China - Jiangxi Agricultural Development Project

Document of The World Bank FOR OFFICIAL USE ONLY CR. o '77- c/7 tRepwt No. P-5018-CHA MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 46.2 MILLION ($60 MiLLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE JIANGXI AGRICULTURAL DEVELOPMENT PROJECT MAY 19, 1989 Thls docent kas a restictee distrbuon wad may be used by recipienb only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY .OUIVALENTS Currency Unit Yuan (Y) US$1.00 - Y 3.71 Y 1.00 - US$0.27 (As of May, 1989) WEIGHTS AND MEASURES 1 meter (m) - 3.28 feet (ft) 1 kilometer (km) 0.62 miles 1 hectare (ha) - 2.47-acres 1 mu -0.067 ha 1 ton (t) - 1,000 kg - 2,205 pounds 1 kg - 2.2 pounds ISCALYR January 1 to December 31  FOR OFmFCIAL USE ONLY PROPLE'S REPUBLIC OF CHINA JIANGXI AGRIC=LTURAL DEVELOMENT PROJECT CREDIT AND PROJECT SqMNARY Borrower People's Republic of China Beneficiarv Jiangxi Provincial Government Amount: SDR 46.2 million (US$60 million) Terms: Standard, with 35 years maturity Relending Terms: From Central Government to Jiangxi Province: 15 years, including 5 years grace with interest at 5.3% p.a. The Province would bear the foreign exchange risk. End users would pay interest at the Agricultural Bank of China's prevailing rates for similar loans for similar purposes. Financing Plan Provincial Government US$ 9.0 million Municipal and Prefectural Governments US$ 10.4 million End user contributions US$ 17.6 million Domestic loans US$ 24.7 million IDA USS 60.0 million TOTAL US$ 121.7 million Economic Rate of Return: 39% Staff Appraisal Report: Report No.7664 -CHA IBRD 21453 I This document has a restricted dirbution and may be used by recipients only '1 - pefformance of their ofcial duties. Its contents may not otherwise be discsed wihout WC Id Bank authorization.  MEKORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE KEECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE PEOPLE'S REPUBLIC OF CHINA FOA THE JIANGXI AGRICULTURAL DvELOPMENT PROJECT 1. The following memorandum and recommendation on a proposed development credit to the People's Republic of China for SDR 46.2 million (US$60 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms with 35 years maturity and help finance the Jiangxi Agricultural Development Project. 2. hgkac ond. Agriculture in China, including crops, livestock, forestry,and fisheries; provides sustenance to over one billion people, is the major source of income for some 190 million farm households, and accounts for about 3c percent of the country's GDP. China's decade long rural reform program has revitalized the agricultural sector through improved work incentives, decentralized decision making, better exploitation of comparative advantages, decontrolled agricultural markets and prices, and technological modernization. The program has resulte4l in impressive growth of income and production and in a remarkable diversiification in family diet. The gross value of agricultural output (GVAO) increased by 77% in real terms during 1978-87, at an average annual rate (6.5%) more than twice that of the previous 25 years (3.2%). Grain production, one of the key indicators of China's agriculture, increased by about one-third (100 million t) over the same period. However, several major problems have emerged in recent years. First, state investment in agriculture has declined, dropping from Y5.3 to Y3.7 billion during 1978-86, or from 10.6% to only 3.1% of total state capital construction. The investment downturn in the rural sector has contributed to increasing bottlenecks in infrastructure (roads, power, and market facilities) and a minor decrease in irrigated area. Second, of great concern to the government, a 5% decline in grain production has occurred since the record harvest (407 million t) of 1984. Host observers ascribe this development to continuing rigidities in the pricing of grain, while liberalization of markets for high valued products (fruit, meat, fish, eggs, milk, silk, shrimp, etc.) provides much stronger income incentives for farmers and villages. 3. The Government has responded to these problems by reversing the decline in state investment in agriculture which was increased to Y4.4 billion in 1987, with priority given to irrigation. Objectives for agriculture during the plan period are to maintain per capita grain consumption at current levels while continuing to diversify the overall output structure to accommodate changing consumer preferences. This means increasing food grain output to 450 million t by 1995 to match population growth, boosting production of fruits,' vegetables, meat, poultry, fish and cash crops, and. expanding output of processed products. To achieve sector growth, Chinese planners, on the one hand, ire calling for technology improvement and maintaining sown area at current levels, and on the other, are supporting a series of systemic reforms which include: a) allowing diverse forms of enterprise ownership and management to encourage growth of agroprocessing, transport, and commerce; b) establishing legal guarantees to farmers  * 2 - regarding land use rights and ownership of assets; and c) expanding marketing channels and introducing some measure of price decontrol. 4. The Bank Group's lending to date has ineluded 18 operations involving a total assistance of about $1.6 billion for land development; support services including agricultural training, research, credit and seed production; development of specialized product subsectors including rubber, forestry and fisheries; and area development projects combining irrigation, crop and livestock production. More recently the Bank is supporting the reform program through the Rural Sector Adjustment Loan. Implementation of these projects is generally on schedule. Future Bank Group lending would continue to support projects in large and diverse subsectors, e.g., livestock, forestry, irrigation, agroprocessing, area development, and rural credit (which supports a broad range of activities). 5. Rationale for IDA Invovemnt. The project fits in with the Bank Group's strategy to support Government's efforts to diversify agriculture and to promote alternative employment and income opportunities in rural areas. Apart from resource transfer, tho major Bank Group contribution would be in upgrading project design, financial and economic analyses to eliminate unviable investments, regional feed requirement planning, and technical innovation, particularly in relation to livestock breed improvement and feedmill and agroprocessing plant design. 6. Pro1ect Obiectivs. The main objective of the project would be to assist the Jiangxi Provincial Government to accelerate and diversify agricultural development. The proposed project is intended to improve the productivity and incomes of participating farmers, communities, and local governments and move farm operations from a subsistence level to commercial orientation. It also seeks to utilize lands which are unproductive or unsuitable for grains or other crops. 7. aroleet Iene LRnti. The proposed project consists of the following components: a) livestock development - establishment of livestock and poultry breeding farms and assistance to households through construction of sheds and pens and provtsion of breeding stock, b) aquaculture development - construction and improvement of ponds, barriers, pens and cages for fish culture and establishment of a pearl farming area, c) forestry development - establishment of slash pine plantations, d) tea development - rehabilitation of tea gardens, e) agroprocessing - establishment and improvement of feedmills and facilities for processing pork, aquatic poultry, tea, resin and raw materials for feedmills, and f) training and technical assistance - carrying out programs for staff development and training to upgrade research, extension and project management. The tea component is justified as an exception to the Bank's policy on lending for tea because i) the component would be for rehabilitation of existing piaatations with very limited incremental production, ii) the tea variety involved (Congou) has only a limited global export potential, and its incremental production under the project would have virtually no effect on the world tea market, especially in the context of a steady increase in China's own tea consumption, and iii) the project area offers no other economically viable investment opportunities. Agroprocessing facilities would be established or improved to increase the  -3- value-added of project output, to provide formula feed for the project livestock and fish, and to demonstrate proper methods to organize, manage and finance upgraded processing and handling facilities. The project also has a short-term credit element which would cover establishment costs which could be repaid within one production cycle, e.g. day-old ducks and geese, fish fingerlings, sows, feed, labor and other production costs; these funds would then be available for recycling to other project participants and ultimately for expanding the scope of production activities. The project, to be carried out over 5 years, provides funds for civil works, buildings, equipment, machinery, vehicles, training, technical assistance, and init'al working capital. The total project cost is US$121.7 million, with a foreign exchange component of US$32.6 million (27%). Retroactive financing of up to US$3 million is being recommended for expenditures made after February 1, 1989. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and of disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in China are given in Schedules C and D, respectively, and a map is attached. The Staff Appraisal Report, No. 7664-CHA, dated May 19, 1989, is being distributed separately. 8. Agreed Actions. The Government has agreed to the followsing: a) the standards and methods of afforestation would be subject to consultation with IDA from time to time in order to ensure consistency of objectives and approach between this project and the Forestry Sector Loan under preparation, b) the provincial government would ensure that sufficient funds for the procurement of raw materials to produce feed of suitable quality would be available for project livestock, c) project activities would be carried out in conformity with national and provincial environmental control standards acceptable to IDA, and d) project funds would be onlent to borrowers and sub-borrowers at interest rates no less than those charged by the Agricultural Bank of China for similar purposes and similar maturities, such rates to be reviewed with IDA from time to time. 9. Benefits. At full development, annual incremental production would amount to about 12 million ducks and geese, 26,000 t of eggs, 300,000 pigs, 19,000 t of fish, 2 t of pearls, and 5,300 t of tea. The value of annual incremental output from project investments would be about US$128 million. Over the 20-year life of the project, the forestry component would produce some 59,000 m3 of pulpwood, 579,000 ,3 of logs and poles and 88,000 t of resin. The project would increase incomes for some 18,650 farm families, create about 8,285 permanent jobs and provide annual employment of casual labor equivalent to about 540 jobs. Ecological benefits, in the form of soil and water conservation, would be gained from the afforestation schemes and tea rehabilitation. The internal economic rate of return is 39%. 10. Risks. The project faces no unusual technical, organizational or financial risks. For the livestock components, the Jiangxi Animal Husbandry Bureau has demonstrated its capability to recruit and train households capable of successful pig and poultry production and of serving as models for other farmers to emulate. There is some risk that adequate  - 4 - supplies of feod raw materials would not be available In the province to meet livestock feod demand; to minimize thls rlsk, the provincial government has agreed to make funds available for purchasing such materials eSither domestically or abroad. The project will be implemented by the Jiangxi Agricultural Development Corporation, which has successfully implemented the Bank Group-financed Red Soils Project (Credit 1733-CGA). 11. RecommendatioLn. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Associatioak and recommend that the Executive D:rectors approve the proposed credit. Barber B. Conable President by Maeen A. Qureshi Attachments Washington, D.C. may 19, 1989  Siched-ule A CHIN J1MNGXI AWO;UIIRA& NVEOME NTM I==EC ESTIMATED COSTS AND FINANCING MLAN Estimated Cgss: La tal ------------ (US$ million) -------------- Livestock Pig Production 6.2 1.7 7.9 Poultry Production 6.7 0.8 7.5 Aquaculture 13.4 1.0 14.4 Forestry 3.8 1.2 5.0 Tea Improvement 9.2 2.6 11.8 Processing Feedmills 4.0 7.8 11.8 Pork Processing 0.5 0.1 0.6 Poultry Processing 4.8 3.8 8.6 Tea Processing 6.3 1.8 8.1 Rosin Production 0.8 0.2 1.0 Research, Training and TA 4.0 1.0 5.0 Incremental Working Capital "A.6 ..iJ, 22.7 Base Cost 76.3 28.1 104.4 Physical Contingency 5.5 1.8 7.3 Price Contingency 7.3 -2_7 1Q_Q Total Project Cost 89.1 32.6 121.7 Financing Plan: Local Forelgn Total -------------(US$ million)------------- IDA 27.4 32.6 60.0 Provincial Government 9.0 9.0 Municipal and Prefectural Governments 10.4 10.4 End-usbr Contributions 17.6 17.6 Domestic Loans Z24. 2.2 Total 89. 121.7  Scebdulg B i MIEO GRIyXAIM DEVELOPMENT PR0EENT procurement Method Total Progegt Element ICA LCB Other N.A. Cost -----------(US$ million)------------- Civil Works 0.0 4.1 1b.7 0.0 22.8 (0.0) (1.1) (6.0) (0.0) (7.1) Buildings and roads 13.0 15.6 0.0 28.6 (4.1) (5.0) (0.0) (9.1) Equipment 12.3 8.5 0.0 0.0 20.8 (11.0) (6.4) (0.0) (0.0) (17.4) Materials l.4 2.7 7.2 0.0 27.3 (15.3) (2.0) (6.3) (0.0) (23.6) Vehicles 2.3 0.0 0.0 0.0 2.3 (2.1) (0.0) (0.0) (0.0) (2.1) Training asd Technical Assistance 0.0 0.0 3.8 0.0 3.8 (0.0) (0.0) (0.7) (0.0) . (0.7) Incremental Working Capital 0.0 0.0 0.0 16.1 16.1 (0.0) (0.0) (0.0) (0.0) (0.0) TOTAL 32.0 28.3 45.3 16.1 121.7 (28.4) (13.6) (18.0) (0.0) (60.0) Note: Figures ln parentheses are the respective amounts financed by the Association. Disbursements Catetqg2 Amount (US$ million) Civil works, buildings and roads 16.2 32% (of expenditures) Equipment, vehicles and 43.1 100% (of foreign expenditures) materials 100% (of local expenditures ex-factory) 75% (of other local expenditures) Consultants' services and 0.7 100% (of expenditures) overseas training Estimated IDA Disbursements IDA Fiscal Year 90 219 2 2 94 29 - - (US$ million) - - - - - - - Annual 5.0 16.0 22.0 9.0 7.0 1.0 Cumulative 5.0 21.0 43.0 52.0 59.0 60.0  schedule C CHIN JIANGXI AGRICULTURAL DEVELOPMENT PROJECT Timetable of Kev Project Processing Events (a) Time taken to prepare: 18 months (b) Prepared by: Government with Bank/IDA Assistance (c) First Bank/IDA mission: April 1988 (d) Appraisal mission departure: January 1989 (e) Negotiations: May 1989 (f) Planned Date of Effectiveness: October 15, 1989 (g) List of relevant PCRs and PPARs: North China Plain Agriculture Project (PPAR No. 7736)  scheduleD Page 1 of 3 STATUS OF BNK GROUP OPERATIONS 1N THE PtOPLE'S REPUBLIC OP CHINA A. STATEMENT OF SANK LOANS AND IDA CREDITS a (as of March 31, 1989) Loan/ Amount (Us$ million) Credit Fiscal (net of cancellations) Number Year Borrower Purpose Bank IDA Undisburned b/ Two loans and five credits have been fully disbursed 107.97 333.50 1297 83 PRC Agric. Education & Research 75..40 0.50 2226/1313 83 PRC Industrial Credit I (CIS 1) 40.60 30.00 1.22 2231 83 PRC Petroleum I (Daqing) 162.40 * 16.64 2252 83 PRM Petroleum II (Chongyuan-Venliu) 100.80 - 20.52 2261/1347 83 PRC State Farms I CHeilongjiang) 25.30 45.00 0.42 1411 64 PRC Polytechnic/TV University - 85.00 21.04 1412 84 PRC Technical Cooperation - 10.00 1.03 1417 84 PR', Rubber Development - 100.00 20.53 2382 84 PRC Lubuge Hydroelectric 145.40 - 36.26 2394 84 PRC Railway 220.00 - 26.10 1472 84 PRC Rural Health & Medical Educ. - 85.00 19,30 2426 64 PRC Petroleum III (arauway) 99.50 - 24.56 2434/1491 84 PRC Industrial Credit II (CID TI) 105.00 70.00 20.43 2444/1500 84 PRC Agrlcultural Education II 45.30 (23.50)1/ 14.61 1516 85 PRC Agricultural Research I - 25.00 10.06 1551 85 PRC University Development U - 145.00 53.34 2493 85 PRC Power II 117.00 - 26.94 2501 85 PRC Changcun (Luan) Coal Mining 120.50 _ 101.76 1577 85 PRC Seeds - 40.00 12.08 1578 85 PRC Rural Water Supply - 80.00 44.48 2539/1594 85 PRC Highway I 42. CO 30.00 27.27 2540 85 PRC Railway II 235.00 - 190.40 2541 85 PIC Fertilizer Rehabilitation & 97.00 - 15.11 Energy Saving 1605 85 PRC Forestry Development - 47.30 32.S 3 2579/1606 85 PlC PiShiHang-Chaobu Area Development 17.00 75.00 47.57 2580 85 PRC Weiyuan Gas Field Technical 25.00 - 11.74 Assistance 1642 86 PRC Rural Credit IT - 90.00 14.19 2659/1663 80 PRC Industrial Credit III (CIB III) 75.00 25.00 17.77 1664 86 PRO Technical Cooperation Credit TI - 20.00 19.36 1671 86 PRC Provincial Universities - 120.00 69.76 2678/1680 86 PRC Third Railway 160.00 70.00 217.16 2689 86 PEC Tianjin Port 130.00 - 114.37 1689 86 PRC Freshwater Fisheries - 60.00 17.41 2706 86 PRC Beilungang Thermal Power 225.00 - 132.30 2707 86 PRC Yantan Hydroelectric 52.00 - 25.86 2708 86 PRC Liaodong Bay Petroleum Appraisal 30.00 - 16.35 2723/1713 86 PRC Rural. Health & Preventive Med. 15.00 65.00 68.22 1733 87 PRC Red Soils - 40.00 14.30 2775 87 PRC Shuikou Hydroelectric 140.00 - 93.65 2783/1763 87 PRC Industrial Credit IV (CIB IV) 250.00 50.00 1%#.80 2784 87 PRC Shanghai Machine Tools 100.00 - 98.16  Schedule D Page 2 of 3 Loan/ Amount (USS million) Credit Fiscal (net of cancellations) Number Year horrower Purpose Bank IDA Undisbursed bi 1764 87 PRC Xinjiang Agricultural Development - 10.00 57.19 2811/1792 87 PRC Beijing-Tianjin-Tanggu Expressway 25.00 125.00 131.59 281211793 87 PRC Gansu Provincial Development 20.00 150.50 146.78 1835 87 PRC Planning Support & Special Studies - 20.70 18.56 2794/1779 87 PRC Shanghai Sewerage 45.00 100.00 132.86 2838 87 PRC Fertilizer Rationalization 97.40 - 93.85 2852 87 PRC Wujing Thermal Power 190.00 - 172.11 1871 88 PRC Rural Credit III - 170.00 88.01 2877/1845 88 PRC Huangpu Port 63.0 25.00 82.40 2907/1875 88 PRC Dalian Port 71.0 25.00 88.03 1885 88 PRC Northern Irrigation - 103.00 88.71 292411887 88 PRC Coastal Lands Development 40.00 60.00 81.94 1908 88 PRC Teacher Training - 50.00 42.85 2943 88 PRC Pharmaceuticals 127.00 - 127.00 2951/1917 88 PRC Sichuan Highway 75.00 50.00 121.63 2952 88 PRC Shaanxi Highway 50.00 - 50.00 1918 88 PRC Da.aing An Ling Forestry - 56.90 44.37 2955 88 PRC Beilungang II 165.00 - 165.00 2958 88 PRC Phosphate Development 62.7 - 62.70 2967/1932 88 PRC RSAL 200.00 (100.00)1/ 57.01 2968 88 PRC Railway IV 200.00 - 200.00 1984 89 PRC Jiangxi Provincial Highway 3/ - 61.00 57.74 1997 89 PRC Shaanxi Agricultural Dev. 21 - 106.00 101.79 3006 89 PRC Ningbo & Shanghai Ports 76.40 - 76.40 3007 89 PRC Xiamen Port 2/ 36.00 - 36.00 3022 89 PRC Tianjin Light Industry 2/ 154.00 - 154.00 Total 4,640.87 2,989.30 of which has been repaid 100.43 - Total now held by Bank and IDA 4,540.44 2,989.30 Amount solds Of which repaid - - Total Undisbursed 2.928.33 1,456.39 4,384.72 I The statas of the projects Isted In Peart A is described in a separate report on *1 Iba*n/1A fineanc proj.cte In execution, which to updated twice yerly and circulated to th Executive Olrectrs on April 80 ad October 81. A As credit are deominated in SNts (since IDA Replenishmnt VI), undisbursed $OR credit balones are conveted to dol ore at the current exchange rate betwen the dol lar d the SDR. In se cases, Oerefore, the ondinsbr bnlnco indicates a dollar amount greeter than the original principal credit amount exp_ssd in dollars. Neots 1/ Credit fully disburswd. N/ Mot yet signed. N/ Mot yet effective.  Schedule D Page 3 of 3 B. STATEMENT OF IPC INVESTMENTS (as of March 31, 1989) Invest- Fiscal Type of Loan Equity Total ment no. year Obligor business -- (Us$ million) -- 813 1985 Guangzhou and Peugeot Automobile 15.00 2.00 17.00 974 1987 China Investment Co. Investment 3.00 0.04 3.04 1020 1987 Shenzen China Bicycle 5.00 - 5.00 Bicycles Co. Ltd. Manufacture - 1988 Crown Electronics Electronics 15.00 - 15.00 Total Gross Commitments 38.00 2.04 40.04 Less cancellations, terminations repayment and sales - - - Total Commitments now Held by IPC 38.00 2.04 40.04 Total Disbursed 37.40 2.04 39.44 Total Undisbursed .60 0 .6 5/19/89 AS3CO  / IWtlHAN2 I T o u ~ < > 7 t t z r X > M Gr i/~~~~1 ti . 1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. Aria"7 - Wa4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~T &k H I FUJIANA 27 HUNANeYAR T DE