1 Out of which 22,500 ha would be for pastures and livestock production, leaving about 405,000 ha for crop production, including the El Canelo research lands (3,609 ha). Settlement and Land Distribution Schedule Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Total New Settlers (no. of families) - - 2,428 2,466 2,484 818 8,196 Land Assigned (ha) /1 31,000 33,000 38,000 45,000 16,920 - 163,920 /1 Already expropriated but still to be assigned. Present Production and Practices 2.14 The main crops cultivated in the project area in 1980 were sorghum (236,522 ha), maize (3,106 ha), and beans (200 ha). Sorghum predominates as farmers have learned that it is the most suitable crop for the area. Other crops grown, although to a much lesser extent, are cotton, safflower  - 10 - and sunflower. Sorghum has been found to be well adapted to the San Fernando clay soils, hot climate, and low and highly variable rainfall. In the early 1960s, cotton was important, covering approximately 66,000 ha. By 1965, however, the area had dwindled to less than 23,000 ha and has since dropped below 400 ha. The main reason for the decline in cotton production was lack of disease and insect control, plus inadequate technical assistance for efficient cotton production. Almost half the area is now in crop production and most of the remaining land is used for extensive livestock operations--brush, natural and cultivated pastures (Annex 1, Table 3). 2.15 Contrary to practices elsewhere in rainfed areas, most of the crops in the San Fernando Valley, predominantly sorghum, but also maize, are planted during the dry winter season January/February (temprano) and are harvested just prior to the heavy summer rains. A limited acreage of beans is planted in the summer/fall (tardio) season. During the winter season, sorghum grows by exploiting residual soil moisture, as rainfall then is usually very low (para 2.03) and the evapotranspiration rate high; soil moisture levels are therefore crucial in optimizing yields. Land preparation is usually started after the rains in September. 2.16 Sorghum annual yields vary from year to year. Although yields are not directly related to average annual rainfall, timing and distribution of precipitation appear to be important factors (Table 1 in Project File, Annex 4). Sorghum yields over the past 12 years averaged about 2.0 tons/ha, ranging from 1.0 ton per ha in 1975 to about 3.4 tons per ha in 1979, and up to 3.9 tons per ha in 1980. The present average yield of maize is about 0.7 ton per ha and for beans, about 400 kg per ha. Good farmers, however, may reach yields per hectare that vary between 4 and 7 tons for sorghum and 4 to 5 tons for maize, and run about 1.2 tons for beans. Traditionally, no fertilizers are used. Farmers generally plow the maize and sorghum stalks into the soil, which undoubtedly helps to keep soil fertility at a satisfactory level (para 2.06). Fertilizers will be needed in the future, since a sorghum crop with a yield of 2.27 tons per ha extracts from the soil some 130 to 180 kg of nitrogen; 50 to 65 kg of P205; and 100 to 130 kg of K20 per ha. These soil nutrients, primarily nitrogen, along with the minor elements removed, must be replaced, if sorghum yields are to be sustained and especially if they are to be raised above the present level. Control of pests, planting of improved varieties, and changes of cultural practices would also be constraints that would be overcome through the technical assistance and research programs. Agricultural Support Services 2.17 Extension. Extension services in the project area now come from Rainfed Districts 2, 5 and 6, but they are not too effective. The four major inhibiting factors are: (a) staff are not sufficiently trained and there is a lack of subject matter specialists; (b) staff are widely dispersed, transpor- tation is limited and farmer contact is poor; (c) there is weak linkage between research and extension, with limited technical information being provided to extension agents; and (d) since new annual budget allocations do not become available to the service until well into the fiscal year, the operating budgets in the agriculturally important early months of the year are limited, thus influencing effectiveness.  - 11 - 2.18 Research. The main crop research station for the region, the Center for Agricultural Research for the Northeast Region (CIAGON), is located outside the project near Rio Bravo. This well-staffed and equipped station has dealt mainly with problems of irrigated crops, but over the last three years, 20% of its efforts have been devoted to rainfed agriculture. Within the project area, at El Canelo ranch, the National Center for Charolais Livestock Development is operated by SARH. This is a large station (3,600 ha) with sufficient suitable land for a rainfed research program. Adaptive research for the rainfed regions has been overlooked in the past and using this station for such work would be the first major step. 2.19 Agriculture Credit. The project area is served by the National Rural Credit Bank (BANRURAL) and at least 13 private banks. Because of the high loan recovery (over 90%) and Guarantee Fund for Ejidos (FEGA), which guarantees 80% of losses, private banks have become a major source of farm credit in the area, supplying about 70% of credit needs. The Trust Fund for Credit in Rainfed Areas (FICART), which is providing loans in rainfed districts, is also expected to become active soon. 2.20 Production Inputs. Sorghum production is highly commercial and the availability of production inputs to meet present needs appears to be satisfactory. Seeds, pesticides and fertilizers are readily available. Approximately 90% of sorghum seeds are from the private sector whereas corn and bean seeds are from Government sources. All farm operations, land prepara- tion, planting and harvesting are done mechanically. In and around the project area, there are farmers with heavy capital investments in mechanical equipment, which they rent out to other, smaller scale farmers when they have completed their own work. Some small-scale farmers own individual pieces of equipment which they also rent to others after meeting their own needs. Additionally, there are adequate mechanized services available from large US farm machinery corporations. 2.21 Crop Insurance. ANAGSA, the Government-sponsored crop insurance program, covers all crops grown in the project area, such as sorghum, maize, beans, sunflower and cotton. All crop production loans made by BANRURAL are contingent on the farmer carrying appropriate insurance, which covers 80% of production costs for each crop. The premium paid by the insured for sorghum, the main crop in the area, varies from 8.8% for ejidos to 11% for small-scale private farmers. The premium is deducted from the loan at the beginning of the crop season. Private banks operating in the area provide similar insurance. 2.22 Risk Sharing. Risk sharing is part of the Agricultural Development Law and the new food program (SAM) started by Government in June 1981 to promote production of basic foodstuffs such as beans, maize, rice and wheat by adoption of new technology. Under this program, which operates through ANAGSA, Government shares with farmers the risk of losing income from growing food crops. The premium paid by the farmers is about 3% of the total crop production costs. Another program closely associated with risk sharing is the National Promotion of Basic Grains (PRONAGRA), which deals with farmers who do not qualify for credit from BANRURAL because of lack of either land title  - 12 - or other collateral. The main objectives of this program are to induce farmers to avail themselves of the credit services provided in the area, to show them the benefits of new technologies, and to induce them to plant idle crop land. The program has so far covered more than 15,000 ha in the project area and has a recovery factor of almost 100% for sorghum, sunflower, maize and beans. PRONAGRA makes contracts with individual farmers and at harvest time recovers the loan, without interest, and collects 10% of the value of the crop. 2.23 Marketing and Storage Facilities. The National Marketing Corporation for Basic Foods (CONASUPO) purchases grains at the collection points at the official prices. These prices, currently Mex$ 3,930 (US$85) per ton for sorghum, and Mex$ 6,550 (US$142) per ton for maize, are generally somewhat higher than those offered by private dealers; yet private sources attract some 70 to 80% of the grain harvest in the area. Since on-farm and local storage facilities are inadequate, the farmers' bargaining power is diminished considerably, inducing him to sell his grain before harvest, which is possible only through private channels. Also, private channels purchase grains on a deferred basis, paying, at times, a premium over the established price, which CONASUPO is unable to do. CONASUPO participates in the marketing of grains by serving mainly as a storage intermediary and transporter of produce to consump- tion centers in Matamoros, Monterrey and Guadalajara. 2.24 Within and around the project area, there are about 88 storage plants, most of them flat warehouses with a total capacity of about 1,200,000 m tons. Private interests control 63 of them (72%) with a total capacity of 905,000 m tons. The public sector (mainly, CONASUPO's National (ANDSA) and Rural (BORUCONSA) Storage Facilities) owns 25 storage plants (28%) with a capacity of about 295,000 m tons. In May 1981, the Government (SARH; CONASUPO; BANRURAL) launched an emergency program which aimed at constructing 27 addi- tional storage plants with a projected total capacity of about 270,000 m tons. Financing arrangements call for: CONASUPO to provide 33% of the total cost, without recovery; SARH, 33% of total cost without recovery; and BANRURAL, 33% of total cost through credit to the producers). These storage facilities, would be operated and maintained by the producers of the Production Units after staff had been trained by CONASUPO, SARH, and BANRURAL. There are no important agro-industries in the project area. Health Service 2.25 The major health problems in the area are disorders of the digestive system and respiratory ailments. The former are caused by the lack of potable water and food preparation under insanitary conditions. Although most of the population centers have at least one health post, health services are not adequate. In the project zone, there are 26 clinics, one Red Cross Center and one Secretariat of Health and Social Assistance (SSA) health center. The latter two are located in Francisco Gonzalez Villarreal. Except for the center at Francisco Villa ejido, all the health posts are more like dispensaries and can treat only minor ailments. The more serious cases can be treated at hospitals in Reynosa, Matamoros and San Fernando. Serving the 26 health centers and clinics are 32 doctors and 31 nurses. It is estimated that for every 928 persons, there is one doctor or paramedic. Approximately half of the clinics, doctors and nurses are located in San Fernando where about 60% of the population is served.  - 13 - Education 2.26 While many problems exist in the educational system, primary educa- tion appears to be satisfactory. Of the 46 primary schools in the project area, 24 are in the San Fernando municipality. There are five secondary schools, two of which are located in San Fernando, two in Rio Bravo, and one in Reynosa. In 1980, only about 10% of the school-aged population was considered illiterate, an improvement from earlier years. Higher education is provided by the Institute for Technology in Matamoros and the University of Valle del Bravo and medical schools in Reynosa and Matamoros. Roads, Railroads, Transportation and Communication 2.27 Three federal highways provide direct access to the project area-- the Matamoros-Reynosa portion of Route 2; the Matamoros-San Fernando section of Route 101; and Route 97 from Reynosa to San Fernando (Map IBRD 16100). Within the project area there are only dirt roads, which are hardly passable during rainfall. The one railway line runs through Matamoros, Reynosa, Monterrey and up to Mexico City, where it connects with the federal railway network. Two international airports at Matamoros and Reynosa serve the area. Mail and telephone syvtems link the five main rural centers with the federal networks. Electrical Power 2.28 The main source of energy is electricity from hydropower generation at two dams on the Rio Bravo. From the dams, a main 151 KV transmission line links the two large population centers of Valle Hermoso and San Fernando. Secondary transmission lines, including a 138 KV and a 13 KV line, supply the main rural centers. Overall, the project area has an adequate electrical power distribution network. Strategy For Development 2.29 The strategy for further development of this part of the State of Tamaulipas is essentially based on three considerations. First, in an area which was sparsely settled and almost entirely devoted to extensive grazing, the past 25 years have seen a gradual but accelerating introduction of rainfed grains, mainly sorghum cultivation, to the point where the area is now one of the most important production areas in the country.. Nevertheless, much potentially good crop land is still uncleared or under extensive pasture, mostly in large holdings, and could be brought into crop production. 2.30 Second, in spite of Mexico's rapid increase in the production of sorghum from 2.7 million tons in 1970 to 5.3 million tons in 1981, the increase in sorghum demand for feed for the expanding pork and poultry industries has been even faster. Sorghum imports accordingly rose from 10,900 tons in 1970 to 2.3 million tons in 1980 and, to close the gap, Government is encouraging farmers to grow sorghum wherever possible. The proposed project area has definite advantages for doing so.  - 14 - 2.31 Third, although rainfall in the area is not high and is also erratic, farmers have been able to achieve a remarkable adjustment in farming techniques, conserving soil moisture to the utmost. With these techniques, farmers have obtained average yields of about 2.0 tons/ha, and although yields and produc- tion have varied between years, there have been no outright failures. However, two main problems are encountered in increasing yields further: the limited retention of residual soil moisture in seasons of low rainfall after the crop has been sown, and the slow draining of excess rainfall that occurs mainly just prior to or during harvest time. Therefore, the project proposes to introduce, for the first time in Mexico, a controlled drainage network in the area which would enable floods to be drained off rapidly but also would enable water retention when needed. 2.32 Concurrent with the execution of the proposed project, the Government will carry out, for the first time in recent Mexican history, a land reform program on lands to be used for rainfall cropping (para 2.12). This would cover an area of about 164,000 ha, enabling the settlement of approximately 8,200 landless families. The objectives are to redistribute income and increase land productivity by facilitating and accelerating crop cultivation on land being used now almost exclusively for extensive pastures. III. THE PROJECT A. Introduction 3.01 The Government of Mexico has requested Bank assistance in financing the proposed San Fernando Rainfed Development Project prepared by SARH's Subdirectorate of Programs and Specific Studies of the Undersecretary of Hydraulic Infrastructure. A Bank identification mission went to Mexico in early October 1980, and the project was appraised in August 1981. In April 1982, the project was reviewed and a revised implementation schedule (by zones) and new cost estimates, taking into account the February 1982 devalu- ation of the Mexican currency, were prepared. Working papers relating to the project are listed in Annex 4. B. Brief Description 3.02 The project aims to (a) increase productivity and crop production (mainly sorghum) on about 240,000 ha already cultivated, and (b) expand production of grain sorghum on an additional 164,500 ha presently uncultivated. Implementation would be carried out over a six-year period and would benefit some 17,100 families, including the 8,200 families to be settled under the land reform program. It would provide for: (a) land clearing on about 155,000 ha;  - 15 - (b) construction of a surface drainage network totaling about 884 km, together with adjacent gravel-surfaced feeder roads, to drain about 366,000 ha of which 270,000 ha are heavy clay soils with low permeability; (c) construction of an additional 394 km of feeder roads with adjacent shallow drainage ditches to serve about 134,000 ha of medium to light soils; (d) purchase of necessary equipment for maintenance of the main surface drainage and feeder road networks; (e) construction of about three operation and maintenance centers, a training center for new settlers and an agricultural research center; (f) incremental cost of extension services to reinforce the rainfed district of San Fernando, including training of middle-level specialists and extension agents; and (g) execution of a grain movement and storage study and a feasibility study for a second-stage rainfed development project in an area south of San Fernando. C. Detailed Features Civil Works - Earthmoving 3.03 Land Clearing and Preparation. Of the total area for crop produc- tion, about 155,000 ha would be mechanically cleared for agricultural develop- ment using tractors, chains, root-cutters, harrows and land planers (Annex 1, Table 4). Local contractors familiar with this type of work would do the clearing. 3.04 Surface Drains and Adjacent Road Network. In the Central and Coastal Zones, the drainage system would allow water control at field level in high (up to 1,636 mm) and low (346 mm) rainfall years. It would also allow for either rapid drainage or retention of water, thus controlling soil moisture for crop growing. The erratic rainfall is not well distributed and the high intensity tropical storms, which occur during summer and fall, cause surface flooding once the soils are saturated. Therefore, the need for surface drainage is accentuated. For this purpose, blocks 8 km by 6 km (4,800 ha each) have been designed, and about 884 km of open surface drains of various sizes (4 to 14 m wide and 1.5 to 2.0 m deep) are to be constructed. To arrive at the design storm, historical storms were analyzed for frequency-- duration--intensity relations. Using the Hershfield probability method, and taking into account the economic importance of damages induced by frequent extraordinary storms, maximum precipitations for 24 and 48 hours were  - 16 - calculated for return periods of five, seven and 10 years (with an annual mean in mm/24 hr, of 131.65 mm for the five-year return; 142.12 mm for seven years; and 157.81 mm for 10 years). Subsequently, after comparing eight design alternatives, considering micro-topography, soil and surface run-off, infiltration rates, and economies of scale, the 8 km by 6 km size (4,800-ha) unit was selected. In each of the 4,800-ha field units, side inlets would be provided for water control. Each field unit would have stoplogs that would be operated, under supervision, by the farmers after they had received training in the field by the project's Soil and Water Conservation Division. In addition, taking due account of erosion and salinity risks, water and soil conservation management practices such as grassed waterways, light terracing, field ditches and land smoothing would be provided on about 270,000 ha of clay soils (55% of the project area). Details are presented in Annex 2. Using the spoil from the surface drain excavations, a network of 884 km of gravel- surfaced feeder roads, with about 100 km asphalt surfacing, averaging 6.6 m in width, would be built adjacent to each drain. Designs for drains and appurtenant structures for feeder roads would be in accordance with international standards and acceptable costs, such as those used by the USDA/SCS for draining agricultural land (Annex 1, Tables 5 and 6 and Annex 2). 3.05 Service Road and Ditch Network. In the Northwest Zone where rainfall is less intense, light alluvial soils predominate. For this area, surface drains are not needed, but a 394-km gravel-surfaced road system would be constructed in the area covering 120,000 ha. Using the 8-by-6-km block design (4,800 ha), the average road width would be 6.6 m, with drainage ditches on each side that would be able to drain the surrounding land. Designs for these roads would be similar to those roads referred to in paragraph 3.04 (Annex 1, Table 7). Civil Works - Buildings 3.06 Main Field Offices and Laboratories. To implement the project, not less than three field offices or one per region, with appurtenant structures, such as housing, offices, garages, and stores, would be provided. They would be located at Matamoros, Gonzalez Villarreal, and San Fernando (Annex 1, Table 8). The staff involved in construction work and the staff for water and soil conservation would be stationed at these centers. 3.07 Training Center. A training center for new settlers and farmers would be established at El Chapeno. It would consist of housing, educa- tional and other facilities for about 250 persons (Annex 1, Table 9). 3.08 Agricultural Research Center. To meet the needs of agricultural research in the rainfed portion of the state, a new agricultural research center would be erected at El Canelo. Provisions are being made to provide professional and support staff as well as required offices, laboratories, workshops, warehouses and workers' quarters. The equipment, including agri- cultural machinery, vehicles, office units and visual aids, is also to be furnished. The operation and maintenance costs, along with costs for build- ings, equipment and supplies, are presented in Annex 1, Table 10. Additional details are in paragraph 4.11 and the Project File (Annex 4).  - 17 - Equipment for Operation and Maintenance 3.09 Equipment for Maintenance of Major Civil Works. For operating and maintaining the 884-km surface drainage system and the feeder road network, necessary earthmoving equipment, including draglines, tractors, motorgraders, and various trucks, would be supplied (Annex 1, Table 11). 3.10 Equipment for Maintenance of Buildings. Under this item, provisions would be made for the purchase of equipment to maintain and operate all buildings in the project. This would include equipment and assorted supplies. The details are in Annex 1 with the respective table numbers following each component. They are: (a) the three main field offices and laboratories located at Matamoros, Gonazalez Villarreal, and San Fernando (Table 12); (b) the water and soil conservation offices (Table 13); (c) the technical assistance program (Table 14); (d) the El Canelo Research Center (Table 10); and (e) the training center (Table 9). On-farm Works 3.11 On-farm Surface Ditches. In the Central and Coastal Zones of the project, where clay soils predominate and there are risks of erosion and salinity, water and soil conservation, as well as new soil management practices, would be introduced. For this purpose, 5,722 km of surface ditch systems would be built. Standards and designs used would be similar to those of the USDA/SCS that are being applied in Mexico by the General Directorate for Soil and Water Conservation (DGCSA). Most of the drains would be grassed waterways, supplemented by contour bunds, bedding, and land smoothing. Grassed waterways would be designed and constructed, taking due account of micro-watershed runoff contribution, grade, allowable velocity, type of vegetation, and soil erodibility. They would be parabolic in shape and would vary in top width between 3 and 100 meters, with a depth between 0.5 and 2.0 meters. The total area served would be about 334,000 ha (Annex 1, Table 15). 3.12 Service Roads. Within the Central and Coastal Zones, about 1,685 km of service roads, with an average width of 4.0 m, would be built. Most of these dirt roads would serve an area of about 311,000 ha (Annex 1, Table 15). 3.13 Field Stores, Warehouses and Workshops. About 1,177 units would be built, including stores for production inputs, such as seeds, fertilizers, and pesticides, and warehouses and workshops for farm machinery and equipment, primarily for the new settlers (Annex 1, Table 15). The units would be paid for through credit and operated by the ejidos in the area. 3.14 Equipment for On-farm Works. To construct and maintain about 5,722 km of on-farm field drains and about 1,685 km of on-farm field roads, 37 units of equipment, 32 120-hp tractors and five motorgraders would also be secured but paid for by the beneficiaries in the area, who would also pay operation and maintenance costs (Annex 1, Table 15). Training 3.15 Settlers. The Government has designed a special program to inform new settlers about the proposed project, the enormous investment it is making on their behalf and the expected benefits under the project. The program is also geared to exclude those who do not have a farm background,  - 18 - weed out employed persons, and educate the selected new landholders about the area. All participants would be given instruction and information on the Government's social and agricultural programs, the structure of the national and local agriculture sector, the organization and operation of the district, and their responsibilities as citizens and settlers. At the end of the program, participants would be tested to provide some information on their suitability as settlers as well as to reveal weaknesses in the training program. Details are in Table 16 of Annex 1 and the Project File (Annex 4). This system has been used with success in other areas of the country. 3.16 Extension/Instructors. For conducting the above program, a total of 36 instructors, with backgrounds in sociology and agriculture, would be hired and given one month of training in all components to be covered. The plan calls for two instructors to train 11 groups of farmers for 10 to 11 months. Each group would consist of 40 to 42 farmers and the training period for each group would be 27 days. Under this arrangement, about 2,732 farmers would receive training each year over a three-year period. Details are in Table 16 of Annex I and the Project File (Annex 4). Some of these instructors would become valuable extension agents and would be used as such after the training of settlers terminates. 3.17 Middle-Level Managers. To upgrade and improve the administrative and technical aspects of the project, funds would be allocated to provide local and overseas training for selected personnel of the district. For local training, the major areas would be in cooperatives, soil and water conservation, and pest control, plus training for 43 specialists. These courses would last about one month each and would acquaint technical staff with the latest information available in various fields. Chiefs of each department (five), would receive about four months of overseas training (Annex 1, Chart 1). The objective would be to broaden their knowledge in their respective areas of responsibilities and to provide them with informa- tion and skills that would be beneficial to them in their work (Annex 1, Table 16). 3.18 Technical Assistance. At the present time, a total of 98 extensionists supported by 36 administrative personnel comprise the technical assistance program in the San Fernando DT. To make it possible for the farmers to reach the level of efficiency needed to meet project targets, provisions would be made to finance all the foreign exchange costs to provide, along with support staff, one extensionist and two technicians for every 5,000 ha (para 4.07). The budget to meet the program for a six-year period to cover equipment, supplies, and operation and maintenance costs is shown Annex 1, Table 14. Full details on staff, equipment and operation of the extension service are in the Project File (Annex 4).  - 19 - Studies 3.19 San Fernando II. A feasibility study cum project preparation would be carried out in an area south of San Fernando where conditions are similar to those in the project area. The study would provide for basic data collection and processing, socioeconomic surveys, marketing, and other needed development information. Details are given in Annex 1, Table 17. 3.20 Grain Movement and Storage. A grain movement and storage study would be carried out under terms of reference agreed upon between the Bank and SARH. Assurances were obtained at negotiations that Government would undertake the study under the terms of reference outlined in Annex 3, within the first year of project implementation, and the study would be sent to the Bank no later than December 31, 1983. To coordinate the study with similar studies started by or about to be initiated by other agencies, a Steering Committee would be established under the chairmanship of SARH. Members would be representa- tives of FIDEC/CONASUPO/BORUCONSA; BANRURAL; FIRA; FICART; national organiza- tions of ejidatarios, colonos, and private farmers; private interests, such as commercial banks, grain traders and owners of storage facilities in the project area; and the Bank. The budget for this study is presented in Annex 1, Table 18. Rights-of-Way 3.21 About 4,730 ha would be expropriated and land owners paid for right-of-way for the main physical and infrastructure works such as surface drainage and road networks, buildings and other facilities to be built under the project (Annex 1, Table 19). Operation and Maintenance 3.22 Under this item, provisions would be made to cover the supplies and equipment needed over a six-year period to operate the various project components. The details for each component are shown in Annex 1, as follows: for the field offices and laboratories, Table 12; water and soil conservation offices, Table 13; technical assistance, Table 14; civil works, Table 11; and the research center, Table 10. D. Costs 3.23 Total project costs amount to about US$349 million, including a foreign exchange component of US$137 million, or 39%. The base cost, calculated at March 1, 1982 prices, is estimated at about US$236 million, while physical contingencies amount to US$35 million and price contingencies are approximately US$78 million. Physical contingencies for consultant services, studies and land clearing were estimated at 12%. Price contingencies are based on Bank Guidelines and calculated at 10% for 1982, 9% for 1983 and 1984, 8.5% for 1985, and 8.6% for 1986 and onward. Total project costs and schedule of investments are presented in Annex 1, Tables 20 and 21, respectively, and summarized below. The amounts for duties and taxes are insignificant since equipment, agricultural machinery and inputs are exempted from import duties.  - 20 - Summary of Total Project Costs Foreign Base Local Foreign Total Local Foreign Total Exchange Costs - - - - Mex$ millions - - - - - - - US$ thousands - - - - () (%) !. Civil Works (Earthmoving) 4,169.32 3,257.77 7,427.09 90,637.14 70,821.32 161 ,458.46 .44 63.38 2. Civil Works (Buildings) 165.22 44.71 209.93 3,591.66 972.13 4,563.79 .21 1.93 3. Equipment 74.28 561.65 635.93 1,614.89 12,209.84 13,824.73 .88 5.86 *. Training 235.28 6.08 241.36 5,114.87 132.09 5,246,96 .02 2.23 S. Studies 165.01 9.52 174.53 3,587.15 207.05 3,794.20 .23 1.61 6. Rights-of-Way 158.91 - 158.91 3,454.60 - 3,454.60 - 1.46 Operation and Maintenance 1,662.34 351.31 2,013.65 36,137.75 7,637.56 43,775.31 .17 18.53 TOTAL BASE COST 6,630.36 4,231.04 10,861.40 144,138.06 91,979.99 236,118.05 .39 100.00 Physical Contingencies 974.04 637.91 1,611.95 21,175.29 13,867.57 35,042.85 .40 14.84 Base Costs and Physical Contingencies 7,604.40 4,868.95 12,473.35 165,313.35 105,847.56 271,160.90 .39 114.84 Price Contingencies 47,064.85 30,450.48 77,515.33 .39 32.82 TOTAL PROJECT COST 212,378.20 136,298.04 348,676.23 .39 147.66 Front-end Fee 2,045.32 2,045.32 Total FinTancing Required 212,378.20 138,343.36 350,721.55 May 28, 1972  - 21 - E. Financing 3.24 A Bank loan of US$136 million would be made to National Finance Inc. (NAFINSA) to finance about 100% of the estimated foreign exchange costs. The total foreign exchange component is estimated at US$137 million, or about 39% of the total project cost. A summary of the details on project financing is presented in Annex 1, Table 22. Of the total project cost of about US$349 million, the Bank would finance US$136.3 million, or 39% plus US$2.1 million capitalized front-end fee on the Bank loan; the beneficiaries, US$51 million, or 15%; and the Government, US$161 million, or 46%. 3.25 Government has already initiated the main infrastructural works in the Central region of the project area (para 4.03). Recently, Government submitted to the Bank the final designs and bid documents for civil works including land clearing, drainage networks, feeder roads and buildings for the first year of project implementation. Government has also submitted and is in the process of sending disbursement documents for civil works started after September 1, 1981. Since these obligations are in accordance with Bank Guidelines for retroactive financing, an amount not exceeding US$5.0 million would be subject to retroactive financing. F. Procurement Civil Works 3.26 The construction of major civil works, surface drains and adjacent feeder roads, and service roads, totaling about US$177.0 million and including contingencies, would be procured under International Competitive Bidding (ICB) in accordance with Bank Guidelines for Procurement. Taking into considera- tion, however, economies of scale, and the large earthmoving works involved, and to avoid a multiplicity of contracts, individual contracts, except under prior agreement with the Bank, should be in so far as is practicable, no less than US$2.0 million equivalent. Land clearing and the balance of construction works to be financed under the project, totaling US$60 million, including contingencies, consists of minor works, such as buildings, opera- tion and maintenance, with an estimated contract size of less than US$2.0 million, and some other small-scale works are scattered throughout the project area and may not be of interest to foreign bidders; therefore, procurement would follow local competitive bidding procedures, which are satisfactory to the Bank. Goods 3.27 Equipment for operation and maintenance, totaling US$18.0 million, including contingencies, would be procured under ICB procedures in accordance with Bank Guidelines. Qualifying domestic manufacturers would receive a preference in bid evaluation of 15%, or the import duty, whichever is lower. Miscellaneous items of equipment, vehicles, and furniture, in packages of less than US$300,000 and not exceeding US$4.0 million, would be procured as per the borrower's LCB procedures and in accordance with Bank Guidelines.  - 22 - Contract Review 3.28 All civil works contracts estimated to cost the equivalent of or more than US$3.0 million and goods contracts or packages the equivalent of or more than US$500,000 would be subject to the Bank's prior review of procurement documentation before bidding. This would account for about 75% of the total estimated value of works contracts and about 50% of contracts for goods. The balance of contracts would be subject to random post-review by the Bank after contract award. Assurances were obtained at negotiations that procurement would be as specified in this and previous paragraphs. G. Disbursements 3.29 The proposed Bank loan would be disbursed against normal documenta- tion. Disbursements would be made, however, against statements of expenditures (SOEs) for civil works carried out by force account in Category 1, and for expenditures in Category 3. All documents supporting applications for dis- bursements under SOE procedures would be retained by SARH for Bank review during project supervision. A disbursement schedule, based on the project commencing the latter part of 1982, is presented in Annex 1, Table 23. The disbursement profile for Mexico has been 6.5 years, for 38 projects, on a country-wide sectoral basis. Accordingly, disbursements have been scheduled for 6.5 years. Assuming Board presentation in June 1982, the project completion date would be December 1988 and the estimated closing date would be June 30, 1989. The table below sets forth the categories of items to be financed from loan proceeds, the amounts of the loan allocated to each category, and the percentage of expenditures for items so financed in each category. Item in Project Allocation of Expenditures Category Cost Table Loan Amount To be Financed (US$ Million) (%) 1. Civil Works 1 and 2 106.0 45 2. Equipment 3 14.0 90 3. Technical Assistance and Training 4 and 7 5.5 20 4. Unallocated - 10.8 _ Total 136.3  - 23 - IV. PROJECT ORGANIZATION, MANAGEMENT AND IMPLEMENTATION Project Organization and Management 4.01 The project would be organized and managed along the traditional pattern followed in Mexico. All construction works would be carried out under SARH's Undersecretariat for Large-Scale Irrigation, while operation and maintenance of works in the district and services for agricultural devel- opment would be the responsibility of the San Fernando Rainfed District, which falls under the jurisdiction of the Department of Rainfed Districts of the Subsecretariat of Agriculture and Operation. During project implementation, physical works would be the responsibility of a resident engineer, who would report to the Representative of SARH in North Tamaulipas. Final designs and bid documents covering the first year of the project for: (a) land clearing and preparation; (b) drainage and adjacent road network; (c) service road and ditch network; and (d) complementary infrastructure have been presented to the Bank. After the project is completed, operation and maintenance of the drainage canals, roads and other works would be the responsibility of the San Fernando Rainfed District. SARH/SRA/SAHOP would be responsible for the resettlement program. 4.02 The organization of the San Fernando Rainfed District would follow the general established pattern for rainfed districts. The District Chief would report to the Representative of Tamaulipas State, who would, in turn, report on matters pertaining to the rainfed district to SARH's Undersecretariat for Agriculture and Operations through DGDUT. Also in SARH is the General Directorate for Production and Agricultural Extension (DGPEA), which assists the district extension offices. Under the Rainfed District Chief would be four departments--Operations; Programming, Budgeting and Evaluation; Conserva- tion and Development; and Administration. A schematic organization chart for the San Fernando Rainfed District is presented in Annex 1, Chart 1. 4.03 It is Government's intention to implement the project in three phases, or, i.e., in three distinct regions: Central, Coastal and Northwest, in the order presented. The Central region (146,000 ha) works would be imple- mented during the first three years of the project because (a) the main infrastructural works (drains and feeder roads) have already been started, (b) the region is subject to heavy flooding, and (c) there is relatively less land to be expropriated than in the other zones. Development of the Coastal region (162,500 ha) would take place as the second phase since conditions are similar but not as severe as in the Central region. The Northwest region (137,000 ha) works would be implemented during the last years of the project because it is the area that has the largest amount of land to be expropriated and distributed, which will require time to be fully worked out. Light soils predominate in this area, so fewer infrastructural works are required. In addition, this region has the most land to be cleared, which is an exercise closely associated with land expropriation.  - 24 - Project Implementation 4.04 Land acquisition for the surface drains and rights-of-way for roads and ditches would be handled by the Legal Department of SARH. Indemnification for this land and infrastructure attached thereto have been included in project cost. Roads, ditches, drains and buildings would be built by con- tractors under the supervision of SARH's Construction Department. Daily operations would be monitored by the San Fernando Rainfed District's three field offices (para 4.06). The implementation schedule presented in Annex 1, Table 24 shows the percentage of each activity expected to be completed each year. 4.05 Technical assistance and maintenance of roads, ditches, drains and buildings, once completed, would be the responsibility of the San Fernando Rainfed District. New farmers would be selected and trained by the Secretariat of Agrarian Reform (SRA), Office of Social Promotion, and SARH. Land expropriation would be carried out by SARH/SRA (para 2.12). The new settler would be provided with usufruct rights to the land but he must till it. The district would have a Directive Committee, consisting of representa- tives from all sectors of the agricultural community -- ejidos, private farms public and private agencies -- to assist the District Chief in developing and planning the annual agricultural development program. Operation and Maintenance 4.06 Provisions would be made for operation and maintenance over a six-year period for equipment such as road graders and earth movers to maintain surface drainage and adjacent feeder road networks and service road and ditch networks and on-farm surface ditch systems and field roads. The operation and maintenance budget would also cover costs for servicing the three main field offices and their laboratories, the water and soil conservation office and the research and training centers. Continuous responsibility for carrying out the various tasks would be vested with the San Fernando Rainfed District, through its three field offices at Matamoros, Gonzalez Villarreal, and San Fernando (para 3.06). Technical Assistance 4.07 At the present time, some technical assistance is being carried out in the project area by the existing extension service (paras 2.17 and 3.18). With the project, technical assistance, involving the training of farmers to improve their skills in agricultural production, would be the responsibility of the Operations Department of the San Fernando Rainfed District (Annex 1, Chart 1). Because of the vast area to be covered and the need to provide close contact with the farmers, the district would be divided into nine units. Each unit would be divided into zones and there would be a total of 72 zones in the project area. Technical assistance would be channeled directly through these units which would have a Unit Chief and one assistant. In every unit, aside from the regular extension staff, there would also be one specialist in production and organization, pest control, and soils, and in addition, there would be two female social workers. Each unit would be supported by secretaries, drivers and other clerical help. This plan would at full development in year 6 allow for one extensionist and two technicians for every 5,000 ha. Details are presented in Annex 1, Table 14 and in the Project File (Annex 4).  - 25 - 4.08 Within the first year of the project, a comprehensive extension program would be prepared by the District. Inputs would be received from all Departments, as well as from the nine units and the Technical Committee, of which, among others, the Director of Research at CIAGON would be a member. The extension program would promote technical packages which have been developed by CIAGON for sorghum, maize and beans and, to a limited extent, for cotton and sunflowers. These packages cover sound management practices such as use of improved seeds, land preparation, fertilization, insect and disease control, timeliness in planting, and soil and water conservation techniques (para 4.09). In addition, the extension agents would identify progressive farmers in each unit with whom they would employ the "field demonstration" technique, which is now being practiced to a limited degree. Under this system, a farmer would prepare his land at the right time as recommended, use his own or rented machinery, plant improved seeds in the prescribed manner, apply fertilizers, weed as frequently as needed, and control plant pests as required. The farmer pays for all cash inputs, but the extension agent would supervise the program and assist the farmer in obtaining credit. The extension agent would also arrange for other farmers to observe these demonstrations during the growing season. The demonstration plots, in addition to their teaching purpose, would enable research results from CIAGON and the new research station to be transferred quickly to the farmers. This system would also provide feedback to the researchers, which is vital for an effective research program. For introducing new programs, practices and concepts, selected farmers would be brought to the training center at El Chapeno for lectures, demonstrations and seminars. These farmers, along with the progressive farmers mentioned above, would be the major means of disseminating technical information and promoting its adoption. 4.09 Of particular concern to the technical assistance program would be soil and water conservation practices. It is expected that, emanating from the DGCSA, there would be two Soil and Water Conservation Offices estab- lished, one at Gonzalez Villarreal and the other at San Fernando (Annex 2). The staff, in addition to planning, designing and installing terraces and grassed waterways, would assist farmers in installing field ditches for surface drainage, practicing contour farming, and conserving surface water by controlling the outflow from drainage systems in order to maintain optimum soil moisture. 4.10 Since one of the major weaknesses of the extension program has been staff proficiency and capability, staff training would be emphasized. All extension agents would be given at least six months of additional training, either at training centers operated by SARH, or through overseas visits. Research 4.11 A research station would be established within the project zone at El Canelo, but prior to its erection, the research program would be operated from CIAGON, with field work accomplished at El Canelo. The new station would have 15 professionals, a support staff, several laboratories, offices, and sufficient equipment and facilities to make it possible to conduct a meaningful adaptive research program on crop production and soil management.  - 26 - The professional staff would consist of five agronomists; two persons in soil and water management; one each in agricultural machinery, soil fertility, animal husbandry, and meteorology; and three individuals in the field of communication. 4.12 The research topics to be investigated are directly related to the problems that have been identified in the area: drought, insects, diseases, weed control, nutritional deficiencies, crop residues, varieties, planting methods and crop diversification. Associated with most of these problems are cultural practices such as soil preparation, seeding, weeding, and fertilizing which would also be subjects of investigation. It is intended to refine and develop new technical packages (para 4.08) which could be readily adopted by the farmers in the area. The new station would undoubtedly be helped by the contact CIAGON has established with the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) at Hyderabad, India. The program at ICRISAT on sorghum and millets should have direct application to the situation in the San Fernando Valley, and its program on soil and water conservation practices would also be applicable. Full details on the research program, strategy of investigation, investment budget (buildings, laboratories, equip- ment), and operational budget (equipment and supplies) are in Annex 1, Table 10 and in the Project File (Annex 4). 4.13 Grain Movement and Storage Study. To resolve storage and grain movement problems encountered and anticipated when project is implemented (paras 5.13 to 5.17), a study dealing with this subject would be undertaken (para 3.20 and Annex 3). This study would be carried out and paid for by the Planning Division of SARH. While many persons involved with the study would be SARH staff, a number of specialists would be retained by SARH to provide the expertise required to meet the terms of reference, which Bank has approved. The specialists to be involved in the study would probably be grain transport and marketing economists; on-farm agricultural engineers; financial analysts (for price variations in relation to public sector policies and private intermediaries); and individuals with expertise in grain movement equipment and grain transport. Details on cost estimated to be about US$1.0 million are presented in Annex 1, Table 18. 4.14 San Fernando II Study. In an area of 400,000 ha south of the proposed project, a feasibility study, similar to that made for the proposed project would be conducted. The study would be prepared by SARH's Subdirectorate of Specific Programs and Studies of the Undersecretariat of Hydraulic Infrastructure. The semi-detailed soil survey would be done by SARH's Subdirectorate of Soils, General Directorate of Studies of the Undersecretariat of Planning. The proposed study would cover the social and economic factors in the area, production of maps at a scale of 1:20,000, a semi-detailed soil analysis, hydrology, land use, marketing, and a program of development. Because of the experience gained from the proposed project, this study and soil survey should take less time than the first one (Annex 1, Table 17).  - 27 - Credit 4.15 The proposed project has been declared by Government as a priority project, and, according to the Agricultural Development Law, it will be provided with credit on a priority basis. The area is served well with financial institutions (para 2.19). Private banks are now readjusting their rates to cope with inflation. FICART is still operating with negative interest rates. Since FICART's resources are limited, it is likely that more farmers would use the private banks for credit. Because all on-farm investments have to be financed by the farmer through credit, it is expected that Government would take all measures necessary to ensure that the benefi- ciaries of the project are provided with short-term, medium-term, and long-term credit, as and when needed, so as to be able to effectively use the facilities being provided in the project. Assurances were obtained on this point at negotiations. Short-term credit would be needed for annual inputs such as seeds, fertilizers and pesticides, while medium-term and long-term credit would be required for on-farm works, storage facilities, sheds, workshops, mechanized cropping operations (mostly through contract), and machinery and equipment (para 3.11 to 3.14). The total cost for on-farm investments is estimated at US$28 million, excluding price and physical contingencies (Annex 1, Table 15). Accounts and Auditing 4.16 Prior to submission to the Bank, all documentation, including SOEs for which reimbursement would be claimed from the Bank loan, would be subject to the independent review and approval by the Secretariat of Programming and Budgeting (SPP) in accordance with SPP's established control procedures. SARH would maintain separate accounts adequate to reflect the resources, expenditures and the financial situation of the project. A summary statement of such accounts would be prepared annually by SARH and submitted to the Bank after verifica- tion in accordance with SARH and SPP's normal verification procedures, which are acceptable to the Bank. Such statements would be confirmed as to their accuracy and that controls and verification procedures have been properly and consistently applied by SPP, including certification by an authorized official of SPP notified in advance to the Bank. Assurances were obtained during negotiations that Government would: (a) maintain or cause to be maintained separate project accounts adequate to reflect, in accordance with sound accounting practices, resources and expenditures, in respect of the project, of the department and agencies of the Government responsible for carrying out the project or any part thereof; (b) within one year of the end of each fiscal year, furnish to the Bank a summary statement of such accounts verified in accordance with the Guarantor's ordinary procedures; and (c) furnish to the Bank such other pertinent information concerning such accounts as the Bank shall reasonably request from time to time. Monitoring and Evaluation 4.17 Monitoring and evaluation of the proposed project would be an essential component during and after the development period. During the development period, monitoring of the construction works would be done by the Chief Engineer of the project, who would provide written reports.  - 28 - Progress would be based on percentage of completion reached on each task or job (Annex 1, Table 24). Assurances were obtained at negotiations that Government would at the Bank's request furnish plans, specifications, reports, contract documents and procurement schedules, and maintain adequate data to record progress of the project. 4.18 Monitoring and evaluation after the construction period would be handled by DGDUT. DGDUT through its district office would be responsible for monitoring and evaluating all activities in the rainfed district. For this purpose, the district project office has set up a special monitoring and evaluation group, following the monitoring guidelines implemented under PLANAT. This group would establish and manage an information system for: (a) reporting physical progress of project activities; (b) evaluating the impact of these activities on an ongoing basis; and (c) identifying shortcomings in performance in a timely manner. Since the central objective of DGDUT's program is to increase production under rainfed conditions, major focus would be placed on measuring changes in crop output under the project and relating these changes to the various components that would comprise the technical packages being provided to farmers. In this regard, the main aspects would be to monitor and evaluate: (a) the DT extension activities; (b) the effectiveness of the research activ- ities, particularly with respect to their relevance in solving the district's production problems and the degree of integration between district research and extension activities; (c) the impact of the production-oriented soil and water conservation measures to be promoted under the project; (d) the oper- ations of the district's credit and crop insurance program; (e) operation and maintenance of project field facilities as well as on-farm works; and (f) family budget data. When shortcomings in project performance are detected, the planning and evaluation staff would identify them for management and recommend program modifications in order to facilitate prompt adjustment in project implementation. 4.20 Government, through its district office (DGDUT), would prepare a completion report which would include, in addition to physical achievements, an evaluation of project impact. An assurance was obtained at negotiations that the Government would submit this completion report to the Bank within one year after the closing date of the project.  - 29 - V. AGRICULTURAL PRODUCTION AND MARKETING Changes in Agricultural Production 5.01 Under the project, the actual area in crop land would increase from 240,000 ha to around 404,500 ha (gross area), a total of 164,500 ha, or 69%. The area in uncleared pasture land and natural and artificial pasture would be substantially reduced from about 174,200 ha to around 22,500 ha, a reduction of 151,700 ha, over 87%. The net effect would be a dramatic boost in grain production, and agricultural production would become more intensive. The land in the San Fernando Valley would thus be more efficiently utilized (Annex 1, Table 25). 5.02 The cropping pattern would remain essentially the same as before the project--sorghum during the main season and maize and beans in the late season. It is expected that traditional crops such as sorghum, maize and beans would continue to play a major role in the agricultural program in the San Fernando Valley in the foreseeable future. Through the efforts of the new research station to be established in the project area and intensive technical assistance, as contemplated, it is probable that other crops such as cotton and sunflower would become much more important than they are at this time. The area devoted to cotton and sunflower would be increased during the development period. Yields and Production 5.03 The main contribution to increased benefits in the valley would come from: (a) improved yields per hectare; (b) increases in the area cultivated as a result of land clearing; and (c) proper soil and water conservation and management techniques, which, aside from their effect on (a), would, in certain years, make two crops per year possible in some areas and reduce the wide annual yield fluctuations commonly experienced throughout the region. Although soil moisture is the limiting factor to crop production, yield increases would result from the promotion of technical packages (para 4.08) and adoption of better soil and water management practices fostered through the technical assistance program. The magnitude of the increases, however, would be directly related to the soil groups in the area and drainage works established. Since crop development in the main growing season depends on residual soil moisture, the deep clay soils on which drains and water control infrastructures will be placed are expected to reach higher yield levels than those grown on the loam soils which have lower water retention properties than the clays and on which drainage infrastructural works would be limited to ditches. Rainfall in the southern portion of the project area (648 mm), where the clay soils predominate, is also greater than in the northwest (438 mm) where the loam soils are in abundance. A review of the weather records (Annex 1, Table 1) indicates that a dry or wet year is likely to occur every five years, resulting in reduced sorghum yields by as much as 50% (2 tons/ha to 1 ton/ha). While the project would not change this historical weather pattern, it is believed that it would minimize the effects so that losses would not exceed 30% of average yields. This correlation has been considered in computing benefits (para 6.06).  - 30 - 5.04 Considering the above, over the first five years of development, it is projected that sorghum yields on the clay soils (Classes 1, 2 and 3) would increase from an average of 2.0 m tons/ha to 3.8 tons/ha. On the loamy soils (Classes 4 and 5), the increase would be from 2.0 m tons/ha to 3.0 tons/ha. On the clay soils, maize yields would increase from 0.70 to 1.80 m tons/ha, beans from 0.40 to 0.90 m ton/ha, cotton from 0.40 to 0.90 m ton/ha, and sunflowers from 0.50 to 0.90 m ton/ha. On the loam soils, maize yields would, over the first four years of project development, increase from 0.70 to 1.30 m tons/ha, beans from 0.40 to 0.63 m ton/ha, cotton from 0.40 to 0.70 m ton/ha, and sunflowers from 0.50 to 0.73 m ton/ha. Details on the yield increases by crop, year of development and soil class are found in Annex 1, Table 26. 5.05 The benefits of the technical packages thus far developed are evident. Those farmers who are using the improved methods of culture and other inputs on the heavy clay soils with no drainage problems are averaging 5 to 7 m tons/ha of sorghum consistently. Their maize yields are usually 2.0 to 2.5 m tons/ha and beans 1.2 to 1.5 m tons/ha. Moreover, farming in the area would be done in large units (a minimum of 200 ha), employing mechanized equipment with skilled operators, which would permit land to be prepared in a timely and satisfactory manner, critical factors in this low rainfall area. Yield increases projected for the project are conservative and well below those being secured by the more productive farmers and ejidos in the area. Crop Production and Incremental Value 5.06 As a result of opening up new lands for cultivation, increasing the area devoted to some crops, and increased productivity, there would be a large increment in volume and value of crop production in the proposed project area at the end of the sixth year of the construction period and at full development. Total annual incremental crop production is estimated to reach 640,000 m tons at full development, at which time annual incremental value of crops is estimated to reach Mex$ 3.6 billion in 1982 pesos. The data for each crop are summarized in the table below. Complete details for each year of development for each crop are presented in Annex 1, Table 27. 5.07 Total incremental production for sorghum would reach about 544,000 m tons at full development, equivalent to about 20% of present sorghum imports of US$94.0 million. For maize, the incremental production is estimated to reach 29,500 tons at full development and beans 15,300 tons. Although the incremental production of maize and beans is equivalent to only a small percentage of domestic production and total imports of these grains, they would, nevertheless, be instrumental in making the region self-sufficient in these food grains.  - 31 - Increments at Full Development Total Harvested Crops Area Crop Production Crop Value Labor Demand (ha) (Metric Tons) (Mexican $'000) (Man-days) Sorghum 316,160 544,288 2,438,411 501,580 Sunflower 19,760 16,670 163,367 70,313 Cotton 19,760 33,951 570,377 539,888 Maize 19,760 29,517 183,889 103,608 Beans 19,760 15,316 278,747 74,643 Total 395,200 639,742 3,634,791 1,290,032 Labor Demand--Employment 5.08 Although most of the farm operations would be carried out by machines, there would still be a large demand for labor, which is available, to implement the project. The total estimated annual increment of labor input would amount to 1.29 million man-days at full development and should assure employment opportunities for the able-bodied members of each farm family. The incremental demands for labor by crops and year are included in the table above and details are presented in Annex 1, Table 28. Farm Production 5.09 In the proposed project, there are three types of producers: ejidatarios, colonos, and small proprietors. In the ejidos, the average holding would be 20 ha; the colonias from 15 to 20 ha; and the small proprie- tors, from 20 to 200 ha. In all cases, however, farm operations would be conducted collectively on units of approximately 200 ha. However, in some ejidos, as many as 50 families would join together to form 1,000-ha blocks. In both the 200-ha and 1,000-ha blocks, large farm machines could be used efficiently, and practically all farm operations would be done mechanically. Farm Models 5.10 In order to properly reflect crop production conditions in the proposed project area, six farm models (Annex 1, Tables 29 through 46) have been developed, based on the technical information collected in the project area and land tenure to be utilized by the project beneficiaries. Farm Models 1, 2 and 3 reflect conditions on heavy soils for a 200-ha unit and for 1,000 ha operated by old and new ejidos, respectively. Models 4, 5 and 6 indicate the situation on light soils for a 200-ha unit and for 1,000 ha operated by old and new ejidos, respectively. In all cases, the area devoted to crop production would increase in time and that in livestock would decrease. The six models include cost for mechanized cropping operations, mostly through contracts, to be financed by credit. The area and yields of sorghum, maize and beans would increase over the development period, while sunflower and cotton would become a part of the rotation.  - 32 - Farm Income 5.11 In the table below, it is shown that incomes of beneficiaries involved in the enterprises to be financed under the project would be improved. The increased income would be large enough to provide an incentive for bene- ficiaries to participate in the on-farm development works and other programs to be implemented under the project. The table below shows, for each invest- ment plan, the without and with project estimated income per family (on a 20-ha farm), the percentage increase and the financial rate of return on investments made. Although in practice the investment mix may be different in individual cases, it is expected that the figures below are representative of the benefits to be gained by the farmers. Farm family income is projected to more than double its present level for those on the heavy soils and increase by around 48% for most of those on light soils. The prices used to determine crop production income are presented in Annex 1, Table 47. Farm Income per Investment Plan Without and With Project Without Project With Project /1 Per Per Financial Farm Total Family Total Family Rate of Model Size Classification Income Income Income Income Return (ha) ------- ('000 Mex$)----------- () 1 200 Heavy soils 1,162 116.2 2,370 237 40.8 2 1,000 Heavy soils 5,801 116.0 11,609 232 38.3 3 1,000 Heavy soils, new ejidos 5,801 116.0 11,527 231 37.4 4 200 Light soils 1,115 111.5 1,634 163 16.6 5 1,000 Light soils, new ejidos 5,801 116.0 7,863 157 15.0 6 1,000 Light soils 5,569 111.4 7,491 150 14.7 Average 114.5 195.0 27.1 /1 Income achieved at year 10 of development on the basis of one ejido family per 20-ha farm size . 5.12 Implementation of this project would help improve income distribution in the Tamaulipas region through (a) employment generation which would use about 1,300,000 additional man-days at full development; and (b) agrarian reform, which would redistribute agricultural land to about 8,200 landless families (para 2.12), increasing the number of beneficiaries to about 17,000 families. As a result of the development program and strong technical assistance, average family income would increase from 114,500 to 195,000 pesos.  - 33 - Marketing and Grain Movement 5.13 General marketing conditions in the project area are found in paragraphs 2.23 and 2.24. Sorghum, which amounts to about 90% of total grain production in the project area, unlike the other grains, is marketed mainly through the private sector. Most of the buyers are closely involved in the supply of production inputs. In the public sector, CONASUPO, and ANDSA its affiliate, play an important role as the major buyers of the resort. Within the project area there are about 88 storage units, out of which approximately 72% belong to private interests and the remaining 28% to CONASUPO. CONASUPO has rented a large number of the existing private storage facilities and markets most of the sorghum through them. The main processing and consuming centers for the project area are Monterrey, Guadalajara and Mexico City. Sorghum prices at farm level as well as at the processing and consuming points are subject to Government control. 5.14 Storage is a major constraint for grain marketing in the project area. In the opinion of most farmers and producers' associations, road transportation within the project area as well as from the project area to the major processing and consuming centers is also inadequate. Available storage capacity in the 88 plants for sorghum production from within and mostly outside the project area is about 1.2 million tons. In the project area, the plants are not true silos; they are only flat open areas with concrete slabs at ground level. Plastic sheets are used to cover the grain. Grains stored in these facilities are subject to great losses caused by weather (primarily rainfall and moisture), insects, diseases and rodents. To remedy this situa- tion, the Government (SARH/CONASUPO/BANRURAL) has committed itself to construct- ing in the project area 27 reinforced concrete silos, with a total storage capacity of about 270,000 tons (para 2.24). Government's plan was to complete these silos during 1981, but, as of August 1981, it appeared that additional time would be required. 5.15 With the Bank-financed project, estimated sorghum production would increase to about 1.1 million tons by 1987. While existing capacity, including the construction of the 27 additional silos, would be sufficient to sustain the incremental production under the project in the initial years, there may be some need for additional storage capacity within the project area by the mid-1980s. 5.16 To deal with the above situation, the Government has established the Trust Fund FIDEC to provide financial support for strengthening marketing throughout the country. Additionally, CONASUPO, through various programs, is taking measures to improve grain marketing and storage. 5.17 Because of these conditions, a comprehensive study on grain movement and storage would be carried out within the first year of project implementa- tion. Its objectives would be to present: (a) recommendations for improving the area's existing transportation facilities so that increased grain produc- tion could be handled expeditiously; and (b) recommendations on the need in the future for additional storage capacity in the San Fernando area, taking into account the proposed project's production goals and the investments in  - 34 - storage facilities that are being made and being planned for by the public and private sectors (para 5.14). VI. ECONOMIC ANALYSIS Benefits and Justification 6.01 The proposed project is an important element in the Government's program to engender development in rainfed areas to increase basic food production. The underlying tenets of the project are (a) expansion of the agricultural frontier in the San Fernando region by bringing new land into production; (b) exploitation of the comparative advantages of the region in basic grain production; and (c) acceleration of production through diverse investments and improved agricultural support systems. The project, by redistributing land to over 8,000 landless families, would enhance the Government agrarian reform program. 6.02 Overall, the project would generate substantial benefits at full development. Incremental production of the principal products--mainly sorghum, maize, beans, sunflowers and cotton--would amount to 640,000 m tons at full development. Incremental production of these commodities alone would amount to a foreign exchange savings of about US$19 million annually in 1982 prices. The project would increase employment opportunities in the proposed project area and decrease under-employment. At full development, the project would generate about 1.3 million man-days in additional employ- ment. During the course of project implementation, over 17,000 farm families would participate actively in the development program. Cash income of bene- ficiaries would increase considerably. On the average, ejido family farm income would vary between US$3,260 to US$5,152 in 1982 pesos at full develop- ment. 6.03 The project would buttress the institutional capabilities in the project area, improve research and the technical assistance delivery system and strengthen water and soil conservation techniques. With these improve- ments, local institutions would expand their penetration in areas contiguous to the project. Additionally, there are a number of indirect benefits likely to accrue in the project area such as the stimulation of agroindustries associated with processing of animal feed grains and brewing, and retail operations dealing with the supply of agricultural machinery and chemicals. In addition, economic life in the project area would be invigorated by the establishment of general commercial enterprises to serve the communities in the area.  - 35 - 6.04 In summary, the proposed project would (a) stem migration from the project area; (b) improve the way of life for many families, (c) provide import substitution for food, feed and fibers, (d) stimulate the economy and increase employment in Tamaulipas State, and (e) assist the Government in meeting its development objectives. As an initial project, undertaken to develop a specific area of a district by exploiting its potential, it would have a profound impact on the future development of rainfed districts. Economic Rate of Return 6.05 The economic rate of return (ERR) of the project has been estimated at 18.0% (Annex 1, Table 48) and was derived under the following assumptions: (a) the progressive development of the various crops was as projected in the respective farm analysis and investment plans; (b) output prices for traded commodities were calculated according to Bank projections for 1982 in constant prices and adjusted for handling, processing and transportation costs to reach an average farmgate price; for other products, prevailing farmgate prices were used (Annex 1, Table 47); production costs were adjusted if taxes or subsidies were involved, such as those for seeds (beans and corn), fertilizers, and insecticides; the opportunity cost of family labor was estimated at 80% of market price; and hired unskilled labor was estimated at 70% of its market price; other production costs were priced at local market conditions on the grounds that they best reflect their opportunity cost, given the market structure and current Government policies; (c) the period of analysis was 16 years; (d) border prices used for all traded and non-traded commodities were based on a unit standard conversion factor; and (e) calculations of the economic rate of return include costs of physical and infrastructure works related to the project, buildings and related infrastructure required for offices and laboratories and other services that would be provided for project implementation. Also included are the costs of the technical assistance program, research, consultant services, the necessary machinery and equipment for the civil works and maintenance programs, and physical contingencies. Sensitivity Analysis 6.06 The results of a sensitivity analysis to test the impact of differing levels of costs, prices and or revenues and other factors are presented below. Assumption Economic Rate of Return (%) Expected best estimate 18.0 Aggregated benefits reduced by 20% 14.0 Earthmoving costs increased by 30% 15.0 Equipment costs increased by 30% 16.0 Operation and maintenance increased by 30% 16.0 Physical contingencies increased by 35% 16.0 Drought period every five years 14.0 Project implementation delayed one year 14.0 Project implementation delayed two years 11.0 Project implementation delayed three years 8.0  - 36 - 6.07 A switching value test indicates that if the earthmoving portion (major project investment cost) was increased by 72%, the project economic rate of return would be 12% (the opportunity cost of capital in the country). Benefits could be reduced by 28% and physical contingencies increased by 161% to yield an economic rate of return equal to 12%. The switching value test shows also that the price of sorghum, the main crop, would have to decrease by 32% and the price of cotton would have to be reduced by 70% to lower the ERR to 12% (Annex 1, Table 49). The main factors that could delay project benefits are adverse weather and institutional problems. These factors would not influence any specific parameters in isolation such as individual crop yields or area cultivated, but would have a general impact on all crop benefits. Thus, a switching value test on the assumption of delays in reaching full development was performed. This test indicates that a delay of about two years would make the ERR equal to the opportunity cost of capital, assuming that cost outlays would occur as planned. Environmental Impact 6.08 The project is not expected to have any harmful effects on the environment. Although opening up new lands and creating open unprotected areas may have some effect on the Tamaulipian biotica, harmful effects would be minimal in that over 22,500 ha not used for the project in the proposed project area are to be retained as a wildlife reserve. Moreover, by extending the plains and increasing grain production, there would be more grain left for the migratory and local birds to glean from the fields. The infrastructural works (drains and ditches) are not expected to seriously affect the ecology of the existing lagoons and small islands. More fresh water would be channelled, however, into the lagoons. While the technical assistance program would be designed to increase the production of feed and food, it would at the same time, by working through the social workers, be the means through which the way of life of the people in the area would be improved. 6.09 Since the applications of pesticides would increase in the project area, all chemicals used would be restricted, to the extent possible, to those that have low mammalian toxicity and low hazard to wildlife. All extension agents would stress safety when training farmers and others in chemical use. In addition, the extension agents would be expected to monitor pesticide levels in soil and water, being particularly alert to the effects that the cotton pest control may have on fish, birds, and beneficial insects. The agents would also be concerned with storage, transportation, packaging and disposal of pesticide containers. Through CIAGON, the pest control program would be closely tied in with the laboratory and pest control program developed in the Rio Bravo Project, where staff, facilities and equipment exist to make the achievement of program goals possible. Project Risks 6.10 The main risks associated with the project would be (a) institu- tional, (b) climatic and (c) financial. Regarding institutional aspects, the task would be to ensure coordination between the different programs to be implemented under SRA and SARH. To minimize the risk, SARH has assigned  - 37 - personnel to serve as a link between SARH, SRA and SAHOP. Moreover, in view of SARH's extensive experience in construction, the availability of production inputs, and provisions being made for training new farmers, the risks would be minimal. The most serious climatic risk would be drought, but the area seems to be relatively safe, and, although sorghum yields vary from year to year, they have never been an outright failure. This risk would be reduced further by the adoption of water conservation measures that would be intro- duced through the technical assistance program. Finally, although there is a risk that short-term governmental budgetary constraints may delay local counterpart funding, the Government has assured the Bank that high priority will be given to funding this project. Investment Analysis 6.11 Total investment costs amount to about US$266.0 million, or about 76% of total project costs. Investment cost per beneficiary (17,100 families) is about US$16,000, excluding costs associated with the rights- of-way, training, studies, and future operation and maintenance of the project's main works, and including physical and price contingencies. Investments at the farm level, mainly on-farm road and ditch systems, are about US$28.0 million, excluding physical and price contingencies, or slightly more than 8.0% of total project costs. The balance (US$55.0 million) represents land expropriation for rights-of-way, expenditures for training, studies, consultant services, and operation and maintenance costs, including salaries. Cost Recovery 6.12 Operation and Maintenance Costs. In accordance with the Federal Water Law of 1972, recurring costs for operation and maintenance of the basic infrastructure works such as surface drains and feeder road networks, would be recovered as recommended by a socioeconomic study to be carried out in the project area. The study's objective would be to determine the capacity of the beneficiaries to pay for such costs. 6.13 Investment Costs. Again, following the Federal Water Law, as much as possible of the investment costs (including works and equipment) would be recovered in accordance with the study referred to in paragraph 6.12 above. All on-farm investments, however, including warehouses and workshops, equipment, and their operation and maintenance (US$28.0 million), would be paid for by the beneficiaries through agricultural credit (BANRURAL and private banks). 6.14 Assurances were obtained at negotiations that operation and maintenance costs as well as investment costs would be recovered, and periodic adjustments would be made in the charges to take account of cost increases, based on the socioeconomic study which would determine the beneficiaries' capacity to pay for these costs. Assurances were also obtained that the socioeconomic study would be completed by December 31, 1985 and that the Bank would be afforded a reason- able opportunity to comment on its conclusions and recommendations.  - 38 - VII. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION 7.01 During negotiations, assurances were obtained that the Government would: (a) undertake a study on grain movement and storage in the first year of project implementation, under terms of reference outlined in paragraph 3.20 and Annex 3; (b) cause SARH to agree to follow the procurement procedures as outlined in paragraphs 3.26, 3.27 and 3.28); (c) take all measures necessary to ensure that the beneficiaries of the project would be provided with short-term, medium-term and long-term credit as and when needed (para 4.15); (d) cause SARH to maintain separate accounts to reflect the financial situation of the project in accordance with sound accounting practices and send to the Bank within one year of the end of each fiscal year a summary statement of such accounts and furnish other information requested by the Bank (para 4.16); (e) at the Bank's request furnish or cause to be furnished plans, specifications, reports, contract documents and procurement schedules, and maintain adequate data to record progress of the project (para 4.17); (f) ensure that a completion report on the project is sent to the Bank no later than one year after the closing date of the project (para 4.20); and (g) (i) ensure that operation and maintenance costs as well as investment costs would be recovered, and periodic adjustments would be made in the charges to take account of cost increases, based on the socioeconomic study which would determine the beneficiaries' capacity to pay for these costs, and (ii) that the socioeconomic study would be completed by December 31, 1985 and the Bank would be afforded a reasonable opportunity to comment on its conclusions and recommendations (para 6.14). 7.02 With the above assurances, the proposed project constitutes a suitable basis for a Bank loan to NAFINSA for US$138.4 million on standard terms for Mexico. June 2, 1982  - 39 - ANNEX 1 Table 1 MEXICO SAN FERNANDO RAINFED DEVELOPMENT PROJECT Annual Rainfall (mm) Year San Fernando Reynosa La Piedad BRB-2-11 SJ-3-63 BRB-4-16 Matamoros 1932 688.0 1933 1,454.0 1934 503.5 1935 714.3 1936 763.3 1937 489.5 1938 793.9 1939 569.5 1940 514.0 1941 974.8 696.3 1942 847.0 519.8 1943 543.5 474.2 1944 779.5 613.2 1945 519.0 330.9 1946 630.0 434.2 1947 628.0 351.3 1948 591.5 337.4 1949 408.6 331.8 1950 588.0 275.9 1951 545.6 394.6 1952 526.0 294.4 564.9 1953 368.0 441.5 415.5 471.9 378.5 1954 514.3 771.3 558.0 291.3 1955 631.0 154.2 457.7 508.0 1956 470.6 291.9 422.5 441.7 1957 701.0 400.1 611.7 351.0 1958 710.5 642.3 790.3 1,039.0 1,215.2 1959 552.7 316.9 605.0 591.4 601.6 1960 401.3 413.3 576.3 491.5 468.6 596.5 1961 647.6 381.9 516.3 731.2 559.5 463.0 1962 464.2 379.0 442.0 434.9 392.4 269.5 526.4 1963 659.2 372.5 611.6 519.5 618.0 703.0 595.7 1964 379.3 325.0 385.5 370.8 463.3 405.0 453.0 1965 458.3 525.5 361.7 541.0 619.0 493.5 516.9 1966 652.1 679.0 1,064.6 903.6 735.1 920.2 626.5 1967 1,049.2 824.0 791.1 658.2 488.7 993.0 1,039.8 1968 662.2 397.4 518.9 730.0 408.2 597.0 665.0 1969 674.6 333.6 852.0 610.5 626.3 659.0 737.0 1970 690.2 802.0 919.2 772.0 748.5 924.5 1971 608.1 841.2 788.6 640.0 597.4 863.8 1972 898.4 1,274.0 1,123.5 716.6 756.5 991.0 1973 1,111.8 953.1 961.0 842.6 746.7 1974 345.5 456.1 620.0 412.4 358.7 1975 758.5 899.0 865.2 673.9 882.7 1976 863.5 1,170.1 1,282.6 942.5 1,211.8 1977 532.5 845.0 744.8 606.7 807.8 1978 523.0 556.0 867.0 392.4 834.2 1979 684.6 717.3 889.1 852.4 909.2 Total 31,083.7 12,703.4 19,059.4 18,746.5 12,609.1 15,770.0 7,939.6 Average 647.58 438.05 680.69 694.31 600.43 716.82 721.78 Standard Deviation 204.74 157.24 238.26 246.87 164.32 243.30 194.40 May 5, 1982  - 40 - ANNEX 1 Table 2 MEXICO SAN FERNANDO RAINFED DEVELOPMENT PROJECT Distribution of Soils in the Project Area Soil Survey Classification Type Area (ha) Soil Survey Group % Clays (heavy, intermediate and friable) 347,567 1, 2, and 3 71.6 Loams (fine and coarse) 108,581 4 - 5 22.1 Sandy (fine and coarse) 30,374 6 - 7 6.3 Total 486,522 100.0 SCSI/ Classification Item Class Area (ha) _ Soil Class I, II and III 437,277 90.0 Soil Class V, VI, VII and VIII 49,245 10.0 Total 486,522 100.0 Potential Land Use Type Area (ha) Soil Survey Group % Crop land - clay soils 347,567 1, 2, and 3 71.4 Crop land - loams 89,710 4 - 5 18.4 Pasture land - loams and sands 49,245 5, 6, and 7 10.2 486,522 100.0 1/ U.S. Soil Conservation Service. May 9, 1982  - 41 - ANNEX 1 Table 3 MEXICO SAN FERNANDO RAINFED DEVELOPMENT PROJECT Land Use in the Project Area Present Situation Concept ha % 1. Total Area in Crops 239,931 49.3 2. Livestock Landl/ 174,207 35.8 3. Recently Cleared Land 42,184 8.7 4. Fallow Land 6,000 1.2 5. Unsuitable for Agriculture 13,370 2.8 6. Other2/ 10,830 2.2 Total 486,522 100.00 1/ Land in brush, natural and cultivated pastures. 2/ Swamps, urban areas, roads, drains, trails. May 9, 1982  MEX ICO SAN FERNANDO RAINFED DEVELOPMENT PROJECT IrPng ClearinR Item ( h a)ity Unit Cost Total Cost Year I Year 2 Year3 Year 4 Year 5 Year 6 (ha) -- ---- --- --- -- - Mox$ 'OUt--- - - - - - ----- A. Natural Brush Cover-/ 5,321 25,164 133,896.43 B. Natural Grazing Land-/ 41,365 25,164 1,040,913.95 C. Artificial and Natural Pasture- 55,353 16,371 906,212.50 D. Bare and Grazing Land3/ 52487 21,261 1,115,931.42 Subtotal 154,526 3,196,954.30 Engineering and Supervision (10%) 319,695.43 Total 3,516,649.73 163,875.88 501,474.25 1,406,659.89 1,054,994.92 194,822.39 194,922.40 1/ Including brush removal and burning, root-cutter pass, root burninq, heavy harrow pass, and land smoothing. 2/ Including root-cutter pass, root burning, heavy harrow pass, and land smoothing. 3/ Including field clearing and burning, root-cutter pass, heavy harrow pass, and land smoothing. May 5, 1982  43 - ANNEX I Table 5 MEX ICO SAN FERNANDO RAINFED DEVELOPMENT PROJECT Drainage Network (884 km) Item Unit Quantity Unit Cost Total Cost Year I Year 2 Year 3 Year 4 --------------------------Mex$ '000 -- ----- ----------- A. Land Clearing ha 3,168.00 6,637.56 21,027.75 B. Excavation for Drains m3 15,670,342.00 58.56 917,647.24 C. Excavation for Structures m3 249,285.00 278.73 69,483.24 D. Earthfill and Compaction m3 146,662.00 171.04 25,084.77 E. Rockfill Works m3 1,643.40 1,019.14 1,674.84 F. Dry Foundation Preparation i3 47,904.40 1,013.14 48,829.42 G. Masonry for Structures / m3 16,041.10 2,453.67 39,359.54 H. Concrete for Structures m3 347.18 5,780.69 2,006.93 1. 24' Pipe m 27,030.00 2,321.49 62,749.86 J. Cement Transportation (Ist km) mt/km I04.15 125.49 13.06 K. Cement Transportation (50 ki) mt/km 5,207.50 10.29 53.60 L. Cement mt 104.15 6,364.66 662.87 Subtotal 1,188,593.12 Engineering and Supervision (10/) 1 18,859.31 Total 1,307,452.43 329,478.01 451,855.56 451,855.56 74,263.30 I/ About 1,802 waterside inlets would be provided from the basic 4,800 ha units into the drains, and about 54 drain junctions. May 5, 1982  44 ANNEX I Table 6 MEX ICO SAN FERNANDO RAINFED DEVELOPMENT PROJECT Feeder Road Network (884 kmo) Itea Unit Unit Cost Total Cos Yea,' I Year 2 Year 3 Year 4 Fee-- -- - - -- - -- -M '. 1099 - -- - - - -- - - -- - - - A. Land Levelling m3 1,158,275.80 25.91 30,003.24 S. Land Smoothing ha 1,205.00 6,892.54 8,305,50 C. Roadbed Fill m3 3,519,036.40 92.50 325,525.98 3. Roadbed Fill Conpaction a3 3,519,036.40 26.43 93,020.98 E. Gravel for Surfacing (Ist km) a3 1,220,168.40 159.95 195,167.14 F. Gravel for Sarfacing (50 kb) m3/km 61,008,420.00 14.71 897,541.96 C. Excavation for Structures a3 2,784.00 289.36 805.56 H. Structure Foundation Fill ing/Compaction a3 1,825.00 177.33 323.63 I . Rockf il11 Works m3 1,565.00 1,058.71 1,656.82 J. Concrete for Structure-/ m3 3,244.00 6,001.07 19,467.45 K. Reinforcement Steel m3 355,036.00 14.71 5,223.92 L. Cerest Transportation (Ist kb) mt/km 1,050.00 125.64 131.9i M. Cement Transportation (S0 km) mt/ka 52,500.00 10.58 555.80 N. Reinforcement Steel Transportation (lst km) mt 355.00 123.86 43.96 3. Reinforcement Steel Transportation (SObkm) nt/km 17,750.00 10.60 188.20 P. Cement t 1,050.00 6,615.12 6,945,8 7 Q. Reinforcement Steel mt 355.00 39,686.67 14.088.76 Subtotal 1.598,996.73 Engineering and Supervision (10%) 159,899.67 Total i,758,896.40 172,371.85 509,552.29 549,303.35 527,668.91 1/ For crossing the sarface drainage network, aboat 31 bridges and 29 calverts woald be provided. May 5, 1982  MEXICO SAN FERNANDO RAINFED DEVELOPMENT PROJECT Service Road and Ditches (394 tan) Item Unit Quantity Unit Cost Total Cost Year ex Yar 2 Year 3 Year 4 Year 5 Year 6 A. Land Levelling ha 1,633.02 5,990.85 9,783.17 B. Land Smoothing m3 2,479.05 2,251.69 55,820.52 C. Ditch Excavation m3 2,361,000.00 85.10 200,921.10 D. Roadbed Compaction m3 2,521,351.00 22.98 57,933.08 E. Gravel for Surfacing (Ist km) m3 566,640.00 139-03 78,782.79 F. Gravel for Surfacing (50 km) m3/km 28,320,000.00 12.79 362,156.08 G. Excavation for Structures m3 1,472.00 251.57 370.31 H. Concrete for Pipes/Culverts m3 92.80 9,918.34 920.42 1. Dry Foundation Preparation m3 122.88 920.00 113.05 J. Compacted Fill m3 899.20 154.37 138.80 K. Cement mt 27.84 5,750.00 160.08 L. Reinforcement Steel mt 7.42 34,500.00 2 Subtotal 767,355.39 Engineering and Supervision (10/0) 76,735.53 Total 844,090.92 - 126,613.64 337,636.36 126,613.64 126,613.b,+ 126,613.64 May 5, 1982 crH  - 46- ANNEX 1 Table 8 MEXICO SAN FERNANDO RAINFED DEVELOPMENT PROJECT Main Field Offices and Laboratories (3 units)-/ Item Unit Quantity Unit Cost Total Cost Year 1 Year 2 Year 3 - - - - - - - - - Mex$ '000 - - - - - - - - - - - - - - A. Office "Aztec" Type Building 1 3 4,657.80 13,973.40 B. Laboratory Building 2 3 4,118.10 12,354.30 C. Housing for Visitors 2 3 4,777.50 14,332.50 D. Storage Facilities 2 3 2,5S00.10 8,700.30 E. Workshop 2 3 2,381.40 7,144.20 F. Parking for Cars 2 3 3,412.50 10,237.50 G. Parking for Machinery 2 3 3,431.40 10,294.20 H. Sports Facilities 2 3 1,110.90 3,332.70 1. Housing for Guards 2 3 546.00 1,638.00 J. Housing (2 bedrooms) 2 3 2,467.50 7,402.50 K. Housing (3 bedrooms) 2 3 2,912.70 8,738.10 L. Collective Housing 4 3 1,927.80 5,783.40 M. Office-type SVI Building 1 3 1,885.80 5,657.40 N. Collective Housing 1 3 1,014.30 3,042.90 Subtotal 37,543.80 112,631.40 Engineering and Supervision (10%) 3,754.38 11,263.14 Total 41,298.18 123,894.54 - 83,182.68 40,711.86 1/ One unit at each of the three centers (Matamoros; Gonzalez Villarreal San Fernando). May 5, 1982  47 ANNEX 1 Table 9 MEXICO SAN FERNANDO RAINFED DEVELOPMENT PROJECT Training CenterL/ Item Unit Quantity Unit Cost Total Cost Year I Year 2 _ _ -- _ _ MPYX$ n)n Z T A. Lodging Facilitie,2/ - - 7,845.16 7,845.16 B. School Buildings - - 2,025.68 2,025.68 C. Restaurant, Store, Laundry - - 3,181.82 3,181.82 D. Parking and Sports Facilities - - 1,281.89 1,281.89 E. Water Supply - - 1,889.36 1,889.36 Subtotal _ _ 16,223.91 16,223.91 F. Purchase of Existing Building - 42,504.00 42,504.00 Grand Total 58,727.91 58.727.21 - 58.727,913/ 1/ One center to be built at El Chapeno. 2/ For items A, B, C, 0 and E, Engineering and Supervision (10%) has been included. 1/ To be built the second year of project implementation. May 5, 1982  4e- ANNEX I Table 10 MEX I CO SAN FERNANDO KAINNf ELb EVELOPMENi PROJEtI Aq,ic.1t,,oal Rns,arc. Center Total Year I Year 2 Year 3 Year 4 Year 5 Year 6 - -Mex$ '000 - - - - - - - - - - - - - - - - - A. bulildinti laboratories 8,109. 1 5 4,054. 58 4054.57 War eho,se and Workshop 4,47q.00 2,239.50 2,239.50 Workers Iluarters 3,725.13 i 862 .57 i .862. 56 Oftic5es 8 ,515.43 452.7 1 4, 257.72 SLibtutal 24,828,71 12,414,36 12 414.35 En.iqineerinq and -ilpervisi I (J1. ) 2482.87 i.241.43 i, 24144 SLibtotal 27,311.58 13,655.79 13,655.79 t . Equ i pnernt Aqricult,ir-al Macthinry 9,660.00 2,100.00 4,200.00 3,360.00 Vehicles and Transpo r t 11,760.00 5,880. oo i,680.00 4 200.00 Office anid Visual Aide 5,586.oo 2,793,00 1,396. 50 1,396.50 Labo,ratories 8,946.00 2 646.OO 4,200.0 2 100 Subtutal 35,952.00 13,419.00 11,476.50 1 .056.50 C. Staff Salaries arrd fJenefits Scientific and Techniical 108,374.70 8.677.20 11,928.00 17,682 00 23,362.50 23,362.50 23,362.50 Administrative and Field Srrpprrrt 06,285.00 8,61o oo 11,046.00 16,010.40 20,206.20 20.206.20 20,206.20 Social Sectirity 26,470.50 2,202.90 2,772.00 4,410.00 5,695.20 5 695.20 5,695.20 Horrsinq and Others 14,3110.5 1,054.20 1,554.00 2,310.00 3, 131.3,310 3 ,3.131.I 0 Subtotal 245,441.70 20,544.30 27,300.oo 40,412.40 52,395.00 52,395.00 52,395.00 1). Operation arid Maintenance Stupplies frrr Labrrratorries and 42,747.60 2,940.00 5,460,00 8,517.60 8,610.00 8,610.00 8,610.00 EKperimrrents Stipplies for Office and BrilIdin-qs 15,960.00 1,260.00 2,310.00 2,625 00 3,255.00 3,255.00 3,255.00 Per t)iem and Travel 7,560.0(1 631.00 630.00 1,260.00 1 ,680.00 1,680.00 1,680.00 Maintenance of Vehicles 7,980o0() 420.00 840.00 1,680.00 1,680.00 t.,680.00 1,680.00 Others 8,834.70 _959.70 1.260,00 1.575.oo5 1,680.00 1,680.0 1,680.00 Subtutal 83,082.30 6,209.70 10,500o00 15,657.60 6,905.00 16,905.00 16,905.00 GRANO TOTAL 391 ,787.58 53828 .79 69g932.29 6Zl26.Io= 6- 9 O.OO 6,.1099oo 69,100.00 May 5, 1982  MEXI CO SAN FERNANDO RAINFED DEVELOPMENT PROJECT Equipment for Operation and Maintenance of Major Civil Works Earthmoving Equipment for Drains and Roads (122 units) item Unit Quantity Unit Cost Total Cost Year 1 Year 2 Year 3 Year 4 year S - - - - - - - - - - - - - - - - - - - - - Mex$ '000 - - - - - - - - - - - - - - - - - - - - - A. Dragline 3/4 cu yd 1 5 8,400.00 42,000.00 B. Dragline 1-1/4 cu yd 1 4 14,700.00 58,800.00 C. Caterpillar Tractor D-6 1 3 11,550.00 34,650.00 D. Land Planner 1 16 1,785.00 28,560.00 E. Compacter 1 8 3,150.00 25,200.00 F. Water Tank (12,000 1) 1 16 2,100.00 33,600.00 G. Motorgrader 1 16 6,300.00 100,800.00 H. Truck (6 m3) 1 24 1,575.00 37,800.00 1. Truck (12 m3) 1 16 2,100.00 33,600.00 J. Batch Plant (Concrete) 1 1 1,575.00 1,575.00 K. Flat-bed Trailer (50 mt) I 1 4,200.00 4,200.00 L. Flat-bed Trailer (30 mt) I 1 3,780.00 3,780.00 M. Pick-up 1 6 430.50 2,583.00 N. Loader 1 2 7,350.00 14,700.00 0. Concrete mixer 1 3 94.50 283.50 Grand Total 122 422,131.50 - 73,101.00 140,500.50 108,559.50 99,970.50 May 5, 1982 Ml  MEXICO SAN FERNANDO RAINFED DEVELOPMENT PROJECT Operation and Maintenance of Main Field Offices (3 Units) Item Total Cost Year 1 Year 2 Year 3 Year 4 Year 5 Year 6