China - Grain Distribution and Marketing Project

Document of The World Bank FOR OFFICIAL USE ONLY A /V C' R- CI/L-' Report No. 11671-1 STAFF APPRAISAL REPORT GRAI DISTRIBUTION AND MARKEIING PROJECT MAY 17, 1993 MICROFIC1IE COPY Report No.: 1t671-CHA Type: (SAR) Title: GRAIO DISTRIBUTION AND MARKETI Author: NYBERG, A. Ext. :84050 Room:A 7057 Dept. :EA2A TITLED CHANGE AT BUFF COVER Agriculture Operations DivisioD China and Mongolia Department East Asia and Pacific Regional Office This document has a restdrted disibution and may be used :y recipients ody in the perfonnance of their official duties. Its contents may not othewise be disdo.ed without Wodd Bank authOio  CURRENCY EQUIVALENTS (As of December 1992) Currency Unit = Yuan (Y) $1.00 = Y 5.80 Y 1.00 = $0.172 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet 1 kilometer (km) = 0.62 miles I hectare (ha) = 1S mu I ton (t) = 1,00 kg = 2,205 pounds ACRONYMS AND ABBREVIATIONS BCD - ejing Centra Depot MOA - Miistry of Agriculture BOT - Bayuquan Grain Terminal MOF - Ministry of Finance CEROILS - Cereals, Oils, and Foodstuffs MOFERT - Minstry of Foreign Economic Import & Export Coiportion Relations and Trade dC - Commerci Information Center MOR - Ministry of Railways CTCGDM - China Taniing Center for Grain NEC - Northeast Corridor Distribution Mangement NEMC - Northeast Marketng Company DOT - Dayao Bay Grain Terminal NEPA - National Environmental dwt - Deadweight tons Protection Agency FOT - Fangcheng Grain Terminal NGT - Nantong Grain Terminal GB - Grain Bureau PD - Primary Depot GDMP - Grain Distribution and Marketing PDRC - Physical Distribution Research Project Center GIC - Grain Economic Information PLG - Project Leaing Group Center PRC - People's Republic of China HRS - Household Responsibility System PW - Project Wharf IBRD - InternationaI Bank for RPIO - Regional Project Implementation Reconstusction and Development Office ICB - ntationd competitive SAGR - State Adminishadon of Grain Bidding Reserves ID - Intermediat Depot SCOE - Shanghai Cereals and Oils IDA - Intewrnational Development Exchange Association SOE - Statement of Expenditures IOD - Itegraed Depot SPC - State Planning Commission K17 - Existig Bulk Hopper Railway SWC - Southwest Corridor Wagon TC - Training Coordinator LCB - Local Competitive Bidding WBPO - World Bank Project Office (in MDT - Ministry of Domestic Trade MDT) MLYR - Middle and Lower Reaches of YRC - Yargtze River Corridor the Yangtze River ZGT - Zhangjiagang Grain Terminal  FOR OMCUIL USE ONLY CHINA GRAIN DISIRJBUTION AND MARKETING PROJECT LOAN/CREDTr AM PRoJECT SUMmARY Borroww: People's Republic of China Umenelalces: Ministy of Domestic Trade, Dayao Bay and Bayuquan Grain Temina Compamies, and the Provinces and Municipalities of Heilongjiang, Jilin, Liaoning, Nei Mongol, Jiangsu, Anhul, Jiangxi, Human, Guangxi, Beijing, Harbin, Shenyang and Wuhan Amount: Loan: $325 million Credit: SDR 118.9 million ($165 million equivalent) Term: Loan: 20 years, including five years of grace, at the Bank's standard variable interest rate. Credit: IDA standard terms with 35 years' maturity. Onlending Terna : Loan/Credit funds would be onlent to the reforming and newly estblished enterprises at the IBRD rate, or such lesser rate as IBRD/IDA may agree, taking into account market rates and capacity to repay, with a repayment period of 15 years, inclusive of five years' grace period. The benficiaries would bear the foreigp exchange risk. Objectives and Description: The project would support the Goverament's grain sector reform program for establishing an improved policy and institutonal evironment to promote efficiency. it would assist institutional and infrastructure development in grain commodity markets where prices would be detend by market forces, and facilitate the expansion and improved efficiency of China's domestic and international grain trade through investments in critical infrastucre-ingrain storage, bulk and bagged handling, and transport facilities-in four major grain production and/or consumption locales in the Northeast, Yangtze River area, Southwest, and the Beijing area. The project would fmance works, upgrading, and equipping of bulk handling facilities for five major grain port terminals, about 60 intermediate grain depots (major inland grain assembly points), about 300 primary grain depots, more th 1,400 bulk rail wagons, over 1,000 bulk trucks, 10 bulk grain vessels, and computers and telecommunications equipment for two wholesale/future markets, two training centers, and a Grain Marketing Information Center. A sust l training and technical assistance component would support This document has a restricted distribution and may be used by recipients only in the performanc| of their ofcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  (a) design work, construction supevision, operation and commissio of the grain handling facilities; and (b) impl ion of the market development, Ifonafotion Center, and Training Center component and policy reform aspes of the project. BNets and Risks: The principal benefit As the ability to move grains at a lower cost and in larger volumes from grain surplus areas of China to deficit areas. Also, the project will facilitate lower cost and larger volume exports of grain, eaning more foreign exchange. This benefit, involving estly the commercialization of China's grain sector, will be shared by producers, intemediate users, and consumers of grain located primarily in the transport corridors. In addition, others will benefit sice the project will release traditional grain handling capacity to other locales and will introduce competitive transport modes by providing infstructure for water movement of bulk commodities. The primary risk is that grain surpluses may not continue as projected, ereby leavng unused capaciq in the logistical chain. However, the grain surplus projections are based on careful analyses by well-informed Wronomists and agricultural economists. Another risk is that the project may not be Implemented on schedule and within budget, given its complexity. To reduce this risk, substantial use will be made of domestic and international technical consultants throughout implementation. There remains some risk that the ongoing govenmental organization reform, which is reducing ministry staff mnbuers, could result in the elimination of staff positions needed to manage project implementation. To minimize this risk a commitment ha been obtained from government tiat project staff numbers would be manitained at levels agreed with the Bank/lDA. atimaed P et Costs: Local Foreign Total ($ million))- Land acquisition 10.6 0.0 10.6 Works 335.4 112.2 447.6 Goods 70.6 282.6 353.2 Training and tech. assistance 13.6 20.3 33.9 Base Cost 430 2 M 8453 Physical contingencies 31.9 30.8 62.7 Price contgencies 42.5 40.9 83.4 Total Proiecan C ost 224,  -D Finang Plan: Local Foreign Tolal ($ mion )- - Cen" overmen 300.0 0.0 300.0 Provica and Loc Govements and Entepis 201.4 0.0 201.4 IBRDIDA 3.2 486.8 490.0 lad EAi_mated Disbursement: Banki/DA FY 14 199S 126 122 2 18 (s million) Annual 40 128 127 97 74 24 Cumulative 40 168 295 392 466 490 Ecnmic Rate of Reun: 26 percen  CONTENTS 1 MmbeGrdlSetor ................................... 1 A. btroduction ........................................ 1 B. GrainP oducton ndPanem .......................... 1 C. GainConsumption ............... 3 D. Natlo nal adRegiondlGralnEaWncina s .......................e . 4 E. GrainDbionrkbtion adg . . . ..n. ..... S F. CurentTTenologes inGrainHtnadlig ...................... 8 0. OriginOftheproject .................................. 9 H. Ratonae for Bank GroupInvolvement . ...................... 10 2 Reformsnthe GrainSector ..................... 12 A. Introduction ........................................ 12 B. Recent Reforns ..................................... 13 C. Re gion alE xp erim e n s .................................. 16 D. FutureReifrm ...................................... 18 3 The Projed .......................................... 20 A. Objectives and Scope .................................. 20 B. Detaile PFeatr ..................................... 21 C. StatusofPreparation ................ .................. 29 D.Smplementionchedule . . . 31 E. Project Costs and Financing ............... ............... 31 F. Procurement ............... . 33 0. Disbursements ................ 34 H. Account and Audit ................. 35 1. Environetd Impact ............... 35 `his rt is based on the findings of preappraisal and ppraisa missious In September and December 1992, compr'sing Mes. A. Pazau, A. Nyberg, J. Goldberg,D. Ahmad, R. van der Luqg IR Burcroff II, W. Smith, W. Ziou, Y. Zou, H. Xu (IBRD/IDA), A. de Harog, E. van Randwijck, R. Lacroix, B. Ainouche, C. Saint-Pierre, P. Mignot, S. Roesdser, D. Pko, B. Sims-Williams, J. Dubber, T. Kundu, B. Burke, G. Edwards, J. Manson, T Lwin, K. Broeder, A. Grobman, W. Grossman, W. Gerrish, C. Newman and R. Huemannn (Consultants). Peer reviewer were S. Bhatia (PBDPR), J. van Hoist Pellekaan (AF2AH), and T. Waunatada A2TP). The mission gtfmlwtly acknowledges the strong support of the Canadian, Autdran, Netherlas ad French governent truhout the preparon of the ve The Division Chief i Joseph Goldbrg and the Depatment Dieor is Shabid Javed B*ik.  -vi- 4 rJect gIzaIonand Maagenu t . ....0 .... .............. 37 A. hnpleentatlon Manageme ............................ 37 B. Operatlond Management ....................... . .. 40 C. Flow of Funds and Cost Rewvery ......................... 42 D. Moniorig, Evduaion, and Rq tig ......... .............. 42 E. Projec Lamch Wokshop ............................... 43 F. Bank 3rp Supevisin ............... ... . ... 43 5 Beafits, Justfi ion, and Risks ...... .................. .... 44 6 Agreme Rteachedand mm a n ..... ............ .... 47 1 Statistis. X + * * + * v * e * * * + * * * + * 51 I Table 1......................bytovnce.................................... 51 Table 1.2 - TotalGrain Production by Province . ................. 51 Table 1.2-Cor Production by Povince ...................... 52 Table 1.3 -Rice Production by Povince ............ 53 Table 1.4 - Soybean Production by Provln .................... 54 Table 1.5 - Wheat Production by Province ..................... 55 Table 1.6 - Grain Exports om Chilna ......................... 56 Table 1.7 - Grains InportU Into China ........................ 57 Table 1.8 - Provinci Grain Production and UtilizatIon, 1981483 and 1988-91 58 Table 1.9 - Northeast Corn Production and Utiizaton, 1990 and 2000 . . . 59 2 Goverment Grain Markeftg Reform Progm .................... 61 3 ImplenentionSchedes ........ ....................... ... 71 Char 1 - Northeast Corridor ...... ....................... 71 Chart 2 - Yagtze River Caoidor ...... .................. .. 72 Chart 3 - Southwest Cofridor ...... ....................... 73 4 Cost Estimates ......................................... 74 Table 4.1 - Poject Cost Summary .......................... 74 Table 4.2 - NEC: Cost Summary ........................... 75 Table 4.3 - YRC: Cost Summary .......................... 76 Table 4.4 - BCD and SWC: Cost Summaries ................... 77 Table 4.5 - Services Compone Ct S .................. 78 S Disbursmens . ........................................ 79 6 PtojectPrqpaton and EconomiAndysis ....................... 81 7 Proposed IRDlIDASupervisionl n .. ......................... 93 8 SelectedDoumen d Data Avaiblein thePfoject Fle.s ............. 96 9 P1rncpdaPlojectSites .................................... 98  - Yti - TAKLS IN TEXT 1.1 GrainProductionandProcureent ............................ 2 1.2 Share ofGrainProduction(1990)and Productonl nrwea (1980-90) ....... 3 1.3 GrainUtiliation ................................... ... 4 2.1 GrainPrices ........................................... 14 3.1 Grain Flows .......................................... 22 3.2 Intrnationa Cosutancy Requirements for Grain Trnsport Corridors ...... 30 3.3 ProjectCostSummary ................ 32 3.4 SummaryofProposedProcurement Afangement ...... ............ 33 3.5 Disbursement Afaugeme ................................ 35 S.1 SensitivityAnalysis ................................. . 46 Maps EBRD Nos. 24607 & 24608: Location of Project Component IBRD No. 24609: Major Grain Flows  1 THE GRAIN SECTOR A. INTRODUCION 1.1 China is the worldrs largest producer of grains, accounting for about 20 percent of the world's output. In 1990, China produced 18 percent of the world's maize, 36 percent of its rice, 10 percent of its soybeans, and 17 percent of its wheat. The harvested area changed little over the past decade but output increased about 38 percent. Grains currently occupy about 113 million hectares (ha) of land (multiple crop basis) or 76.5 percent of the cropped area. Production reached a new plateau in 1990-92, averaging 440 million tons. Like other countries at a similar stage of development, grain has declined from about one half to one third of the gross output value of agriculture as the production of fruits, vegetables, and animal products increased to meet changing consumer demand. Also, China has become an important force in international grain trade. World maize exports are dominated by the United States, which supplies about 80 percent of the international trade, but recent export increases have made China the second largest maize exporting country providing about 10 percent of world exports. Although the world's largest rice producer, China exports only 5 to 6 percent of the internationally traded rice; and also accounts for a similar amount of world traded soybeans. Conversely, in wheat trade China is the second largest importer, with ondy slightly less imports than the former USSR. B. GRAIN PRoDucTIoN AND PRocuREmzNT 1.2 In China the term "grain" includes not only the food (paddy rice and wheat) and feed (maize, sorghum, millet, barley, etc.) grains, but also soybeans, tubers (primarily potatoes), and some pulses.1/ Ihis broad definition results in grain production statistics somewhat incomparable with other countries. Production increased rapidly during the initial years following the founding of the People's Republic of China but declined sharply in the late 1950s/ early 1960s, recovering to the 1957 level only in 1965, despite the grain self-sufficiency policy. After 1965 grain production grew at 2.7 percent per annum until commencement of systemic reforms (1978-79) (Table 1.1). 1.3 Improved producer price incentives, increased access to credit and improved physical inputs (fertilizer and seed) coupled with the increased farmer freedom in production and marketing decisions following introduction of the household responsibility system (1979), rapidly altered agricultural production and growth patterns. However, the average growth rate for grain 1/ Rice production is reported in terms of paddy rice, whereas consumption and trade are generally reported in milled rice tenms using a 0.7 conversion ratio. Potato production statistics are converted to a dry weight basis using a 0.2 conversion ratio.  -2- Table 1.1: GRAiN PRoDUCION AND PROCUREME (million tons) V*Ar 1949 1930-54 1953.59 1960-64 1965.69 1970-74 1973-4 19SO84 19U839 1990.91 Production 113.2 153.2 188.3 161.7 209.3 234.1 298.1 853.9 S93.0 440.7 Procwremt - 44.0L 34.1 44.2 49.0 34.8 61.9 100.9 1)2.8 161.S /a Average proment for three yon, 1952-54. production was 3.0 percent for the 1979-91 period as price, procurement, and market reforms impacted more on the nongrain sectors. Grain production during the period of rapid policy and institutional reform (1979-84) grew at an annual rate of 4.9 percent, but stagnated throughout the balance of the 1980s. Neverteless, grain production increased at a rate double ta of population growth. Grain production growth in China typically has exhibited A stepwise growth pattern, with large production increases followed by a production plateau. Consistent with this pattern, 1990 grain production exploded, with national production increasing 10 percent over the 1989 level; in the Northeastern provinces the increase was 50 percent and production has remained at these high levels in 1991 and 1992. 1.4 Grain production, like agricultural production generally, is primarily a smallholder activity. Production on state farms comprises about 2.5 percent of total production; although grain from state farms undoubtedly accounts for a larger proportion of marketed surpluses. 1.5 Production of the four major grains (maize, rice, soybeans, and wheat) grew at different rates over the past decade. Maize output increased from 19 percent of the total grain harvest in 1980, to over 21 percent by 1990 (growth rate of 4.0 percent). Rice production grew the least rapidly (1.0 percent per annum) but still comprises about 42 percent of total grain production. Soybean output grew by 3.1 percent annually over the period, mainting about 2.5 percent of total production. Wheat production grew the most rapidly (5.0 percent) increasing from 17 to 22 percent of total grain output. The minor grains, including millet, barley, sorghum, oats, etc., declined in both absolute and relative amounts, and currently account for about 11.5 percent of total production. 1.6 To assess where grain production growth was greatest, provincial production was aggregated into six agricultural regions.2I The North and Northeast regions are the important maize producing regions; more maize is produced in the North than in the Northeast (39 versus 35 percent) but growth in the Northeast was much more rapid during the 1980s (47 versus 30 percent in the North). The Middle and Lower reaches of the Yangtze River (MLYR) region produces well over one half of China's rice and accounted for 60 percent of the increased rice during the 1980s. The South and Southwest regions produce about 20 and 15 percent of rice output, respectively, but growth over the 1980s was modest accounting for about 25 percent of the decade's increase. Ihe Northeast, North, and MLYR regions account for 50, 25, and 20 percent, respectively, of soybean production. Soybean production is more volatile than other grains reflecting the climatic uncertainty of the Northeast. The North produces 50 percent of the wheat and accounted for 60 percent of the production increase during the 1980s. The MLYR 2/ Ddailed dicussioln of growth paemns can be found in World Bank; Cliw Managi an Agricrl Dwfonntkon, Grain Secor Revw, Repotc No. 8652-CHA, April 9, 1991.  -3 - produces about 20 percent of the wheat outpUt and provided about 20 percent of the increase of the 1980s. (Detailed statisdcs are conained In Amne ) Table 1.2: SARE OF GRAI PNODCON (1990) Ae ftODUON I1NREAS (1980490) ( n) Portu.aat 15.1 18.0 5.1 11.0 5.4 2.6 t4. 47.2 42.0 40.8 Worthi t 2.6 28. 5 2.6 52.2 60.6 58.7 29.6 16.