Document of : - The World Bank vEk 7 FOR OFFICIAL USE ONLY Report No. 3657-IN STAFF APPRAISAL REPORT INDIA KALLADA IRRIGATION AND TREECROP DEVELOPMENT PROJECT May 24, 1982 South Asia Projects Department Agriculture Division C f 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$1.00 = Rupees (Rs) 8.50 WEIGHTS AND MEASURES (METRIC SYSTEM) 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 miles (mi) I hectare (ha) 3 = 2.47 acres (ac) 1 million cubic meters (Mm ) = 810 acre-feet (ac-ft) 1 thousand million cubic feet (TMC) 28.32 Mm 3 1 cubic foot per second (cusec) = 0.028 cubic meters per second (m /s) 1 ton = 1,000 kilograms (kg) 1 ton = 2,205 pounds (lb) 1 megawatt (MW) = 1,000 kilowatts (10 W) 6 1 gigawatt-hour (GWh) = 1 million kilowatt-hours (10 kWh) FOR OFFICIAL USE ONLY PRINCIPAL ABBREVIATIONS AF,O - Agricultural and Extension Officer ARDC - Agricultural Refinance and Development Corporation CA - Command Area CE'CRI - Central Plantations and Crop Research Institute CWC - Central Water Commission DCIA - Department of Agriculture ER. - Economic Rate of Return GOI - Government of India GOK - Government of Kerala HY'V - High Yielding Variety ICAR - India Council of Agricultural Research ICB - International Competitive Bidding It) - Irrigation Department JAO - Junior Agricultural Officer KADP - Kerala Agricultural Development Project KAU - Kerala Agricultural University LCB - Local Competitive Bidding LMC - Left Main Canal PtICC - Planning, Monitoring Coordinating Cell PVC - Polyvinyl Chloride PWD - Public Works Department RMC - Right Main Canal SADU - Special Agriculture Development Unit T&V - Training and Visit System of Extension TOR - Terms of Reference WCT - West Coast Tall Coconuts This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. I I INDIA STAFF APPRAISAL REPORT KALLADA IRRIGATION AND TREECROP DEVELOPMENT PROJECT Table of Contents Page No. I. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . 1 General . . . . . . . . . . . . . . . 1 Agriculture in India. . . . .. 1 Irrigation in India . . . .. . 2 Agriculture and Irrigation in Kerala . . . . . . . . . . . 3 Agricultural Support Services in Kerala . . . . . . . . . 5 II. PROJECI FORMULATION . . . . . . . . . . . . . . . . . . . . . 6 Project Scope ..7 III. THE PROJECT AREA .. 8 General. . 8 IV. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . 11 A. General . . . . . . . . . . . . . . . . . 11 B. Detailed Features . . . . . . . . . . . . 12 C. Water Supply and Demand . . . . . . . . . . . . . . . 15 D. Resettlement .... . . . . . . . . . . . . . . . . 16 E. Dam Safety .... . . . . . . . . . . . . . . . . . 16 F. Construction Methods . . . . . . . . . . . . . . . . 17 G. Schedule of Implementation . . . . . . . . . . . . . 17 H. Cost Estimates . . . . . . . . . . . . . . . . . . . 17 I. Financing . . . . . . . . . . . . . . . . . . . . . . 18 J. Procurement .. . . . . . . . 18 K. Disbursement ..19 L. Accounts and Audit .20 M. Environmental Effects of the Project. 21 This report was prepared by Messrs. P.F. Dax, E.L.M. Kramer (IBRD/IDA), W. Barber and R. Shepherd (Consultants) and D. Campbell (FAO/IBRD Cooperative Program), with contributions by Messrs. G. Tibor, C. Helman, R. Vick, and M. Herman. Messrs. R. Rowe, Thillairajah and Dax visited the project in May 1981 to complete the appraisal of the agricultural support services for the project. - ii - Table of Contents (continued) Page No. V. ORGANIZATION AND MANAGEMENT . . . . . . . . . . . . . . . . . 21 The Irrigation Department ... . . . ..... . . . . . 21 The Department of Agriculture . . . . . . . . . . . . . . 21 Operation of Minor Conveyance System . . . . . . . . . . 23 Coordination and Monitoring, Evaluation and Technical Assistance . . . . . . . . . . . . . 24 Cost Recovery .... . . . . . . . . . . . . . . . . . . 25 VI. AGRICULTURAL PROSPECTS ... . . . . . . . . . . . . . . . . . 27 Markets and Prices . . . . . . . . . . . . . . . . . . . . 30 VII. BENEFITS AND JUSTIFICATION. . . . . . . . . . . . . . . . . . 30 Project Impact .... . . . . . . . . . . . . . . . . . . 30 Economic Rate of Return . . . . . . . . . . . . . . . . . 31 Sensitivity Analysis and Project Risks . . . . . . . . . . 32 VIII. AGREEMENTS AND RECOMMENDATIONS . . . . . . . . . . . . . . . 33 LIST OF ANNEXES ANNEX 1: Agricultural Development Prospects and Institutional Support ANNEX 2: Project Costs Table 1: Project Costs Table 2: Equipment and Materials Table 3: The Kallada Wing of SADU Table 4: Disbursement Schedule Table 5: Proposed Allocation of the Credit ANNEX 3: Economic Analysis Table 1: Changes in the Cropping Pattern Table 2: Generation of Incremental Benefits at Full Development Table 3: Irrigating Existing WCTS: One Tree Model Table 4: Uneconomic Trees - One Tree Model Table 5: Hybrid Coconut Tree - One Tree Model Table 6: WCT Coconut Tree - One Tree Miodel Table 7: Crop Budget for Tapioca Table 8: Crop Budget for Cocoa Interplanting Ta'ble 9: Crop Budgets for Rice Production Table 10: Farm Budget for a Typical Coconut Holding Table 11: Price Projection for Copra Table 12: Price Projection for Paddy Table 13: Estimated Farm Budget and Project Rent at Full Development for a Typical Coconut Farm Table 14: Cost and Benefit Streams for Economic Analysis Table 15: Cost Recovery - iii - LIST OF ANNEXES (Cont.) ANNEX 4: Implementation Table 1: Summary Implementation Schedule Table 2: Schedule of Land Acquisition Appendix 1: Design of Water Conveyance below the Minor Canal Appendix 2: Specifications of Main Canal Bank Roads ANNEX 5: Organization and Management Chart I : Project Organization Chart II : Planning, Monitoring and Coordinating Cell Chart III: Kallada Operations and Maintenance Wing Table 1: Kallada Wing of SADU: Field Units MAPS IBRD 15597 - Irrigation Map of Kerala IBRD 16023R - The Project Area I I INDIA KALLADA IRRIGATION AND TREECROP DEVELOPMENT PROJECT I. BACKGROUND General 1.01 KeraLa, located in the southwest extremity of the Indian peninsula, is a coastal strip bounded on the east and south by Tamil Nadu, on the north- east by Karnataka and on the west by the Arabian sea. It is divided into 11 administrative districts. In 1976, the population of 2the State was 23.7 mil- lion. The total geographical area is about 39,000 km , and the average popu- lation density nearly 550/km, the highest of any Indian State and about three times the all-India average. Per capita income in 1978/79 was about Rs 1090. 1.02 While Kerala receives abundant rainfall (some 3,000 mm annually) and benefits from two monsoons (the southwest monsoon between June and August and the northeast monsoon between October and December), a prolonged dry- season between January and May imposes severe constraints on the productivity of KeralaTs tree-crop-based agriculture and increases the farmer's risk in moving into moclern high-cost technologies for tree crop cultivation. 1.03 Kerala's agriculture is assisted by five ongoing Bank Group proj- ects. The Kerala Agricultural Development Project (1977, Credit No. 680-IN) centers on credit for tree-crop-based smallholdings and includes components for two government cashew-plantations (3750 ha), cooperative rubber processing, and strengthening selected inputs and services of the Department of Agriculture (DOA). The National Dairy Project (1978 Credit No. 824-IN) has a component in Kerala which seems particularly promising in view of the relatively advanced state of crossbreeding in the State. The multistate Cashewnut Project (Credit 1012-IN, 1980) provides credit for smallholders for planting some 10,000 ha of cashew, and for a further 2,300 ha of Government cashew plantations. The Kerala Extension Project (Credit 1028-IN, 1980) will reorganize and strengthen the statewide extension service of the DOA. The Fourth ARDC Credit Project (Credit 1209-IN/Loan 2095-IN, 1982) is an all India project which also assists Kerala's agriculture. Agriculture in India 1.04 India has a population of about 700 M which is growing at an annual rate of about 2.2%. Since 1960, per capita income has grown at an annual rate of 1.2% and reached US$240 in 1980. Although the average per capita income has increased and access to public services has improved in general there has been little change in the incomes of the vast masses of urban and rural poor, who comprise about 50% of the total population. Accordingly, GOI's development plans give priority to alleviating poverty and creating employment, especially in rural areas. 1.05 Agriculture is the dominant sector of the Indian economy and contri- butes about 40% of GNP. It engages about 70% of the labor force and provides the base for about 45% of India's exports. During the last decade, GOI devel- opment plans have emphasized agriculture and sought to raise food production by increasing the use of fertilizers, plant protection chemicals, and improved seed varieties. In support of this, GOI has modernized and expanded its agri- cultural credit institutions and accelerated the development of irrigation. 1.06 In the period 1950/51 to 1980/81, the production of foodgrains rose at an annual rate of 2.6% (to about 130 M tons) and population at 2.1%. The average annual increase in per capita production has thus been only 0.5%. Between 1950/51 and 1964/65, production increased by about 3.1% p.a.; about 50% of this was the result of an expansion in the area under foodgrains and the proportion of the area double-cropped. But between 1964/65 and 1980/81, the gross area planted increased by only 6.5%; thus output growth over the period was overwhelmingly the result of a growth in yields. In this second period, there were two concentrations of rapid growth (independent of weather conditions) 1/: (i) 1966/67-1970/71, largely due to the introduction of wheat varieties on irrigated land in the northwestern States; and (ii) 1973/74- 1977/78, mainly due to significant increases in rice yields. In all cases, progress was dependent upon the continuing expansion of the gross area irrigated (22.6 M ha in 1950/51 and 49.5 M ha in 1977/78) and the increase in the use of fertilizers (2.23 kg/ha in 1960/61 and 21.11 kg/ha in 1977/78). Irrigation in India 1.07 Irrigation has been given the highest priority from the beginning of the planning era in 1950. Some 54.0 M ha are irrigated at present, about 60% of which is from surface sources and 40% from groundwater. Irrigated areas are almost four times as productive as rainfed areas and they account for about 60% of all agricultural output. More significant is the fact that the expansion of irrigation facilities and the productivity growth on irrigated lands have together accounted for at least three-quarters of agricultural growth since 1960. 1.08 The area commanded by irrigation schemes is expected to grow to 62.3 M ha by the end of 1982/83 (35% of the cropped area of 180.03 M ha, of which 59% will be from surface sources and the remainder from groundwater sources). 2/ With little idle land left for cultivation, very little increase is expected in the net sown area in the future and the main increases in agricultural production will need to come from double cropping and from improvements in water management and use of agricultural inputs. However, much greater efficiency in water use is required. In most completed projects the actual irrigated areas are less than planned and yields have been much lower than 1/ Source: "Foods Trends and Prospects in India," the Brookings Institute, 1979; and "Economic Situation and Prospects of India," IBRD Report No. 3872-IN, 1982. 2/ Draft Five Year Plan, 1978-83, GOI Planning Commission. - 3 - originally forecast. GOI and the State Governments are aware of the challenge and are seeking solutions to the dual problem of low irrigation intensities and poor yields. Solutions involve improved efficiency of the physical system, more flexible and imaginative water management practices and improvements in the supply of agricultural inputs as well as in support services such as credit and extension. 1.09 The typical irrigation schemes of the early 1960s consisted of a storage or diversion dam and a main canal system, leaving distribution of water from the project outlets to the farmers. As some of these outlets served areas in excess of 100 ha, conveyance of water to the farmgate neces- sitated the construction of minor channel networks that were sometimes several kilometers long. In most projects, farmers were unable to finance or organize the construction of the minor channels without outside assistance, which was available in a meaningful way in only a very few instances. The very long delays between water availability in the main conveyance system and its use by farmers made these irrigation projects a marginal investment. 1.10 In the early 1970s, the concept of the Command Area Development Authority (CADA) evolved. Its objective was to coordinate the activities of the Irrigation and Agriculture Departments and to assist farmers in obtaining institutional credit for the construction of the minor systems and levelling and bunding of their fields. Undoubtedly there have been benefits from the creation of the CADA; however, the results have been less than expected. Further analysis of the reasons for the gap between potential created and actually utilized and lower irrigated cropping intensities and yields than forecast indicates that more emphasis should now be placed on improving the efficiency and reliability of the conveyance system, and that the Government should assume responsibility for conveying water much closer to the farmgate. Only when the farmer is confident of his water supply will he undertake the necessary investments to make full use of the water supplied. The project proposed in this report would focus, inter alia, on guaranteeing project area farmers a water supply at their farmgate. Agriculture and Irrigation in Kerala 1.11 Kerala's rugged topography, tropical climate, and high rainfall are well suited for the cultivation of tree crops. Kerala's agriculture is atypical of agriculture in India, being predominantly commercial tree crop cultivation--partly because of climatic conditions but also as a result of a long tradition of commercial plantation and agro-industries in the State. Thus foodgrain production accounts for a relatively small proportion (36%) of the area under cultivation and of agricultural production. 1.12 Rice is by far the most important staple food in Kerala although about half of rice consumption is imported from other States. Tree crop produce is exported from the State, some almost entirely abroad (e.g. cashews), some for the Indian market (e.g. rubber). 1.13 The typical cropping pattern is a mix of perennial and field crops. More than 60% of the net cropped area is occupied by three major crops: paddy, coconut and tapioca. -4 - % of Cultivated Area Net Gross Paddy 22.5 31.4 Coconut 28.8 24.8 Tapioca 12.4 10.9 Rubber 9.1 7.9 Cashewnut 5.4 4.8 Spices 10.2 8.9 Other Qilseeds 3.8 3.3 Other Crops 7.8 8.0 100.0 100.0 1.14 Kerala is the major Indian producer of pepper (94% of India's produc- tion), rubber (94%), cashewnut (80%), coconut (66%), cardamom (62%), and ginger. Most farmers grow several crops thus it is quite typical for one farmer to grow coconut, pepper, banana, cashew and a variety of root crops all of them on a smallholding. 1.15 Irrigation, which has traditionally been exclusively geared to paddy, has occupied a relatively smaller role than in India at large. India Kerala Net area irrigated/net area sown 25% 9% Gross area irrigated/gross area sown 26% 14% 1.16 The main impact of irrigation in Kerala has been to extend the double-cropped area of paddy by advancing the planting period for kharif cul- tivation and by supplying water for the rabi crop. In this respect irrigation in Kerala is not typical of other parts of India where most irrigation water is used to supplement the monsoon in the kharif season. 1.17 Irrigation projects in Kerala generally supplement traditional farmer-built, small-scale irrigation systems for paddy cultivation which make use of the runoff from the adjacent hillsides to irrigate the valley-bottoms. While surface irrigation has been predominantly geared to paddy cultivation, groundwater irrigation has been mainly used for diversified treecrop-based cultivation. 1.18 Over the last twenty years, the net area in rice cultivation has increased only slightly, about 4%, from about 500,000 hectares to about 520,000 hectares. In contrast to the small increase in rice area, over the same 20 years period the area under tree crops and plantation crops increased by about 70% and that under spices by 33%. Tree crops and spices now occupy almost two-thirds (62%) of the net cultivated area. 1.19 While the land and climate are conducive to producing high value crops, yields of most major crops have remained stagnant. Paddy yields had risen from around 1.4 tons per hectare in the late 1960s to about 1.5 tons in the early 1970s. Since then, however, yields have remained unchanged. Coconut yields have declined since the late 1960s partly as a consequence of the spread of rootwilt disease in large areas of the State. Of the major crops, only tapioca has registered a significant yield increase, rising -5- from about 7 tons per hectare in the late 1960's to over 15 tons per hectare in the early 1970's. Since then, however, there has been little further improvement irI yields. Agricultural Support Services in Kerala 1.20 Credit. The apex institution for cooperative short- and medium-term agricultural credit is the Kerala State Cooperative Bank which works through eleven District Central Cooperative Banks and about 1,550 primary agricultural cooperative societies. The number of members, share capital, deposits and loans per society are all substantially higher than the all-India averages, and are increasing. Long term credit is provided by the Kerala Central Cooper- ative Land Mortgage Bank through 33 Primary Land Mortgage Banks. Commercial Banks provide a growing volume of credit to agriculture. Kerala has one of the better functioning agricultural credit systems in India. Loan recovery has been satisfactorily higher than average (75-80% in 1980 for the various credit institutions). Recently, GOK has embarked on a policy of subsidizing interest payments. A scheme was initiated in early 1980 to provide a 3% in- terest subsidy for the benefit of small and marginal farmers. This has later been increased to 5% and extended to all farmers borrowing from cooperative banks. Further, GOK has recently issued an order for the remission of 75% of interest on short-, medium- or long-term agricultural loans outstanding as of April 1, 1981, applicable to loans taken before April 1, 1978 from Government or State Cooperative Institutions by farmers with less than five acres who repay the principal before July 1, 1981. However, such interest remissions are likely to be counterproductive. Apart from distorting resource alloca- tion, such remissions and similar interest subsidies encourage farmers to default on loan repayment in hope of similar remissions in the future. The problem of harmful State intervention in operations of the credit system is being addressed in the Fourth ARDC Credit Project, and may in the future result in a loss of the State s eligibility for drawing ARDC refinance. 1.21 Input Supplies. The input supply system is well developed. There are over 6,000 selling points for fertilizer, just about evenly divided between public sector cooperatives and private dealers. Few farmers have to travel more than 3 km for supplies. Plant protection chemicals are sold from about 3,400 outlets. The DOA is directly involved in the production of seeds and the production and distribution of seedlings. High-yielding variety (HYV) paddy foundation seed is multiplied on Department of Agriculture (DOA) farms; nucleus seed being supplied by the Kerala Agricultural University (KAU). Registered growers, concentrated in 4 districts, multiply foundation seed to produce certified seed. DOA staff carry out field inspections and quality control tests. The Kerala Agro-Industries Corporation is responsible for seed procurement and distribution. Planting material of coconut, cashew, and cocoa, and pepper are produced and distributed by the DOA. Private dealers are also engaged in the production and distribution of such material. 1.22 Marketing. Most crops are marketed through traditional channels such as village merchants, brokers and agents, wholesalers, processors and exporters. There are more than 2,000 market fairs, thousands of established private traders and about 100 cooperative primary marketing societies. 1.23 Research. Responsibility for applied agricultural research in Kerala rests primarily with Kerala Agricultural University (KAU) and is -6- conducted on its 23 research stations located throughout the state. The main research is on paddy, coconut, pepper, cardamom, cashew, pineapple and sugar- cane. Research takes place on the stations, although limited work is also done on farmers' fields in the vicinity of research stations and university campuses. The Central Plantations and Crops Research Institute (CPCRI) at Kasaragod is responsible for varietal research and breeding of coconuts and other plantation crops (with the exception of rubber, tea, coffee, crops which have a GOI Board with overall development responsibility including research). Research on coconut diseases at the Kayangulam station of the CPCRI is assisted under the Kerala Agricultural Development Project (KADP). 1.24 Extension in Kerala is being strengthened and reorganized through the Kerala Agricultural Extension Project (Credit No. 1028-IN, August 1980). II. PROJECT FORMULATION 2.01 The Kallada Irrigation and Treecrop Development Project would be the first Bank Group involvement with surface irrigation in Kerala. The project was identified as a lending possibility by the Bank Group and GOK in late 1978. It was prepared by a GOK project preparation cell set up for the purpose, and in close liaison with the New Delhi Resident Office of the Bank. GOI submitted the proposal for Bank Group assistance in July 1980 and the project was appraised in September and October 1980. 2.02 The Kallada project was planned in the late 50's when the Government regarded irrigation as the best way to step up rice production for food self- sufficiency. This was to be done by converting gardenlands under tree crops (which occupied more than two-thirds of the projected command area) to paddy cultivation. At prices prevailing then (i.e. the relative price between rice and coconut, the principal tree crop), this made economic sense. 2.03 Price changes in the late 1960s favored tree crop cultivation and as a result farmers stopped converting tree crop land to paddy. In fact, the opposite conversion has been taking place on a significant scale, i.e. paddy land to treecrops. Where irrigation water is available, the benefits from irrigating tree crops during the dry summer months greatly exceed benefits from irrigating seasonal crops on the lowlands. 2.04 The modernization of tree crop cultivation appears to be the only way to improve the income of smallholders in Kerala. A key to modernization would be the adoption of hybrid coconut varieties and the intensive undercrop- ping of coconut trees by a second-tier of tree crops. Such activities are already promoted under the ongoing Kerala Agricultural Development Project (KADP), and the institutional framework of that project would be adapted to the irrigated agriculture of the Kallada area (Annex 1). Experience gained from the KADP corroborates that irrigation can be expected to act as the catalyst for farmers to adopt new technologies for crop intensification. Contrary to previous expectations, the bulk of the credit demand under the KADP Project has been for well construction to irrigate tree crops. This indicates that without the guarantee of a reliable water supply, farmers are reluctant to use the necessary quantities of fertilizers or invest in bett:er planting material and the high cost modern cultivation practices. - 7 - 2.05 Consequent to the GOI/Bank Group identification of the project in December 1978, the change of focus of the project to tree crops has had major implications for the proposed irrigation design. Under the original project concept, farmers were expected to terrace the slopes to make them suitable for paddy irrigation. Terracing is unnecessary for irrigating tree crops, in fact terracing would disturb the topsoil and the existing trees. Given the topography of the garden lands, irrigation of tree crops requires an innovative system for distributing water. The rugged and erodable slopes on which the tree crops grow, together with the fragmentation of holdings and the very high cost of land acquisition, rule out the traditional system of water conveyance by way of open channels from the main canal to the individual farms. 2.06 The most practical alternative, identified during project preparation and tried out on a pilot scale, is minor conveyance systems below the chak inlet through a low pressure buried pipe system that does not require permanent rights-of-way, an important consideration given the high land values in Kerala. This solution also avoids the expensive drop structures required in a canal system on steeply sloping terrain. An underground pipe system also offers more operational flexibility and ease of operation for the fragmented landholding patterns. 2.07 The ready availability of poly-vinyl chloride (PVC) pipe on the market and the increased competence and familiarity of several firms with its use enhances its suitability for the project. (Until recently, only concrete or steel pipes have been considered for water conveyance. Both are more expensive and cumbersome to install). The Kallada project would be the first major gravity irrigation project in India with an on-farm delivery system based on low-pressure underground plastic pipes for the irrigation of garden lands. The feasibility and advantages of piped minor distribution systems have been proven in ongoing IDA assisted irrigation projects in India (U.P. Tubewells, and in Punjab and Gujarat). Project Scope 2.08 The project as originally submitted by GOK to the Bank Group, was designed for a CA of 61,600 ha, to be completed by 1986/87. The Bank Group assisted project would be limited to the upper reaches of the originally proposed CA, or 37,600 ha, with implementation phased over five years (1981/82- 1985/86). 2.09 The principal considerations in reducing the original project scope were limitations on implementation capacity (para 2.11 below) and the smaller and less certain benefits (per hectare) on the lower reaches of the originaly planned CA of 61,600 ha. The reasons were: (a) a higher proportion of paddyland in the coastal lowlands, where expected benefits are a fraction of the benefits in gardenlands. About 4,000 ha of the coastal lowlands are suffering from poor drainage and/or seawater intrusion, problems which irrigation per se will not solve without complementary and technically complex investments. Anticipated benefits in these 4,000 ha would be parti- cularly modest; - 8 - (b) the coastal plain is more suitable for groundwater exploit- ation. Considerable development has already taken place, reducing the incremental benefits to be reaped from surface irrigation; and (c) the suburban setting of the coastal plain, where settle- ment is very dense and small gardens are often separated by solid laterite walls, poses special technical and social problems for surface irrigation. The present project excludes these areas. However, for the longer term development of the area, GOK would undertake a detailed feasibility study for extending the scope of the project, in a second phase, to an additional 24,000 ha originally included in the Kallada project command area (para 5.08). 2.10 The main reasons for recommending a slower pace of implementation are: (a) the planning, design, and construction of the piped-minor conveyance system under the topographic conditions of the project area is a new activity requiring specially trained staff and initial lags in the experimental construction of prototypes suggest a slower pace of implementation than foreseen during the planning stage; and (b) the build-up of agricultural support services to promote on-farm investments also needs considerable lead-time. Experience from the on-going IDA supported Kerala Agricul- tural Development Project (KADP) indicates that organiza- tional and staff constraints are a major factor in delayed project implementation. III. THE PROJECT AREA General 3.01 Kerala can be divided into three parallel topographical zones running north-south: (a) the less densel3 populated highlands on the eastern border (170 persons/km ) with tea, coffee, cardamon and rubber as the main crops; (b) the midlands, between the coast and the highlands, with an undulating terrain of small valleys and hills (difficult topography for irrigation), fairly high population density (780 persons/km ), and a wide variety of crops, including rice, tapioca, banana, ginger, pepper, arecanut, cashew, coconut and rubber; and (c) the low-lying coastal belt ~long the West Coast, very densely populated (1,400 persons/km ) where rice and coconut are the main crops, with a wide variety of other minor crops. - 9 - The project area which is predominantly in zone b is located in the southern part of Kerala and covers parts of Quilon and Alleppey districts. 3.02 Climate. The diversity of the physical features of the State is reflected in the changing climatic conditions from the east to the west. The low-lying plains are tropical while the highland regions are sub-tropical. The relative humidity all over the State is high. The highly varying climatic conditions in the different regions and diverse topography provide opportun- ities for raising a variety of crops. 3.03 The mean minimum temperature ranges from 19-260C and the maximum from 27-370C. Kerala receives a very high rainfall from two monsoons: the southwest monsoon from June to August and the northeast monsoon from October to December. 3.04 Annual rainfall in the project area averages 2,600 mm and is suffi- cient for paddy cultivation. Yet critical dry spells which may extend for more than seven days are quite common even during the monsoon season. Usually, there are three such dry spells. The first begins during the last week of June or first week of July and has a duration of 12 to 14 days. The second begins between the 6th and 18th of August with a duration of about a fortnight. The third dry spell begins between the 12th and 20th of September with an average duration of 17 days. During these critical dry spells most paddy areas require irrigation water which is stored in the drainage channels between the paddy fields. Thus in many of the rainfed areas, the drainage channels passing through the paddy fields have a dual purpose: for drainage during wet spells and for irrigation during dry spells. More reliable provision of water through irrigation would encourage farmers to switch to high yielding varieties of paddy which are more sensitive to waterstress. 3.05 Soils. Based on the suitability for irrigation, the soils have been classified into four groups. I. Valley-bottoms and Lowlands (10,000 ha) (a) Colluvial soils have a loam to clay/loam surface texture and clay subsoils with high water tables. They occur mainly in valleys and depressions. These soils are imperfectly drained and have low to medium infiltration rates. They are slightly acidic and have a medium range in organic matter content (1.5 to 2%). The high water table in these soils limits their suitability to paddy, vegetables, pulses, etc. Yields respond well to fer- tilizers and soil ameliorants. II. Gardenlands (27,600 ha) (a) Laterite soils on gently sloping midlands consist of very deep, fine textured, gravelly soils. These soils have a gravelly-clay loam surface layer and gravelly- clay sub-surface layers. Infiltration rate is medium. - 10 - The pH ranges between 5.5 and 6.5. Soils are medium in organic matter (1.5% to 2.25%). Water holding capacity Is 45% to 50%. These favorable physical characteris- tics ensure good response to farm management practices. These soils are suited to the cultivation of coconut, cocoa, pepper, banana, rubber. (b) Laterite soils on steeper slopes include deep to very deep gravelly-clay loam surface soils with gravelly clay subsoils. They occur mainly on 5-10% slopes. Soils have medium infiltration rates. pH ranges between 5 to 6. Water holding capacity is 45% to 60%. These soils respond well to fertilizer application and irrigation. 3.06 Physical Setting. The garden land slopes are frequently terraced into benches of irregular width. Drops between terraces may be as much as one meter at higher levels and generally decrease in height downslope. The garden lands are cultivated with a complex mix of tree crops and field crops. The tree crops cover the surface with various degrees of density and are dominated by coconut which is commonly interplanted with tapioca. Tapioca is the most important of the seasonal crops of the gardenlands and substantial areas have tapioca as a sole crop. In the valley bottoms, paddy predominates grown both in the kharif and the rabi seasons, hot weather crops (mainly oilseeds and pulses) being insignificant at present. 3.07 Present land use in the project area is summarized as follows: CA of the Proposed Project (ha) Gardenlands: Coconuts @ 140 trees/ha 19,000 Mixed Treecrops 4,300 Annual Crops (Tapioca) 4,300 Subtotal 27,600 Paddyland 10,000 TOTAL 37,600 Undercropped Coconut Area with tapioca 6,400 with mixed treecrops 3,200 9,600 3.08 Irrigation has been restricted traditionally to the valley bottom lands where water is provided by tanks, intercepted run-off from the slopes, and reuse of drainage water. In the broader valley bottoms, terraces fall down the long section of the valley and laterally from both sides towards - 11 - a drainage channel. The channel is usually contained within raised embank- ments, and can function also as an irrigation channel and is typically equipped with some form of head regulation. Irrigation channels are often constructed along the long lateral edges of a broad valley to serve terraces which cannot be commanded from a central drainage/irrigation channel. Such channels also intercept run-off from the side slopes. 3.09 Based on a recent survey in the project area, the size distribution of holdings is approximated as follows: % of % of Holdings Area Below 0.04 ha (landless) 10 1 0.04 to 0.4 ha 60 24 0.4 to 1.0 ha 20 28 1.0 to 2.0 ha 6 19 2.0 to 4.0 ha 3 18 above 4 ha 1 10 100 100 Average holding size is about 0.5 ha. Approximately 75,000 families (455,000 people) live in the project area and would benefit from the project. IV. THE PROJECT A. General 4.01 The Kallada River flows westward for about 130 km in Quilon District before it empties into th2 Arabian Sea (see Map 2). The entire catchment of the river (some 550 km ) is in Kerala. The watershed upstream of the dam site is covered mainly by forests and plantations. The reservoir, with its live storage of some 488 M m3, provides adequate water to irrigate an ori- ginally planned CA of 61,600 ha (see paras 2.08 to 2.10). About 80% of the dam and some 44 km of the Right Main Canal (RMC) has been completed by early 1982. Releases from the storage reservoir will flow for about 5 km in the riverbed before diversion into right and left bank main canals. The diversion weir is completed. The project would assist irrigation and agricultural development for a CA of 37,600 ha over the period 1981/82 to 1985/86. 4.02 The project aims to provide a reliable water supply for gardenlands as well as paddy lands. The objective is to increase productivity and farm incomes and to provide the range of agricultural support services needed by farmers to complement irrigation. The Bank Group supported project components would be: (a) completion of civil engineering infrastructure for a CA of 37,600 ha. - 12 - (b) construction of the minor conveyance systems (para 2.06) to garden land for 27,600 ha, to be served through underground pipe delivery systems (and/or lined watercourses where the topography permits and equipped with night storage tanks where required). (c) construction of canal service roads and staff quarters. (d) provision of vehicles and equipment, including radio communi- cations for reservoir and canal operations. (e) establishment of a Kallada Wing of the Special Agricultural Development Unit to guarantee the supply of planting materials and other inputs for treecrop modernization and to promote long-term credit for on-farm investments. (f) establishment of a Project Planning, Monitoring and Coordinating Cell. Items (e) and (f) are described in Section V, "Organization and Management", paras 5.03 and 5.08, respectively. B. Detailed Features 4.03 The Dam. The Kallada dam is a gravity masonry dam which will create a reservoir with a live storage capacity of 488 M m . It is aligned perpendi- cular to the center line of the Kallada river. The dam is 335 m long with a maximum height of 85 m above the .deepest foundation. Completion of the dam is scheduled for early 1984. 4.04 Provisions have been made for the construction of a power station with a 16 MW installed capacity; the penstock and intake gates are included in the project. All other costs (mainly electrical equipment) for electricity generation will be borne by the Kerala Electricity Corporation. (These costs are not included in project cost, but are included in the ERR calculations.) 4.05 Canals. The right and left main canals will take off dirictly f-rom the di ersion weir. Their design capacity at the offtake is 39.1 m /sec and 22.1 m /sec, respectively, designed for the originally planned CA of 61,600 ha. The main canals as well as the branches are aligned as contour canals. By early 1982, 44 km of the RMC and 15 km of a branch canal have been com-- pleted. 4.06 Lining. GOK has prepared cost estimates for lined versus unlined canals. Lined canals are cheaper for the main canals and branches because of the high cost of land acquisition. For the lower distributaries, unlined canals are about 25% cheaper. While this would normally be outweighted by the benefits of lining, under the present circumstances the lining of distri- butaries does not appear economically justified. The reasons are as follows: First, any leakage losses from minor canals designed on the top of the slope will flow downslope towards the valley-bottom lands. The slopes are covered with tree crops and therefore part of the losses will be picked up for - 13 - transpiration from the capillary fringe around the shallow water table. Any water which is not used by the trees will contribute to maintaining a shallow watertable in the valley bottom land. Secondly, water availability would be ample relative to water requirements, both in the command as a whole and also at the chak level in terms of design capacities (water balance for the origi- nally planned CA indicates only minor shortages in 3 of 36 years). Thirdly, most canals are cut in laterite and are stable with relatively low seepage values. Lining on the minor distributaries will therefore be done only selectively for stability requirements. 4.07 All distributaries have been designed with a peak flow capacity of 0.9 liter per second per hectare (0.9 1/sec/ha) at the chak inlet. Since the main conveyance system will be lined, and because of the low permeability of much of the rock section where the minor distributaries are in-cut, a high overall conveyance efficiency of 80-90% is achievable. 4.08 Structures. The distributaries will be provided with an adequate number of head and cross regulator structures and water measurement structures for efficient water control. Because of the irregular topography, a large number of structures such as aquaducts, super passages, drops, road bridges, escapes are required. The head regulators of the RMC and LMC will have provisions for manual as well as electrical operation. Manually operated gates will be provided at the head of each branch canal, distributary and minor. These regulators will make it possible to divert the full flow into the distributaries when the main canals and branches flow at half their capacities. Provisions will also be made for the construction of escapes or tail end regulators in the distributaries as a safeguard in case of sudden closure of chak inlets. 4.09 Status of Design. Hydraulic computations for canals and structures conform to accepted engineering practices. Designs for works costing more than Rs 1.5 M will be prepared by the design division in the (Kallada) Chief Engineer's office. Designs for other project works will be carried out by the divisions under the Superintending Engineers. As of October 1981, all designs, and tender documents for the dam, main canals and branches had been completed. Detailed designs of the distribution system up to 10 ha outlets for project blocks totalling about 10,000 ha had also been completed. A number of detailed designs for the piped conveyance systems in typical locations below the outlets from the distributaries have been prepared and the systems constructed and tested (para 4.13 below). 4.10 Minor Conveyance. The minor canal conveyance system would typically command long strips of land containing both side slopes and valley bottoms. The side slope lands will be supplied with a low-pressure PVC pipe system com- bined with open lateral channels where topography permits. Bottom paddy lands (10,000 ha) will have unlined field channels constructed by the cultivators. 4.11 The outlets from the main system would, on average, command an area of about 10 ha with a discharge of about 0.9 1/sec. The outlet commands will contain varying proportions of side slope and valley bottom lands. The con- veyance on the side slope lands will outfall to the bottom lands. The capa- cities of the c:hak inlets and of the main structure of the piped distribution - 14 - would be equivalent to continuous supply provided at the rate of 0.9 l/sec/ha, with a minimum flow, however, of 0.5 1/sec. The irrigation interval will be seven days in the peak season. 4.12 Due to head limitations, it may not always be possible to irrigate the upper strip of land below the minor canal through a pipe. This upper strip parallel to the minor canal will have to be supplied through lined channels. The balance of the side slope land area will be supplied through a low pressure PVC pipe system. Pipe reticulation would typically include a main delivery line running down the slope, from which a number of short laterals (which may be portable) would branch off. Each outlet would command not more than one hectare. Delivery from each outlet would be through open channels or through flexible hoses. The main line would in most cases terminate at a night storage reservoir with command of the bottom lands (i.e., an existing tank or a newly constructed tank). 4.13 Because of the varied nature of the terrain on the side slopes, the different mix of side slope and bottom land, and of the pattern of land holdings within them, it is impossible to use a standard design for all piped conveyance systems. Each outlet command area will require an individually designed minor distribution system. A variety of alternative designs could be used to achieve this. Practical experimentation with alternative layouts of the pipe system is ongoing and will continue during the first year of project implementation. Different layouts and water rotations will present different management requirements for the farmers; this aspect would be a component of the experimentation under the project. 4.14 The proposed cropping intensities in all seasons and the limits set by the total system capacity imply that, in the absence of tank storage below the canal outlets, some level of night irrigation would be required in periods of high demand. 4.15 Apart from permitting a shift from night to day irrigation on the bottom lands during the hot weather summer season, the presence of night storage regulation would mean that the flows delivered from the regulator would not have to relate directly to the discharge at the outlet. While a discharge in an average 10 ha chak of 0.9 1/sec is adequate in piped or lined channels, it is inadequate to pass efficiently through a relatively long unlined channel serving the bottom lands. The flow in unlined channels below the tank reservoir would have to be about 30 1/sec to permit fast and effi- cient irrigation. Reduction of transmission losses of "dry" summer irriga- tion is contingent on the provision of night storage. 4.16 The configuration of the land surface in the valleys is such that it is almost always possible to locate a storage reservoir, part excavation and part fill, at the foot of the side slopes with command of the bottom land. Three hundred thirty-four existing tanks have been identified from aerial survey maps within the originally planned Command Area, and of these 52 have been improved during the past years by panchayats with engineering - 15 - assistance from the Minor Irrigation Circle in the Public Works Department (PWD). The areas served from tanks range from 1 to 30 ha, and on average, regulate water supply for about 10 ha of valley bottoms during the peak demand period. The project provides for the construction of about 1000 tanks. 4.17 Radio Communication System. In addition to a telephone network along the canals, the project will provide a VHF wireless radio communication system to ensure more efficient and dependable communication. The equipment for the VHF radio telephone communication system will be installed and main- tained by the P&T Department of GOI on a "rent and guarantee" basis. The system would feature fifteen watt VHF transreceiver sets. The operation of the system will be on "simplex - talk-listen-talk". 4.18 Canal Service Roads. On the banks of main and branch canals a 4 m wide jeep track will be constructed on one side and a 1. 5 m wide foot path on the other. The jeep track will normally be gravel-surfaced but it will be black-topped if opened to public use. On the banks of minor distributaries, the width of foot paths will vary between 1.0 and 1.5 m. Design standards and construction methods will follow India Standard Specification (ISS) and the Indian Standard 'Code of practice (see Annex 4, Appendix 2 for salient speci- fications of canal bank roads). 4.19 GOK has proposed that the main canal roads should be opened to the public. From an examination of the data it appears that current proposals need further investigation. The question of access links between canal roads and the public road network also requires closer scrutiny. The PWD will conduct by March 31, 1983 a feasibility study for linking canal service roads to the road network in the project area, taking into account the cost of surfacing, strengthening or improving roads to meet all-weather standards for public access. C. Water Supply and Demand 4.20 The mean annual precipitation in the catchment upstream of the dam site is about 3,300 mmJ with an average runoff of 1,440 mm (44%) and an annual yield of about 790 M m at 75% dependability. The proposed project would provide the full water requirement of the crops. 4.21 The reservoir provides 488 M m of live storage which is equivalent to about 790 mm over the originally planned CA of 61,600 ha. Simulation of the reservoir operation indicates that the reservoir would spill in 29 out of 36 years, and that only minor shortages would occur in three of the 36 years (8%). There will be absolutely no water shortage for the 37,600 ha CA of the proposed projects. 4.22 With 80-90% conveyance efficiency from diversion to outlet (para 4.07), the system can provide a continuous peak supply of 7.3 mm/day at the 10 ha outlet. The peak consumptive use of irrigation water for the proposed crop mix in the garden lands is in the range of 4.5-5.5 mm/day and occurs towards the end of March and in early April. Thus, if the irrigation system below the 10 ha outlet were to be operated with an overall efficiency of only 65%, plant - 16 - water requirement at peak demand could still be fully met in the garden landis. In practice given the piped or lined channel conveyance in the garden lands (which would cover about three-fourths of the CA), and the predominance of deep-rooted crops on these lands, much higher efficiencies could be achieved. 4.23 During kharif and rabi seasons, the bottom lands grow paddy and deep percolation and sub-surface runoff is small. The valley bottoms would receive spillage and sub-surface flow from the side slopes in addition to irrigation water. Therefore, the overall irrigation efficiency on these lands during kharif and rabi will be very high. 4.24 The typical crop mix on bottom lands will require some 4-5 mm/day during the hot summer season (except in localized situations where a high proportion of summer paddy can be supplied with more water). Provision of adequate flows in the unlined channels on the bottom lands will, however, require use of night storage regulators to permit larger flows especially for irrigation in the hot season. 4.25 Water samples taken at various points in the Kallada River show that the water is of exceptionally good quality for irrigation. The measured electric conductivity values range from 40-60 milliohm. D. Resettlement 4.26 The Kallada dam will submerge about 2,300 ha of predominantly government-owned forest land. About 52 ha of the submerged area is privately owned. GOK has a policy for adequate compensation for land submerged by reservoirs; the privately owned 52 ha have been acquired and compensation of Rs 60,000 per ha has been paid. Arrangements have also been made to compensate 277 landless families who had lived on about 70 ha of Government forest in the reservoir area for many years but have no legal title. GOK has decided to allot alternate lands on 128 ha of Government forest about 20 km away from the dam site. Land clearing has started. Rs 500-2,000 will be given for dismantling and rebuilding dwellings. E. Dam Safety 4.27 The solid gravity masonry dam is designed according to Indian standards and approved by the GOIs Central Water Commission. A quality control unit has been functioning under an executive engineer. This unit has recently been replaced by a quality control division directly under the Chief Engineer, Kallada who will be responsible for the quality of the con- struction of works. Agreement has been reached with GOK that it will: (i) constitute a panel of experts with qualifications, experience, and terms of reference acceptable to the Bank Group and Kerala, to review the plans and design of the Kallada dam and its associated structures and its adequacy; aLnd that (ii) said panel will conduct periodic reviews during construction to examine whether any new grounds for making changes in the design of the dani have become apparent; (iii) under arrangements satisfactory to the Bank Group cause the Kallada dam and the related structures constructed under the Project - 17 - in accordance with sound engineering practice in order to determine whether there are any deficiencies in the condition of such structures, or in the quality and adequacy of maintenance or methods of operations of the same, which may endanger their safety. To this end, Kerala shall propose to the Bank Group appropriate arrangements for the Bank Group's review no later than one year before the expected completion of such structures. F. Construction Methods 4.28 Labor-intensive construction methods will be used in line with GOI's policy to enhance employment generation in public works. However, as it is essential that canal embankments are properly compacted before lining, rollers will be used. The use of machinery is also required for the compaction of road foundations, for hauling of construction materials, and for the compaction of the earthen saddle dam. G. Schedule of Implementation 4.29 The Kallada Dam is scheduled for completion in early 1984. Imple- mentation of the major irrigation distribution network on the right bank is phased over a five-year period. The scheduled completion of the minor con- veyance system is shown in the following table: '000 Hectares 1982 1983 1984 1985 1986 Total Schedule of Completion of Water 3.4 6.3 8.4 9.6 9.9 37.6 Conveyance to chak outlets Schedule of Completion of Minor .7 3.0 6.0 8.5 9.4 27.6 Conveyance in Gardenlands Construction of the RMC is well advanced and work on the distribution system below the main canals has also started. Details of the implementation schedule for canal construction and land acquisition are in Annex 4. H. Cost Estimates 4.30 Detailed cost estimates for the dam and distributaries were prepared in 1978 and have been updated to reflect actual contract rates at the time of follow-up appraisal (May 1981). Cost estimates for the minor conveyance system were prepared during appraisal. Administrative overheads (which include design and supervision) on dam and canal construction are estimated at 15% of construction costs. Incremental staff costs for the SADU Kallada Wing was estimated on the basis of projected staff requirements. Duties and taxes on investment expenditures are insignificant and, therefore, have not been netted out of project costs. A physical contingency factor of 15% was applied to all civil construction work. Price contingencies were estimated on the basis of projections prepared by the Bank Group which were 11% for 1981/82, 8.5% for 1982/83, 7.5% for 1983/84-1985/86, and 6% thereafter. Project cost estimates are: - 18 - Local Foreign Total Local Foreign Total ---------Rs M--------- --------US$M--------- Civil Works Infrastructure 504.2 216.1 720.3 59.3 25.4 84.7 Vehicles and Equipment 5.2 7.8 13.0 .6 .9 1.5 Land Acquisition 114.8 - 114.8 13.5 - 13.5 Administration and Overheads 118.8 - 118.8 14.0 - 14.0 Base Cost 743.0 223.9 966.9 87.4 26.3 113.7 Physical Contingencies 83.1 25.0 108.1 9.8 2.9 12.7 Price Contingencies 221.6 66.7 288.3 26.1 7.8 3.9 Total Project Cost 1,047.7 315.6 1,363.3 123.3 37.0 160.3 Front-end Fee on Bank Loan - 2.6 2.6 - .3 .3 Total Financing Required 1,047.7 318.2 1,365.9 123.3 37.3 160.6 Detailed and phased project cost estimates are in Annex 2, Table 1. I. Financing 4.31 The proposed IDA Credit of US$60 M and Bank Loan of US$20.3 M would finance a foreign exchange component of US$37.3 million and the balance in local costs. All project costs would be financed from GOK's development budget (which includes GOI contributions). An agreement would be reached with GOI that it would make the proceeds of the credit available to GOK on on GOI's standard terms and arrangements for development assistance to the States. An agreement has been reached with GOK that it would provide sufficient funds and materials to execute the project, in accordance with the five-year project implementation program. Non-irrigation on-farm investments are not included in project costs (though included in the rate of return calculations) and would be met by farmers from their own resources or by credit schemes refinanced by ARDC. J. Procurement 4.32 Civil works under the project are estimated to cost approximately US$84.7 M, excluding physical contingencies, price contingencies and engineer- ing and administrative costs. Approximately US$10 M is suitable for inter- national competitive bidding (ICB) as contracts for the dam and much of the main canals, which normally constitute the ICB contracts in irrigation prcj- ects, have already been let prior to appraisal. Indian contractors would be entitled to a 7.5% preference in works procured under ICB. Most of the remain- ing works are not suitable to be packaged in bids large enough to be of interest to foreign contractors. However, the LCB tenders that would be issued would be designed to solicit maximum competition. The works will be packaged to attract competition from larger contractors, yet allow awards to be made on individual schedules in order to interest smaller contractors. Over 50% of the works, by value, will be packaged in bids exceeding US$500,000 and all of these will be subject to pre-action review by the Bank Group. The Central Water Commission (CWC/GOI) has recently developed model ICB and LCB tender documents and proce- dures for works contracting that have been approved by the Bank Group. The GOK will use these models for the works let through LCB/ICB contracts. - 19 - 4.33 Small works, not exceeding 10% of civil work costs, would be procured under piece work or rate contracts. GOK's piece work and rate contract proce- dures have been reviewed by the Bank Group and found acceptable for smaller works. GOK departmental forces would be used only when required by safety and quality considerations or when quantities cannot be sufficiently estimated in advance. The aggregate cost of civil works carried out by departmental forces will not exceed 10% of the total cost of civil works. 4.34 Ongoing Contracts. Construction works on the dam and part of the main canals have been awarded under multi-year contracts and are not included in the project c:ost estimate. The works outstanding after Loan and Credit signing for which contracts were let after apptaisal and given a pre-action review by the Bank Group, will be eligible for financing under the proposed credit. 4.35 Minor Conveyance. It is anticipated that a significant part of the design and construction of the minor conveyance systems (US$12.5 million) would be undertaken by qualified engineering companies. Agreements have been obtained from GOK that the ID would establish terms and conditions for the engagement of qualified engineering companies, and take all the necessary steps to facilitate contracting to such contractors for the design and construction of minor conveyance systems. 4.36 Equipment and Vehicles financed under the project would cost about US$5.0 M, excluding price contingencies (Annex 2, Table 2). Indian suppliers would be entitled to a 15% preference on equipment procured under ICB and the bid documents will specify that eligibility and the manner of its application. Because of existing servicing and spare parts facilities, there are consider- able advantages to be derived from procuring locally manufactured equipment and vehicles. Light equipment and vehicles are readily available domestically at competitive prices. The GOK will use the model bidding documents and procedures (para 4.33) in procuring their equipment and vehicles unless the items are available on GOI's Director General of Stores and Disposals (DGSD) schedule. The DGSD procurement procedures have been reviewed by the Bank Group and found acceptable. All items will be conveniently grouped to promote efficiency and attract larger suppliers; however, awards will also be made on individual items to generate competition from the smaller suppliers. The Bank Group would pre-review all equipment and vehicle procurements in excess of US$100,000 and post-review the remainder. K. Disbursement 4.37 Proceeds of the IDA credit and IBRD loan would be disbursed against: I. Civil Works: (a) completed minor conveyance systems; 90% and (b) other civil works; 70% of expenditures incurred up to June 30, 1984, 50% of expenditures incurred thereafter. II. Equipment and vehicles: (a) directly imported; 100% of foreign expenditures; - 20 (b) locally manufactured; 100% of local expenditures, ex-factory; and (c) locally procured (off-the-shelf); 70%. III. Monitoring, planning and studies (PMC Cell); 90%. IV. Front-end fee for the IBRD loan; 100%. 4.38 Withdrawal applications for civil works carried out under contracts exceeding Rs 300,000 and for equipment and vehicles will be fully documentecL. Full documentation for minor distribution systems would, in addition to the contractors bills and evidence of payment, include a copy of certification of commissioning signed by the Executive Engineer in charge of implementation. Civil works performed under force account (estimated to be about 10% of total civil works), civil works contracts for Rs 300,000 or less, and expendi- tures for monitoring and planning (the PMC Cell) will be reimbursed against statements of expenditures (SOE) certified by the Chief Engineer Kallada. The supporting documentation for disbursements made against SOEs would be retained by the GOK at one central location and made available for inspection by the Bank Group staff on request. The expenditures reimbursed against SOE would be audited annually by independent auditors acceptable to the Bank Group. It is expected that disbursements will be completed by March 31, 1987. The Credit would be disbursed first. A schedule of anticipated disbursements is shown in Annex 2, Table 4. Up to US$7.5 million will be allowed for retroactive financing for eligible-civil works and equipment on account of payments made after April 1, 1981. 4.39 It is clear that benefits from irrigation will begin to accrue only when the complete system, including the minor conveyances have been constructed and the system is operational. An agreement has been reached with GOK that it will ensure that the construction of the minor water conveyance systems described shall be carried out simultaneously with, or, as soon as feasible after, the construction of the distribution system up to the chak inlets. L. Accounts and Audit 4.40 The project would be subject to normal Government control and au- diting procedures which are satisfactory. A resident Audit Officer, repre- senting the State Accountant General would audit the project accounts. Al- though continuous and annual audits are carried out in a timely manner, the finalization is a lengthy process of the Statutory Audit Report presented to the Legislature. It would be essential therefore to have interim certified statements of account. Such statements certified by the AG or his designee supported by an itemized account and a summary of the expenditures would be submitted to the Bank Group as soon as possible after the end of each fiscal year. Agreements would be reached with GOK that it would: (i) maintain separate accounts on project expenditures; (ii) ensure that these accounts would be audited annually by the AG and the resulting interim statements of account would be submitted to the Bank Group as soon as possible but not - 21 - later than nine months after the end of each fiscal year; and (iii) make complete accounts and financial statements available for inspection during Bank Group review missions. M. Environmental Effects of the Project 4.41 An agreement has been reached with GOK that it would take all measures considered necessary to minimize the hazards of malaria and other water-related diseases in the project area. In this high-rainfall high-humid- ity area, stagnant water generated by the project, if any, will not generate an appreciable additional health hazard. Environmental hazard due to chemical pesticides will be minimal since research and extension emphasize mechanical and biological pest and disease control. V. ORGANIZATION AND MANAGEMENT The Irrigation Department 5.01 The Irrigation Department (ID) will be responsible for project implementation. The Department has established a separate Minor Conveyance Division for the implementation of the minor conveyance systems and a separate Operations and Maintenance Division for the Kallada project to be responsible for the operation and maintenance of the irrigation network. GOK has issued orders for the establishment of these two divisions, and assurance has been obtained from GOK that the buildup of staffing would commence no later than September 30, 1982. 5.02 It is anticipated that a significant part of the design and construc- tion of minor conveyance system would be undertaken by qualified engineering companies. GOK has issued an Order which provides for the selection of private engineering contractors in the design and installation of minor conveyance systems. The Department of Agriculture (DOA) 5.03 Agricultural supporting activities would be financed and imple- mented under two on-going IDA assisted projects: (a) The Special Agricultural Development Unit (SADU), which is implementing the on-farm investment program of the Kerala Agricultural Development Project (KADP) has established a separate wing for promoting and organizing on-farm investment in the Kallada area. Agreement has been obtained from GOK to maintain and adequately staff this unit and GOK has issued an Order to this effect. Under KADP, SADU has evolved into a competent institution for credit and investment promotion. These activities would be integral components of the proposed project, to generate maximum farmer response to the new oppor- tunities opened by surface irrigation. Under the project, SADU - 22 - would establish a field organization with a similar pattern as under KADP. A Junior Agricultural Officer (JAO) assisted by two Agricultural Demonstrators (ADs) is the basic unit for SADU's field operations. The unit covers an area of 500 hectares. The number of field units would peak at 52 in the fifth year of imple- mentation and the units would be withdrawn over the subsequent three years (see Annex 5, Table 1). The main function of SADU in Kallada would be the promotion and distribution of hybrid coconuts (to replace traditional varieties of lower genetic potential) and the promotion of underplanting coconuts with second-tier treecrops. Details of SADU's on-going activities for coconut rehabilitation and recommendations for a modified role in the Kallada CA are described in Annex 1. SADU-s promo- tion activities will be synchronized with the progress of com- pletion of minor conveyance. SADU would supply only hybrid planting material in the command area, and launch a campaign for planting coconuts and undercrops at the time irrigation becomes available in a chak. SADU units would canvas farmers, assist in developing intensification plans, register orders for planting material, and deliver the planting material at a time and place notified in advance. SADU units would prepare individual farm plans for credit applicants and assist in processing them through the local participating banks. Long term credit for on-farm investment will be provided by ARDC. ARDC would prepare a credit plan for the Kallada project area. In addition to credit financing, GOK is considering a statewide subsidy scheme for the removal and replacement of uneconomic coconut trees (see Annex 1). Coconut root-wilt disease is a major factor in the accelerating yield decline of coconut trees in the project area and the scheme should result in a substantial decline in the number of diseased trees (through their physical removal), thus reducing the severity of infection with the disease. However, as discussed in Annex 1, while sound in objective the scheme appears overly complex. In order to minimize administrative costs and to ensure that the removal of diseased uneconomic trees is coordinated with the advent of irrigation and SADU-s other activities, GOK plans to implement the subsidy scheme in the project area by SADU-s Kallada Unit, and to limit the subsidy to a lumpsum incentive payment for the removal of an uneconomic tree. (b) Agricultural extension in the project area would be provided by the DOA which is reorganizing its external service on the Training and Visit (T&V) pattern under the IDA-assisted Kerala Extension Project. T&V extension is an open-ended activity that is expected to carry on indefinitely. SADULs investment promotion in contrast would be limited to three to five years duration after the arrival of irrigation. In the preparation of individual farm-plans and the promotion of investment packages, SADU-s area of responsibility would overlap with the long-run - 23 - functions of the extension service. To minimize this overlap and consequent duplication, T&V extension during the pro- ject-s life would concentrate on field-crops, since field-crops fall outside the scope of SADU's investment promotion. Impor- tant extension tasks in the paddy lands will be to promote hot season irrigation and to advise farmers in the construction of field channels to individual farm boundaries. 5.04 Responsibility for research, plant breeding, and on-farm demonstra- tions to back ul) SADU-s investment promotion would be shared between the Cen- tral Plantation Crops Research Institute (CPCRI, headquartered at Kasaragod), the Kerala Agricultural University (KAU), and the Department of Agriculture of GOK (DOA). CPCRI is responsible for varietal research for coconuts and for plant breeding. Applied research and demonstration would be the responsi- bility of KAU. CPCRI and KAU are preparing research programs in support of the project, and will submit these to the Bank Group for comments. Under the KADP, the DOA would continue to be responsible for seed multiplication for coconut, cocoa, pepper and other treecrops. 5.05 Private sector distribution of inputs is competitive, and the avail- ability of inputs is not a constraint in Kerala's agriculture. Government input-and-supply depots have been operated in the past by the Department of Agriculture extension service and are now being withdrawn on account of the advent of T&V. Operation of Minor Conveyance System 5.06 The irrigation infrastructure below the 10-ha outlet will be operated by the farmers. The relatively complex technology, juxtaposted in some areas with the large number (10-30) 1/ of smallholdings below a 10-ha outlet, will require the collaboration of farmers to operate the system effectively. The degree of collaboration will in part depend on technical features. Thus a system which supplies the full flow from one outlet (spout) at a time requires a more elaborate schedule of rotation for sharing water than a system with simultaneous flow from several spouts (approximating an "on-demand" situation). 5.07 The system will require a formal scheduling of the water use among the farmers in each chak. Working out this schedule and supervising its operation by the farmers is an integral part of the project. At the time the delivery system is planned and the cadastral survey is prepared by the Minor Conveyance Wing of the ID, an officer (at the level of the Agricultural Extension Officer or Assistant Engineer) would visit the chak and explain the operation of the system to the farmers. Prior to the commissioning of the conveyance, a schedule of water use at the period of peak demand would be prepared in consultation with the farmers. A committee for supervising the operation of the system and for resolving conflicts that may arise between 1/ In cases where the number of farmers is significantly higher, considera- tion will be given to reducing the size of the chak. - 24 - farmers would be appointed at the time of commissioning. Maintenance which the farmers cannot do themselves include the repairs and replacement of alfalfa valves, screwgates and broken pipes and would be the responsibility of the Kallada Operations and Maintenance Division, and a network of repairmLen would cover the area (Annex 4, Chart 3). The repairmen would also periodi- cally report on the technical condition of the minor conveyance system and monitor its upkeep and operation by the farmers. Coordination and Monitoring, Evaluation and Technical Assistance 5.08 A Planning, Monitoring and Coordination Cell (PMCC) would be established in the Irrigation Department of GOK. The PMCC would submit periodic reports to a Secretarial Committee consisting of the Agricultural Production Commissioner, the Secretary of Agriculture, the Secretary of Irrigation and the Special Secretary in charge of SADU. The Secretary of Irrigation would appoint the staff of the PMCC in consultation with the Special Secretary of SADU. The PMCC would be headed by a Joint Secretary (for staffing, see Annex 5, Chart 2). Important functions would be to synchronize the activities of the ID and the DOA in project implementation and to monitor the quality and progress of infrastructure construction. The PMCC would participate in the planning and testing of alternative minor conveyance systems, conduct the feasibility study for a possible Phase 2 project (see para 2.10) and carry out a baseline survey of project farmers. Monitoring would provide early warning on delays in the implementation of the agricultural program, such as: (i) the quantities of HYV planting materials distributed by the Kallada Wing of SADU, (ii) the use of fertilizers and chemicals by farmers; and (iii) the spread and acceptance of HYV paddy and (iv) the progress of irrigation of seasonal crops in the lowlands. The PMCC would also conduct special socio- economic studies, such as: (i) farmer-s management of the piped minor conveyance systems; (ii) farmer collaboration on field channel construction for summer irrigation in lowlands, and methods of water distribution from night storage tanks; and (iii) factors influencing farmer acceptance of hybrid varieties of coconuts. Agreement has been obtained from GOK during negotiations that it would (i) establish and adequately staff for the monitor- ing and coordination of project implementation a Planning, Monitoring and Coordinating Cell (PMCC) in the Irrigation Department by September 30, 1982; and (ii) cause the PMCC to carry out a feasibility study for a second phase of irrigation and treecrop development for the additional area adjacent to the project area and furnish the study by December 31, 1984. 5.09 The PMCC would coordinate it's activities with the Evaluation Unit, established under the KADP. 5.10 Technical Assistance. In the first year of project implementation about four staff-months of technical assistance would be provided. The cost of these services will be covered under existing technical assistance and consultancy services arrangements and are not part of project cost. A senior consultant engineer would train GOK staff in the design of alternative water - 25 - conveyance systems below the 10-ha outlet (both underground piped and open- lined channels), and assist in the preparation of a manual on the design of PVC piped distribution systems for the project (the manual would also be made available to private sector concerns interested in developing a design implementation capability in PVC pipe irrigation). Cost Recovery 5.11 The investment cost of the project would be about Rs 30,000 per ha of CA. Annual 0&M costs are estimated at Rs 100 per ha. Recovery will be through water charges, taxes and direct recovery of the minor conveyance as described below. 5.12 The cost of minor conveyance system (Rs 3,600/ha) would be partially recovered in accordance with standard GOI/GOK policy for command area develop- ment. Farmers with holdings in excess of 4 ha would repay half of the cost of these works. Farmers with holdings between two and four ha, small farmers (with holdings between 1 and 2 ha), and marginal farmers (with holdings less than 1 ha) would receive a further subsidy of 20%, 25% and 33%, respectively, on the remaining one-half of the cost of development. Since benefits would mature about five years after construction, the implicit loan would be recovered after a five year grace period on capital and interest and there- after be amortized in ten equal annual installments with interest compounded at 9-1/2% as shown below: Size of Holding (ha) Annual Installment - Rs/ha Less than 1 300 1 - 2 340 2 - 4 370 4 + 450 5.13 Water charges in Kerala applied to paddy irrigation are graduated according to potentially single, double, and triple-cropped fields at Rs 33, 66 and 99/ha, respectively. Close to 100% collection is achieved in the Palghat District irrigation schemes in the major rice growing area of Kerala, accounting for about 40% of the water charges collected in Kerala. The water charge on garden lands is Rs 66 per ha. 5.14 Other Agricultural Taxes. In Kerala's relatively commercialized economy, sales taxes are the major source of State revenue (60%); of this, about 6% is derived from coconut and coconut products. Principal sale taxes on agricultural produce of the project area are on: Copra 3% Tender Coconut 5% Cocoa 4% Pepper 6% Paddy 1% - 26 - 5.15 Level of Cost Recovery. Under the present level of water charges and taxation and GOK policy for recovery of command area development works the rent and cost recovery indexes would amount to 6% and 13% respectively (see Annex 3, Table 15). The average annual recovery is estimated at Rs 420 per ha. 5.16 The Potential for Increased Recovery. As an indicator of farmer's ability for increased recovery, "project rent" on a typical coconut holding has been estimated at Rs 16,800. Thus, at the present level of sales taxes and water charge per ha, the index of rent recovery is 6%. Considering the increase of farm incomes by more than 300%, the scope for increased recovery is significant. 5.17 The technical standards introduced under the project would ensure a reliable water supply for each farmer in the project area. A much higher water charge on the garden lands would be justified in the future, in view of the high development costs and the high returns to water. Field expe- rience from the KADP, and elsewhere, corroborates that farmers are willing to invest at their own expense in wells even on smallholdings of a hectare and less. This gives an indication of farers ability and willingness to pay for water against which a minimum target of cost recovery for surface irrigation could be set. Agreement has been reached with GOK that it would, with the objectives of ensuring an optimal level of recovery of annual opera- tion and maintenance costs and cost of infrastructure investment, having regard inter alia, to incentives for, and payment capacity of, farmers, Kerala undertakes: (i) by September 30, 1982 to furnish to the Bank Group a plan for review of the water- and water-related charges in Kerala: (ii) by December 31, 1983 carry out such a review; and (iii) as soon as feasible thereafter, to implement an appropriate system of water and water-related charges in the Project Area based on recommendations arising from said review after paying due regard to the Bank Group's comments, if any, on such recom- mendations. 5.18 Operation and Maintenance. The method of operation, staff require- ment and cost of operating and maintaining watercourses and the piped minor conveyance in the rugged terrain of the project area will need to be carefully assessed. Agreement has been obtained from GOK that it would: (i) by September 30, 1982, furnish to the Bank Group the terms of reference for a management study to establish rules, procedures and requirements for effective operation and preventive maintenance of the irrigation systems under the project; (ii) carry out such a study by June 30, 1983; and (iii) as soon as feasible thereafter implement the operations and maintenance procedures and requirements based on the recommendations of the study. - 27 - VI. AGRICULTURAL PROSPECTS 6.01 Coconut Yields and Productivity. Coconuts now dominate agriculture in the project area and are expected to be the main treecrop in the foreseeable future. A coconut tree yields an average of about 30 nuts per palm, which is about one-third of the yield potential of the traditional local varieties. The low yields reflect water stress, negligible fertilizer use and the fact that about half of the stand is debilitated by rootwilt disease. Severe water stress occurs during the summer months, February through May. Although overall water requirements of the coconut palm are more than met by overall annual rainfall, full yield potential is not achievable if less than 50 mm of rain occurs in each of three consecutive months. This is the situation in the project area. 6.02 Prolonged droughts occur several times in the life of a tree; and recovery from water stress is slow. High yielding hybrid varieties depend more on fertilizers and irrigation to reach their yield potential. Water and fertilizer thus are complementary and returns to fertilizer are small and uncertain without assured water. Evidence from KADP corroborates that avail- ability of irrigation will make a crucial and positive difference in the farmers' acceptance of hybrid planting material. 6.03 Research findings indicate impressive yield responses of local varieties to irrigation. Experimental data available show the greatest (proportional) yield increase for the lowest yielding trees: ------------Yield Class /a----------- Poor Low Medium High Mean (20 or (21-40) (41-60) (61-80) less) Pre-irrigation nuts (ave) 13.4 30.2 54.3 70.9 42.2 Post-irrigation nuts (ave) 42.2 69.5 85.2 94.8 73.5 Nut Increase per palm 28.8 39.3 30.9 23.9 31.3 Percentage increase 214.0 130.0 47.0 34.0 74.0 /b /a In brackets present yield range for the class expressed in nuts per palm per year. /b Trees in all categories were receiving the recommended fertilizer dosage. The appraisal yield projection for local varieties is 60 nuts/tree after 4 years of irrigation. Source: CPCRI, Kasaragod. 6.04 An important constraint to coconut productivity is the existence of Coconut Root-Wilt Disease in the project area. Wilt disease has been recog- nized in Kerala for over 100 years and is endemic in the project area, although the level of infection in the garden lands of the project is less than in the - 28 - coastal areas. The disease is of unknown origin. Research results indicate that it is caused by some form of virus like organism. A cure is not known yet. The disease is debilitating and while it can eventually cause the death of the palm this is usually a very drawnout process. It occurs in palms of all ages. No planting material tested in India is resistant although the infection rate and decline in yield due to the disease appears signficantly lower in locally available hybrids than in the local West Coast Tall (WCT) variety. Diseased palms respond economically to fertilizers and the decline in yields can be reversed by irrigation and fertilization. It is assumed that on farms receiving irrigation and more intensive cultural practices under the project yields of WCT palms would increase from 30 to 60 nuts per palm by the end of four years of irrigation. Yields from newly planted and irrigated hybrids are expected to reach 10 nuts per palm in year 4 rising to 125 nuts per palm at maturity. These expectations are based on the assumptions concerning the incidence and impact of wilt disease shown below: Mature Trees -- Incidence of Variety Disease Free Trees Diseased Trees Disease (Nuts/Tree) WCT (Tall Palm Variety) 90 30 50% Hybrid 150 50 25% 6.05 The project would establish conditions in which the recommended package of practices (largely fertilizer, organic manuring, some pest control spraying) could be profitably used and in which potential increases in farm income would encourage the farmers to replace uneconomic palms whether diseased or not. Without irrigation, the use of modern cultivation practices and the replacement of diseased trees would be extremely slow as evidenced by expe- rience under KADP (Annex 1). As it is, even with substantial disease problems, farmers remain enthusiastic coconut cultivators and irrigation should encourage them further and facilitate the adoption of measures to improve production and incomes. 6.06 Changes in Production and Cropping Pattern. Estimates of increased production resulting from the project are based on the assumption that only 80% of the commanded area of garden and paddy lands will be benefitted by irrigation. The following crop pattern changes are expected to take place in this area: (a) production of coconuts on some 15,000 ha would be intensified through irrigation; the number of trees is projected to increase from the present average of 140 palms per ha to 175 palms by removing on average 20 uneconomic palms and planting 55 high yielding hybrid palms. It is expected that the hybrids would be planted within three years of the start of irrigation (Annex 3, Tables 3, 4, 5 and 10); - 29 - (b) the same 15,000 ha would also be undercropped, half with annual crops and half with treecrops and spices. For assess- ing these benefits, cassava cropping has been used as the surrogate for annual crops and cocoa for the treecrops-cum- spices (Annex 3, Tables 7 and 8); (c) of existing sole-stand cassava, 1,700 ha would be planted to hybrid coconuts and 1,700 ha would remain under cassava with production increased through irrigation (Annex 3, Table 7); (d) the incremental benefit from irrigation of 3,400 ha of mixed tree crops has been assessed to be the same as from irrigating cassava; (e) production from 8,000 ha of paddy lands would increase through the adoption of high-yielding varieties and through an additional crop of summer paddy which is constrained at present by lack of water (Annex 3, Table 9). 6.07 The following table shows the relative contribution of the above changes to the total incremental economic benefits at full development: Share of Incremental Benefits Crops at Full Development (%) Coconuts - Irrigation of existing trees 17 - Newly planted under the project 49 Undercropping coconut with treecrops and spices 12 Irrigating tapioca 6 Irrigating mixed treecrops 3 Paddy 13 100 As can be seen the coconut program would account for most of the incremental benefits. 6.08 The foregoing projections are based on the realization of only 80% of the agricultural potential created by irrigation and assume no major change in the cropping pattern. Thus paddy land is projected to remain in paddy despite economically and financially more rewarding alternatives, especially bananas, sugar and coconuts on the fringes of the valley-bottoms. For areas under mixed tree crops, incremental benefits of irrigation were assumed to be equivalent to those from irrigating cassava (Rs 3,300/ha) although these could in the long run reach the level achieved on coconut holdings (Annex 3, Table 10). Further, two thirds of the expected incremental benefits are assumed to stem from the intensification of coconut production. This is in line with experience in Kerala which shows that as soon as a farmer obtains irrigation he plants additional coconut palms. - 30 - Markets and Prices 6.09 Most tree-crop produce in Kerala is marketed without restrictions or price controls, and in competitive markets. The price of coconuts has risen sharply over the last two years reflecting the domestic shortage of edible oils. The favorable price is an added incentive for more intensive coconut cultivation. Rice in Kerala is freely traded in local markets. Be-- cause of marked consumer preference for local varieties (over the varieties imported from North India which make up about half of Keralan consumption) the market for rice grown in the project area is assured at a premium over the national support price fixed from year-to-year by the Agricultural Production Commission (GOI). Cocoa production has been affected by erratic price fluctuations, in part reflecting world price fluctuations and in part the narrow domestic market, which has been a monopsonistic market in the past. For the future, Kerala plans to enter the marketing and processing of cocoa products for export. There are no restrictions on the export of cocoa, and at projected world market prices farmers should have a sufficient incentive to underplant coconuts with cocoa, particularly in view of the symbiotic agro-economic relationship between these two crops. Pepper market- ing is aided by the Kerala State Cooperative Marketing Federation, which is handling about 60% of total exports from India. The Federation aims to ensure quality control and better prices to farmers, and also to promote price stability on the domestic market. VII. BENEFITS AND JUSTIFICATION Project Impact 7.01 Farm Incomes and Production. Income from coconut holdings on about 15,000 hectares would increase from about Rs 4,000 per ha at present to about Rs 21,000 per ha at full development. Total income in a typical holding in ; the garden lands would increase from about Rs 6,000 per ha to Rs 27,000 per ha (see Annex 3, Table 10). Net incomes on paddy lands would increase from about Rs 2,000 per ha to about Rs 6,000 per ha, or more if vegetables or other high-value crops are grown (constant 1981 farmgate prices). 7.02 Copra and rice are the main agricultural products in the project area and their production is expected to increase by 37,000 tons and 10,000 tons respectively. 7.03 Employment. Civil works construction under the project would require approximately 33 M mandays, or about 22,000 jobs per annum for five years. Incremental employment generated by intensified coconut cultivation, including undercropping, would amount to about 90 mandays per year per hectare, and total employment generated in the gardenlands would reach about 2 M mandays/year at full development. Summer cropping in the paddy land would add approximately another 1 M mandays per year. - 31 - 7.04 Impact on Rural Proverty. The project would sigaficantly reduce the incidence of poverty in the project area. Assuming that the size distri- bution of income in the CA remains unchanged, the percentage of households in the project below the poverty line can be expected to fall from about 70% to about 40%. 7.05 Financial Analysis. In order to take full advantage of irrigation farmers will have to modify their farming techniques and make sizable long-term investments. To examine farmers- motivation to do so, financial models were prepared for the main plantation crops. On a typical coconut holding, revenues from the sale of uprooted uneconomic trees and incremental income from irrigat- ing the existing coconut palms would cover investment expenditures in estab- lishing the 55 new palms per ha (20 of these replacing uneconomic trees). The financial rate of return (FRR) would be over 50% for irrigated cocoa (see Annex 3, Table 8). The FRR for irrigated pepper or clove is expected to be even higher. Financial incentives would therefore be exceptionally favorable for the intensification of treecrop-based cultivation. Economic Rate of Return 7.06 At the time of the project appraisal, GOK proposed the completion of the originally planned CA of 61,600 ha by 1986/87. In view of the lesser and more uncertain benefits of surface irrigation on the coastal plains, the economic analysis of the present project proposal (for a CA of 37,600 ha) does not assume that the originally planned CA will be completed (para 2.10). Consequently, no part of the cost of the main canals or the dam has been allocated to a possible second phase project. 7.07 The "without project" situation assumes maintenance of present levels of production and productivity. The rationale for this assumption is described in Annex 1. The alternative development strategy exemplified by SADU's intensive credit and investment promotion can, on the basis of expe- rience under similar circumstances, be expected to achieve a 20% area coverage within a time span of about 7 years (see Annex 1). Such development, the great bulk of which would be without irrigation due to very limited ground- water resources in the project area, could at best offset the decline resulting from the spread of the rootwilt disease in the rest of the project area. 7.08 The project was planned as a joint power and irrigation project, (capital costs i-or power generation are estimated at about 15% of total capital costs) and the benefits of power generation (65 GWh after 1987) have been taken into account. Based on these assumptions, and based on the pro- jections and price assumptions contained in Annex 3, the economic rate of return (ERR) for the project has been calculated both without and with sunk costs. 7.09 Without sunk costs the ERR is 20%, indicating the justification for completing the proposed project. With sunk costs, the ERR is 14%, indicating viability of the project as a whole including the costs already incurred. If the dam would be used for power generation alone, its ERR would be 7% with - 32 - sunk costs, and 13% without sunk costs, indicating that it would be economi- cally viable to complete the dam on the basis of power benefits alone. In this calculation, the power house, and the transformers adjacent to the dam were not considered sunk costs, and operations and maintenance costs were included. 7.10 Unquantified Benefits. The project would provide the first expe- rience in underground pipe conveyance to smallholders, an innovative tech- nology relevant to large tracts of hilly garden lands on-the western slopes of the ghats, and also elsewhere in India on mountainous terrain. Additiorn- ally, it may benefit livestock and fisheries production. Kerala's dairy industry is being assisted by a component of the National Dairy Project. One of the principal constraints could be overcome by irrigating fodder crops in the valley bottoms during the summer months. The small tanks which will be integrated with the canal system will, as semipermanent water reservoirs, become suitable for small-scale fisheries development supportecd elsewhere in India by IDA. During appraisal, the Fish Farmers Development Agency of GOK indicated that tanks in the command area will have priority in its program of financial and technical assistance to fish-farmers. Sensitivity Analysis and Project Risk 7.11 Sensitivity analysis was conducted to determine the effect of deviations from the main assumptions on the economic viability of the project. The results are summarized below. (a) Lower Costs or Benefits. The benefits from intensified coconut cultivation are the most significant determinant of the ERR. Incremental coconut production constitutes the bulk of benefits, and with these benefits alone, the ERR would be 14%. A 25% and 50% increase in project costs would lower the ERR to 17% and 15% respectively. If coconut yields were reduced by 25%, the ERR would be 17%. If power benefits are excluded, the ERR would be 19%. (b) Delays. A uniform seven year lag in benefits would lower the ERR to 12%, the estimated opportunity-cost of capital in India. A delay in construction of the minor conveyance system by five years, would reduce the ERR to 14%. (c) Higher Incidence of Rootwilt Disease. The base assumption on the incidence of disease is 50% for WCT and 25% for hybrids (para 6.04). If a uniform incidence of 50% for hybrid and WCT's is assumed, combined with a 25% decrease in the yield of diseased trees the ERR would be reduced by 1%. (d) Rate of Farmer's Participation. To achieve projected benefits from intensifying coconut cultivation farmers would have to invest in planting of about 1.1 M coconut palms within seven years, and to invest in undercropping with treecrops on about - 33 - 7,500 ha. Given the incentive provided by provision of irrigation in the Kallada project, such a target is reason- able. 1/ Sensitivity analysis indicates that a shortfall of 25% in the number of new palms planted combined with a three year lag, would decrease the ERR by 3 percentage points. A 50% decrease in the number of newly planted coconuts would decrease in ERR by 2%. 7.12 The results of economic analysis indicate that only large deviations from the basic assumptions would make the project economically inviable. VIII. AGREEMENTS AND RECOMMENDATIONS 8.01 An agreement would be reached with GOI that it would make the proceeds of the Loan and Credit available to GOK, on standard terms of development assistance to the States (para 4.31). 8.02 Agreements would be reached with-GOK that it would: (a) (i) constitute a panel of experts with qualifications, experience, and terms of reference acceptable to the Bank Group and Kerala, to review the plans and design of the Kallada dam and its associated structures and its adequacy; (ii) said panel to conduct periodic reviews during construction to examine whether any new grounds for making changes in the design of the dam have become apparent; and (iii) shall under arrangements satisfactory to the Bank Group cause the Kallada dam and the related structures constructed under the Project to be periodically inspected in accordance with sound engineering practice in order to determine whether there are any deficiencies in the condition of such structures, or in the quality and adequacy of mainte- nance or methods of operations of the same, which may endanger their safety. To this end, Kerala shall propose to the Bank Group appropriate arrangements for the Bank Group's review no later than one year before the expected completion of such structures (para 4.27). (b) provide sufficient funds and materials to executive the project within the implementation schedule for the five-year program assisted by Loan and Credit (para 4.31); 1/ Under the KADP, 700,000 seedlings sufficient to plant about 4,000 ha of coconut have been distributed in three years. - 34 - (c) ensure that the construction of the minor water conveyance systems shall be carried out simultaneously with, or, as soon as feasible after, the construction of the distribution system up to the chak inlets (para. 4.39); (d) (i) maintain separate accounts on project expenditures; (ii) ensure that these accounts would be audited annually by the AG and the resulting interim statements of account would be submitted to the Bank Group as soon as possible but not later than nine months after the end of each fiscal year; and (iii) make complete accounts and financial statements available for inspection during Bank Group review missions (para 4.40); (e) take all measures considered necessary to minimize the risk of malaria and other water-related diseases in the project area (para. 4.41); (f) maintain and adequately staff a Kallada Wing in SADU to promote and organize on-farm investments in the project area (para. 5.03 and Annex 5, Table 1); (g) (i) maintain and adequately staff for the monitoring and coordination of project implementation a Planning, Monitoring and Coordinating Cell (PMCC) in the Irri- gation Department by September 30, 1982; (ii) cause the PMCC to carry out a feasibility study for a second phase of irrigation and treecrop development for the additional area adjacent to the project area and furnish the study by December 31, 1984 (para. 5.08); (h) with the objectives of ensuring an optimal level of recovery of annual operation and maintenance costs and cost of infrastructure investment, having regard inter alia, to incentives for, and pay- ment capacity of, farmers, Kerala undertakes: (i) by September 30, 1982 to furnish to the Bank Group a plan for review of the water- and water-related charges in Kerala: (ii) by December 31, 1983 carry out such a review; and (iii) as soon as feasible thereafter, to implement an appropriate system of water and water-related charges in the Project Area based on recommendations arising from said review after paying due regard to the Bank Group's comments, if any, on such recommendations (para 5.17); (i) (i) by September 30, 1982, furnish to the Bank Group the terms of reference for a management study to establish rules, procedures and requirements for effective operation and preventive maintenance of the irrigation systems under the project; - 35 - (ii) carry out such a study by June 30, 1983; and (iii) as soon as feasible thereafter implement the operations and maintenance procedures and requirements based on the recommendations of the study (para. 5.18); (j) cause the Irrigation Department to: (i) maintain and adequately staff a Kallada Operations and Maintenance Division for the management of the irriga- tion system, and a Kallada Minor Conveyance Division for the implementation of the minor conveyance systems, and to ensure that the build up of staffing for these two divisions will commence no later than September 30, 1982 (para. 5.01). 8.03 With the above assurances and conditions of credit and loan dis- bursement the proposed credit and loan are suitable for Bank Group finance of US$80.3 M comprising a Bank Loan of US$20.3 M and IDA Credit of US$60 M. - 36- ANNEX 1 Paga 1 INDIA KALLADA IRRIGATION AND TREECROP DEVELOPMENT PROJECT Agricultural Development Prospects and Institutional Support Agricultural Trends and Prospects in the Absence of Irrigation 1. The table below summarizes present land use in the proposed project area: CA of the Proposed Project Gardenlands: Coconuts (a140 trees/ha 19,000 Mixed Treecrops 4,300 Annual Crops (Tapioca) 4,300 27,600 Paddyland 10,000 TOTAL 37,600 Undercropped Coconut Area with tapioca 6,400 with mixed treecrops 3,200 9,600 2. Agriculture in the project area, as in most of Kerala, is based on coconut cultivation, and coconut is the dominant crop on most holdings in the gardenlands. 3. Over the last 20 years, average yield of coconut plantations in Kerala and in Quilon district is estimated to have declined from about 7000 nuts/hectare to about 4000-5000 nuts/hectare, reflecting in part the spread of rootwilt disease. 4. Data for Quilon district, where about 80% of the project area is located, indicate sharply declining coconut area over the last five years, as well as declines in the yield and total production of coconuts, though the reported decline is so large as to cast doubt on the accuracy of the estimates: ANNEX 1 Page 2 Area under Production Production per Coconut (M units) hectare (000 units) 75/76 98000 490 5000 76/77 93000 390 4200 77/78 88000 360 4100 78/79 81000 320 4000 Source: Kerala Annual Timely Reporting Survey. Yield in Quilon is estimated at about 30 nuts/bearing tree. Year Nuts/Tree 76/77 31.0 77/78 29.8 78/79 29.0 Source: Kerala Timely Reporting Survey. A recent survey of coconut holdings in disease affected areas reported the following yields: Nuts/Tree % of Bearing Trees Diseased Palms 15 54 Disease-free Palms 29 46 Weighted Average 22 (The samples were concentrated on the coastal belt where the incidence of disease is higher than in the project area). 5. The decline in the productivity of coconut cultivation is not offset by shifts in the cropping pattern to more profitable crops or by increases in the productivity of other crops. The production of rice, the second most impor- tant crop after coconuts, is also on the decline. Yields are low (averaging about 1.5 tons of -paddy/ha in the district) and have been stagnant. Area under production is on the decline. Most smallholders in the project area grow paddy for home consumption, but even the smallest parcel would typically make use of hired labor. With the increasing cost of labor and fertilizer and the rela- tively stable prices of rice over recent years, paddy land is being converted to coconuts on the fringes of the valley bottoms, or is frequently left fallow. 6. Of the important crops in the gardenlands, only tapioca has regis- tered significant increases in yields in the long run; from 7 tons/ha in the fifties to about 15 tons/ha in the last decade. However yield seems to have reached a plateau at about 15 tons in recent years. Tapioca is principally a subsistence crop in Kerala, and has a limited growth potential. Rubber production and yields are increasing, but rubber is mostly cultivated on the higher slopes and only an insignificant part of the CA (about 500 ha) is under ru ber. -38- ANNEX 1 Page 3 7. Thus agricultural production is generally on the decline in the project area, though buoyed by the rising price trend of most treecrop pro- ducts (particularly of coconuts, reflecting the chronic shortage of edible oils in India). 8. Irrigation offers an opportunity to reverse the trend. However, as this report demonstrates, treecrop irrigation in the difficult terrain of Kerala results in a high cost of water and a relatively low rate of return. The rationale for surface irrigation needs to be assessed in relation to alternate investment strategies confined to rainfed agriculture, particularly since most treecrops growing in the project area have traditionally been con- sidered as rainfed crops. The productivity of coconuts has been increased in many parts of the world without irrigation, principally through fertilizer use and the adaptation of hybrid varieties. 9. The alternate development strategy followed by GOK for treecrop modernization can be considered in the light of experience from the Kerala Agricultural Development Project (KADP), also assisted by IDA. A principal component of that project is a credit program for coconut rehabilitation, sup- ported by an intensive investment promotion service by a Special Agricultural Development Unit (SADU), established in the DOA to assist the implementation of the KADP on-farm investment program. The project is now in its fourth year of field operations. The SADU Program for Coconut Rehabilitation 10. There are two basic credit packages for coconut rehabilitation under KADP: with and without irrigation. Without irrigation, rehabilitation consists mainly of bringing up the coconut stand to the recommended density of 175 trees/hectare, and the replacement of uneconomic trees with selected coconut seedlings procured from DOA nurseries. The principal loan components are for fertilizer, labor, and planting materials. Where coconut holdings will be irrigated, a well with a pumpset is the principal loan component. The cresdit package with irrigation stipulates intercropping the coconuts with cocoa, or establishing a dairy enterprise with pasture development and the purchase of a dairy cow, (Credit under KADP is also available for new coconut and for pepper planting on previously uncultivated land in the northern districts of Kerala State; activities for which there is relatively little scope in the densely populated and cultivated project area.) 11. A Junior Agricultural Officer (JAO) assisted by two Agricultural Demonstrators (ADs) is the basic unit for SADU's field operations. The unit covers an area of 500 hectares in discrete locations selected on the basis of surveys. The 500 hectares is made up of holdings of .2 hectare or more, since smaller holdings are not eligible for institutional finance. 12. Once established, the unit starts its work by inventorying the holdings of eligible farmers. Subsequently, the JAO prepares individual farm plans for the farmers who evinced initial interest in credit, and eventually processes the loan applications with the local banks. A unit is to stay three to five years in its area of operation. -39- ANNEX 1 Page 4 13. The appraisal target for coconut rehabilitation was 30,000 hectares, to be implemented over six years. This target was based on an 80% projected farmer participation in a gross area of 37,500. Of the net 30,000 ha, 25% or 7,500 ha, were projected to be irrigated and intensified either with cocoa interplanting or with a dairy enterprise. 14. The table below summaries the progress of SADU's field activities for coconut rehabilitation: Progress of Coconut Rehabilitation under KADP Farm Inventories Farm Plans Prepared Loans Approved # of Farmers Area # of Farmers Area Area (OOOha) 000 OOOha 000 OOOha Irrigated Rainfed Total 78/79 25.6 16.4 8.7 6.4 .4 .2 .6 79/80 28.7 17.5 12.7 9.1 1.0 .6 1.6 80/81 7.9 5.9 6.4 5.1 2.1 1.2 3.3 TOTAL 62.2 39.8 27.8 20.6 3.5 2.0 5.5 15. The rate of credit participation has been only a fraction of what had been anticipated. Farm plans were prepared for 52% of the area inventoried, corresponding to 45% of the farmers who evinced initial interest in credit par- ticipation. However, to date only 27% of the area for which farm-plans have been prepared (and 14% of the area inventoried) has come under the credit pro- gram. Also the greater part of credit demand turned out to be for irrigation facilities, about two thirds of the area for which loans have been approved, instead of one fourth as foreseen during appraisal (see Table above). 16. SADU has recently conducted a large survey (about 27,000 farmers were interviewed) to identify reasons for the meagre farmer response. 32% of the respondants reacted favorably to the program, indicating that they intended to apply for the loans, 13% were not convinced either way, and 55% indicated that they will not apply for credit. 17. The reasons for unfavorable response can be classified into: (1) reasons consistent with positive response to on-farm investments (but not to credit participation), i.e. - defective title to land 9% - reluctance to mortgage land 9% - having own resources 8% - previous encumberance on land 6% - cumbersome lending procedures 1% 33% -40- ANNEX 1 Page 5 (2) reasons indicating negative response to on-farm investments - unable to look after land 5% - absentee landlords 4% - program not attractive 1% - not interested in the program 7% 17% (3) Other 5% TOTAL 55% Assuming that these findings are transferrable to the Kallada project area, farmer participation in farm-investment can be projected at about 80%, about 20% of the farmers having a negative attitude to on-farm investments. 18. Based on experience to date, SADU has drastically reduced the target for coconut rehabilitation, from 30,000 ha to 11,500 ha, of which about 2/3 would be for irrigated development. The appraisal and revised targets for coconut rehabilitation under SADU's credit program are summarized below: APPRAISAL REVISED, 1981 Year Irrigated Unirrigated Total Irrigated Unirrigated Total Year 1 1,125 1,125 372 210 532 78/79 2 375 5,250 5,625 1,025 576 1,601 79/80 3 1,750 8,625 10,375 2,132 1,200 3,332 80/81 4 2,875 6,000 8,875 1,216 684 1,900 81/82 5 2,000 1, 500 3 , 500 1,334 751 2,085 82/83 6 500 500 640 360 1,000 83/84 7 640 360 1,050 TOTAL 7,500 22,500 30,000 7,359 4,141 11,500 Gross Area (ha): 37 , 500 7 5,000 % of Gross 20% 60% 80% 10% 5% 15% Area Covered 19. Care must be taken in attempting to extrapolate from this data a forecast of what might take place in Kallada without irrigation. On the one hand, the revised targets are drawn from a much larger area than the original 37,500 ha. SADU now estimates that the eventual area of operations will be roughly twice the original estimate, or about 75,000 ha. Thus the revised target of 11,500 ha will amount to about 15% of the area in which SADU's intensive promotion and services are available, of which about one third would be developed under rainfed conditions and two thirds under irrigation with groundwater. -41- ANNEX I Page 6 20. On the other hand, on farm investment promoted by KADP is not limited to credit participants. Alerted by SADU's intensive promotion campaign, includ- ing help in preparing a farm plan and in obtaining superior planting materials, some non-participants in the credit program may be investing their own resources. One indication is the distribution of planting material to farmers who did not take credit, which amounted to about half of the seedlings in the first one and a half years of field operations. Supplying non-credit participants has been since discontinued as a "negative incentive" to promote credit applica- tions. Thus the proportion of farmers who undertake investment in rainfed coconut cultivation without credit could at most equal the number who invest with credit; and therefore at most 10% of the area covered by SADU services is likely to be rehabilitated under rainfed conditions. Added to this can be 10% to be developed through groundwater exploitation. Few wells would be dug without credit and it is safe to assume that in SADU areas most wells would be financed under KADP. To sum up, on the basis of available data and experience, it seems reasonable to conclude that an intensive credit and investment promotion service could generate a 20% coverage of the project area, half of it through investment in groundwater exploitation, and half of it through intensifying cultivation under rainfed conditions. 21. Such a projection, hypothetical as it is, needs further qualifica- tion. First, the Kallada CA is in the rootwilt affected belt of Kerala, while SADU's operations are confined to the disease free areas. Other things being equal, the high risk of rootwilt disease ought to dampen the incentive to invest in the improvement of rainfed coconuts. Second, under the Kallada irrigation project, the objective would be to spread benefits to even the smallest farmers; farms less than .2 hectares are excluded from the KADP credit program. SADU's experience affords no insight into the investment behavior of farmers with holdings smaller than .2 ha. However, in view of the high cost, groundwater development would not be a real option to most of these small farmers. Third, there are some crops which could become a long term alternative to coconuts. Rubber is an important treecrop in Kerala and rubber planting to replace the ageing coconut sitand would be a plausible long range alternative to coconut modernization. Net returns from rubber are comparable to returns from coconuts yielding about 40 nuts per palm, a moderate yield under rainfed conditions even in the disease infested area. Returns from rubber would be much less than returns from irrigated coconuts. Benefits from irrigating rubber are modest, possibly a 10% increase in yield. Additionally, rubber cultivation requires more management and knowhow than coconut-growing and requires a minimum area of about 1/2 acre to be marginally viable, which would exclude about half of the households in the project area. Also, replacement at best could take place very gradually: if all old coconuts were replaced by rubber after felling, it would take about forty to fifty years to replace the stand. All in all therefore coconut appears the only viable medium-term alternative for the raising smallholder incomes on a large scale, given that the production of annual crops on a sustained basis would be very risky on the lateritic soils predominant in the project area. Lack of Irrigation as a Constraint to Treecrop Modernization 22. Irrigation offers an opportunity to reverse the declining trend of agricultural productivity in the project area because: -42- ANNEX 1 Page 7 (1) Prolonged water stress accounts in large measure for the low yields of coconuts. Kerala's average of about 30 nuts/tree is about one fourth to one third of the genetic potential of the local unselected West Coast Tall(WCT) variety. Prolonged droughts occur several times in the life of a tree, and recovery from water stress may take several years, particularly for young trees. (2) Water stress not only reduces yields per se but is also the main reason why farmers don't undertake other means of stimulating production, namely the use of fertilizer and the adoption of hybrid varieties of coconuts. Field experience corroborates that irrigation boosts yields and that when irrigation is possible farmers also improve their cultivation practices, including the application of inorganic fertilizer. (3) The yield potential of hybrid varieties of coconuts is proven to far exceed that of the traditional WCT variety. In addition to higher yields, research indicates that some high-yielding varieties are less susceptible to rootwilt disease than the WCT, and that yields of rootwilt affected hybrids can be maintained at relatively high levels with recommended cultivation practices. Hence hybrids appear to require irrigation to perform consistently well. 23. Farmer acceptance of hybrid material is higher on irrigated farms. In Trivendrum district (of the SADU districts the most comparable to the project area) over 80% of the hybrid planting materials went to irrigated farms: % of the Hybrid Planting Used on Irrigated Farms 78/79 84 79/80 81 80/81 80 24. Irrigation not only appears to be a precondition to fertilizer application and to the spread of hybrid varieties. It also would be essen- tial for intensifying coconut holdings through undercropping. The KADP appraisal identified cocoa and dairy enterprise as the most promising opportunities for irrigated coconut rehabilitation. KADP only dealt with investments requiring long-term finance, but irrigation would also increase the returns to short duration crops. Tapioca, the principal intercrop, could be grown for twelve months instead of nine months, pepper and cloves would be other important irrigated intercrops. In addition, most of the diverse crops that are now grown on a typical smallholding would substan- tially benefit from irrigation. -43- ANNEX 1 Page 8 Proposed SADU Activities in the Projected Area 25. Under KADP, SADU has evolved into a competent institution for credit and investment promotion. These activities would be integral com- ponents of the proposed project, to generate maximum farmer response to the new opportunities opened by surface irrigation. Under the project, SADU would establish a Kallada wing, with a similar organizational pattern as under KADP. Field operations would be phased in with block-by-block con- struction of minor conveyance in the CA. 26. Under KADP, SADU is implementing a credit program to overcome the constraints of rainfed agriculture (though the bulk of the loans are in fact for irrigation wells). In Kallada, SADU would promote on-farm investments to take maximum advantage of the investment incurred in surface irrigation. Unlike under KADP, the emphasis of SADU investment promotion would be on the propagation of hybrid materials, which is the key to the long run increase in productivity of coconut based agriculture. Credit promotion would be secondary, but nevertheless an important task. While credit is restricted to farmers with .2 hectares or more, in the Kallada project area SA1DU would promote investment also for smaller farms as well, since the objective is to reach all farmers who wish to take advantage of irrigation potential. Because of these circumstances and because of the incidence of coconut disease in Kallada SADU's present functioning would require modification for the Kallada project. Provision of Hybrid Seedlings 27. Planting a WCT palm locks land into an inferior use for decades, and would depress the economic return of the project. Once irrigation becomes available and farmers can be expected to convert with greater ease to hybrid planting materials, SADU would actively campaign in each planting season against the planting of WCT, and supply only hybrid planting mate- rials in the project area. Starting at the time when a "block" comes under irrigation, SADIU would organize campaigns for new planting and the replace- ment of uneconomic trees. SADU units would canvas farmers, register their orders for hybrid materials, and deliver the planting material at a time and place notified in advance. Unlike in KADP, where SADU supplies planting material to credit applicants, the provision of planting materials would be a service available to all farmers. Credit 28. As under KADP, SADU would promote long term credit for coconut rehabilitation. The unit JAO would prepare individual farm plans and process the loan application with the local banking institution. Under KADP, finance for crops other than coconut was limited to cocoa and dairy enterprise on irrigated farms. In the project area, the loan package could include pepper, -44- ANNEX 1 Page 9 cloves, and other long maturing crops recommmended for cultivation by the extension service. ARDC would prepare a banking plan for the project area, and IDA would disburse against ARDC's reimbursements to participating banks within the KADP line of credit. 29. It would be difficult at this time to extrapolate credit demand in the project area from the progress of the KADP credit program. On the one hand, once water is provided the returns to complementary investment in fertilizer use would be higher. On the other hand, the bulk of credit demand under KADP is for irrigation facilities, and once water is provided by surface irrigation, that part of demand will be satisfied. Also, short run increase in earnings due to irrigation will enhance the farmer's ability to finance the typically piecemeal investments involved in the intensification of treecrop cultivation. The "negative cashflow" in the investment period for treecrop modernization would be smaller than in KADP or non-existent, depending on tlhe pace of on-farm investment. 30. As a working projection, a 20% coverage, the same as KADP's revised target, of farms above .2 ha would appear a reasonable basis for the prepara- tion of a credit plan by ARDC. Rootwilt Disease and Proposals for Subsidized Coconut Rehabilitation 31. Coconut rehabilitation under KADP is confined to areas free of rootwilt disease in Kannanore, Kozikhode, Malapuram, and Trivendrum districts. The rationale for not including rootwilt affected areas was the risk involved in encouraging farmers to invest in infected areas. At the time of the KADP appraisal, it was hoped that either a scientific breakthrough would establish the cause of rootwilt disease, or effective measures would be found to contain the disease and diminish its effects. Unfortunately, no breakthrough is in sight. 32. Rootwilt disease is a debilitating rather than a lethal disease, and there is evidence that better cultivation practices can arrest and even reverse a decline in the yield of the palm. In view of the uncertain prospects for a research breakthrough and the large number of people whose incomes are in the meanwhile adversely affected, GOK has launched a pilot subsidy scheme to assist farmers in the removal of uneconomic trees and to adopt better cultivation practices. The components of the scheme are: (1) compensation of RS 75/palm for cutting and removing uneconomic palms. (2) a fertilizer subsidy calculated at 50% of recommended dosage on 10% of the trees in the holding (i.e. equivalent to 5% of the recommended fertilizer application). (3) 50% subsidy for lime, magnesium sulphate and dolomite. (4) 50% subsidy for green manure seeds. (5) Rs 0.75/palm subsidy for the application of silt. -45- ANNEX 1 Page 10 (6) a subsidy for the construction of irrigation wells in the amount of 1500/ha or 25% of the cost of the well, whichever is less. 33. This scheme is under implementation since 1980/81 in 22 panchayats, to which another 40 panchayats were to be added. GOK hoped to obtain GOI financial assistance for expanding the scheme. Instructed by GOK, SADU also prepared a similar scheme to be implemented with IDA assistance under the KADP. 34. In addition to those reservations, another reservation concerns the advisability of encouraging coconut growers to replace diseased trees where the intensity is already more than the recommended stand of 175 palms per ha. Farmers should, on the contrary, be encouraged to thin out their holdings by removing the uneconomic palms and bring down the palm stand to the recommmended optimal density. In this sense the reservations don't apply to the lump-sum subsidy for removing uneconomic trees. 35. The question of extending the scheme to Kallada has been raised by GOK in the context of the proposed project. The subsidy scheme already is under implementation in 12 out of 92 panchayats in the Kallada command area. It might therefore become necessary for GOK to bring in the remaining 80 villages also under a similar subsidy scheme in order to avoid discriminatory treatment of farmers within the project area. Furthermore, incentives in the form of subsidies might substantially contribute to the pace of replacing uneconomic trees with hybrid coconut varieties or with high-value intercrops. 36. JOAs assigned to the individual panchayats implement GOK's pilot scheme. If the scheme is to encompass the project area, it should be imple- mented by the SADU field organization and proceed in step with investment promotion for the planting of hybrid coconut trees. This would avoid dupli- cation and ensure that the removal of uneconomic trees is coordinated with on-farm investments at the time when irrigation water becomes available. However, the administration of a complex set of subsidies would place a near unmanageable administrative burden on SADU. Because of this, and because of the above reservations on the scheme's specific features, the mission recom- mends that if GOK extends the scheme to the project area, the subsidy should be limited to the once for all grant for the removal of an uneconomic tree. A46NEX 2 -46- Table 1 INDIA KALLADA IRRIGATION AND TREECROP DEVELOPMENT PROJECT Project Costs (Rs Million) 1982 1983 1984 1985 1986 Total Dam 3.2 16.8 4.4 24.4 Right Bank Main Canal 35.9 14.9 12.0 8.0 4.2 75.0 Branches 14.2 15.9 12.0 5.7 2.0 49.8 Distributaries to 60 ha 7.4 8.2 11.2 24.8 10.1 61.7 Minors 60-10 ha 0.5 2.4 2.7 2.9 2.8 11.3 Left Bank Main Canal 46.9 59.3 78.5 60.4 18.0 263.1 Branches 0 5.4 9.6 14.2 15.0 44.2 Distributaries to 60 ha 0.7 3.2 10.4 15.3 21.9 51.5 Minors 60-10 ha 0.5 0.5 1.0 2.2 4.2 8.4 Minor Conveyance (below 10 ha) Distribution System 2.5 9.8 22.6 30.8 33.8 99.5 Tanks 0 0.4 1.1 2.7 2.7 6.9 Canal Roads 5.6 4.7 10.3 Buildings 2.8 7.6 1.4 1.4 1.0 14.2 Subtotal Civil Works 114.6 144.4 166.9 174.0 120.4 720.3 Equipment and Materials 3.1 5.1 2.7 1.4 0.7 13.0 Land Acquisition 34.0 30.7 31.0 14.8 4.3 114.8 Administrative and Overheads SADU - Kallada Wing 0.1 1.1 1.9 2.3 2.4 7.8 Planning and Monitoring 0.1 0.7 0.7 0.7 0.7 2.,9 Engineering Supervision 17.1 21.7 25.1 26.1 18.1 108.,1 Subtotal 17.3 23.5 27.7 29.1 21.2 118.8 Total Base Cost 169.0 203.7 228.3 219.3 146.6 966.9 Physical Contingencies 5.2 21.7 25.0 26.6 29.6 108.1 Price Contingencies 10.5 38.5 68.2 89.9 81.2 288.3 Total Project Cost 184.7 263.9 321.5 355.8 257.4 1,363.3 Tront End Fee to lBRI) 5.1 - - - - 2.6 Total Financing Required 189.8 263.9 321.5 355.8 257.4 1,365.9 ANNEX 2 Table 2 INDIA EALLADA IRRIGATION AND TREECROP DEVELOPMENT PROJECT Cost of Equipment snd Materials Unit Total Numbers Cost Cost R- Million) I. EQUIPMENT FOR CIVIL WORKS CONSTRUCTION Tunneling Works Rocker Shovel (0.38 cu. m) 2 .800 1.600 Battery Locomotive J8 ton) 2 .400 0.800 Blower Fans (1000 M min.) 10 .150 1.500 Rock Drills 24 .004 0.095 Drilling Jumbo Platform 2 .025 0.050 Concrete Placer (Pne4matic 1/2 cu. yd.) 3 .025 0.075 Concrete Pumps (15 M /hour) 2 .350 0.700 D.G. Set (15/20 KW) 2 .050 0.100 Transit Cars (3 cu. m) 4 .200 0.800 Shot Creting Machine (6-8 cu. a) 1 .200 0.200 Sub-Total 5.920 Canal Embankment, Excavation, Lining and Roads Stone Rollers 60 .002 0.120 Truck, 5000 lItrs. Water Tanks 8 .300 2.400 Truck, 5T (Lorry) 5 .200 1.000 Concrete Mixer, (10/7) 12 .025 0.300 Concrete Vibrator 28 .005 0.140 Excavators, Hydraulic Wheeled (0.9 cu. m) 4 1.200 4.800 Excavators, Hydraulic Crawler (0.9 cu. m) 3 1.100 3.300 Loader, F.E. Wheeled (1.35 cu. m) 2 1.000 2.000 Tipper, (4.5 cu. m) 3 .250 0.750 Lime Mixer 2 .040 0.080 Rock Drills 28 .005 0.140 Asphalt Mixer 4 .125 0.500 Air Compressor 4 .140 0.560 Road Rollers 8 .200 1.600 Nub-Total 17.690 Workshop Equipment Crane, Mobile, (15 T) 1 .600 0.600 Mobile Workship, Lathes, Welding Sets, Drilling Machines, etc. 1 LS 2.500 Sub-Total 3.100 Transport Vehicles Staff Car 4 .080 0.320 Jeeps 4 x 4 20 .065 1.300 School Bus 2 .225 0.450 Sub-Total 2.070 Miscellaneous Theodolites & Survey Instruments LS 0.500 Office Furniture and Equipment LS 1.500 TOTAL 30.780 II. EQUIPMENT FOR MAINTENANCE DIVISION Staff Car 4 .080 0.320 Jeeps 20 .065 1.300 School Bus 2 .230 0.460 Water Sprinklers 5 .250 1.250 Trucks 5 .200 1.000 Concrete Mixers 12 .120 1.440 Asphalt Mixers 4 .100 .400 Road Rollers 8 .150 1.200 Mobile Workshop - - 2.500 Mobile Crane - - .600 Furniture, Office Equipment - - 1.500 Materials - - .630 Theodolites/Instruments - - .400 TOTAL 13.000 GRAND TOTAL 43.780 Note: Equipment for the Maintenance Division (Item IT) is shown separately in Project Cost (Annex 2, Table 1), whilat the cost estimates for civil works construction includes the cost of machines under Item I. -48.- ANNEX 2 Table 3 INDIA INDIA KERALA - KALLADA IRRIGATION AND TREECROP DEVELOPMENT PROJECT The Kallada Wing of SADU I. UNIT COSTS Monthly Annual Salary Salary Total Cost (Rs) (Rs 000) Number (Rs 000) HEADQUARTERS Joint Director Agriculture 1750 21.0 1 21.0 Deputy Director Agriculture 1400 16.8 2 33.6 Technical Assistants 900 10.8 2 21.6 Clerks 500 6.0 4 24.0 Drivers 500 6.0 2 12.0 Total Basic Salaries 112.2 Leave Allowance (10%) 11.2 Pension Contribution (15%) 16.8 Total Gross Salaries 140.2 10% Office Overhead 14.0 Total 154.2 OFFICE OF ASSISTANT DIRECTOR OF AGRICULTURE Assistant Director Agriculture 1400 16.8 1 16.8 Technical Assistant 900 10.8 1 10.8 Clerks 500 6.0 2 12.0 Driver 500 6.0 1 6.0 Total Basic Salaries 45.6 Leave Allowance (10%) 4.6 Pension Contribution (15%) 6.8 Total Gross Salaries 57.0 10% Office Overhead 6.0 Total 63.0 FIELD UNIT Junior Agricultural Officers 900 10.8 1 10.8 Two Agricultural Demonstrators 600 7.2 2 14.4 Clerk 500 6.0 1 6.0 Total Basic Salaries 30.2 Leave Allowance (10%) 3.2 Pension Contribution (15%) 4.6 Gross Salaries 38.0 II. PHASING OF STAFF Year 1982 1983 1984 1985 1986 Joint Director - 1 1 1 1 Deputy Directors 2 2 2 2 2 Assistance Directors 1 2 4 5 5 Field Units (see Annex 5, Table 1) 3 15 38 48 52 III. PHASED COST ESTIMATE (Rs 000) 1982 1983 1984 1985 1986 Total Heatquarters Expenditure 154 154 154 154 154 770 Assistant Directors Agriculture 63 126 252 315 315 1071 Field Teams 114 570 1444 1824 1976 5928 Total 331 850 1850 2293 2445 7769 -49- ANNEX 2 Table 4 INDIA KALLADA IRRIGATION AND TREECROP DEVELOPMENT PROJECT S9&edule of Disbursements of the Loan and the Credit Semester Cumulative Bank Group FY and Semester US$M Fiscal 82/83 First Half 3.2 3.2 Second Half 7.6 10.8 Fiscal 83/84 First Half 8.0 18.8 Second Half 8.3 27.1 Fiscal 84/85 First Half 9.9 37.0 Second Half 10.1 47.1 Fiscal 85/86 First Half 9.7 56.8 Second Half 6.7 63.5 Fiscal 86187 First Half 16.5 80.0 - 50 - ANNEX 2 Table 5 INDIA KALLADA IRRIGATION AND TREECROP DEVELOPMENT PROJECT Withdrawal of the Proceeds of the Credit and of the Loan Amount of the Credit Amount of Allocated the Loan % of (Expressed Allocated Expenditures in SDR (Expressed to be Equivalent) in Dollars) Financed (1) Civil Works (a) Minor water 9,600,000 4,000,000 90% conveyance systems (b) others 39,750,000 8,315,000 70% of expenditures incurred up to June 30, 1984; 50% of expen- ditures thereafter (2) Equipment, vehicles 2,850,000 500,000 100% of foreign expen- and materials ditures; 100% of local expenditures ex-factory; 70% of other local expenditures (3) Monitoring 100,000 185,000 90% evaluation and studies (4) Fee - 300,000 Amount due (5) Unallocated 7,000,000 TOTAL 52,300,000 20,300,000 ANNEX 3 -51- Page 1 INDIA KALLADA IRRIGATION AND TREECROP DEVELOPMENT PROJECT Assumptions for Economic Analysis Prices 1. General. For coconuts and rice, the major commodities in the incremental benefit stream, economic prices were derived from year by year by IBRD commodity forecasts, expressed in 1981 currency value with appropriate adjustments for freight, handling and processing. For other crops, the IBRD 1990 projected prices have been applied as the basis for the economic price calculation. Non-traded goods and services were brought to a common basis with the traded ones through the use of conversion factors. A standard exchange rate of US$1 to Rs 8.00 was used to convert prices expressed in US dollars to local currency values. The assumptions behind the estimates are described below: 2. Standard Conversion Factor (SCF). The costs and benefits of the project are evaluated at world market prices, in order to measure correctly what India's net economic benefits from the project are. However, many of the costs are for items that are not traded on the world market. Tariffs and trade restrictions introduce a distortion in the price relationship between traded goods--valued at world markets--and non-traded gross-valued at local prices. In order to make them comparable, an SCF is applied to the price of non-traded goods. In the absence of trade restrictions, the SCF can be approximately calculated using the formula: X + M SCF
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India - Kallada Irrigation and Tree Crop Development Project
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