Nicaragua - Rivas Irrigation Project

RETURN TO REPORTS CESIK RESTRICTED WITHIN Report No. TO-276C ONE- XNEEK This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION RIVAS IRRIGATION PROJECT NICARAGUA February 20, 1963 Department of Technical Operations  CURRENCY EQUIVALENTS 7 cordobas (C$) = 1 dollar (US$) C$ 7 million = US$ 1 million  NICARAGUA RIVAS IRRIGATION PROJECT TABIE OF CO\TENTS NO. PAGES SU IIARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . II. AGRICULTURAL BACKGROUND . . . . . . . . . . . . . . . . . . . _III. THE PROJECT AREA . . . . . . . . . . . . . . . . . . . . . . 2 IV. TMHE PROJECT . . . . . . . . . . . . . . . . . . . . . . . .. 4 A. General . . . . . . . . . . . . . . . . . . . . . . . . . 4 B. The Proposed Works. .. 5 C. Cost Estimates . . . . . . . . . . . . . . . . . . . .. . 6 D. Finance.. 7 E. 3rganization and Management . . . . . . . . . . . . . . 8 F. WJater Charaes and Financial R,esults . . . . . . . . . . . 9 VT. BENIEFITCS K'0n J-JST1I1CATION . . . . . . . . . . . . . . . .. . 10 A. Increase in Farm Procduction . . . . . . . . . . . . . . . 10 B. nconomic Justification . . . . . . . . . . . . . . . . . 11 VI. CONCLUSIONS AND RMCON1ENDATIONTS . . . . . . . . . . . . . . . 12 ANINEIES 1. Land Distribution and Oamership 2. Present Crop Production and Value 3. Future Cropping Pattern and Water Requirement 4. Construction Schedule 5. Cost Estimates 6. Cost of Operation and Maintenance 7. Projected Crop Production and Value 1970/71 ONE A/4[ P  N I C A R A G U A RIVAS IRLRIGATION PROJECT S U M M A R Y i. The Government of Nicaragua has requested a Bank loan to assist in financing its first public irrigation project. ii, The project comprises the development of irrigation on some 9,000 hectares situated on the western shore of Lake Nicaragua. Water would be pumped from the lake up to the two levels of land, 23 meters and 48 meters, respectively, above the mean lake surface level. v1 iii. The climate of the area is tropical and the soils and topography are suitable for irrigated agriculture. The land is at present used pri- marily for grazing and is only extensively cultivated. The area to which irrigation water will be supplied is owned by 300 farmers. The two largest properties would have approximately 900 hectares and 600 hectares under irrigation. Small holdings of less than two hectares located in the area would normally not be included in the project. -Lv. The main works would comprise an intake and conveyance canal, two pumping stations and reservoirs, and 87 km of distribution canals and laterals together with on-farm distribution systems. A power trans- mission line of 65 Im w.ould be constructed to bring electric power from Granada to the project area. Some 25 km of existing feeder roads would be improved and an additional 65 km of new feeder roads would be constructed within the project area, An experiment and demonstration farm with facil- :ities to train extension workers for the area would be established also. El v. The execution of the project is scheduled over a three-year period with 3,000 hectares to be brcught under irrigation each year. The irriga- tion works would be executed and operated by the Rivas Irrigation District 1/ (RID)--a new authority to be established for this purpose. The power trans- mission line would be constructed, ovmed and operated by the Empresa Nacional de Luz y Fuerza. Power for pumping would be supplied by Empresa under a rate contract to be negotiated with RID. The rate would include an element to provide for interest on and amortization of the cost of the transmission line. The improvements to, and construction of feeder roads would be carried out by the Highway Department of the Ministerio de Fomento y Obras Publicas. vi. The total cost of the irrigation project, feeder roads and the materials for the transmission line, including interest during construc- tion, is estimated at C$ 34 million (US$4.9 million equivalent). The foreign exchange component is estimated at US$2.6 million equivalent. The borrower would be the Government of Nicaragua. 1/ Empresa de Riego de Rivas  - ii - vii. The net value of increased annual production when the project is fully developed is estimated at about C$ 11 million. The net farm benefit/investment ratio would be about 23 per cent of the proposed invest- mrent in the project (para 54). Marketing prospects for the increased production are satisfactory and should result in an increase of somre US$2 rmillion foreign exchange earnings annually. viii. The project is sound and economically justified and would be suitable for a Bank loan of US$2.6 million. The borrower would be the Government of Nicaragua and an appropriate tenr would be 25 years, includ- Ing a grace period of four years, 0  N I C A R A G U A RIVAS TRRIGATION PROJECT I. INTRODUCTION :1. This project for the pump irrigation of 9,000 hectares in the Department of Rivas in Nicaragua was first submitted to the Bark in 1958, A mission studied the project in December 1958, and found that, although *the proposals had merit, the project was not yet ready for appraisal. This r,as largely because this would be the first public irrigation project in the country, and no attempt had been made to develop the legislative basis for the execution and operation of irrigation projects. In addition, delays had occurred in the preparation of cadastral and soil surveys. 2. Since that time, irrigation legislation has been completed with the advice of a foreign expert in irrigation law, and surveys have been completed, The followqing appraisal of a proposal involving a loan of US$206 million equivalent is based on the findings of a mission which re- examined the project in May 1962. II. AGRICULTURAL BACKGROUND 3. Production of cotton in Nicaragua expanded very rapidly during the decade ending in 1959, ani although production of coffee expanded much less, these two commodities have in recent years provided 60 per cent of total export earnings. Since the decline in world prices for these commodi- ties, the government's policy has been to encourage diversification of production. l 4 4. Beef cattle production, partly for export, has already increased and export of bananas commenced in August 1962. However, output of food S > crops, which declined during the fifties, has not yet increased. One :reason is the restricted length and variability of the rainfall season over much of the Pacific Zone of the country. The government is encourag- ing irrigation to overcome this deficiency. Technical assistance and credit are being extended to farmers for development of small-scale private pump schemes which already cover several thousand hectares. FAO experts consider that, in addition, some 70,000 hectares could eventually be developed as large-scale projects. This future potential increases the significance of this first public irrigation project in Nicaragua.  III. THE PROJECT AREA The Rivas Irrigation Project is located some 110 km south of Managua on the western shore of lake Nicaragua and along the Inter-Ameri- can Highway. The area of the project has been settled for many years and has a population of approximately 30,000--scrme 12,000 in the town of Rivas and most of the remainder in seven villages. 6. Climate. The average amnual temperature is 283C (820F); the daily raximum is seldom above 350C (950F) and the minimum seldom below 2100 (700F). Rainfall during the wet season from June through November averages about 1,h50 mm (58 in.), and in the dry season, about 50 mm (two inches). For year round cropping, irrigation would normally be required throughout the seven dry months, November through May, and also in July/August for three to four weeks when a dry spell reduces yields and sometimes causes crop failure. 7. Soils and Topography. The project area extends over a section of flat to slightly undulating plain between Lake Nicaragua and the foothills of the Continental Divide. The Rivers Gil Gonzales and de Enmedio form the northern and southern boundaries. Several shallow streams cross the area and serve as natural drains. All of the streams carry water during -the rainy season, and except for Rio Gil Gonzales, dry up in summer. 3. There are both volcanic and alluvial soils. The volcanic soils, which cover about two thirds of the area, are deep, friable and permeable. In some areas the infil3'.tration rate is higher than desirable, but any special problems could be met by the use of short water runs on farms and by lining the canals across tlhese areas, for which provision has been made in cost estimates. These soils are well supplied with nutrients and, with normal precipitation, they are very productive. At present, they are used for mixed farming with livestock, and produce a wide range of crops. 9, The alluvial soils are heavy (topsoil as well as subsoil), finely textured and have relatively low permeability. At present, approximately 9v'0 er cent of these soils are used for grazing, and the rest for sugar cane, rice and other food crops. The heaviest soils are difficult to work and relatively heavy tractors would be needed for plowing. 10. The soils have been surveyed in some detail by an FAO soils specialist and the US Bureau of Reclamation standards have been followed in general. About 50 soil permeability tests and water holding capacity tests have also been completed. The classification is as follows: C 1 a s s I II III Hectares 3,4oc 2,500 3,100 lMlinimum depth of topsoil cm 90 60 4o Minimum depth to impermeable strata cm 150 120 lCo Infiltration rate cm/hr 2 - 8 0.8 - 2 0.4 - 14 Highest gradient % 3 5 8 Surface drainage good good medium 1/ lJ Part of these soils need drainage.  - 3 - 11. Because the high permeability of some of the soils is unusual, arrangements were made for a senior FAO soils specialist to review the soil classification. He found that the soils of the area are fully suitable for irrigation. 12. Land Distribution and Tenure. A cadastral survey of the area within the project boundaries, totaling ll,469 hectares, has been completed. The area is presently divided into 1,422 lots of land, belonging to 1,06) land- owners (see Annex 1). The net irrigable area is approximately 9,000 hectares, L3. The provision of irrigation to the numerous small lots (mainly -village housing sites with vegetable plots) is not considered economically feasible, unless their locations allow for easy inlet of water from the canal system, The final number of existing farm lots to be irrigated is 425, belonging to 30,( farmers. The two biggest farms in the area total 3,000 hectares gross, of which approximately 1500 hectares would be irrigable. 14. Present agricultural production is low; it comprises subsistence food crops, such as plantains, corn, rice and beans; and some cash products, such as livestock, milk, sugar cane, various vegetables and fruits. Farm- ing methods are primitive; oxen-drawn implements are widely used, although some of the bigger farms are utilizing modern farm machinery. 15. The farms are generally poorly managed, because many farms are -too small to support a family under present conditions and the farmer is frequently absent workiCg for additional income on bigger farms, or in the town of Rivas, The bigger farms are generally better managed, although supervision is inadequate in the case of several owners who operate more than one farm with the help of hired labor. 16. Technical services for farmers, which consist of only two junior extension workers for the whole Rivas Department and a local agricultural school, are inadequate. S17. Credit. The Instituto de Fomento Nacional (IFN) and the Banco Nacional have branches in Rivas, but credit has been extended in the area mainly to the bigger farms for production of sugar cane, rice and fatten- ing of beef cattle. 18. Marketing. The main products of the area which are marketed are milk, beef cattle, rice, sugar cane and various fruits and vegetables. Milk is marketed in Rivas and in Managua, and beef cattle are sold mainly to the new Managuan meat packing plant, which exports boned-out beef to the United States. Rice, fruits and vegetables are marketed locally; in years of surplus, trader-truckers export some fruits and vegetables to El Salvador. Sugar cane is processed at a local factory; the present capacity of 500 tons of cane per day could easily be increased to 900 tons by the instal- lation of additional machinery. 19. Prices received by the farmers for these products are shown in Annex 2. They are reasonable and these price levels have been used as the basis for the estimates of the value of production from irrigation in Annex 7.  - 4 - 20. Gross and Net Value of Present Production. The following estimates are based on the findings of a recent economic survey of 100 farms and are reasonably representative of the area. Details are shown in Annex 2. Value and Cost of Present Production--Project Area C$ Million 9,000 Ha C$/Ha Gross value of production 5.64 628 Cost of production 2.25 250 Net value of production 3.39 377 The average gross value of production per hectare is relatively low because of low crop yields caused by the instability of rainfall and becauso of the extensive use of much of the land. Costs of production include all cash costs, as well as the computed value of the farmerst labor. The net value of production represents the farmerst profit and return on capital. 21. Water Supply and Requirements for Irrigation. Irrigation water of good quality can be provided in abundance from the 7,000 km2 of Lake Nica- ragua. Effective precipitation (the amount available to plants) is esti- mated at 1,175 mm annually and the efficiency of the irrigation system has been estimated at 60 per cent. Taking into account the water duties for the likely future cropping pattern, some 128 million m3 would have to be pumped into the irrigation canals annually (see Annex 3). IV. THE PROJECT A. General 22. The project is the development for irrigation by pumping from S * Lake Nicaragua of 9,000 hectares in the Department of Rivas. 23. The irrigation system would be completed over three years in three stages of 3,000 hectares. Water would be pumped from the lake into a reservoir, 23 m above mean lake level, which would command 4,800 hectares for irrigation; a second pumping station would lift from this level to a second reservoir, 48 m above mean lake level, for irrigation of the remain- ing 4,200 hectares. The main irrigation works would include an intake canal, a conveyance canal, two pumping stations and reservoirs, and 87 km of distribution canals and laterals together with on-farm distribution systems. An experiment and demonstration farm with facilities to train extension workers would also be established. 24. The irrigation works would be executed and operated by the Rivas Irrigation District (RID), which would also establish and operate the demonstration farm.  - 5 - 25. A power transmission line of 65 lm would be constructed to bring electric power from Granada to the project area. The line would be con- structed and operated by Empresa Nacional de Luz y Fuerza. It would supply power to the town of Rivas and neighboring villages and for the operation of the irrigation pumping plant. B. The Proposed Works 26. The improvement of existing roads and the construction of new roads with a total length of about 90 km would be carried out to provide all-weather access to the farms in the project area. The designs, improve- ment and construction of thelse roads would be carried out by thle Highway Department of the Ministeric de Fomento y Obras Publicas. 27. The project has been developed to itspresent stage by IFM. A senior FAO irrigation engineer, Mr. H. Tipton, leader of the FAO Mission to Nicaragua working within IFN, has been in charge of preliminary design and feasibility study. This has been completed for the whole project and final layouts for construction of about one half of the civil works are also completed. 285, The main civil works would be: Intake Canal and Conveyance Canal. The intake canal to the lower pumping station would be 2.2 km and have a maximum depth of llo, m and would involve 0.35 million m3 of excavation. The conveyance canal to the upper pumping station would be 2.0 km and havle a maximu:m. depth of 13.2 m and would involve 0.25 mil- lion m- of excavation. Pumping Stations and Reservoirs. There would be 10 pumps, with a capacity of 1.5 m5/sec each, in the two pumping stations. The pumps would discharge into two reservoirs, with capacity for overnight storage. S * Distribution Canals. The main canals (32 kom) and laterals (55 km) would involve about 1.0 million m3 of excavation. The intake capacity of the two main canals would be 10.5 m3/sec and L.5 m3/sec, respectively. Interceptor drains (18,500 m3 of excavation) would be required. The project would include on-farm distribution systems and a limited amount of lard leveling. 29. Construction of the intake and comreyance canals, which would require heavy equipment, and of the pumping stations would be by contract open to international bidding. The irrigation distribution works, con- sisting of small canals and extensive ditches and the reservoirs, would be carried out by the Highway Department largely by hand labor. Unit prices for the work would be negotiated between RID and the Highway Depart- ment and would be reviewed by the Bank. On-farm distribution systems would be undertaken by RID under similar arrangements and the costs would be  - 6 - charged to the individual farmers. Land leveling would be undertaken directly by farmers, A consulting engineer, satisfactory to the Bank, would be employed by RID for final design and supervision of construction. 30. RID would purchase about 40 hectares of land representative of the area and establish an experiment and demonstration farm during the first year. It would be located within reach of the lake, so that it could be irrigated by direct pumping pending completion of the project facilities. It would develop irrigation practices and techniques adapted to local conditions, and train extension workers for the project area. A machinery pool attached to the farm would do custom work on land level- ing for the farmers. Technical personnel would be employed to manage the farm and provide extension services. These wculd comprise a farm manager, satisfactory to the Bank, with experience in irrigation, two Nicaraguan agronomists and around five trainees for extension work. 31. The first 3,000 hectares to be irrigated would be completed during the first year and irrigated during the second year and the project would come into full operation at the end of the third year. The construc- tion schedule is given in Annex 4. .32. The pumping stations would operate with electric power. The transmission line conveying the power to the project area would be con- structed and owned by the Empresa Nacional de Luz y Fuerza. It has been agreed that the rate would not exceed C$ 0.14/kwh. :33. The project area has an existing road network of 25 km providing some access to the farms. These roads, however, would be improved and some 65 km of new roads would be constructed by the Highway Department of the Ministerio de Fomento y Obras Publicas. C. Cost Estimates :34. Detailed cost estimates given in Annex 5 are summarized below: 4S Foreign Local Total Exchange Currency Cost ........ in C$ 1.00..... I Irrigation system 10,100 12,165 22,265 Maintenance equipment 1,400 -- 1,400 Training farm 700 300 1,000 Interest during construction (5-1/2%) 1,150 1,150 2,300 13,350 13,615 26,965 Power transmission (para 36) 3,800 1,000 4,800 Feeder roads 1,050 1,5C0 2,550 Total funds required 18,200 16,115 34,15 Dollar equivalent--millions (2.6) (2.3) (4.9) 35. The civil -wrks estimate is based on final layout for one half of the works and preliminary layout for the remainder. The estimates have been checked against locally experienced costs of the Ministry of Public  - 7 - Works and by FAO Headquarters in Rome against global costs for similar works. The cost of on-farm distribution systems (C$ 2.8 million) is included, and land leveling would be undertaken by farmers during their cultivation operations. Equipment estimates are based on recent vendor quotations. Contingencies of 20 per cent have been added to the works estimates, The estimates are realistic and should be adequate, 36. The foreign exchange costs of the materials for construction of the power transmission line, including interest during construction (C$ 420,000), is estimated at C$ 3.8 million (US$o.54 million equivalent). The estimate is based on recent experience of the Empresa and is realistic. D. Finance 137. Foreign Exchange. It is proposed that the Bank would finance the foreign exchange cost of the irrigation project, transmission line and feeder roads estimated to total US$2.6 million equivalent. The borrever would be the Government of Nicaragua which would re-lend to RI on the same terms. It would also re-lend the foreign exchange costs of the trans- mission line to the Empresa on the same terms. The Empresa would meet debt service on this amount from revenues received under a contract for power for pumping negotiated between RID and Empresa. Debt service on the foreign exchange costs of the roads would be met by the government. :38. The motors and pumps and equipment for future operation and maintenance, and for the training farm, would have to be imported. Most of the mate: ials required for the distribution systems, training farm and material for the transmission line would also have to be imported. The estimated foreign exchange requirements cover the CIF costs of these items. Construction equipment would be supplied by the contractors for work to be (done under contract and would not be imported under the Loan. Allowance for depreciation and spare parts for contractorst machinery, however, would be a charge against the Loan, 39. About three quarters of the proposed Bank Loan would cover iden- 0 ;tifiable items of materials, equipment, foreign technical services and -Lnterest. One quarter would be disbursed as a percentage of contract expen- diture s. 4o. An appropriate term for the proposed Bank Loan would be 25 years, including a grace period of four years. Disbursements would be approxi- mately as follows: First Year Second Year Third Year Total . million cordobas (rounded)T ............., Foreign currency 9.10 4.94 4.16 18.20 (US$ equivalent) (1.30) (0.71) (o.59) (2.6)  - 8 - 41. Local Currency. The local currency costs of the irrigation system, which total approximately C$ 14 milion, would be financed by a government loan to RID. The government loan would be for a term of 25 years with interest at 5-1/2 per cent. The local costs for the construction and improvement of feeder roads and for the establishment of the demonstration farm would be met by government appropriation, IFN would extend credit to farmers for land leveling and similar work. The Empresa would be respon- sible for meeting all local costs associated iith the construction of the transmission line. E* Organization and Management 42. A "Law of the Administrative Authority of the Rivas Irrigation District", No. 635 of January 2, 1962, provides the legislative basis for execution and operation of the project. h43e RID would have administrative autonomy, juridical personality, its own assets and full capacity to acquire rights, contract obligations, borrow and have indefinite life. It would be managed by a Board of Directors, composed of a President, who would exercise the functions of Managing Director, and five members and their respective alternates. The President of the Republic, in Council of Ministers, would appoint the President (and a Vice-President as his alternate) and designate the other members of the Board who would comprise: 1) a representative of the Instituto de Fomento Nacional (National Development institute) who is expert in the management of agri- cultural enterprises, chosen from a list of three submitted by the Board of Directors of that organization; 2) a representative of the Ministry of Agriculture wiho is an expert in agricultural and stock farming matters; 3) a representative of the owners of larded property situated within the project area; 4) a representative of the minority party who has a knowzledge of agriculture, preferably an owner of landed property situated within the project area; 5) a representative of the Ministry of Development who is an expert on irrigation. The President and members (1), (2) and (5) above would serve indefinitely at the pleasure of the Executive Power. The remaining members would serve for two years, but would be eligible for re-election. 44. RID wmuld have adequate pow-Ters to appoint personnel and to execute and operate the project, including full powers to levy and collect charges from farmers and to expropriate property. A secretary and an auditor would be responsible directly to the Board. The President as Managing Director would be the legal representative of RID. He would be responsible for day-  _ 9 _ to-day operations and would devote his full titi to the work of RTD. The l.aw provides that the President (Managing Director) must be competent in the management of irrigation works. The reports arn accounts of the Board would be published. 1k The requirements of the Law, that 50 per cent of the Landowners owning farms exceeding two hectares within the project area and owners of more than 50 per cent of the land must accept the project, have been ful- filled. A decree issued December 1, 1962, declares that the conditions for creating the Rivas Irrigation District have been met and that RID officially can begin its operations as of January 1, 1963. Suitable arrangements have been made with the Banco Nacional de Nicaragua and the Instituto de Fomento Nacional to make available adequate credit facilities for crop production, including the necessary advance payment of one year of water charges. 46. There would remain problems of organization and administration which would have to be solved for the successful implementation of this first public irrigation project in Nicaragua. These would cover not only the operations of RID, but also the changeover from rainfed to irrigation farming. The Bank would have to be prepared to provide guidance on these aspects in conjunction with careful supervision of the Loan. F. Water Charges and Financial Results 147. Water Charges. The repayment of the full costs of the project would be met from revenues from water charges. The Law provides for two charges-- one to cover interest and amortization of capital investment arnd a second to cover cost of operation, maintenance and iworking capital. 48. Charge for Interest and Amortization of Investment. The cost of civil works would be allocated to individual farms in proportion to irri- gable area. The cost of the on-farm distribution system for the particular farm would then be added, and the total would be charged against the farm as a first mortgage having precedence over any existing mortgages. Terms are expected to be amortization over a 23-year period with interest at 5-1/2 per cent, commencing one year after the completion of construction in that phase. The annual charge is expected to average about C$ 210 per hectare. 49. Charge for Operation and Maintenance. The annual cost of operation and maintenance during the first few years is estimated at C$ 3.15 million, or C$ 350 per hectare (Annex 6). This amount includes an allowance of 15 per cent which would be discontinued after reasonable resources for working capital had been accumulated about five years after completion of the proj- ect. The water charge would be levied on a per hectare basis from the first year water is made available, and would be due irrespective of whether or not water has actually been used. Payment would be secured by a crop lien which the Dictrict would hold on products to be harvested.  - in - 50. The charges to be paid by farmers per hectare are relatively high because of the cost of pumping. However, they compare favorably with the costs of private pumping schemes in Nicaragua, and farmers should be able to meet them, because intensive crops are to be grown in highly productive Land. The farmers may, however, have problems in meeting payments in full during the first few years until they have adapted their farm management to irrigation practices. Should there be any delay in reaching the levels of production necessary to permit farmers to meet their payments in full and on schedule, some temporary extension of time for payment by farmers Df a portion of the charges during the commencing years should be sufficient, 51. Financial Results. Charges to farmers would enable RID to meet debt service on its foreign exchange and local currency loans from the government. Charges for power would enable Empresa to meet debt service on its foreign exchange loan from the geoverrment. The government would be responsible for debt service on the foreign investment in the training farm and feeder roads. The costs of operating the training farm, less net receipts, would also be met by government appropriations. RID's operation and maintenance costs would be met by revenues from the water charge. It has been assumed that the water charge would be reduced by the fifth year after completion of the project. V. BENEFITS AND JUSTIFICATION A. Increase in rarm Production 52. The present fairly extensive use of land would change to inten- sive production after completion of the project. There wqould be a consid- erable reduction in the area under pasture in favor of year round cropping. The expected cropping pattern, as shown in Annex 7, is based on suitability of the soils and climate and probable market demand. The main intensive high return crops, apart from truck crops, would be sugar cane and bananas. The capacity of the existing sugar factory would be increased to take care of the additional cane and markets are expected to be available for the sugar. Bananas would be planted on some 1,000 hectares or more of the land coming under irrigation in the first stage. They would be produced under an existing contract between IFN and the United Fruit Company. IFN has undertaken to extend credit to the banana growers until their plantings come into production in the second year. 53. The estimates below of future production are based on conserva- tive crop yields, but they assume that adequate extension services would be available to farmers. This would be particularly important, since Nica- ragua has had so little experience in irrigation and the farmers would have to adopt reasonably efficient irrigation practices to achieve this level of production. The extension facilities provided for under the project plans should be fully adequate so long as they are effectively utilized, but the Bank, as indicated in paragraph 46, would have to give careful end-use  - J.l - supervision to these activities. Given this assistance, the estimated levels of future production of the project area set out below should be reached by the fifth year after completion of construction (for details see Annex 7). 9,000 Hectares Present Future Increase Dry Farming Irrigation Total Per Ha ........ C$ million.. .... Farm production gross value 5.6 30.1 2h.5 2,722 Farm production costs 2.3 13.3 11.0 1,222 Net farm production 3.3 16,8 13.5 1,500 Irrigation OEM - 2,8 2.8 Ll 311 *Net value of production 3.3 14,0 10.7 1,189 The cost of labor in the above estimates of farm production costs includes not only the cost of hired labor, but also the computed value of the farmerst own labor (see also para 20). This is because there are alternative employ- ment opportunities in this part of Nicaragua and the operators of most of the smaller farms have part-time wage employment off their farms, Under irrigation, these farms would require the full time of the operator and the possibility of earnings from the alternative employment of this additional labor would be lost and should be taken into account as a deduction in estimating economic benefits. 13. Economic Justification _54. The expected increase in the annual net value of production before water charges would be about C$ 13.5 million, when the project is fully developed. Deducting project operation and maintenance costs (C$ 2.8 mil- lion per annum), the net farm benefit would be of the order of C$ 10.7 million The investment in the project (excluding the power transmission line) 27 would be C$ 27.0 million. Allowing for a development period of five years after completion of construction and discounting investments and the annual benefits over the life of the project works the net farm benefit/investment ratio would be about 23 per cent. E,5. The project will not only bring a relatively large increase in incomes for the farmers of the area, but it will also malke a significant contribution to Nicaragua's earnings of foreign exchange. Production of bananas, sesame and sugar for the export market is expected to add some $2 million annually (roughly, three per cent) to export earnings when the project is fully developed. Increased production of corn, rice and beans will help to meet growing domestic needs resulting from the growing popula- tion. 1/ C$ 3.2 million until 1970 (para 49). ?/ The amortization of the investment in the power transmission line is included in the operation and maintenance charge.  - 12 - VI, CONCLUSIONS AND REC UIENDATIONS 56. There is a need for agricultural production to be diversified and expanded in Nicaragua, One means by which this could be attained is through the development of irrigation within the Pacific Zone. 57. The Rivas Irrigation Proj4,t is exceptionally good in regard to soils, water supply, agronomy and market opportunities for intensive, high return products. Cost benefit relationships are favorable and if the project were carried out fully as planned, there would be high economic return and the farmers could repay the full investment cost. 58. Since Nicaragua has had no previous experience in public irriga- tion projects, problems of organization and administration inherent in a pioneering venture would undoubtedly be serious, Although these problems have been well studied and the legislative basis for execution and operation of the project is sound, the Bank would have to be prepared to extend care- ful supervision and guidance on technical aspects. 59. Subject to the proviso in paragraph 58, the project is suitable for a loan of $2.6 million for a term of 25 years, including a grace period of four years. The borrower would be the Government of Nicaragua. I.  ANNEX 1 RIVAS IRRIGATION PROJECT Land Distribution and Ownership Size of Farms Number of Farms Area Ha Gross ,...n ha.... 0.0 - 2.0 997 586 2.1 - 5.0 170 5h3 5.1 - 10.0 88 609 10.1 - 20.0 62 871 20,1 - 4o.o 50 1,416 4c.1 - 100.0 43 2843 10041 - 200.0 8 1,019 200O1 - 1,CO0.0 2 608 1,000.1 - over 2 2,974 Total 1,422 11,469 Over two ha 425 Size of Ownership Number of Owners Area Ha Gross _ . . . .a. a ..... ..in ha... 0.0 - 2.0 764 422 2,1 - 5.0 10 395 5:1 - 10.0 68 486 _ lOol0.1- 20.0 48 665 20e1 - 40.0 36 1,054 4o.i - 100.0 25 1,812 100.1 - 200.0 12 1,522 200.1 - 1,000.0 5 2,067 1,000.1 - over 2 3,o46 Total 1,o64 11,469 Over two ha 300  ANN 2 1=!AS IRRIGATION PROJECT Present Crop Production and Value Area Price Farm Cops Gross Total C r o p Ha YieldA/a C$/Unit C$/Ha 4/ Value Cost _ ,, C~~$ '000.. /1 Bananas 1,h4o 18 32 250 829 360 _ ~~~~~~~~~~/1 0 Plantains 6C0 15- 127 600 1,143 360 /'2 /5 17 1 Corn 180 62 qq 15 700 167 126 Rice (paddy) 300 40 qq 25 500 300 150 Sugar cane 800 67 t. 35 700 1,876 560 /2 Beans 270 21 qq 40 800 227 216 Cacao 102 - --400 128 41 Seed cotton 100 9.9 qq 173 1,800 171 180 Pasture 3,208 -- 153 50 797 260 0 9,OCO ,638 2,253 S 4 Net value of farm production rounded, C$ 3.3 million 1/ 1,000 pieces 2/ Two crops 3/ The value of meat and milk production per ha is estimated at C$ 153 4/ Includes farmers' labor 5/ qq - 100 lb  ANNE 3 RIVAS IRRIGATION PROJECT Future Cropping Pattern and Water Requirement Requirem nt Cropping Irrigation in mm or 10 m per ha Pattern Water C r o p Total Rain Irrigation Ha Required Forage crops 2,177 1,175 1,002 2,000 20,0ho Plantains 2,030 1,175 855 1,000 8,550 Bananas 2,177 1,175 1,C02 1,000 10,020 Sugar cane 2,177 l1,75 1,002 1,500 15,030 R i c e 940 730 210 2,000 4,200 2/ BeSans 460 10 450 2,000 9,000 C o r n 725 485 240 1,000 2,4oo 2/ Sesame 4