Mexico - Second Tropical Agriculture Development (PRODERITH II) Project

Document of The World Bank FOR OMCIAL USE ONLY Repm No. 5931 -ME STAFF APPRAISAI. REPORT MEXICO -SECOND TROPICAL AGRICULTURAL DEVELOPMENT PROJECT (PRODERITH II) February 7, 1986 Projects Department Latin America and the Caribbean Regional Office Th document is a retiCted dibatbum sad may be used by recipeuts ody in the perforfmace of Id gaclal dutie Its cntent may imt oerwise be disdsed witho Wodd Bank autdorlxtion.  CURRENCY EQUIVALENTS (est. December 1985) US$1 = Mex$ 380 Mex$ 1 = US$0.0026 Mex$ I million = US$2,632 WEIGHTS AND MEASURES 1 hectare (ha) = 10,000 m2 = 2.47 acres 1 kilometer (k) = 0.62 miles 1 square kilometer (km2) = 0.39 square miles = 100 ha 1 kilogram (kg) = 2.2 pounds 1 liter (1) = 0.26 gallous 1,000 kg = 1 metric ton (t) = 0.98 long ton GLOSSARY OF ACRONYMS ANAGSA - National Insurance Company, S.A. BANRURAL - National Rural Credit Bank CPNH - National Water Plan Commission CRECIDATH - Tropical Center for Extension Training CSAT - College for Tropical Agriculture DGID - General Directorate fe-. Irrigation and Drainage FIRA - Agricultural Trust Fund IDB - Inter-American Development Bank INIA - National Institute for Agricultural Research INIFAP - National Institute for Forestry, Agriculture and Livestock Research. INIF - National Institute for Forestry Research INIP - National Institute for Livestock Research NAFINSA - National Financiera, S.N.C. PRODERITH - Program for Development of the Humid Tropics, CPNH PRONADRI - National Program for Integrated Rural Development, 1985-88 RCRD - Regional Centers for Rural Development RDD - Rural Development Districts SARH - Secretariat of Agriculture and Hydraulic Resources SAM - Mexican Food System SCT - Secretariat of Coamunications and Transport SRA - Secretariat of Agrarian Reform SHCP - Secretariat of Finance and Public Credit SPP - Secretariat of Programming and Budgeting USDA/SCS - United States Department of Agriculture/Soil Conservation Service GOVERNMENT OF MEXICO FISCAL YEAR January - December  FOR OFFICIAL USE ONLY MEXICO SECOND TROPICAL AGRICULTURAL DEVELOPMENT PROJECT (PRODERITH II) STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. I. LOAN AND PROJECT SUMMARY ...................................... 1 II. THE AGRICULTURAL SECTOR ................. ...................... 3 Agriculture in the Economy .............. ................... 3 Present Agricultural Policy ....... ..... ........... .......... 3 Regional Development in the Humid Tropics ..................... 4 Past Experience with Bank Lending ............ ................. 4 Experience of PRODERITH I ......... .. .. ........................ 5 III. THE PROJECT ................................................... 6 Background and Rationale for Bank Involvement ................ . 6 Project Objectives and Description ........ . .................... 6 Project Execution .................................................... 8 Project Costs and Financing . ................................. 9 Special Account ..................................................... 10 Procurement ......... ..................................... 10 Disbursements ............................. 11 Accounting and Audits ........... ......................... 11 Monitoring, Evaluation and Progress Reporting ................. 11 Financial and Economic Justification ..... ..................... 12 Recovery of Operation and Maintenance Costs ................... 13 Marketing ........................................................ 13 Environmerntal Impact .......................................... 14 Sociological Impact ................................................... 14 Project Risks ...................................................... 14 IV. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION .. ............ 15 This report is based on findings of an appraisal mission which visited Mexico in June 1985. The mission comprised Messrs. M. Wilson, R. Buller, S. Oliver (Bank), and W. Ochs (Consultant). Tsdocument has a resticted dstibution and may be used by recipients only in the perfomance of their offi duties. its axtents may not otherwise be dbosed without World Bank authorizatkn.  - ii - TABLE OF CONTENTS (CONTINUED) Page No. ANNEXES 1. Project Cost, Financing Plan, Disbursements ..................... 16 Table 1 - Total Project Cost Sumomary ....................... 16 Table 2 - Financing Plan ................0..........*....... 17 Table 3 - Schedule I of Loan Agreement .o.................... 18 Table 4 - Estimated Disbursement Schedule ...................... 19 Table 5 - Summary Accounts by Year .............. 0......... 20 Table 6 - Project Components by Year ....................... 21 Table 7 - Summary Account by Project Component ............. 22 2. Infrastructure and On-Farm Development .......................... 23 3. Extension Services and Producer Organization .................... 26 4. Agricultural Research ......... ........... ......... .............. 29 5. Training ......................................... ......... 31 6. Studies .......................... ........ - ........ .*O.......... . 33 7. Consultancies oo ....................... o..... ....................... 34 8. Reorganization of SARE, August 1985 .............. .... 00..0....... 35 9. Monitoring and Evaluation ............. ............. ...... .... 37 10. Production, Marketing and Analysis ........... -.6............. .. 39 Table 1 - Physical Area by Subproject ...................... 44 Table 2 - Incremental Production at Full Development ....o... 45 Table 3 - Cropping Pattern Changes (Ha) .................... 46 Table 4 - Yields ....... * ................... ....................... 47 Table 5 - Incremental Project Output at Full Development.... 48 Table 6 - Project Economic Analysis ........................ 49 Table 7 - Sensitivity Analysis ............................. 50 Table 8 - Model 20 Ha Ejido, Annual Crops ...... o........... 51 Table 9 - Model 12 Ha Smallholder, Fruit ................... 52 Table 10 - Model 7 Ha Ejido, Basic Crops and Cacao .. ......... 53 Table 11 - Model 160 Ha Ejido, Livestock ........... ......... 54 Table 12 - Model 60 Ha Smallholder, Livestock ................. 55 Table 13 - Model 28 Ha Ejido, Basic Crops and Fruit ......... 56 11. Lessons Learned from PRODERITH I .................................. 57 12. List of Selected Documents and Data Available in Project File ... 61 A. Technical File Volume: Appendix 1 - Infrastructure and On-Farm Development-Concepts and Design Appendix 2 - Extension, Research, and Training Appendix 3 - Production, Marketing and Analysis Appendix 4 - Detailed Cost Tables by Component B. Other Documents CHARTS 1. SARH Organization . ....... .......... 62 2. Rural Development District Organization ......................... 63 MAP: IBRD 19197  MEICO SECOND TROPICAL AGRICULTURAL DEVELOPMENT PROJECT (PRODERITH II) I. LOAN AND PROJECT SUMMARY Borrower: Nacional Financiera, S.N.C. (NAFINSA). Guarantor: United Mexican States. Beneficiary: Secretariat of Agriculture and Hydraulic Resources (SARH). Amount: US$109 million equivalent. Terms: Repayment in 15 years, including 3 years of grace, at the standard variable interest rate. Project The project's main objectives would be to: (a) support Objectives: the Government's key objective to alleviate rural poverty and raise rural incomes; (b) expand the rational exploitation of Mexico's tropical lowlands using technologies and administrative and organizational measures which were successfully developed and replicated under the first phase project; (c) increase agricultural productivity and production; (d) improve agricultural support services; (e) strengthen institutions to ensure effective coordination of multi-sectoral programs in the region; and (f) promote greater producer involvement in operation and maintenance of infrastructure. Project The 850,000 ha project would bring about 143,000 ha of Description: new land into rainfed crop production and would intensify crop and livestock production and productivity on existing areas which currently suffer drainage problems. To achieve its objectives the project would: (a) construct drainage and road works; (b) provide on-farm works; (c) implement soil conservation programs; (d) strengthen farmer organization, extension and research services; (e) train technical staff and producers in the use of improved technology; (f) conduct studies; (g) provide consultant support in priority areas; and (h) improve planning and coordination of regional development programs. The project would be coordinated as in the first Tropical Agricultural Development Project (PRODERITH I) by the National Water Plan Commission in SARE. Project The project is estimated to directly benefit about 40,000 Benefits: families, the majority of whom are in the low income target group. It would also provide employment opportunities equivalent to about 25,800 full time jobs, in addition to benefitting urban populations in the areas of influence of flood control works and service roads.  - 2 - Project The main risks include (a) shortage of counterpart funds Risks: and (b) problems of institutional coordination. Although the project has been given priority status, the shortage of counterpart funds is unlikely to be completely alleviated. However, partial Bank financing of local costs should help ease the situation and SPP and SARK have already agreed on 1986 (year 1) budget levels close to projections proposed at appraisal. Problems of institutional coordination should also be reduced by the federal and state level coordination mechanisms already established under the first phase project. Estimated Costs: / Local Foreign Total (US$ million) -- Infrastructure 86.9 41.5 128.4 Extension Services 17.9 2.4 20.3 Training 2.3 - 2.3 Research 7.7 4.7 12.4 Consultants - 1.8 1.8 Studies 3.3 - 3.3 Project Administration 8.6 1.0 9.6 Base Cost 126.7 51.4 178.1 Physical Contingencies 5.3 3.2 8.5 Price Contingencies 19.4 11.5 30.9 Total Project Cost 151.4 66.1 217.5 Financing Plan: Local Foreign Total --- TJS$ Million -- Government 108.5 - 108.5 Bank 42.9 66.1 109.0 Total 151.4 66.1 217.5 Estimated Disbursements: Bank FY: 1986 1987 1988 1989 1990 1991 1992 1993 1994 (US Million) - Annual 1.0 8.0 13.0 16.0 19.0 19.0 16.0 12.0 5.0 Cumulative 1.0 9.0 22.0 38.0 57.0 76.0 92.0 104.0 109.0 Rate of Return: 23.3% Map: IBRD 19197 1/ Rounded. Excluding taxes and duties.  - 3 - II. THE AGRICULTURAL SECTOR Agriculture in the Economy 2.01 Mexico's agricultural sector contributes some 10% of the gross domestic product, employs about one-third of the country's active labor force, and contributes approximately 6% to the country's exports. During the decade of the 1970s agriculture's rate of growth declined significantly to average 3Z per annum as terms of trade turned against agriculture. Also, agriculture's share of exports dropped dramatically and imports sharply increased, and as a result sectoral policies came under review. Agricultural production again increased in both 1980 and 1981 at an annual rate of about 6.5% at least in part because of a deliberate policy of increasing subsidies on basic products and inputs under the Government-sponsored Mexican Food Program (SAM). However, SAM proved too costly, and in 1982, when prices were allowed to lag behind the high inflation rate of that year, the value of production experienced a 0.4% negative growth rate. Present Agricultural Policy 2.02 At the end of 1982, when the current Government took office, there was an urgent need to reassess and reorient agricultural development policies. After substantial devaluations, domestic farm-gate prices had deteriorated in real te Ds. Strong price increases, especially for the basic commodities, were required if farmers were to maintain and increase production levels. On the other hand, in order to suppress inflation there was a need to contain food price increases. Also, in view of high public sector deficits, the Government's agricultural subsidy policy needed to be overhauled. 2.03 The strategy which was developed and outlined in the National Development Plan for 1983-1988, aims at accelerated agricultural growth. The policy emphasizes the importance of agriculture in increasing Mexican exports and guaranteeing farm prices which are consistent with international prices; the fiscal problem was to be addressed by reducing consumer and producer subsidies, but due to continued high inflation and reduced incomes progress in reducing consumer subsidies has been less than expected. Controlled producer prices for most important crops, including basic staples such as maize and wheat, have been raised twice-yearly to compensate for inflation since the beginning of 1983, and are currently at or close to international levels. As a result, the average annual growth of production of basic staples has been about 5% in 1983-1984. Input subsidies have been strongly reduced. Subsidized prices for key inputs (i.e., fertilizer and seeds) are now only available for rainfed-maize production to small farmers holding less than 20 ha each. Interest rates on agricultural subloans, which until recently were fixed and generally negative in real terms, have been made variable and are to approach positive levels gradually in accordance with a timetable that forms part of the General Interest Rate Agreement between the Government and the Bank. Continued adjustments of irrigation water rates are being made in order to achieve operation and maintenance cost recovery under a general strategy to improve the use and management of Mexico's water and soil resources.  2.04 The Government is also taking steps to decentralize planning, programming and implementation of rural development projects to state and local levels and to improve interagency coordination. In support of these initiatives, SARH published the 1985-1988 National Program for Integrated Rural Development (PRONADRI) which focuses on the poorer segment of the farming population who have traditionally not received significant support. Regional Development in the Humid Tropics 2.05 Mexico's humid tropics are located primarily on the Gulf Coast and in the southeast of the country. Within this area SARH estimates that there are about 7.5 million ha of unutilized or underutilized land with soils of moderate-to-good agricultural potential, primarily in the coastal plains. The rainfall reaches 1,700 mm and falls mainly between June and September. The high temperatures and humidity lead to serious disease, pest and weed problems. In addition to these problems, agricultural development in the region has been constrained by: (a) poor access for inputs and outputs; (b) regular flooding of lowland areas; (c) high illiteracy rate; (d) competition for resources from the rapidly developing petroleum industry; and (e) steady expansion of extensive livestock production. 2.06 Despite operating at a low level of technology, the area produces a significant proportion of the national crop output. For example, in 1980 it produced 25Z of the national maize crop, 34% of the rice, 13% of the beans, 65% of the sugar, 25% of the beef, 100% of the cacao, 50% of the coffee, 65% of the honey, and 25% of the forestry products. 2.07 Systematic studies to determine the technical, social and administrative constraints limiting development of the lowland tropics began in 1978. These included the Bank-financed pilot Tropical Agricultural Development Project, Loan 1553-ME (PRODERITH I). The development strategies which resulted included: (a) increased crop production through more efficient and rational use of natural resources; (b) priority development of coastal plains where low-cost supporting infrastructure could be incorporated into local rural development schemes; (c) improvement of clean water supplies to urban areas and reduction of upstream contamination; and (d) development of river-based hydroelectric schemes. The 1983-1988 National Development Plan supports these strategies and expansion of the PRODERITH approach in high potential areas with relatively few drainage problems. Past Experience with Bank Lending 2.08 In the past ten years (FY75-85), Bank participation in the agricultural sector amounted to US$2,732 million distributed among 22 projects as follows:  - 5 - (a) Irrigation: (Panuco 969-ME), Sinaloa I (970-ME), Rio Fuerte/Sinaloa II (1706-NE), Bajo Rio Bravo/Bajo Rio San Juan I (1111-NE), Apatzingan (1858-ME), Ocoroni (1908-NE), and Bajo Rio Bravo/Bajo Rio San Juan II (2100-ME) - US$539 million; (b) Integrated Program for Rural Development PIDER I (1110-ME), II (1462-ME), and III (2043-ME) and Papaloapan Basin (1053-ME) - US$431 million; (c) Rainfed Agriculture: PLANAT (1945-ME) and San Fernando (2191-ME) - US$311 million; (d) Agricultural Marketing: FIDEC (2262-ME) - US$115 million; (e) Agricultural Credit: FIRA V (1217-NE), VI (1569-ME), VII (1891-ME), VIII (2454-ME), Interim (2610-ME) - US$1,130 million; (f) Area Development: Tropical Agriculture PRODERITH I (1553-NE) and Chiapas Agricultural Development (2526-ME) - US$146 million; and (g) Small-scale Agriculture Infrastructure Development (1643-ME) - US$60 million. 2.09 During the past year, completion reports were issued on two projects: the Bajo Rio Bravo Irrigation Rehabilitation Project (Loan 1111-ME) and the PRODERITH I Project (Loan 1553-ME). In general, implementation of ongoing projects is currently slow because of limited counterpart funds. This slowness and the fact that the Government's financial control and reimbursement procedures are cumbersome, had caused disbursements to lag. The Government, in consultation with the Bank, has reduced the scope of and cancelled loan funds for some of the ongoing projects and has reviewed the financial control procedures and introduced some simplification. Recent stringent stabilization measures contributed to the budgetary problems, which further slowed down execution of ongoing projects and disbursements. However, the Bank's implementation of a Special Action Program has eased the budgetary constraints somewhat and facilitated project implementation. Experience of PRODERITH I 2.10 The PRODERITH I Project was considered a success by the June 1985 completion report. In the six pilot areas which comprised the project, the following overall benefits were identified: (a) the crop area was increased by about 40,000 ha; (b) yields of basic crops rose significantly e.g., between 1979 and 1983 maiz2 yields in two of the pilot areas increased about 60% compared to average rainfed district increases in the same zone of about 20%; (c) drainage infrastructure reduced waterlogging on about 100,000 ha; (d) the level of farm family participation reached 30-50% in the pilot areas; (e) 32 detailed local development plans were prepared in close collaboration with the communities themselves; (f) over 950 farmer groups were established for production, marketing and credit purposes; and (g) about 50 women's groups were formed for small-scale agroindustrial projects such as poultry units, sheep flocks and bakeries.  - 6 - 2.11 The main reasons for the project's success were: its pilot approach to testing development strategies, effective and stable project management, careful local development planning, training and supervision of field staff, high density extension coverage, and strong support from senior SARH officials. Despite the successes there were early problems most of -4hich were resolved during implementation, including: lack of experience with design, construction and supervision of drainage works in the humid tropics, poor administrative coordination with other extension agencies, inadequate monitoring of credit flows, and insufficient attention to marketing constraints. A detailed discussion of the lessons learned during implementation of PRODERITH I is given in Annex 11. III. THE PROJECT Background and Rationale for Bank Involvement 3.01 The proposed project was prepared by CPNH with assistance from Bank missions that visited Mexico between January and April 1985. It was appraised in June 1985, and negotiations took place in Washington, D.C., from January 27 to January 29, 1986. The Mexican delegation was headed by representatives from NAFINSA, and included representatives from SARH and the Secretariat of Finance and Public Credit (SHCP). 3.02 The rationale for the project stems from the largely positive experiences of PRODERITH I whose pilot areas were chosen to be representative of wider areas of expansion. As such they were always seen as precursors to future investments which SARH currently describes as the phased development of Mexico's tropical lowlands by the year 2000. SARH has also concluded that of the many development programs tested in the region, PRODERITH has achieved the most success and therefore should be the model for future investments. This is consistent with the Government's and the Bank's focus on providing more direct productive assistance to poorer farmers in rainfed regions which have traditionally received only limited support. Continuing Bank involvement in the program is justified by its high priority, the need to assist in the consolidation and further refine-aent of the strategies developed under PRODERITH I, and the shortage of additional financial resources needed to carry on the development program in the region. Project Objectives and Description 3.03 The main project objectives would be to: (a) alleviate poverty by improving economic conditions of about 40,000 rural families through more efficient utilization of local resources and provision of improved infrastructure and services; (b) expand the rational exploitation of Mexico's tropical lowlands using technical, administrative and organizational measures successfully tested under PRODERITH I; Cc) increase agricultural productivity and production; and (d) strengthen agricultural institutions and promote greater producer involvement in operation and maintenance of infrastructure.  -7- The project would draw heavily on the experience of the first phase project and has been designed in accordance with the Government's 1983-1988 National Development Plan and 1985-1988 PRONADRI objectives (para. 2.04). 3.04 The project would comprise eight subareas. Four would be expansion areas of PRODERITH I pilot projects (Pujal Coy II in Panuco, Centro de Vera Cruz in Vera Cruz, Zanapa-Tonala in Tabasco, and Oriente de Yucatan in Yucatan) (Map, IBRD 19197) and one would reestablish the pilot project which was cancelled in 1983 but now appears to warrant renewed support (Tesechoacan in Vera Cruz).2/ The remaining areas would be new pilot projects to be selected from a list to be studied in the first two years of project implementation. During negotiations, Government provided assurances that it would complete the feasibility studies of the new pilot areas for Bank review, approval and selection by December 1987 (para. 4.01(a)). 3.05 Project components would include: (a) infrastructure construction in the subproject and pilot areas (Annex 2) as follows: (i) about 1,500 km of farm service roads to improve access for inputs and marketing of outputs, about 700 km of which would be adjacent to drains; (ii) about 700 km of primary, secondary, and tertiary drains to remove excess surface water and lower water tables; (iii) about 1,400 supporting structures such as culverts, fords, and bridges; and (iv) general civil works including about 109,000 tons of input storage, about 20 silos, about eight heavy equipment repair and maintenance facilities, and two office complexes for field staff; (b) on-farm land treatment (Annex 2 and Annex 12, Appendix 1) as follows: (i) about 36,000 ha of field drains, ditches, and land smoothing; (ii) about 47,500 ha of soil conservation systems involving contour farming, terracing, grassed waterways, windbreaks, and conservation tillage; and (iii) about 60,000 ha of mechanical clearing and major land smoothing; (c) purchase of heavy equipment and vehicles for operation and maintenance of infrastructure (about 120 units) and vehicles for construction and production operations (Annex 2); (d) strengthening of agricultural extension, farmer organizations and agricultural research serving about 40,000 families on a net area of about 850,000 ha of potentially productive land (794,000 ha in the five subproject areas and 56,000 ha in the three new pilot areas) within a gross geographic area of about 1.2 million ha. Main investments for extension personnel would include purchase of about 180 vehicles and 180 motorcycles (Annex 3). Main investments in research would include minor works to complete facilities begun under PRODERITH I, purchase of laboratory and mass media equipment and vehicles, and support of about 195 man-years of research for the extension program (Annex 4); 2/ The sixth of the PRDDERITH I pilot areas is included for expansion under the Bank-financed Chiapas Agricultural Development Project (Loan 2526-ME).  (e) training in techniques of integrated rural development, rural communications, producer organization, self management schemes (e.g., operation and maintenance of infrastructure), drainage and soil conservation, and production systems-oriented methodology in crop, livestock, and forestry production. Four types of training would be offered: formal (480 man-months), in-service (480 man-months), new staff (600 man-months) and for producers (1,500 man-months) (Annex 5); (f) studies as follows: (i) complementary studies on the subproject areas; (ii) detailed studies on the five new pilot areas from which three would be selected after Bank review for financing; and (iii) marketing studies for the products to be produced in the subproject areas (Annex 6); and (g) fifteen man-years of consultancies including 8.0 man-years of expatriate technical assistance in soil conservation and 5.5 man- years in mass media comimunications. These would extend two effective ongoing programs (USDA Soil Conservation Service and FAO) established under PRODERITH I. The balance of 1.5 man-years would be for short-term local or expatriate consultancies to resolve specific technical issues as they may arise during implementation (Annex 7). Project Execution 3.06 Despite a reorganization of SARH in August 1985 (Annex 8 and Chart 1), responsibilities for project management would continue largely along the lines successfully established under PRODERITH I. CPNH through its Project Coordinating Unit (PRODERITH) would be responsible for overall project coordination, monitoring and supervision. The executive secretary of CPNH would continue to chair the Technical Committee, which would comprise all executing agencies plus the National Rural Credit Bank (BANRURAL), the Agricultural Trust Fund (FIRA), the National Insurance Company (ANAGSA), the Secretariat of Finance and Public Credit (SHCP) and SPP. During negotiations, Government provided assurances that CPNH would continue to act as project coordinator and that the Technical Committee would be maintained (para. 4.01(b)). Furthermore, in order to ensure that adequate investment and production credit would be made available from existing sources, Government also provided assurances that the existing agreement on supply, coordination and supervision of credit established under PRODERITH I would be extended to cover the area and implementation period of the project (para. 4.01(c)). A Bank mission visited Mexico in December 1985 to appraise a Mexico Agricultural Credit - FIRA/FICART Project which will help ensure the supply of credit to the project area. 3.07 Day-to-day execution of the infrastructure and civil works activities would be the responsibility of the General Directora:e of Irrigation and Drainage (DGID). Civil works designs for the first year's work program have been prepared and tendering would begin before Board presentation. Research would be executed by the National Institute for Forestry, Agriculture and Livestock Research (INIFAP) and extension services by separate Regional Centers for Rural Development (RCRD) within SARH's Rural  - 9 - Development Districts (RDD) (Chart 2). PRODERITH field offices would operate as separate RCRD and subproject and pilot area chiefs would report directly to the RDD chiefs thereby ensuring effective integration with SARH's existing extension infrastructure. However, the project would require PRODERITH field staff to do additional work not covered under existing RCRD job descriptions, such as preparation of local development plans and monitoring and evaluation of the project. Consequently, SPP and SARH would identify certain staff positions as -special posts- to ensure that salary levels adequately compensate staff for this additional work. This review is underway. Extension services would increase direct support to farmer groupG and enterprises with the long-term goal not only of increasing production and farmer income but also of recovering at least part of the cost from the groups themselves. Training programs which have already been planned in detail would be provided by PRODERITH with assistance from the Chapingo Graduate University's extension training center near Vera Cruz (CRECIDATH). Detailed implementation schedules by component and subproject area are available in the Technical File, Annex 12. Project Costs and Financing 3.08 The total project cost is estimated at US$217.5 million excluding taxes and duties. Foreign exchange is estimated at US$66.1 million or 30% of total costs. The base cost is estimated at US$178.1 million based on December 1985 costs. In view of the wide divergence between international and local inflation rates, all cost tables and financial projections are presented in US dollars. Physical contingencies (5% of base costs) have been estimated at the rate of 10% on infrastructure and civil works only. Price contingencies (17% of base costs) have been estimated at 7.0% for 1986, 7.0% for 1987, 1.5% for 1988, 7.7% for 1989, 7.6% for 1990, 4.5% for 1991 and 4.5% for 1992, and have been applied to all components except salaries. No price contingencies have been applied to the US dollar equivalent value of salaries since the Government's stated objective is to keep public sector operating expenditures controlled; between 1982 and 1984 real wages actually fell about 30%. Consequently, real US dollar increases in salaries over the project period are unlikely. The proposed Bank loan of US$109.0 million would finance 50X of total costs net of taxes and duties, which is equivalent to 100% of foreign exchange costs (US$66.1 million) plus 28% of local costs (US$42.9 million). Bank financing of local costs is justified in view of stringent stabilization measures undertaken by the Government in its efforts to reduce the deficit, the high poverty level of the project beneficiaries, and the relatively small foreign exchange component of the project (30% of total costs). The Government would provide the balance of 50% of project costs which would be equivalent tc 72% of local costs. The project would require about 180 man-months of consultant services. Special Account 3.09 To expedite project implementation, a Special Account would be established in NAFINSA. Up to US$7.0 million would be deposited by the Bank in the Special Account, which is equivalent to about four months of peak loan requirements. The Special Account would be replenished through the normal reimbursement of project expenditures.  - 10 - Procurement 3.10 There would be no international competitive bidding (ICB) on infrastructure and civil works, estimated to cost about US$105 million, due to the relatively small and dispersed nature of works. However, it is proposed (except as the Bank shall otherwise agree during implementation) to package all roads and road drain combinations (US$23.0 million or about 22% of all wocks under the project) in contracts of not less than US$0.5 million equivalent for procurement through local competitive bidding procedures (LCB) in accordance with Bank guidelines. For any civil works over US$1.5 million, the Bank's prior approval would be required before contracts !'ere awarded. During negotiations, Government provided assurances that it would agree with the Bank on bidding and review procedures for all contracts awarded under the project (para. 4.01(d)). 3.11 Equipment for operation and maintenance of works and laboratory equipment for research, estimated to cost about US$11 million, would be procured under ICB procedures In accordance with Bank guidelines. Qualified domestic manufacturers for the supply of equipment, goods and materials would receive a margin of preference of 15% or the import duty, whichever is the lower. The balance of equipment, vehicles, goods, and material contracts which would comprise large numbers of small items in individual contracts under US$150,000 equivalent (US$5.0 million) would be procured according to local competitive bidding procedures acceptable to the Bank. For any goods over US$250,000, the Bank's prior approval would be required before contracts were awarded. Consultants for soil conservation and mass media communications would be selected in accordance with Bank guidelines. During negotiations, Government provided assurances that it would follow the procurement procedures outlined in paras 3.10 and 3.11 (para. 4.01(e)). Table 3.1 Procurement Arrangements a/ Project Element ICB LCB Other Total Cost J~~- -S$ Million-- - Civil Works - 102 3 b1 105 (71) (2) (73) Equipment 11 5 - 16 (9) (4) - (13) Services - - 96 96 - - (23) (23) Total 11 107 99 217 (9) (75) (25) (109) a/ Values in parenthesis reflect amount financed by Bank. 1571 Quotations, direct contracting or force account for contracts under US$50,000 equivalent.  - 11 - Disbursements 3.12 The proceeds of the loan are expected to be disbursed over an eight-year period, which is based on the profile for similar agricultural projects in Mexico. The proposed loan would be disbursed mainly against normal documentation. Purchase of small items and contracts of less than US$20,000 would be grouped together as far as practical and disbursements made against statements of expenditure (SOEs). Disbursements for contracts for buildings and other works costing less than US$150,000 would also be made against SOEs. All contracts and supporting documents for SOE would be retained by the executing agency for review by the Bank as required and would be audited (para. 3.13). Recurrent expenditures would be financed on a declining basis as follows: year 1, 30%; year 2, 20%; year 3, 10%; years 4 and 5, 5%; thereafter 0%. The project provides for retroactive financing on infrastructure and purchase of laboratory equipment, not to exceed US$4.0 million for expenditures incurred after July 1, 1985. This would facilitate the implementation of approved infrastructure and continue the research work established under PRODERITH I. Project completion is estimated at June 30, 1993. Accounting and Audits 3.13 Prior to submission to the Bank, all documentation including SOEs would be subject to the independent review and approval of SPP in accordance with its established control procedures. SARH would maintain separate accounts on the project. An audit satisfactory to the Bank would be made of the accounts and SOEs. Certified copies of these statements would be submitted to the Bank no later than six months after the close of each fiscal year. The Borrower would also furnish to the Bank any other pertinent information concerning these accounts as the Bank shall reasonably request from time to time. Monitoring, Evaluation and Progress Reporting 3.14 The Monitoring and Evaluation Group established under the first project in the PRODERITH project unit in CPNH would continue to operate under the proposed project. It would monitor progress on project impact and the status of agricultural development, infrastructure works, research and extension, training and credit activities in the project area. It would analyze beneficiary acceptance and response to the development investments in terms of poverty alleviation, changes in production systems, as well as the project's environmental and sociological impact. Control areas would be established in similar agroeconomic areas to permit a valid impact analysis to be made. An additional responsibility of the Group would be to monitor, collect, process and analyze information on advances in research, their relation to the technical assistance offered and the extent to which the recommendations generated by the research centers are appropriate in supporting production at farm level (Annex 9). 3.15 The Group's findings would be taken into consideration in the preparation of each year's work program and budget for the project and would assist project management in identifying the problems and constraints so that they could be acted upon in a timely manner. Analysis of adoption rates of technical packages would also permit management to continually update the  - 12 - design end content of its extension services. The Group would also prepare an annual progress report and final completion report for Bank review, using a similar forma to that developed under PRODERITH I. Financial and Economic Justification 3.16 The project would remove constraints to agricultural development in the five subproject areas through drainage and road development. In addition, by encouraging the adoption of improved production practices, it would raise agricultural incomes and welfare of about 40,000 rural families, the majority of whom are in the low income target group (Annex 10). The area under rainfed cropping would increase by about 143,000 ha primarily at the expense of extensive livestock production. Although a wide range of crop and livestock activities are possible in the lowland tropics, the project 'L expected to have the greatest impact on the following at full development in Year 16: annual mailze production would increase about 101,000 tons, beans about 22,000 tons, sorghum about 210,000 tons, soya about 60,000 tons, rice about 14,000 tons, fruits about 219,000 tons and vegetables about 18,000 tons. Annual output of livestock products resulting primarily from increased productivity per hectare would increase by about 57 million liters of milk and 25,000 tons for meat (Annex 10). This incremental production of major crops would make a significant contribution to import-substitution (food grains and pulses, feed grains and oilseeds) as well as modest contributions to exports (cacao and potentially fruit and vegetables). The incremental value of production at constant 1985 prices of major crops is estimated at about US$100.0 million per year. Typical farm family 'ncomes are expected to increase significantly. For example, an ejidatario with 7 ha of mixed annual and perennial crops is estimated to increase his annual family income from current levels of about US$1,300 to about US$4,300 by full development (Annex 10). 3.17 The internal economic rate of return (ERR) of the project is estimated at 23.3Z (Annex 10) and is based on the incremental value of crop and livestock production over a 20-year period. Secondary benefits from drains and roads such as reduced flooding in urban areas and improved access to markets have not been included although they are likely to be considerable. The projected changes in land use and cropping patterns follow closely the investments in basic infrastructure and provision of services. Economic prices for traded commodities were derived from medium- and long-term Bank projections adjusted for handling, transport, and, where appropriate, processing. The calculation includes the costs of three proposed pilot areas, but no benefits from these areas have been included. Sensitivity analyses indicate that an increase in total project costs of 20% would reduce the ERR to 19% and a decrease in project benefits of 20% would reduce it to 18.2%. The combined effect of these rwo sensitivity tests would reduce the ERR to 14.5%, and a delay of three years in achieving project benefits would also reduce the ERR to 14.5%. Switching value tests have been calculated at three levels of opportunity cost of capital (11%, 15% and 20%), all of which support the project investment (Annex 10). Thus, the economic viability of the project is robust in the context of likely alternative scenarios.  - 13 - Recovery of Operation and Maintenadd..' Costs 3.18 The two approaches to operatioi and maintenance of infrastructure (O&M) agreed by SARH at appraisal are defined according to whether they are large works or small local works. The first refers to larger works which would benefit many communities (roads, drains and large structures). For these SARH would enter into agreements with local organizations such as multi-ejido unions to provide paid labor to maintain the works. However, responsibility for this O&M would remain with DGID. The second approach would introduce an innovation which it is hoped will ultimately lead to larger scale recovery of O&M costs of certain infrastructure over a wide area even outside the project. For these smaller works which would benefit individual communities (access roads and secondary, tertiary and field drains), SARH would train local groups to carry out the maintenance themselves. Beginning on an experimental basis on 40,000 ha in the Pujal Coy II subproject area, SARH would establish small funds to cover the costs of materials such as seed for grassing of drains and gravel for access roads. Start-up money for these funds would be provided by the project but over time (about four years for each group) community contributions would gradually take over responsibility for the fund's operation. During negotiations, Government provided assurances that these funds would be established on a pilot basis (para. 4.01(f)). Preliminary details are given in the Technical File, Annex 12, Appendix 1. Marketing 3.19 Incremental production generated by the project would be marketed primarily in the local area of the coastal plains where considerable deficits in supply of major crops and livestock products exist. The production increase in basic foodcrops, feedgrains and oilseeds (maize, beans, rice, sorghum, soya, sesame and safflower) would also help offset Mexico's imports in these categories (Annex 10). Incremental fruit production (pineapple, mango, citrus and papaya) would be consumed in local urban centers and to a lesser extent by processing industries and small exporters of fresh tropical fruit. The projected increase in sugar production which is equivalent to only 2.1% of Mexico's 1984/85 national output, would be consumed locally. Incremental milk and meat production resulting from increased productivity on a reduced pasture area would also be consumed locally. Despite imperfections, existing marketing systems are considered capable of handling the project's incremental output. In basic crops, the project's construction program would also help reduce problems of collection and storage. The project would also continually monitor marketing requirements through the program of local development planning and the proposed overall marketing study for the region to be carried out early in project implementation and updated on a regular basis.  - 14 - Environmental Impact 3.20 Measures would be taken to protect the environment. Civil works, in particular the drainage system, would be designed to: (a) utilize sediment traps to minimize soil particles from being carried into the permanent wetlands and lagoons; (b) control the run-off of agricultural fertilizer and chemicals; and (c) maintain a depth and flow of water in the drains to reduce the possibility of establishing breeding areas for mosquitos and water-spawned insects. SARH has already initiated environmental impact studies in accordance with current legislation. Research would be conducted to determine fertilizer and chemical application rates and methods compatible with obtaining optimum yields while protecting the environment from chemical contamination. Tne extension services would advise farmers on the safe and proper application and use of fertilizers, chemicals and cultural practices required to protect the user and the environment. This would also include the recommendation not to use dangerous chemicals in compliance with Bank Guidelines on the Selection and Use of Pesticides (OPN 11.01). Cultural practices would include soil conservation measures, such as terracing, contour cultivation, windbreaks and incorporation of crop residue into the soil. These practices would conserve soil and moisture and reduce run-off of water and soil particles that would otherwise carry fertilizers and chemicals to areas where they could cause detrimental effects. Furthermore, the Government is planning to set aside by law an ecological reserve in the Pujal Coy II subproject area equivalent to 16% (44,000 ha) of the productive area. Sociological Impact 3.21 With respect to sociological impact, the project would have a major impact on reducing rural poverty and would also improve the economic status of women in rural areas (paras. 2.10 and 3.16). Furthermore, the experience of PRODERITH I has produced a method of analyzing the social environment through the elaboration of local development plans. The project is also designed to focus on ejidos and small-holders, who are most likely to take advantage of drainage and flood control to intensify crop production and convert grazing land to crop production. Thus, the project would have a positive impact on the socioeconomic balance within its areas of influence. In addition, it would increase employment by about 6.7 million man-days per year, equivalent to about 25,800 full-time jobs, in the areas of Intensified crop and livestock production, as well as substantial part-time employment for weed control, harvesting and operation and maintenance of infrastructure. This would reduce the need for the unemployed and underemployed to migrate to other areas seeking opportunities for jobs. Project Risks 3.22 The main risks include (a) shortage of counterpart funds and (b) problems of institutional coordination. Although the project has been given priority status, the shortage of counterpart funds is unlikely to be completely alleviated. However, partial Bank financing of local costs should help ease the situation and SPP and SARH have already agreed on 1986 (year 1) budget levels close to projections proposed at appraisal. Problems of institutional coordination should also be reduced by the feleral and state level coordination mechanisms already established under the first phase project.  - 15 - IV. *SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION 4.01 During negotiations, assurances were obtained that Government would: (a) complete the feasibility studies of new pilot areas for Bank review, approval and selection by December 1987 (para. 3.04); (b) retain CPNH as the project coordinator and would continue the Technical Committee established under PRODERITH I (para. 3.06); (c) extend the agreement signed under PRODERITH I to meet the credit needs of the project areas (para. 3.06); (d) agree with the Bank on bidding and review procedures for all contracts awarded under the project (para. 3.10); (e) follow procurement arrangements outlined in paras. 3.10-3.11; and Cf) establish local funds for operation and maintenance of small scale infrastructure on a pilot basis in Pujal Coy II (para. 3.18). 4.02 With the above assurances, the proposed project would be suitable for a Bank loan of US$109.0 million on standard terms for Mexico. February 7, 1986  - 16 - Annex 1 Table 1 MEXICO PRODERITH II PROJECT Project Costs, Financing Plan and Disbursements Total Project Cost Sunmary 11 (US$ '000) Z Total Z Foreign Ibs Local Foreign Total Exdhag Costs A. INFRASTRUCTURE FIJAL CMY II 45p7375 19835.4 65,572.8 30 37 ZAMAPA-TUNM 14118.0 7,254.4 21,372.4 34 12 ORIENTE DE YUCATAN 5842.6 20734.3 9P576.0 32 5 TEESECHOAC 34911.0 2,331.3 6,242.3 37 4 VERACRUZ 59677.1 3,00M.0 8W86.1 35 5 PILOT PROJECTS 11,655.8 6.259.S 17,915.4 35 10 Sub-Total IISTRUCTIRE 86,942.0 41,423.9 128,365.9 32 72 3. A6RICLLTURK SWPORT SERVICES EXTENSION 179912.4 29437.3 20M349.7 12 11 TRAINING 2r295.3 - 2r285.3 - I RESEARCH 70725.5 4,719.0 12,444.4 38 7 Sub-Total AGRICULTURAL SUPPIET SERVICE3 27923.2 7,156.3 35,079.4 20 20 C. PROJECT MANAGEMENT CONSILTANTS - 1,900.0 1,800.0 100 1 STUDIES 3,2S5.6 - 3,255.6 - 2 PROJECT InPLENETATIN AND ADMINISTRATION 8617.0 1,030.6 9,647.6 11 5 Sub-Total PROJECT MAGENT 11872.5 2,830.6 14w703.1 19 a rotal BASELINE COSTS 1269737.7 51410.7 178,148.4 29 101 PhYsical Continnnci 5,280.6 3,236.5 8,517.1 30 5 Price Continncits 19,378.0 11,505.8 308993.8 37 17 rotal PROJET COSTS 151,396.3 66,153.1 217,549.4 30 122 I/ Excludin% taxes and 'utieq. Janary 31, 1986 13:40  - 17 - Annex 1 Table 2 MEXICO PRODERITH II PROJECT Project Costs, Financing Plan and Disbursements Financing Plan (U$ millimn) Government Bank Total Infrastructure: - Investment 41.1 83.7 124.8 - Operations 32.9 3.5 36.4 Extension 15.6 6.7 22.3 Research 10.2 4.3 14.5 Technical Assistance, Training and Studies - 8.8 8.8 Project Administration 8.7 2.0 10.7 Total 108.5 109.0 217.5 Percent 50.0 50.0 100.0 Note: Purchase of goods and equipment are normally exempt from taxes; taxes on civil works would not exceed 8Z of cost. February 3, 1986  - 18 - Annex 1 Table 3- MEXICO PRODERITH II PROJECT Project Costs, Financing Plan and Disbursements Schedule I of Loan Agreement Allocation of Z of Expenditures Category Loan Amount to be Financed (US$ million) 1. Civil works for roads, drains, structures, soil conservation, land clearing, on-farm works storage and buildings, including design and engineering 73.0 70% 2. Vehicles, equipment, goods, and spare parts 13.0 90Z of local, 100% of foreign expenditures 3. Consultant services, studies and training 8.0 lOOZ 4. Incremental recurrent expenditures including salaries and operation and maintenance costs of equipment and works 5.0 30% year 1 20% year 2 10% year 3 5% year 4 5% year 5 5. Unallocated 10.0 Total 109.0 February 3, 1986  - 19 - Annex 1 Table 4 MEXICO PRODERITH II PROJECT Project Costs, Financing Plan and Disbursements Estimated Disbursement Schedule (US$ Million) Fiscal Disbursement Cumulative Year Semester During Semester 1, Disbursements 1986 June 30, 1986 1.0 1.0 1987 December 31. 1986 3.0 4.0 June 30, 1987 5.0 9.0 1988 December 31, 1987 5.5 14.5 June 30, 1988 7.5 22.0 1989 December 31, 1988 7.5 29.5 June 30, 1989 8.5 38.0 1990 December 31, 1989 9.5 47.5 June 30, 1990 9.5 57.0 1991 December 31, 1990 9.5 66.5 June 30, 1991 9.5 76.0 1992 December 31, 1991 8.5 84.5 June 30, 1992 7.5 92.0 1993 December 31, 1992 6.5 98.5 June 30, 1993 5.5 104.0 1994 December 31, 1993 5.0 109.0 I/ Based on the disbursement profile for agriculture projects in Mexico. Assumes the loan would become effective March 31, 1986. February 3, 1986  - 20 - Annex I EXICM Table 5 PRUITN II PbOJECT Semar kAournts by Year BaseCosts (ILC '000) Foreimn Ewhahie 1 2 3 4 5 6 7 Total z Imunt 1. NU COSTC A. CIVIL llC ROADS 2,34i.6 4,074.8 3,456.9 2,984.9 2,668.9 1P960.7 - 17,494.7 38.0 6,648.0 ROMDS VITH DRAIWS 236.8 789.3 789.3 592.0 592.0 513.1 - 3,512.5 38.0 19334.8 DRAIns 2,388.9 30725.2 3,510.3 3,408.0 2,910.1 3,192.5 - 19.135.1 38.0 7,271.3 S UClIES 252.0 917.1 900.1 827.6 714.8 546.8 - 4,158.3 38.0 1.580.2 SOIL CONSERATION - 460.4 497.8 506.4 524.4 471.1 26.7 2,489.9 39.0 945.8 LAD CLMEMR1 2,652.2 4,746.7 44945.6 4,054.4 4,677.4 - - 20,976.3 38.0 7,971.0 ON-FAR MMS 795.3 2,508.4 29564.4 29534.4 2,435.6 1,469.9 197.8 12,495.7 33.0 4,748.4 FERTILIZER SORES - 31.6 31.6 31.6 31.6 31.6 - 159.0 39.0 60.0 WAIN STlRE5 622.2 364.4 431.1 453.3 742.2 466.7 - 3,060.0 39.0 1,170.4 NJIIII11 444.4 968.4 240.4 18.2 - - - 1,671.6 38.0 63.2 Sub-Total CIVIL illS 99730.5 18,586.3 17w267.6 15,412.9 15,297.0 9,652.3 224.4 85w171.2 38.0 32,365.0 B. VEHIMES, INCHERT AND EOUIPIENT VEEICLES 1P144.4 567.8 - 485.6 188.9 - - 2.336.7 85.0 2,028.7 rCIIR AND EaUfIRET 1,491.9 6,00.7 2W050.8 2,086.9 39.7 20.0 50.2 11.840.2 05.0 10,064.2 Sub-Total UEHICS N*CHIERII AM EWIElNl 2,636.4 69668.4 2,050.8 29572.5 228.6 20.0 50.2 14,226.9 95.0 12,092.9 C. S7DIES 1,119.5 1,118.5 803.7 107.4 107.4 - - 3,255.6 0.0 0.0 D. TECDICAL ASSISTANICE 1.0 210.2 664.9 655.1 44.9 44.9 - 1,800.0 100.0 1,800.0 Total IUES11NT COITS 13,665.4 26,583.5 20,787.0 19,747.9 15,677.9 B9717.2 274.7 104.453.6 44.3 469257.9 II. REOlDE COSTS A. SARIES 3,091.1 5,080.4 5,396.1 5,453.6 5,569.9 4,976.4 3799.3 33,257.0 0.0 0.0 B. OERATION AND IIW IENN 464.9 1,277.2 1871.3 2,170.4 2r517.1 2,S98.3 2,660.9 13,560.1 3B.0 5,152.8 C. TRAINING 140.9 252.3 262.8 35O.0 396.3 * 439.6 443.6 2P285.3 0.0 0.0 D. OPERATIN COSTS 20712.4 4,604.6 4,457.3 4.197.0 4,205.5 3,027.1 1,3E8.6 249592.4 0.0 0.0 Totil REE:IT COSTS 6,409.2 11,214.4 l11,77.5 12,171.1 12,689.8 10,941.4 92M.4 73n694.8 7.0 5,152.8 Total BASELIIE COSTS 20P074.7 3?.797.9 32,764.5 30,919.0 28,366.7 19,658.6 8,567.1 178,148.4 28.9 51,410.7 Physical Cmntinimncies 973.1 1i852.6 1,726.8 1.541.3 1,529.7 865.2 22.4 9,517.1 38.0 3,236.5 Price ContinsllCies 483.9 3,013.5 4PSi9.1 6.413.9 7,775.2 6.209.8 2,418.4 30,883.8 37.3 11,505.8 Total PROJECT COSTS 21,531.6 42,670.1 39,060.4 38.874.2 37,671.6 26.733.6 11,J07.9 2179549.4 30.4 66,153.1 Foreisn Exchae 6,964.9 15,505.1 12,163.9 12P,00.2 10,345.3 6,741.0 1,M.7 66,153.1 0.0 0.0 Janury 31v 1986 13:40  llEXIC0 PRO-RITN II PRO-JECT Pro t Coawwnts be Year Totals Including Continrneies Totals Includirn ContinWteius (US9 million) CUSi '000) 1 2 3 4 5 6 7 lotal 1 2 3 4 5 6 7 Total A. INFRASTRUCTUE PUJAL COY 11 7,3 16.7 14.5 15.9 17.4 9.9 0.5 82.2 7,279.4 16,683,0 14,537.9 15930.1 17,356.7 9M901.9 525.8 82,214.7 ZAPIA-TOWALA 1.0 5.2 5.3 5.4 5.4 5.0 0,3 27.6 1,041.3 5,205.0 5,272.7 5,41890 54352,2 5.029,6 9.3 27.611.0 ORIENTE BE YUCATAN 1.4 2.1 2.4 2.1 1.9 0,7 0.1 10.6 1,384.9 2,055.3 2,365.6 2,133.1 1.889.I 706.2 96.7 10630.8 TESECHOACAI 1.5 1.9 1.2 1.6 0.9 0.2 0.2 7.4 1,533,0 1,762.0 1,174.0 1,612.4 881.3 225.6 232,9 7,421.2 - 2.4 2.3 1.4 1.7 1.8 0.9 0.2 10.5 2,350.3 2,301.2 1.377.2 1,676.4 1,757.4 878.6 202.7 10.543. PILOT PROJECTS - 7.1 5.9 3.5 2.4 1.8 1.1 21.9 - 7090.9 5,901.4 3,546.2 2.441,4 1,786.2 1,114.0 21,960,1 ----------------------------------- - -- Sub-Total IWRASTRUCTURE 13.6 35,1 30.6 30.3 29.7 19.5 2.5 160,3 13,588.9 35,097,4 30,628.7 30.316.3 29.678.0 19,527.9 2464.3 160,301.6 Bo ASRICtLTtRL SPMTR SERVICES EXTENSION 3.1 2.9 2.7 3.7 3.3 3.3 3.4 22.3 3P075.6 2,88.9 2,694.9 3,668.0 3,319.9 3oM,2 3,350.0 22,269.6 TRAINING 01 0,3 0.3 0.4 0.5 0.6 0.7 3.0 145.0 276.8 309.2 443.2 540,1 635M1 669.7 3,019.2 RESEARCH 2.1 1.3 2.0 1.9 2.5 2,7 3.0 15.5 2,149,9 1,307.0 1,951.7 1,937.9 2,463.9 2,726,1 2,960.0 15,495.4 - -- - - ----.---- - - - --- ----- - -- Sub-Total AIRICULTURAL SLPORT SERVICES 5.4 4.5 S.0 6.0 6.3 6.7 7.0 40.8 5,369.4 4,452,7 4,955.8 6,049.0 6W323.8 6,S63.7 6979.9 40,784.2 C. PROJECT i(6MENT CONStLTANTS 0.2 0.2 0.8 0.9 0.1 0.1 - 2,2 185.4 230.6 782.4 929.5 61.2 64.9 - 2,154.0 STUDIES 1.2 1.2 0.9 0.1 0.1 - - 3.6 19152.1 1,227,1 945.7 136.0 146,4 - - 3M07M3 PROJECT IENTATION AND ADIINISTRATION 1.2 1.7 1. 1.5 1.5 1.5 1.6 10.7 1,235.8 1,662.3 1,7477 1,543.3 1,462,2 1487.2 1,563.8 10702.3 ----~~ -----. . . __......... .._._. .........._ ....... _. _.......___ Sub-Total PROJECT AMAGEIMENT 2.6 3.1 3.5 2.5 1.7 1.6 1.6 16.5 2.573,3 3,120.1 3,475.9 2,509,9 1,669,8 1,552,1 1,563.8 16.463,6 .... ..... .... ...... .... .... .. . ..... ....... ... ... . ........... .. .. .. .. . _. . _. __. _..........................._.__ _ Total PROCT COSTS 21.5 42.7 39.1 38.9 37.7 26.7 11.0 217.5 21,51,6 42,670.1 39,060.4 38,974.2 37,671,6 269733s6 11,007.9 217,549.4 0 ::ss *sss *wl S lmu azz Egg sn s Eggs . ................................................ smaw _x sm M................. axsm itEXXI uv=u z - -------- - - ----------------------- 3-- 3--33 - -33 - -33 -3333 333 3 3 3 Jnuary 31t 1986 13:40  P1ITH 11 IJECT 3auir kmt h, P.jtm cnt PUICT KuAiM IWFWUTWIUC E FUCT HImcal IOLTUIL 9U91 Sh1wlCtS IIULDWITATIU CtreinU nln ,;lUM It PILOT -A--- !J Co 011 ZNVA-IOIA TAN TrEOIAN WA= PIECTS EXMISIO TMINIUS lKAM CONIILTMIT^I nI AANINIOTPATIU Total Z 6A 1131111333 3123331311331121112 RNM311121113 1 321332 322w12111 211131231tat maxaoco 11113 ss3123x112 a221 ~ 1 3 12meer S. SllT Cll;l9 A, CIVIL 5 OAM 318640 ,015.1 2659.6 395.4 I .l7 762.6 - - - 5,49 l0.0 15749.5 RW5 WITH ORMAIN - 31512,5 -- - - - - - - 3512.5 1,f 3515.3 IAINS 13,196.1 - - 14029.4 1.205, 37044,5 - - - - - 191151 1.0 1991.5 SlTlUCIES 526.2 1331.7 305.7 194.7 360,0 5,440.0 -53 - - - - 4.5 10,0 415,3 SOIL COUMyIN I600.0 o.t - - 266.7 533.3 - - * - - 2,.9 lo.g 26.9 LA MEtII 2030.3 - - 197. 197. - - - - 20,976 10.0 20.7.6 WFI- an 2,097.8 1977,A ,t957 lU67 116,7 3,051.l - - - * - - 2495.7 10.0 1249,6 F ILIZ tN ES ISS.O - - - - - - - - - 1560e lo0e 1553 MIN slams 2644.4 - 200.0 213,3 22.2 - - - -oo 10,0 346.0 IULIUfh 52.7 11.2 - 17.3 53,2 I65.3 - - .9 - * - 1,71, 10,0 567,2 95b-Total CIVIL MO3 451,230.0 153I442 5965.0 3.023.? 5,245,9 1,477.3 - m ot t, - - 58,71.2 10,0 0,517.1 1. MIMEOS t MFHIIERNt6Ni EDUIPIET 13ICL51 - * - - - - 2,386.7 - - - - 231667 0.0 o0. Ki9wNII me EWIT 27M.2 1133.m 43.3 1,117, 942.0 2,437.6 .0 * I3m7. 1 - 1252.4 51,40.2 o, 0.0 h1eotl 11I351. , NHINERY 1W EWIPIEN 2,479.2 IOU.6 431.3 lill7.l 942.0 2.437,6 2,37,4 - 1,377.31* - 1.252A4 H4,229 o.0 0.0 C. o lUs - - - - - - - - - - 3,255.6 * 3.258,6 0.0 0.0 3. lEClCEAL SSISTNM - * - - - * * - - seeo - - 1moe1 o.o e.O Total ITN T CO M 4.7,709.2 16,6973 6,4400.6 41m tIV.137 114.54. 2,367.4 - 2,266.7 300.03,25. 3 6 .224 504,453.6 3.2 3557.1 It. IMOIT COSTS A. SMIIES 7,035.1 5,622 6n,? 65. 990o7 2448. 12P40,4 * 1730#2 -W- 5 l3573 3 7.4 0.0 6.0 3. PlM AN MIANUME 1,422.3 716.7 250.7 612.4 565.3 5,542.7 - 3,447, - - *11560.1 o.0 0.0 C. TRAININ - - - - - - - 29215,3 - * - 2,25.M3 0.0 0.0 De WbWiE C09s 91,1405.3 2.093. I,052.4 "9.3 94.2 2 00J M,345, * - * - 3077l 24,592.4 o.0 to0 Total E T MSI 57366 4,674.7 2p760 2,101.3 2M.2 6,000.5 5742,2 2825.310 177.3 - - U35.1 73.,9440 0.0 e00 Total 3 1E COM 60,5m7.3 21,A.4 3,576.3 642.3 16 517,915.4 20349.7 2258,3 12#444,4 1.3000 3,5.4 9647.6 173,146.4 4.3 ,557.1 Piwical CamtirSwincs 41523.0 5153.4 596,1 302.4 524.6 947.7 - - UNi - - O,517,1 0.0 0,0 ?ic,V ConhinWi4Sn 12,553, 4,704.5 5,457.3 376.5 1t330 3,017,1 11919 733.3 20962.5 354.0 351.6 5.54s7 30,13.3 65 1,17&o7 *_8AW~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- -- _ ------- --s| D U JsJB __ ' -N_ Total PROET COSTI 32,214,7 37,611.0 10,630. 7.21.2 1R0.47 21.330. 22269.6 3019,2 15,495,4 2,554.0 3,407,3 10703 257,549.4 4.3 50M39. Farm5* Efims 263603o 9720.5 359l.8 2,353.1 3757t,9 7,9202 2,7. - 5,2.5 2.554.0 15202.5 66153,1 6.0 3,149,7 Jan 31, 116 13140  - 23 - Annex 2 Page 1 of 3 MEXICO PRODERITH II PROJECT Infrastructure and On-Farm Development 1. This annex summarizes key technical aspects of the infrastructure component: (a) design criteria for roads; (b) design criteria for drains; (c) seeding to control erosion; (d) organization and management;and (e) operation and maintenance of works. Design Criteria for Roads 2. Of the 1,500 km of farm service roads to be constructed throughout the area, approximately 1,270 km would be in the five subproject areas and about 240 km in the pilot areas. Over 40% of the roads would be designed with drains adjacent to them. Roads would be constructed to SARH standards. A 4-6 m width and thickness of 0.2 - 0.5 m all-weather gravel surface is normal for the area. The 6 m wide roads are considered adequate for transfer to the Secretariat of Communications and Transport (SCT) for maintenance. Construction of new roads would involve stripping surface soil under embankment areas to provide for a stable base. Borrow areas would be graded to minimize shallow standing water and insect-borne health problems. Suitable borrow materials are available within a reasonable distance in all subproject and pilot areas. Berms would be constructed between the road surface and drains when the two are located beside each other. Design Criteria for Drains 3. Drains would be required to remove excess surface water and control the water table. Depths generally would be limited to 1.5 m to avoid excessive lowering of the water table. A drain network of about 700 km would be located to provide the necessary land drainage and minor flood control. The network would also provide outlets necessary for field drain systems planned in the on-farm development modules. Typical dimensions for primary drains would be 4 m bottom widths, 1.5 m depths, and 2:1 side slopes. Secondary drains normally would have 1.5 m bottom widths, 1 m depths, and 2:1 side slopes. Collector drain dimensions usually would fall between those of primary and secondary drains. Side slopes would vary with soil type and bottom width and depth would vary with hydraulic and hydrologic requirements. Design capacities have been based on flows obtained from 48-hour duration storms based on five year frequency events except on flat lands (under 2% land slope) where drainage curve procedures have been used. 4. Design criteria for drains have also taken PRODERITH I experience into account, as well as the need to minimize construction costs. Side inlet facilities would be constructed along the drains to safely lower surface waters into drains without causing erosion. Sediment traps would be needed in some drains to control the movement of course grained sediments into receiving streams, estuaries and lagoons. This practice would also help  - 24 - Annex 2 Page 2 of 3 reduce the transport of non-soluble chemicals attached to water transported particles that could cause environmental degradation in receiving bodies of water. In areas where the potential environmental degradation of receiving water is critical and where water would flow directly from fields into channels or field drains, vegetated filter strips would be maintained to help control sediment and agricultural chemicals. Seeding 5. Disturbed areas along roads and drains would be seeded with grass to control erosion on channel side slopes, berms, and spoil banks as well as on road side slopes, back slopes, and borrow areas. All infrastructure contract specifications would include this requirement. Organization and Management 6. SARH Legal Department would be responsible for land acquisition for rights-of-way for the construction of drains, roads, and other civil works facilities. Approximately 1,280 ha would be acquired by out-right purchase or easement and SARH would compensate farmers for crop losses. Compensation for land and crops is included in project costs except for the Pujal Coy II subproject area which is handled by a special SPP appropriation. SARH's General Directorate of Irrigation and Drainage (DGID) would design infrastructure according to usual SARH practices and standards, and would handle tendering and supervision of construction through its resident engineering offices. Designs have already been completed for the first year's work program. Private contractors would carry out the construction. Adequate contracting experience and capacity are available in and around the subproject and pilot areas. The estimated infrastructure implementation schedules are noted in the Technical File, Annex 12 Appendix 1. 7. During the first year, the Government would begin implementation in each of the subproject areas and possibly in one of the pilot areas. Adequate regional, operational, and administrative centers (field offices) are already established in all subproject areas except Pujal Coy II which would receive one new center plus staff. According to preliminary studies of the three proposed pilot areas, cnly one regional operational and administrative center would need to be established and staffed with the remaining two requiring only staffing. Operation and Maintenance 8. SARH field offices would be responsible for regular periodic operation and maintenance (O&M) of roads, drains, structures, and other civil works in the project. The routine maintenance system would be monitored and evaluated to ensure that critical repair or maintenance items are prioritized. Maintenance work on infrastructure would be carried out according to two types of works needed (large or small) and the area  - 25 - Annex 2 Page 3 of 3 involved. The first type comprising larger infrastructure which would benefit many communities would be maintained by SARH. However, labor requirements would be contracted from local ejido unions wherever possible thereby ensuring their participation in O&M and providing some incremental income. 9. The approach for the second type of smaller works which benefit individual communities would be innovative and hence would be tested first in the Pujal Coy II subproject area. The objective would be to organize farmer groups to carry out the simple routine O&M work on sections of roads or drains which primarily impact their specific community. If successful, this effort could be expanded. A small community fund would be set up to initiate the process of self-help for these farmer groups. This is included in total project costs (US$210,000) and would be used to purchase small tools and equipment as well as material costs such as gravel and grass seed. Training of the groups to adequately recognize needs and perform the correct O&M in a timely manner would be initiated and continued by SARH as needed.  - 26 - Annex 3 Page 1 of 3 MEXICO PRODERITH II PROJECT Extension Services and Producer Organization A. Background Experience in PRODERITH I 1. Expansion and strengthening extension services and producer organizations are considered key elements to introducing technological change into the traditional agriculture of Mexico's humid tropics. To meet theee needs, PRODERITH I developed Technical Support Services to Integrated Rural Developmeat' (SETADRI). This decentralized system operated through locally based field units and had a strong commitment to work closely with farmers and their families in order to formulate and execute local development programs and provide relevant technical advice. B. The Project Producer Organizations 2. In the proposed project, the functions of SETADRI would be carried by the newly formed Regional Centers for Rural Development (RCRD) (Chart 2) and would have an increasingly important role in the organization of producers and the formulation of local development plans. The focus would be on working within existing local community organizations to permit them to better organize their marketing needs for inputs, services and outputs. This would also improve the ability of producers to negotiate more effectively with suppliers or purchasers and thereby through economies of scale create an element of competition for middlemen. The RCRD would provide technical services and would stimulate improved institutional coordination and dialogue with producers on access to credit, production and marketing facilities, and social services. Extension Methodology 3. Based on existing information on how to improve crop and livestock production and results to be generated under the project-supported research program-, in aspects such as improved soil-water management and multiple use of soils, technical packages would be field-tested and demonstrated at the farm level. These packages, developed in conjunction with the National Institute for Forestry, Agriculture and Livestock Research (INIAPF) (formerly INIA, INIP, and INIF) would include cultural practices, such as, improved seeds, land preparation, timeliness of planting, appropriate use of fertilizers, insect and disease control measures, establishment and management of improved pasture, and soil conservation and drainage techniques. An integral part of the process, which was successfully begun under PRODERITH I, would be the identification of progressive farmers who  - 27 - Annex 3 Page 2 of 3 would carry out field demonstrations under supervision of the extension agents and with technical support from local research staff. The agent would also arrange for other farmers to attend 'demonstration days" at various times throughout the growing season. These demonstrations would enable research results to be quiickly transferred to the farm, as well as provide feedback to researchers, which is vital to any effective research effort. When new programs, practices and concepts are being considered, selected farmers would be brought to the training centers for lectures, seminars and demonstrations. These farmers, along with the progressive farmers mentioned above, would be the major means of disseminating technical information and promoting its adoption. Field Staff and Extension Coverage 4. The following table illustrates the relationship between the number of field staff to the number of producers and to the area of productive land for each of the five subprojects. Sbroject Are Exaewiotn C>eag at Fu1 ]j-dopent a/ ProcesPr Pro.Xti've Area (ha) IXrectly Field Ha Per Per Fied Suoect Crop & Fruit Livestock Total Bmefitted Staff Field Staff Staff lijal Coy II 172,22' 104,253 276,477 13,500 64 4,300 210 Gent=o Veracrxz 45,761 24,385 70,146 5,500 25 2,80 0 Tesedkcacn 9,617 6,828 16,445 900 11 1,500 80 Zanapa-amala 23,540 72,480 96,02D 2,600 23 4,2m0 115 Oriente Ycatn 26,4900380/ 335,290 14,340 41 8,X20 350 Total 277,632 516,746 794,378 36,840 164 - - Average 4,800 225 a/ Eludes the dthe new pilot areas hicdh would have a ratio of aboit 1 tebiciLan: 1,000 ha, in the early yeas of biplamntatiin. This wwM beome les intensve the pilot asfs mmed into an expmicn pbe similr to the above in the subproject areas. b/ Extensive livestodck raising esXpt for 53,000 ha xdch epreent new inteive listok mxel  - 28 - Annex 3 Page 3 of 3 The variation in intensity of extension coverage between subproject areas is a function of their stage of agricultural development and estimated future land use potential. The most intensive coverage (1 technician:80 producers or 1,500 ha) would apply to the reactivated Tesechoacan pilot area. This is in line with coefficients used in intensive pilot areas in the first project. Variations in land use (cropland vs. grassland) among the subprojects would also affect the intensity. For example, in Oriente de Yucatan this ratio is at 1:8,000 ha since about 90% of the area is devoted to extensive livestock production. Organization and Management 5. As noted in para 2, each subproject area would operate as a separate Regional Center for Rural Development (RCRD) within SARH's newly defined Rural Development District (DDR) network (Chart 2).1/ Each RCRD would be responsible for providing all technical support services. There would be four Rural Extension and Promotion Units in each RCRD, except for the reactivated Tesechoacan pilot subproject and the new pilot areas, which would have one each. All 24 Rural Units would be located in major rural communities. They would consist of a chief and mid-level interdisciplinary teams comprising extension technicians and social workers. These Rural Units, in turn, would receive technical support from subject matter specialists based in a Support Unit at each RCRD. A Project Director would head up each RCRD whose principal function would be to coordinate the activities of the technical teams both internally and with other agencies, and serve as the main contact to PRODERITH headquarters. 6. Currently, RCRDs have about 158 staff under contract in the five subproject areas. However, to promote a higher level of production and efficiency under the project (including the three new pilot areas) an additional 137 staff (94 field technicians and 43 subject matter specialists and other support personnel) would be engaged. The cost over the seven-year implementation period to cover incremental staffing, vehicles, equipment, and operating expenditures is shown in the Technical File, Annex 12 Appendix 4 with additional information on extension service operations in Appendix 2. 1/ Pujal Coy II would have two RCRD.  - 29 - Annex 4 Page 1 of 2 MEXICO PRODERITH II PROJECT Agricultural Research Background 1. Until August 1985, the agricultural research system in Mexico consisted of three national research institutes, several parastatals with overall responsibility for production and marketing of specific commodities, many educational institutions, state-supported research programs, and private organizations. The three national institutes, which were dependencies of the Secretariat of Agriculture and Water Resources (SARH), had country level responsibility for research on crop production (INIA), livestock production (INIP) and forestry (INIF). In August 1985, SARH amalgamated these three institutes into the National Institute for Forestry, Agriculture and Livestock Research (INIFAP). A. Accomplishments in Research under PRODERITH I 2. Under PRODERITH I, the project successfully established the physical needs (infrastructure and human resources) of research in the humid tropics. One new integrated research center was built and two others are still under construction. One new livestock research center was constructed, two were expanded, and five field stations were rehabilitated. One new forestry research center was 40% completed and two existing ones were remodeled. Research staff in the trop'cs increased by 118; 186 man-years of fellowships were granted; 115 man-years of consulting services were contracted; and a new Center for Teaching, Training, and Research for the Development of Agriculture in the Humid Tropics (CRECIDATH) was constructed in Veracruz. B. The ?roject 3. The research component of PRODERITH II would build "rn and exploit the foundations established under the first project in order to generate, test, and disseminate technical packages that would increase agricultural production. Research would be characterized by more of an integrated focus (crup, livestock, and forestry) with greater emphasis on production systems at the farm level than was apparent in the first project. The newly established integrated research center at Huimanguillo, Tabasco would be one of the main focal points. Special emphasis would also be placed on research into soil-water management and multiple use of soils. Both commonly grown and non-traditinal crops, forage and pasture species, and fruits and vegetables would be incorporated into production systems and studied at the farm level. Livestock research would focus on production systems based on  - 30 - Annex 4 Page 2 of 2 pastures and agricultural by-products, animal nutrition, genetic improvement, reproductive efficiency and animal health. Forestry research would be oriented towards solving existing regional problems; such as, treatment of tropical woods, reforestation, disease and insect control, and use of local materials for fencing. The project would expand the program of validation of experimental results in producers' fields as a forerunner to the process of technology transfer through demonstration which would be carried out by the extension service with help from local research station personnel. 4. The project would support a total of 195 man-years of research (41 investigators) over seven years throughout the five subareas, thereby impacting about 850,000 ha. The cost to meet the incremental program for a seven-year period to cover construction of minor civil works, as well as purchase of vehicles and laboratory and rural communication equipment, staffing and operating expenditures is detailed in the Technical File, Annex 12 Appendix 4. Additional details concerning research are available in the Technical File, Annex 12 Appendix 2.  - 31 - Annex 5 Page 1 of 2 MEXICO PRODERITH II PROJECT Training A. Accomplishments Under PRODERITH I 1. Lack of adequately trained personnel was recognized as a constraint to the development of the humid tropics during preparation and appraisal of the first project. Consequently, beginning in 1978, PRODERITH organized a program of intensive training for its own staff and that of other institutions concerned with development in the humid tropics. Bv completion, the project had carried out 185 man-years of training for 1,500 extension workers and had provided 115 matn-years of consultancy services. A training center was installed in each of three of the PRODERITH field headquarters and a Center for Teaching, Training, and Research for the Development of Agriculture in the Humid Tropics (CRECIDATH) was constructed. From 1983 onward these training facilities offered courses and seminars to both technicians and producers. B. The Project Training of Staff 2. As in the first project, new field staff (about 95) would be selected only after successfully completing an introductory three-month training program on the extension needs of the tropics. Particular emphasis would be given to the PRODERITH approach to extension. The project provides training for about 200 individuals (600 man-months), which allows for a 50% attrition rate based on previous experience. Most of the training for a new staff would be offered at CRECIDATH. In-service training (480 man-months total or about 2.5 months per technician) would be provided primarily for the technician-level extension agents and social workers located at the field units. It would offer staff opportunities to visit other PRODERITH subproject areas, as well as other institutions participating in the project to exchange information and experiences on a first-hand basis. Workshops and seminars on specialized subjects could also be included. There would be sufficient flexibility in the program to permit technicians with many years of service to benefit from several training experiences, or to provide more man-months of training to the newer and lesser experienced staff depending upon the situation. 3. A total of 40 man-years equivalent of formal staff training would be provided for higher-level staff at the Regional Centers concerned with programming/monitoring, technical support, and administration. Major emphtasis would be on specialized courses between b to 12 months duration, rather than on longer-term graduate-degree studics.  - 32 - Annex 5 Page 2 of 2 Producer Training 4. Training for producers would concentrate on aspects related to producer organizations, improved production techniques, and maintenance of infrastructure works. Visits to other subproject areas would also be included. About 6,000 farmers would benefit from the 1,500 man-months of training in this category. Other Training 5. In addition, the project's rural communication system would aim to reach about 60,000 rural inhabitants. This would involve expanding the audio-visual system begun under PRODERITH I with FAO support. This system uses field recorded audio-visual programs to deal with a wide range of subjects ranging from specific production oriented topics to communitv organization, public health and education. Current FAO consultant support in this area would be extended by 5.5 man-years. Additional details including costs related to all types of training by subproject area are shown in the Technical File, Annex 12.  Annex 6 Page I of 1 MEXICO PRODERITH II PROJECT Studies 1. The special studies required under the project would be prepared by CPNH and: (a) complement the existing data on the five subproject areas; (b) study five new pilot areas with a view to selecting three for investment under the project; and (c) collect market data for the entire project area. Details are given below. A. Five Subproject Areas 2. The studies in support of the existing five subproject areas would include: (a) aerial photography at a scale of 1:20,000 on about 485,000 ha of coastal plains to permit detailed infrastructure proposals to be finalized; (b) land use studies at a scale of 1:20,000 on the 485,000 ha to confirm existing cropping patterns and thereby permit a clearer definition of likely future patterns to be promoted by the extension services; and (c) complementary studies on monitoring and evaluation of drainage systems and of maintenance performed in the five subproject areas and three new pilot areas. Details are given in the Technical File Annex 12 A, Appendix 1. New Pilot Areas 3. The studies in support of new pilot areas would include: (a) basic feasibility studies on each of the five pilot areas; (b) basic studies on about 235,000 ha of the proposed expansion areas of the three pilot projects finally selected for investment; and (c) reconnaissance and basic studies on an additional 250,000 ha in the humid tropics for future phases of pilot project investment. Marketing 4. The marketing studies would specifically analyze transportation, storage and processing constraints in the five subproject areas. The primary focus would be on basic crops, fruits, vegetables and cacao. The objective would be to develop a long term strategy and action plan to improve the marketing system in the coastal plains of Mexico's humid tropics.  Annex 7 Page 1 of 1 MEXICO PRODERITH II PROJECT Consultancies 1. The project would provide a total of 180 man-months of consultant support, of which 162 man-months would extend assistance already begun under PRODERITH I and partially financed as an interim measure under the Chiapas Agricultural Development Project (Loan 2526-ME). The specific consultancies would be: (a) Soil Conservation and Drainage (96 man-months): This expatrlate support would extend the contract awarded to the USDA Soil Conservation Service under PRODERITH I. The consultancy grew out of a recommendation made by a Bank supervision mission and has been particularly successful and its continuation is widely recognized within SARH as necessary. It would focus on design and maintenance of infrastructure including soil conservation and drainage measures to sustain agricultural development in the humid tropics. Under the supervision of CPNH, the four-man team would provide assistance to all subproject and nilot areas and would comprise: a drainage engineer, plant materials specialist, soil conservationist and soils specialist. One key element of the consultancy would be to continue to build up a cadre of local counterparts capable of taking over from the consultants upon termination of the contract. (b) Mass Media Communications (66 man-months). This expatriate support would expand the highLy successful FAO consultancy in rural communications. The primary objective would be to support the project's extension services through video, radio and written media and thereby reduce the unit costs of extension from the relatively high levels encountered in the first phase-pilot project; (c) General Short Term Support (18 man-months). This local or foreign support would be provided for short term assistance on specific technical issues as they might arise during implementation. Similar short term (1-3 month) consultancies proved particularly beneficial for livestock and tree crop prohlems encountered in PRODERITH I. 2. Selection of all consultants would be subject to prior review by the Bank and a detailed phasing and cost breakdown is given in the Technical File, Annex 12 A, Append'x 4.  - 35 - Annex 8 Page 1 of 2 MEXICO PRODERITH II PROJECT Reorganization of SARH, August 1985 1. The Secretariat of Agriculture and Hydraulic Resources (SARH) was reorganized in August 1985.1/ as shown in Chart No. 1. This established the following objectives for SARH: (a) SARH central offices in Mexico City would henceforth only have a normative function. They would no longer have operational responsibilities in the field; (b) SARH state level 'delegations would be responsible for coordinating and controlling all operational activities. State SARIH delegates would continue to report to the recently established General Coordinator of Delegates in Mexico City; (c) The basic operational unit in the field would be the Rural Development District (formerly Rainfed or Irrigation District); and Cd) Each Rural Development District would comprise several Cent,ers for Rural Development Support which would be responsible for extension service staff and all official contact between rural communities and SARH. 2. The main administrative changes to meet these objectives were: Ca) The former Subsecretariats of Livestock and Forestry were eliminatcd and their functions were absorbed into a new Subsecretariat of Agriculture, Livestock and Forestry; Cb) Fifteen former General Directorates were eliminated; (c) One Water Commission was created from the former Commissions of the Valley of Mexico and Texcoco Lake; (d) The former three research institutes for agriculture (INIA), livestock (INIP) and forestry (INIF) were unified into the new National Institute for Forestry, Agriculture and Livestock Research (INIFAP); (e) 189 new "Rural Development Districts" were created by realignment of the boundaries of the former 150 Rainfed Districts and 77 Irrigation Districts; (f) The Panuco and Papaloapan River Basin Commissions were eliminated; 1/