China - Red Soils Area Development Project

Document of The World Bank FOR OMCLAL USE ONLY Report No. 11691 PROJECT COMPLETION REPORT CHINA RED SOILS AREA DEVELOPMENT PROJECT (CREDIT 1733-CHA) FEBRUARY 25, 1993 Agricultural Operations Division China and Mongolia Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used bv recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit: Yuan Appraisal $1.00 = Y 2.8 1985 $1.00 = Y 2.9 1986 $1.00 = Y 3.5 1987 $1.00 = Y 3.7 1988 $1.00 = Y 3.7 1989 $1.00 = Y 3.7 1990 $1.00 = Y 4.8 1991 $1.00 = Y 5.3 1992 $1.00 = Y 5.4 FISCAL YEAR OF BORROWER January 1 - December 31 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) 0.62 mile 1 hectare (ha) = 2.47 acres = 15mu 1 kilogram (kg) = 2.2 pounds (lb) 2 2 Chinese jin I ton (t) = 1,000 kg = 2,205 lb ABBREVIATIONS AND ACRONYMS ABC - Agricultural Bank of China ADC - Agricultural Development Corporation ERR - Economic Rate of Return FRR - Financial Rate of Return GOC - Government of China HH - Households IDA - International Development Association MOF Ministry of Finance RSI - Red Soils I Project RSII - Red Soils II Project SAR - Staff Appraisal Report  FOR OFFICL41 USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A Office of Director-General Operations Evaluation February 25, 1993 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on China Red Soils Area Development Project (Cr. 1733-CHA) Attached is a copy of the report entitled "Project Completion Report on China - Red Soils Area Development Project (Credit 1733-CHA)" prepared by the East Asia and Pacific Regional Office, with Part II contributed by the Borrower. The report is comprehensive and of high quality. The project achieved the objective of demonstrating efficient methods of tapping the unutilized potential of south China's red soils. It has good prospects of sustainability and triggered substantial institutional development in the course of its implementation. It is intended that the small farm cash crop and livestock models successfully introduced over 27,000 ha of previously unutilized land in the red soils area of south China, will be replicated on a larger scale in a follow-on project now under preparation. An audit is planned. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   FOR OMCIAL USE ONLY PROJECT COMPLETION REPORT CIINA RED SOILS AREA DEVELOPMENT PROJECT (CREDIT 1733-CHA) TABLE OF CONTENTS Page no. Preface ........................................... Evaluation Summary ..........................iii. PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Project Identity ..................................1 2. Background .1 3. Project Objectives and Description. 2 4. Project Design and Organization. 2 5. Project Implementation. 4 6. Project Results .5 7. Project Sustainability/Replicability. 8 8. Bank Performance .8 9. Borrower Performance. 8 10. Project Relationships. 9 11. Consulting Services. 9 12. Project Documentation and Data. 9 13. Recommendations. 9 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 1. Project Objectives .11 2. Implementation Performance .11 Project Expenditures .11 Physical Achievements .12 3. Major Development Components .12 Soil Improvement .12 Land Development .13 Fruit Farming .14 Tea Gardens and Ramie Production. 15 Agroforestry .16 Pig Fattening and Pig Breeding .16 Dairy Development .17 Irrigation and Roads .18 Agroprocessing .18 4. Project Organization and Management .19 5. Project Benefits .21 6. Aspects of Project Sustainability .21 7. World Bank Performance .22 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Page No. PART III: STATISTICAL INFORMATION 1. Related Bank Loans and Credits ....................... 23 2. Project Timetable ................................ 24 3. Credit Disbursements .............................. 24 4. Project Implementation ............................. 25 5. Project Costs and Financing .......................... 26 6. Project Results .................................. 27 7. Status of Covenants ............................... 30 8. Use of Bank Resources ............................. 31 ANNEXES 1. Project Costs in Local Currency 2. Cash Flows for Key Project Components  - i - PROJECT COMPLETION REPORT CI]NA RED SOILS AREA DEVELOPMENT PROJECT (CREDIT 1733-CHA) PREFACE This is the Project Completion Report (PCR) for the Red Soils Area Development Project in China, for which Credit 1733-CHA in the amount of SDR 34 million ($40 million) was approved on September 9, 1986. The credit was closed on June 30, 1992 and an undisbursed balance of SDR 44,736.55 was canceled. The PCR was jointly prepared by the Agricultural Operations Division of the China and Mongolia Department of the East Asia and Pacific Regional Office (Preface, Evaluation Summary, Parts I and III), and the Borrower (Part II). The PCR is based, inter alia, on the Staff Appraisal Report; the Credit and Project Agreements; supervision reports; correspondence between the Bank and the Borrower; internal IDA memoranda; and a field completion mission conducted in July 1992.   - iii - PROJECT COMPLETION REPORT CBINA RED SOILS AREA DEVELOPMENT PROJECT (CREDIT 1733-CHA) EVALUATION SUMMARY Objectives, Description and Design 1. The objective of the Red Soils Area Development project was to demonstrate efficient methods of developing the productive potential of presently unutilized land in the red soils areas of south China which comprise 21 percent of China's surface area. Development of unutilized land is one key to GOC's long-term objectives of (a) increasing and diversifying the production of food, feed and industrial crops; and (b) creating employment opportunities and raising incomes in rural areas. 2. The project was implemented in Jiangxi and Fujian provinces. The main features of the project include: (a) development of about 27,000 ha of idle land including provision of necessary agricultural infrastructure and construction of housing, schools and clinics for resettlement of farm families; (b) establishment of fruit orchards, tea, ramie, feed grains, fodder crops, woodlots, dairy, and pig raising; and (c) funding for project management, research and extension. 3. The project design included a number of innovative measures such as integrated techniques of terracing, irrigation, protective afforestation, and use of both chemical fertilizers and organic manures for soil improvement in red soils areas. Production was based on specialized household farm management, and significant levels of cost recovery were achieved through lending at market rates. The project was implemented through a specially created Agricultural Development Corporation (ADC) with broad responsibilities for project management including selection of beneficiaries, management of loans, training and oversight over land development and production, and marketing of inputs and outputs. 4. The overall success of the project design cannot be overstated. For 30 years, GOC had unsuccessfully attempted to exploit its red soils resources. RSI effectively combined technical and management innovation in a project that has exceeded most expectations. Key elements of project design that are credited for the project's successes are careful selection of beneficiaries (and their subsequent hard work), limiting the area allocated per household so as to encourage intensive cultivation (the World Bank input during appraisal was central to the decision to reduce farm areas below those originally proposed by GOC), and developing pig production as a means of generating organic manure which is key to the rehabilitation of these soils.  - iv - Implemnentation 5. Implementation of the project was a notable success. The original timetable of a six-year implementation period was shortened to four years as project works were essentially complete in late 1990. Major physical targets were almost all met or exceeded. Overall project costs were Y 408 million, around 4 percent above the appraisal estimate of Y 391 million. This was achieved despite domestic inflation rates which were far higher than appraisal estimates during the period 1986-90. 6. During implementation, the Yuan was devalued several times from an exchange rate of Y 3.2 to $1 at appraisal to Y 5.4 to $1 at the time of completion. During the same period, the value of the US dollar to SDR also declined about 14 percent. Thus, the Yuan/SDR rate increased by about 88 percent. This change in exchange rates means that IDA effectively financed 41 percent of the project rather than the planned 33 percent. Beneficiary financing increased slightly from the planned 32 percent to 34 percent, while government and Agricultural Bank of China (ABC) financing dropped from the planned 35 percent of project costs to 24 percent. 7. Some significant changes were made during implementation. First, there was a rapid and justified shift from ramie to tea due to a precipitous decline in ramie prices. Second, there was a shift in Fujian from the originally envisaged individual household responsibility system to semicollective farm management, and this model appears to be functioning well. Third, the average holding size of tea households is much larger than planned at appraisal with a resultant reduction of tea beneficiary households from 6,000 to 1,200. 8. In retrospect, the rapid pace of implementation, driven by farmer and ADC enthusiasm to begin cash-generating activities, may have been too fast, as there was some sacrifice in the quality standards of planting materials, soil conservation and tree establishment. In particular, terracing quality is spotty and the windbreaks and forests are often planted with inappropriate species and are poorly looked after. The situation has improved over time, but there is still a significant opportunity for improvement in conservation activities which provide longer-term benefits. Results 9. The RSI project has been a notable success in meeting its objective of demonstrating an integrated, sustainable technology for red soils development. Many of the practices of RSI have been replicated by nonproject farmers in Jiangxi and Fujian, and Red Soils II (RSII) is also planning on retaining key elements of RSI design. The RSI demonstration provides a very important mechanism for GOC to work toward its objectives of diversifying its agricultural production and raising incomes in rural areas. 10. Financial and economic performance of the project has been satisfactory but is lower than projected: the revised project ERR is 21 percent. The main reason for lower-than-projected economic performance is that a record frost was experienced in December 1991, and there was extensive damage to citrus plantings-70 percent root-kill in Jiangxi and 10 percent root-kill in Fujian. Orchards are being replanted with citrus and other fruits at additional investment costs and with a likely four-year delay in fruit production. As a result, the citrus component, which accounts for 45 percent of total investment, has a projected ERR of 12 percent in Jiangxi and 24 percent in Fujian.  11. The tea rehabilitation and new planting component comprises 19 percent of investment, and results have been very good, with yields generally doubling with moderate levels of investment. ERRs are estimated at 34 and 38 percent in Jiangxi and Fujian, respectively. 12. The dairy specialized household component has been very successful due to favorable milk to feed concentrate prices and excellent training and support from the state farm dairy processing plant. The ramie component, which was designed to be 15 percent of investment, has been almost completely replaced by additional tea rehabilitation because of the drop in world ramie prices. Pig breeding, pig fattening, and feed and fodder-raising activities are generally carried out by households who also participate in citrus, tea, or dairy, and appear to be proceeding successfully. Forestry operations are also being conducted as an addition to shorter-term cash-generating activities, but the quality of seedlings and of care has been generally poor, and timber yields are likely to fall short of projections. Agroprocessing investments were about 300 percent higher than projected and there have been specific problems with equipment performance in the two Jiangxi dairies and with low capacity utilization in the ramnie processing plant. Consequently, rates of return for the agroprocessing component are likely to be significantly lower than projected. 13. The primary focus in the implementation and management of the project has been on maximizing financial returns. Poverty alleviation and equity objectives have received somewhat less attention in the following instances: (a) some tea rehabilitation investments involve farmers who were already quite successful, including households with up to 7 ha of tea; (b) dairy investments have also focused on relatively well-off farmers and have concentrated the economic rents from this activity among relatively few beneficiaries; and (c) there appear to be some instances in which scarce resources may have been diverted from nonproject to project farmers (e.g., export allotments for lean pigs, improved breeding stock, manufactured feed). Sustainability and Replicability 14. The First Red Soils Area Development Project was designed to demonstrate an environmentally sustainable approach to red soils development, and it has succeeded in significantly improving the state-of-the-art technology. Additional progress is still required in improving terracing and windbreak quality and in extending rehabilitation technology to entire watersheds rather than to only the most economic pieces of land. The Red Soils II Project (currently under preparation) is planning to address these issues. 15. The following examples illustrate the economically sustainable approach of the project: (a) investment costs were Y 15,500/ha (in constant 1987 yuan) when averaged over all crops and Y 20,500/ha for citrus (excluding livestock, agroprocessing, and research and training). This compares favorably with other Bank-financed projects (e.g., Mid-Yangtze is Y 35,000/ha of new orchard establishment); (b) without the citrus frost damage, farmers would have comfortably been able to repay their loans based on the productivity of the investments, and even with the frost, they should be able to repay the loans albeit over a longer period of time; and (c) ADC has operated on a profit-making basis and with reasonably good cost recovery. 16. Considerable efforts in training and extension are required for replicating this model. The project gets good marks thus far at disseminating well-known techniques to farmers, but has been less successful in developing improved techniques (e.g., new crops, soil management techniques, etc.). Future replicability may be constrained by availability of trained extension and management skills.  - vi - Lessons Learned 17. A combination of high economic benefits, strong cost recovery, and environmental sustainability make many of the features of RSI attractive for replication. The investment costs appear reasonable in comparison to comparable projects and beneficiaries are able to comfortably repay project loans. 18. The existing organization does not achieve adequate performance on longer-term objectives of research, technology transfer, and conservation. Changes in incentives for ADC personnel would be one way of improving performance. 19. Given both frost risk and market risk, caution should be applied in planting additional citrus in future projects in south China. Consideration should be given to diversifying away from mandarin orange to other citrus varieties and to deciduous fruits in RSI orchards which require replanting due to frost damage. 20. Specialized household raising of dairy cattle appears preferable to state farms. Consideration should be given to establishing larger numbers of households with smaller herd sizes to spread the economic benefits among more beneficiaries.  - 1 - PROJECT COMPLETION REPORT CHINA RED SOILS AREA DEVELOPMENT PROJECT (CREDIT 1733-CHA) PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Project Identity Name Red Soils Area Development Project Credit Number 1733-CHA RVP Unit East Asia and Pacific Country : China Sector : Agriculture 2. Background 2.1 Major changes in farm policies since 1979, most importantly a shift from collective to family farming and major increases in prices, have led to rapid growth and diversification in agricultural production in China. The system of contracting out land to small-scale family farms has given farmers more flexibility in determining what crops to grow, how much to produce, and where to market their output. Results have been dramatic: agricultural output value increased by 8 percent a year and 5 percent a year over the periods 1980-85 and 1986-91, respectively, in comparison with an average of 3 percent a year over the previous 23 years. In 1985, responding to growing surplus grain stocks, the Government of China (GOC) began a new phase of reform, replacing compulsory grain procurement quotas with higher and increasingly free prices, and greatly enlarging the role of the market. These measures contributed to a decline in grain and cotton area and output as farmers increasingly shifted production into livestock and commercial crops. Chinese planners forecast continued rapid increase in the demand for fruits, vegetables, meat, poultry, fish, and dairy products with a corresponding decrease in the share of direct grain consumption. 2.2 China's "red soils areas," so named because of their characteristic red or yellow subsoil colors, lie south of the Yangtze River and cover 2 million kinr, or 21 percent of China's surface area, in 11 provinces. These upland red soils areas have been deforested and subjected to continuous firewood collection, communal grazing, or inappropriate cultivation which has resulted in considerable soil erosion. GOC in recent years has given increased attention to formulation of a strategy for development of some 10 million ha of underutilized land in the uplands and adjoining hills and mountains where conditions are  - 2 - favorable for establishment of orchards and other tree crops, feed crop cultivation, pastures, and commercial forest plantations. 2.3 GOC's long-term objectives in the agricultural sector are: (a) to increase and diversify the production of food, feed and industrial crops to meet requirements created by population and income growth; and (b) to raise incomes and employment opportunities in rural areas. Given China's shortage of arable land (0.1 ha per capita), development planners have focused on the need to increase the productivity of existing cropped areas and develop efficiently the remaining unutilized land. 2.4 The Bank's strategy for lending in the agricultural sector has supported these efforts. Lending to date has focused on land development, agricultural support services, specialized product subsectors, and area development. Recent related projects include the Jiangxi and Mid-Yangtze Agricultural Development Projects, which establish diversified agriculture on hilly lands; the National Afforestation Project, which is assisting in the establishment of forest plantations in 16 provinces; the Agricultural Support Services Project (under preparation), and the Second Red Soils Project (under preparation), which plans to extend the Red Soils I (RSI) land rehabilitation technology over a wider area. 3. Project Objectives and Description 3.1 Project Objectives. The primary objective of the Red Soils I project was to demonstrate efficient methods of developing the productive potential of presently unutilized land in the red soils areas of south China. 3.2 Components. The project design comprised the following main components: (a) development of a gross area of about 27,000 ha of idle land, through terracing, contour planting, on-farm irrigation and drainage, and construction of farm access roads; (b) civil works to improve or extend existing infrastructure, including enlargement of small reservoirs, canal construction, installation of pumping stations and sprinkler irrigation systems, rural electrification, road and bridge construction; (c) construction of housing, schools and clinics, administrative buildings, warehouses, laboratories and extension stations, and livestock sheds; (d) establishment of fruit orchards, tea, ramie, feed grains, fodder crops, and woodlots as well as rehabilitation of 2,400 ha of low-yield tea plantations; (e) establishment of dairy and pig raising, including provision of purebred stock; and (f) funding for farm machinery, vehicles, processing facilities for agricultural output, research and extension materials, equipment, and training, and a pilot program of research and demonstration to be conducted on areas of more marginal red soils. 4. Project Design and Organization 4.1 The project design included a number of innovative measures such as integrated techniques of terracing, irrigation, protective afforestation, and use of both chemical fertilizers and organic manures for soil improvement in the red soils areas. Production was based on specialized household farm  - 3 - management, and significant levels of cost recovery were achieved through lending at market rates and project charges. The project was implemented through a specially created Agricultural Development Corporation (ADC) with broad responsibilities for project management including selection of beneficiaries, management of loans, training and oversight over land development and production, and marketing of inputs and outputs. 4.2 Sites selected for development under the project were those with the most economic potential (minimal to moderate slopes, near roads, access to water, etc.), and this approach has some drawbacks: (a) lessons learned and replicability are limited to economically favorable sites and exclude large red soils areas; and (b) focus on exploitation of project sites could lead to inadequate concern for environmental or economic optimization of the surrounding nonproject areas. However, RSI is the first project in a process to develop large areas of China's red soils and subsequent initiatives will provide ample opportunities for extending technology to a wider range of soil conditions and topographies-for example, the second red soils development project now under preparation. A major consideration for RSI was ensuring a successful demonstration project, and on balance, it appears justified to have first tackled the easier portions of land. 4.3 Beneficiaries selected under the project were those with the largest chance for success (hard working, proven farming skills, ability to contribute equity capital). The selection process was very stringent-with one of three applicants selected in Jiangxi and one of ten in Fujian. Selection of motivated and talented farmers is credited by project management as being the most important factor for project success. However, poverty alleviation objectives may have been better served if there had been more explicit guidelines for excluding those farmers who already were successful without the project. In practice, the beneficiary selection process led to some cases of the "rich getting richer," especially in Fujian tea rehabilitation where some farmers already possessed significant land assets and in Jiangxi dairy investments where some state farm dairy workers were selected. 4.4 In retrospect, project design did underestimate some risks and technical requirements. Most notably, citrus was extensively planted in regions which suffered extensive frost damage in December 1991. Although the severe frost of 1991/92 was a rare occurrence, the extent to which the citrus-frost risk was well understood and consciously accepted in the project design is unclear. World Bank staff recall that analysis of climatic data had been undertaken and that GOC had been advised to use frost- resistant root stock, but there is scant discussion of citrus-frost risk in project documentation, and it appears that the frost issue was inadequately studied. 4.5 Second, ramie prices have dropped lower and crop establishment costs have been higher than had been envisaged at appraisal and, subsequently, large areas of land have been planted with alternative crops. Credit must be given to the appraisal team for projecting the likelihood of price declines due to supply/demand shifts, most notably a closing of trade loopholes in certain developed countries that had previously given ramie preferential import status over other natural fibers. 4.6 Finally, the requirements for organic manure, and consequently for pig raising, were substantially underestimated at appraisal. However, farmers have been able to increase pig production over time, and farmers with 1 ha of fruit orchard have doubled from 5 to 10 the number of pigs raised per household each year. 4.7 The overall success of the project design is undeniable. For 30 years, GOC had unsuccessfully attempted to exploit its red soils resources. RSI effectively combined technical and management innovation in a project that has exceeded most expectations. Key elements of project design  -4- that are credited for the project's successes are careful selection of beneficiaries (and their subsequent efforts), limiting the area allocated per household so as to encourage intensive cultivation (the World Bank input during appraisal was central to the decision to reduce farm areas below those originally proposed by GOC), and developing pig production as a means of generating organic manure which is key to the rehabilitation of these soils. 5. Project Implementation 5.1 Implementation of the project was a notable success. The original timetable of a six-year implementation period was shortened to four years as project works were essentially completed in late 1990. Major physical targets were almost all met or exceeded (Table 4). Overall project costs were Y 408 million, around 4 percent above the appraisal estimate of Y 391 million and this despite domestic inflation rates that were far higher than appraisal estimates. 5.2 Significant cost overruns were experienced in two categories. Building costs in local currency were 50 percent greater than projected because of large increases in office space, animal sheds, and housing for resettled families. Agroprocessing investments were almost triple SAR estimates because of cost overruns in purchase of imported equipment due to devaluation of the yuan and to unexpectedly large dollar price increases for procured equipment. The agroprocessing cost overruns also appear to be due to local procurement practices; the dairy processing equipment was purchased piecemeal from various suppliers in an attempt to obtain the lowest price, but some of the equipment was not compatible. 5.3 Significant savings were obtained in infrastructure as costs were only 77 percent of SAR estimates (in local currency, see Annex 1), due primarily to elimination of two-stage pump-lift irrigation systems in Jiangxi as these were found to be too expensive to justify the irrigation of marginal highlands. Additionally, both Fujian and Jiangxi were able to build roads and bridges at lower unit cash costs through heavy use of beneficiary labor. 5.4 Savings were also obtained by reducing purchases of imported breeding animals and vehicles, and by significant reductions in the allocated expenditures on research and training. The cost cutting in research reflects project decision-making that overemphasized investments with short-run cash returns and underemphasized long-term investments. The project farmer is understandably interested only in the cash flows from his 1-2 ha of land. ADC, county, and provincial officials have incentives which focus primarily on profitability and loan performance of the 27,000 ha of land developed under RSI. Using experience from RSI in the future development of 10 million ha of China's red soils areas will sometimes require experimentation that would marginally increase costs but would provide long-term benefit to China. It does not appear that incentives are in place to promote such types of long-term trade- offs. The pilot project component, which was supposed to have developed lessons for more difficult soil conditions, has had limited scope and success, and experimentation in the main RSI project, e.g., testing of new crops and crop strains, control comparisons of different soil treatments, foreign technology transfer, models of red soils development with less than the most talented settlers, etc., has been lacking. ADC officials appear to recognize this deficiency, but it will likely require specific changes in incentive structures or organizational responsibility to improve performance. 5.5 Total cost of crop establishment of Y 15,500 per ha approximated SAR projections for both Jiangxi and Fujian when costs for agroprocessing, dairy households, and research and training are excluded. Jiangxi costs are higher than Fujian costs in the area of buildings because households were relocated in Jiangxi and not in Fujian. Fujian costs are higher for infrastructure.  - 5 - 5.6 During implementation, the Yuan was devalued several times from an exchange rate of Y 3.2 to $1 at appraisal to Y 5.4 to $1 at the time of completion. During the same period, the value of the US dollar to SDR also declined about 14 percent. Thus, the Yuan/SDR rate increased by about 88 percent. This change in exchange rates means that IDA effectively financed 41 percent of the project rather than the planned 33 percent. Beneficiary financing increased slightly from the planned 32 percent to 34 percent, while government and Agricultural Bank of China (ABC) financing dropped from the planned 35 percent of project to 24 percent. 5.7 Significant changes were made in the mix of project components, in consultation with the Bank. First, there was a shift of 3,900 ha in Jiangxi from ramie to tea rehabilitation due to a precipitous decline in ramie prices. The rapid response of ADC and project farmers to changing market conditions is to be commended. Second, there was a change in the overall organizational structure in Fujian. The SAR had anticipated a number of different types of households (fruit, tea, forest, etc.) under the individual household responsibility system. In actuality, Fujian has followed a cooperative model in which groups of households work together under one lead household, with each household having responsibility for a group of activities, e.g., cash-generating fruit crops, pigs and forage, and some forest. A complicated system of incentives provides for compensation based on individual effort and group success. These modifications to the SAR design appear to be working well. Third, specialized secondary pig-breeding households that were envisaged in Fujian were dropped in light of changing market conditions. Finally, there has been a large increase in the average size of tea households. In Fujian, the SAR had envisaged an average size of 0.4 ha with 6,000 beneficiary households. In actuality, the average household operates 2 ha and there are only 1,200 beneficiary households. In Jiangxi where tea rehabilitation was substituted for ramie, plots are also large, averaging 1.4 ha. The increase in farm size was made based on the judgment of ADC that there was sufficient labor in a household to support larger farms, but this important change was never discussed with the Bank supervision missions. 5.8 In retrospect, the rapid pace of implementation, driven by farmer and ADC enthusiasm to begin cash-generating activities, may have been too fast, as there was some sacrifice in the quality standards of planting materials, soil conservation and tree establishment. In particular, terraces have been improperly aligned on the contour, inadequate flood check ditches were constructed, afforestation survival rates have been low, and silvicultural management has been poor in many project areas. The situation has improved over time, but there is still a significant opportunity for improvement in conservation activities that contribute to long-term sustainable use of land resources. 6. Project Results 6.1 The RSI project has been a notable success in meeting its objective of demonstrating an integrated, sustainable technology for red soils development. Many of the technical practices developed under RSI have been replicated by nonproject farmers in Jiangxi and Fujian, and Red Soils II (RSII) is planning on retaining key elements of RSI design. 6.2 The project has generated a wide array of economic benefits. Incremental production at full development for fruit, tea, and milk is projected at 150,000 tpa, 9,000 tpa, and 18,100 tpa. As a result of this strong output performance, farmer income has risen dramatically. Incomes of project farmers are 25-50 percent greater than nonproject farmers in the same localities. In Jiangxi, households have been resettled and provided new homes, schools, and clinics. In Fujian, farmers continue to live in their old villages, but these villages have benefited from the influx of prosperity from project farmers.  - 6 - 6.3 ADC financial health has generally been strong. Lending has been at market rates (there was a brief inflationary period when ADC rates lagged ABC rates, but this was quickly rectified), and loan repayment performance has been highly satisfactory. To the end of 1991, 111 percent of scheduled payments had been collected in Fujian and 98.6 percent in Jiangxi. The Fujian experience reflects a number of cases where borrowers have commenced repayment of principal ahead of schedule. The extensive frost damage to citrus orchards in Jiangxi will likely create problem loans over the next few years, and Jiangxi ADC has plans for a three-year moratorium on principal and interest repayments from affected farmers. During this time, farmers would not pay ADC, and ADC in turn would not make payments on its loans from the Ministry of Finance. Interest would not accumulate, and the financial loss from the delayed payments would be borne by local and provincial governments, ABC and ADC. 6.4 The overall financial and economic performance of the project (FRR equals 14 percent, ERR equals 21 percent) has been lower than projected, due primarily to citrus frost damage, but is satisfactory. Financial and economic rates of return are summarized in Table 6.1 and brief descriptions of the main project components are provided below. Table 6.1: ORIGINAL AND REVISED RATE OF RETURN PROJECrIONS (percent) Or inal SAR Revised ERR FRR ERR FRR Total Project 29 n/a 21 14 Jiangxi Citrus 32 29 12 7 Fujian Citrus 32 30 24 16 Jiangxi Ramie 32 46 <0 <0 Jiangxi Tea n/a n/a 34 24 Fujian Tea 24 19 38 26 Jiangxi Dairy HH 21 36 37 29 Without frost damage Total Project 27 20 Jiangxi Citrus 22 16 Fujian Citrus 31 22 6.5 Citrus. The citrus component comprises 45 percent of the total investment, approximately in line with appraisal estimates. Citrus was expected to provide the highest economic benefit of any of the components of RSI (except for a small pig breeding component). During the first four years of implementation, citrus plantings were fulfilling those expectations as yields were obtained two years ahead of schedule and investment and operating costs were at reasonable levels. However, a record frost was experienced in both Jiangxi and Fujian provinces in December 1991, and there was extensive damage to citrus plantings. In Jiangxi, 70 percent of fruit orchard area was planted with citrus (the remainder planted with a variety of deciduous fruits), and 100 percent of these citrus plantings were damaged, three fourths of these being completely killed. In Fujian, the damage was less severe: the 80 percent of fruit orchard which was planted with citrus was damaged, with one eighth of this being completely killed. The net effect of the frosts is that additional investment will be required and citrus output will be delayed until  - 7 - at least 1996. With the frost damage, Jiangxi fruit component FRR and ERR is projected to drop to 7 percent and 12 percent, respectively, and Fujian to 16 percent and 24 percent, respectively. The rates of return to frost-damage affected households may be somewhat higher to the extent the households pursue other income generating activities such as expanded intercropping. 6.6 The citrus component also continues to face market risk as large areas of China have been planted with citrus over the past five years, and there is the threat of oversupply. This is particularly true for the mandarin orange which was the preferred variety in RSI. The frost damage is likely to reduce or postpone such a risk, but there is a need for a comprehensive market study of citrus supply/demand prospects before additional investments are made in citrus plantings. 6.7 Tea. The tea rehabilitation and new planting component has increased from 12 percent to 19 percent of total investment due to increases in tea rehabilitation in Fujian and conversion from ramie to tea rehabilitation in Jiangxi. Results for tea rehabilitation have been very good, with yields generally doubling with moderate levels of investment. New plantings have also met with success. Component FRR and ERR are estimated to be 24-26 percent and 34-38 percent, respectively. In some of the mission's visits to tea rehabilitation projects, it appeared that the project had invested in farmers who were already quite successful, including households with up to 7 ha of tea holdings. Future tea investments should consider development of more stringent guidelines on maximum levels of assets for inclusion in the project, and also should consider reducing the maximum size of farm holding per household. 6.8 Dairy. This component, which set up 550 dairy households in Jiangxi, comprises 4 percent of investment (down from 10 percent at appraisal because of cost savings, primarily in imported breedstock) and has been financially the most successful component of the project. Component FRR and ERR are estimated at 29 and 37 percent, respectively, and project farmers are earning substantially higher incomes than ADC management. Relatively favorable milk to feed concentrate prices and excellent training and support provided by the state farm dairy processing plant have contributed to this success. Cows receive more attention and better care under individual household management than in the traditional state farm system, and this results in improved milk yields with the added advantage of a wider distribution of benefits. Future dairy investments should consider reducing the size of operation to reduce the very high initial investment costs, in order to spread the economic rents from this activity among more households. 6.9 Other Components. The remainder of project components comprising 16 percent of total investment have had mixed results. Pig breeding, pig fattening, and feed and fodder-raising activities are generally carried out by households who also participate in citrus, tea, or dairy, and appear to be proceeding successfully. Forestry operations are also being conducted as an addition to shorter-term cash-generating activities rather than as a main activity of certain specialized households (as originally envisaged), and this seems to be a sensible modification to allow for a mix of short- and longer-term income. Though the desired amounts of windbreak and forest have been planted, the quality of planting material and silvicultural management has generally been poor, and timber yields are likely to fall short of projections. Agroprocessing investments were about 300 percent higher than projected and there have been specific problems with equipment performance in the two Jiangxi dairies and with low capacity utilization in the ramie processing plant. Consequently, rates of return for the agroprocessing component are likely to be significantly lower than projected.  -8 - 7. Project Sustainability/Replicability 7.1 The project is expected to maintain a significant level of net benefits throughout its life. Continued strong output performance will depend on (a) strong beneficiary commitment to effective technical management; (b) adequate provision for recurrent government expenditures in research and extension; (c) favorable market conditions for long-term tree crops; and (d) no further severe frost damage. To this end, ADC will need to develop a medium-term marketing strategy for citrus, study future frost risk and develop frost-protection measures and implement a restructuring program for the frost affected citrus smallholders in Jiangxi. 7.2 A high level of cost recovery is also expected throughout the project period. Net farm income is projected to cover household debt servicing obligations, even accounting for citrus frost damage. Public sector budgetary allocations for infrastructure, research and extension are expected to be fully recovered through project charges and taxes over the life of the project. Finally, ADC is expected to continue to operate on a profit-making basis. 7.3 RSI has generally succeeded in demonstrating an environmentally sustainable approach to red soils development. The RSII approach goes a step further in environmental sustainability by planning integrated, sustainable development of entire watersheds, but it appears that RSI was an appropriate interim step. 7.4 The combination of sustained benefits and strong cost recovery make many of the features of RSI attractive for replication. The investment costs of Y 15,500/ha overall (in constant 1987 terms) and Y 20,500/ha for citrus appear reasonable compared to other Bank-financed projects (e.g., Mid- Yangtze is Y 35,000/ha of new orchard establishment. However, considerable efforts in training and extension are required for replicating this model. The project gets good marks thus far at disseminating well-known techniques to farmers, but has been less successful in developing improved techniques (e.g., new crops, soil management techniques, etc.). Futurc replicability may be constrained by availability of trained extension and management skills. 8. Bank Performance 8.1 The Bank worked effectively with the Borrower during project preparation and appraisal, and there were numerous successful innovations in project design resulting in a vastly improved technology for red soils development. In particular, Bank staff played a key role in strengthening the Borrower's institutional capacity for project design and implementation. The main shortfall in the design was in assessment of citrus marketing and frost risks, and an important lesson has been learned from this experience as evidenced by the emphasis placed on this during RSII preparation. During supervision, the Bank provided valuable suggestions on diversifying citrus plantings, strengthening windbreak construction, and introducing vetiver grass for soil conservation. These recommendations significantly improved the operating performance of the project and contributed to a strong overall rate of return despite the unanticipated frost damage. The Bank was flexible in allowing sensible modifications to the original plan such as reducing ramie plantings. 9. Borrower Performance 9.1 Project management had not previously worked with the World Bank, but quickly adapted to Bank methodologies for project preparation and appraisal, and actively contributed to project design. Performance during implementation has been excellent in terms of speed and cost-containment, and fairly  -9 - good in terms of quality (apart from instances of poor quality of planting materials, soil conservation, and tree establishment). ADC has developed a strong cadre of trained project management personnel and much improved management systems. These assets should be valuable in future development of red soils throughout China. As mentioned earlier, there are opportunities for improvement in activities with longer-term payoffs-most importantly, there needs to be increased emphasis on experimentation aimed at developing improved methodologies and increased emphasis on conservation measures. 10. Project Relationships 10.1 Relationships between the Bank and Borrower were both cordial and effective throughout the project cycle. This was due in part to relationships built during project preparation and also to the initial successes during project implementation, which were widely recognized and gave both sides the motivation of being involved in a successful venture. 11. Consulting Services 11.1 The role of consultants was limited to a few specific technical issues such as citrus processing and livestock development. These engagements provided high value as judged by both the Borrower and the Bank, but the available budget for consulting resources was significantly underutilized due to a reluctance by the Borrower to expend funds on expatriate expertise. 12. Project Documentation and Data 12.1 The project data base was maintained well and the borrower provided excellent data and support during PCR preparation. In general, data on project costs are excellent. Data has been compiled on financial performance and benefits based on sampling of project and nonproject farmers, but it is not possible to verify the methodology or develop a strong conviction about accuracy. Projections of future financial performance are generally optimistic-based on best-case scenarios. 13. Recommendations 13.1 The following actions are recommended for improvement of RSI performance and for consideration in future red soils development projects: (a) develop a processing and marketing strategy for citrus and deciduous fruits in anticipation of large supply increases in coming years; (b) develop a restructuring plan for frost damaged citrus areas including a more diversified crop mix. The current plan of increasing noncitrus plantings from 30 percent to 40 percent of total area may not take sufficient advantage of this opportunity to diversify plantings to reduce marketing risks and to produce fruit products which can be harvested and marketed over a larger portion of the year; (c) develop a restructuring plan for the Jiangxi ramie processing plant which is running at low capacity utilization under a subsidy from the county government. Plant management believes that the market will improve soon because of increased domestic and export demand, but this projection should be rigorously tested and consideration should be given to either converting the plant to process other textiles or to mothballing some industry capacity until demand does pick up;  - 10- (d) reevaluate ADC financial solvency in light of project experiences, particularly their ability to cover foreign exchange losses in World Bank loans in light of the continued depreciation of the Yuan. Consider the introduction of a project management charge, especially for those households who are highly profitable. Make provision for ADC to share some of the citrus losses with those affected farmers through introduction of a bad-debt provision in their financial accounts. (e) design organizational changes to increase the amount of experimentation in RSI (and RSII) to apply to future development of other red soils areas. For example, targeted objectives for testing new crops, conducting control comparisons of different soil treatments, utilizing foreign technology, etc. could be provided to ADC management. Alternatively, an organizational position could be created with responsibility for longer-term investments in learning. Additionally, decide on an approach to increase focus on conservation activities; (f) reduce size of specialized dairy households and tea rehabilitation households to increase the number of project beneficiaries given overall investment constraints; and (g) avoid long-distance water conveyance and multilevel pumping systems and where possible, store water locally with use of one-stage pumping or short-distance water conveyance.  - 11 - PART II: PROJECT REVIEW FROM THE BORROWER'S POINT OF VIEW 1. Project Objectives 1.1 The major objective of the project was to demonstrate efficient methods of developing the production potential of unutilized lands in red soils areas of southern China. There are about 2 million knV of such soils in 11 Chinese provinces south of the Yangtze River where favorable climatic and rainfall conditions offer opportunities for the development of diversified productive land use systems. 1.2 Present agricultural development policy of the State Council emphasizes that increased importance will be placed on transforming low yielding farmlands and on making full potential use of wastelands and idle water resources in order to grow crops and trees and to raise livestock and fish. 1.3 Lessons Learned. The project's objectives as defined at the time of appraisal remain fully valid. The project has successfully demonstrated that the technology of converting unused red soils into productive lands for the cultivation of food, fodder or cashcrops from a variety of annual and perennial plants can be applied on a broad scale, using labor-intensive development methods. The red soil development technology put together at appraisal from findings at a few research stations, can now be employed with confidence in the course of China's future red soils development programs. 2. Implementation Performance Project Expenditure 2.1 In both project provinces, ADC has quickly developed its project implementation capacity. Already by October 1989, i.e., only about 30 months after the Credit's effectiveness on March 23, 1987, practically all project activities had been approved by ADC and action was well under way for the efficient execution of the farm developments foreseen. 2.2 A conscious containment of unit costs in the three major expenditure items,1/ i.e., crop establishment (Y 109.9 million), land development (Y 69.5 million) and infrastructure development (Y 35.6 million) has allowed the attainment of the physical targets which were set at appraisal at reduced overall costs without a lowering of development standards. The general weakening of the Yuan against the SDR during the project period has also reduced the dependence on local finance, but energetic efforts have been maintained by the ADC offices at all levels to keep the level of the beneficiary contributions to about 25 percent of the total investment for on-farm development. 2.3 ADC had to make some significant changes to the project expenditure mix anticipated at appraisal. Higher investments for ADC offices were required in Jiangxi in order to deal with the nearly 10,000 participating households there, and higher investments than anticipated were also made for agroprocessing in order to assist with the processing and marketing of project produce. Considerable savings were achieved in expenditures for machinery and equipment, and for technical assistance. The 1/ Cost data in this section are based on preliminary estimates (end-1990) expressed in current values and therefore differ from updated costs in Pat III.  - 12 - first was considered essential to reduce ADC's costs for its service operations, the second considered possible in view of locally available expertise. ADC also considers that lower expenditures than anticipated for research have not affected the standard of project implementation in a negative manner. The ADC training programs for various project aspects and for different levels have always been maintained at a high level of intensity. Major savings were, finally, also achieved by reducing the foreign exchange expenditure for importing livestock for breeding. 2.4 Lessons Learned. The project has provided sufficient funds to implement a comprehensive land development program on a scale which corresponded to physical targets set at appraisal. Conscious cost containment in major expenditure items together with increases in the Yuan value of the IDA Credit have allowed the achievement of the project's physical targets at anticipated standards but at a reduced level of local finance. Physical Achievements 2.5 Throughout all activities, ADC authorities have been able to reach and even surpass the targets set at appraisal. This reflects well on project staff: to do essential planning timely; to train farmers and supporting staff for the jobs to be undertaken; and to provide all essential inputs and infrastructure required by the farming units. It is also indicative of excellent leadership at all levels in ADC, of outstanding work and commitment of all project staff and of the tremendous skill and industriousness of participating farmers. 2.6 Lessons Learned. ADC authorities responsible for project execution have demonstrated their capacity to use a large-scale innovative land use technology for creating commercial-type farming in a well coordinated and efficient manner and quicker than was anticipated at appraisal. The supervision by ADC of participating farming units has been sufficiently intensive and of a quality to ensure the general adherence of all participants to the development standards stipulated at appraisal. 3. Some Major Development Components Soil Improvement 3.1 To improve the quality of red soils is one of the most important objectives of the project, and ADC has been monitoring the changes which have occurred in soil characteristics as a result of soil improvement activities. On a contract basis, in Jiangxi soil analysis was carried out by the Red Soils Research Institute, in Fujian this was done by the Soil-Fertility Center of the Nanping Bureau of Agriculture. 3.2 In Jiangxi, changes in soil characteristics have been monitored in six fruit orchards, in Fujian 21 sites were chosen which were thought to be representative of about 540 ha of orchard land. Fertilization levels are high during the initial year: farmyard manure or organic matter rubbish vary between 20 and 20 t/ha and about 30 t/ha of fresh green manure, as well as 0.7 t/ha of different oil seed cakes and 1 to 1.5 t/ha of lime, are applied to the large planting holes for fruit trees in the year of establishment. Supply of organic matter is halved during years 2 and 3, and again halved thereafter. With these very labor-intensive improvement works, the organic matter content in a 60 cm layer of top soil increases from 1.0 to 1.3 percent before development to 1.6 to 2.4 percent after three years. Also nitrogen, phosphorus and potash availability are reported to increase significantly together with improvements in soil texture, which in turn increases the soils' water retention capacity by about 30 percent.  - 13 - 3.3 Lessons Leuned. The soil improvement technology applied under the project, which is the basis for any long-term conversion of red soil wasteland to productive agricultural land has been shown to work. This technology is extremely labor-intensive which Chinese farmers are capable and willing to supply. Phosphorous and potash, in addition to nitrogen, are likely to remain the critical plant nutrients which will require regular application during future years. Land Development 3.4 The preparation of sloping red soils to start agricultural use requires close attention to soil and water conservation. Considerable experience has been collected by now concerning the suitability of different technologies and their cost, so that recommendations can be made for cost-effective measures in future. 3.5 Fujian's land development experience is based on slopes of 15 and 20 degrees, that in Jiangxi refers to slopes of 5 and 8 degrees. The following table summarizes present experience with terrace construction. Degree of Slope Item Unit 5 8 15 20 Width between terraces m 8 8 3.3 2.8 Length of terraces m/ha 834 835 3,000.0 3,070.0 Soil to be moved m3/ha 2,610 3,912 2,790.0 4,050.0 Labor efficiency m3/md 4 4 5.5 6.0 Labor cost Y/md 7 7 7.0 7.0 Total cost Y/ha 4.553 5.937 3.552.0 4,725.0 3.6 The differences in farm enterprise systems between Jiangxi and Fujian have had a significant influence on land development. In Fujian with its larger operational units, terraces are normally well on the contour. In Jiangxi with small family farms, contours and bunds, as well as windbreaks, are quite often along boundary lines or along roads and canals. The standards of terrace construction are generally all right, but improvements are required to achieve better aligmnents with contours. At the steeper slopes, more attention is also necessary to construct safe terrace risers and to create water ways for the safe disposal of runoff during high-intensity rain storms. 3.7 The introduction of Vetiver grass during project implementation has been greeted by ADC with enthusiasm. It opens new avenues for a considerable reduction in land development costs by lowering the costs for earth-moving, and by making terraces, waterways and other constructions more durable. Vetiver grass hedges on the contour have also been used to enforce land cultivation and planting of annual crops along contour lines. Farmers understand the importance of Vetiver grass in land development, and ADC has responded quickly with the establishment of essential nursery capacities. 3.8 Lessons Learned. project farmers accept the need for reliable measures of soil and water conservation and are capable of applying the proposed techniques. The quality of work is particularly  - 14 - critical in locations with higher slopes, i.e., in Fujian, and more intensive planning and supervision of works is required there. Proper application of hedge-plantings with Vetiver grass is moving forward quickly and will become an essential tool for reducing the cost of soil and water conservation, and for making it more durable. Fruit Farming 3.9 The cultivation of oranges on red soils has a long tradition in Jiangxi and Fujian. These cultivation and husbandry techniques have been the focal point around which the red soils development technology has evolved, which is now promoted by the project. Land development for fruit farning has, therefore, been the backbone of land use development in both provinces. About 60 percent of all developed land has gone into fruit orchards in Jiangxi, and about 70 percent in Fujian. The development of fruit farming has, therefore, received major attention by ADC project authorities at all levels, and this experience warrants a more elaborate analysis in this document. 3.10 In Jiangxi, fruit farms have been developed by individual households on 1.5 to 2.0 ha. The credit required for the development of these enterprises varied between Y 15,000 and Y 25,000, with the average of about Y 18,000 that is Y 10,000 per ha approximately. This included about Y 6,000 to Y 8,000 for the construction of a house and pig sties, the remaining part of the loan was for land development and crop establishment. Settlers with larger family labor capacities were eligible for the larger farm sizes, i.e., the larger loans. The basic objective has always been to align farming operations with family labor capacities, but there are some instances where permanent labor is hired for routine operations and additional seasonal labor for peak work periods. 3.11 In Fujian, fruit farming has been developed as a commercial initiative of existing township or county level collectives, which have been involved until now predominantly in irrigated fruit or cash crop production. There are 249 project fruit farms now on 5,757 ha of land. This represents an average fruit farm size of 23 ha. On average, each farm enterprise has about 11 members which gives an average of about 2 ha per member household, i.e., similar to Jiangxi Province. The average loan taken in Fujian under the project has been Y 8,570 per ha of established fruit orchard. 3.12 During initial project years, there has been a heavy emphasis on the planting of oranges. ADC then accepted the warnings of World Bank supervision missions that the concentration on oranges might lead to marketing problems, and during the planting seasons of 1989 and 1990 about 30 percent of all trees planted were deciduous fruit trees. As a result, the percentage of oranges is declining. It is 78 percent in Fujian, and 71 percent in Jiangxi at present. Among the deciduous fruits, peaches, plums, nai and pears are the most promising. The first three have the considerable advantage of coming into production earlier than oranges. 3.13 The standards of fruit tree establishment, maintenance, husbandry/pruning and pest control have been generally good in both provinces, but significant differences have developed in the comprehensive management and utilization of the farm units. In Fujian, where the collective fruit farm and its members have access to additional income from other production of the "parent" collective, little emphasis is placed on producing cash crops under young fruit trees during initial years. The following situation emerges for Fujian. Soybeans make up about 50 percent of the intercrops, followed by 25 percent of groundnuts, 10 percent of watermelons and the rest of other crops. In Fujian, the capital requirements for intercropping are not part of the farm development loans. This is also the case in respect of pig production, i.e., fruit farm enterprises receive no loans for their piggeries. The fruit farming system promoted by the project in Fujian, therefore, may cost less per hectare than in Jiangxi,  - 15 - Land Use 1987 1988 1989 1990 Cumulative total fruits (ha) 1,376 2,530 3,051 3,051 Cumulative intercropping (ha) 572 819 955 647 Intercropped as percent of total fruit land 41 32 31 21 but it does not promote an integrated farming approach. As a result, many of the terraces with young fruit trees have no undercrop, and this is not a good practice to avoid erosion and improve soil quality; Fujian fruit farms have a critical shortage of farm produced organic matter for manuring; soil fertility buildup needs attention on some farms. 3.14 In Jiangxi on the other hand, the household fruit farm of 1.6 to 2.0 ha has developed into a fully integrated comprehensive farming system. Until the fruit trees develop a complete shade cover, all developed farm land is likely to be used intensively for food, fodder, cash or green manure crops with a sophisticated system of relay-planting. Pig fattening, and often also piglet raising, are integral parts of fruit farming. All these activities are supported by project loans so that in Jiangxi the project actually promotes integrated farming with permanent ground cover. 3.15 Lessons Learned. Fruit farming is the backbone of red soil development. Production technology is well understood by the cultivators. Individually operated fruit farms in Jiangxi have all the essential support and incentives for intercropping with food, fodder, cash and green manure crops. This is not the case at present in Fujian with its collective fruit farming system. Tea Gardens and Ramie Production 3.16 At the time of appraisal, ramie prices were at record highs of about Y 8.00/kg at the farmgate. During the initial project years, producer prices dropped to less than half their 1986 levels and, consequently, less emphasis was placed on establishing ramie on project farms. Project data show that the area which was planned to be put under ramie has been reduced by about 85 percent from 4,575 to 725 ha. Ramie prices were at about 60 percent of their 1986 level at the end of 1990 and opportunities for commercially viable ramie production have begun to warrant increased attention again. 3.17 ADC project authorities have basically substituted the decreased expenditures for ramie by increasing the areas for tea production development. Most of this activity has consisted of rehabilitating low-productive tea gardens in family units (Jiangxi) or collectives (Fujian) by organic and inorganic manuring combined with in-row cultivation, pruning and gap filling. Also wind breaks have been planted to improve micro-climates. 3.18 Lessons Learned. The choice of crops employed in red soil development has to be determined by the financial attractiveness of their production in the different farm enterprise systems. Adaptability of plants to the ecological conditions is a prerequisite, but their actual broad-scale use depends on commercial considerations.  - 16 - Agroforestry and Wind Breaks 3.19 The project has reached its physical targets for forest tree planting. About 4,500 ha have been planted in both provinces combined and this represents 104 percent of the appraisal target. The digging of planting holes, the supply of quality seedlings, and the maintenance of planted areas are considered adequate, but based on the observations to date, ADC is concerned about the following problems: (a) better adapted species and varieties are required which have higher growth rates of commercially utilizable organic matter, including foliage and timber, under the ecological conditions concerned. Such trees can also include species with commercial value, such as mulberry, fodder trees or nuts; (b) improved systems of tree establishment are essential in order to compensate for the understandable reluctance to divert precious organic matter needed for fruit trees and cash crops to forest trees of uncertain commercial value. This includes a better understanding of the exact nutrient requirements of various trees as well as methods to improve their capability of utilizing limited amounts of plant nutrients through scientific methods of inoculating seedlings at the time of planting; (c) the alignment of wind break planting needs attention. In Jiangxi, they are predominantly along farm boundaries. In Fujian, they are often block-planted on hill tops. The latter is good for soil and water conservation, but the positive impact of wind breaks on micro- climate requires their proper orientation in respect of the normal direction of the most damaging winds. 3.20 Lessons Learned. The planting of nonfruit trees has been accepted well, but further achievements in species selection; establishment and husbandry methods; and in the alignment of wind breaks are required to make these operations financially more attractive to participating farmers, and to achieve a beneficial impact on the micro-climate of the locations concerned. Pig Fattening and Pig Breeding 3.21 Pig production is an age-old Chinese tradition and the essential practical skills are well understood by all project beneficiaries. The Jiangxi settlers have quickly taken up production of feeds as in some areas with large pig production the ratio between the price of purchased concentrate feeds and l iveweight of pigs sold has dropped to below 1:4 at times of heavy supply. Most farmers also keep a sow to produce the required piglets, and they achieve the sale of about 20 fattened pigs per year on 1.5 to 2.0 ha of land. Standards of pig housing constructed with the help of project loans in Jiangxi are acceptable although more attention still is essential to improve temperature control, hygienic standards and labor efficiency. 3.22 Although pig production development was not part of the farm development package in Fujian, both provinces have used project funds to improve the genetic potential of pigs for efficient production. Fertility level, growth rate and lean meat production capacity have been the major objectives for which purebred Large White and Landrace pigs are kept on provincial breeding stations which were constructed, equipped and stocked with the financial assistance of the project. These stations are well managed by ADC and operated as commercial entities; they are quite efficient. A linkage between the  - 17 - breeding stations and practical farm fattening, as foreseen at appraisal through the establishment of pig multiplication units in specialized households is presently under development. 3.23 Lessons Learned. Pig production works well and remains financially attractive. Individual households in Jiangxi make full use of the pig production potential which they have, to produce farmyard manure, whereas the large collective production enterprises in Fujian have no direct reliable access to manure as they are not themselves undertaking pig production. Pig breeding has been initiated to produce crossbred pigs of higher production efficiency and higher lean meat content which remain, however, still suitable for the unrefined conditions as they exist on practical pig fattening farms in the project area. Attention is now required to improve the multiplication of superior breeding stock from ADC stations so that these animals can be fully used in practical pig production, and to assist farmers to sell their pigs in urban areas so as to avoid seasonal oversupply and unattractive prices in project locations. Dairy Development 3.24 Milk production development as a vehicle for red soil development has taken place around the two county-level economic entities with dairy cattle in Jiangxi, i.e., the Provincial Livestock Breeding Farm and the Red Star Farm. Both these farms use Holstein-Friesian cattle of good genetic quality which have a production of between 5,000 to 6,000 kg of milk per lactation. On red soil wastelands in the vicinity of these two farms, 550 settlements have been established. They are operated under 50-year contracts by farm families, who in general were employed by the large State farms before and who have undergone three to six months practical training there before they were settled with five or six mature cows. 3.25 Average investments per settler family are high, varying between Y 35,000 and Y 45,000 for 1.3 to 1.7 ha of land. The farming system is quite suitable for red soil development as it provides large quantities (on average about 20 t/ha/year) of good farmyard manure. Farmers produce a variety of fodder for green feeding, from turnips to grasses, corn, sweet potatoes, cabbages and to turnips again throughout a calendar year. The farm sizes are sufficient to produce forage for about 10 cows and followers, if purchased concentrates (about Y 0.75/kg) are fed at the rate of 1:2 for the milk produced (0.94/kg), and if about 0.7 t of rice straw is purchased per cow and year. Milking three times a day, average milk yields of about 5,000 kg per cow per lactation are attained. Calving rate is between 85 and 90 percent. 3.26 Lessons Learned. Dairy development is an effective tool for red soil development. It is financially attractive. As long as the large "mother" farms can provide all the required technical assistance, livestock, feed, processing/marketing outlets and a cost recovery mechanism, dairy development can be expanded. However, the relatively high cost per unit of land converted from wasteland makes the replicability of this approach to red soil development problematic. Farms of smaller size would not reduce the investment per land area, but the cost per settled family. Smaller farms along potential milk collection routes with milk cooling centers might offer such an opportunity. Smaller units would also be more in line with the settlers' family labor supply which is at present generally not sufficient to deal with all the manual labor to be taken care of. Irrigation and Roads 3.27 The project has surpassed all targets for infrastructure development which were set at the time of appraisal, and it has achieved this objective at considerably reduced total expenditures. This has  - 18 - largely been the result of a high proportion of beneficiary labor input to complete the civil works which were unforeseen. 3.28 Many of the civil works proposed, such as roads or large water empoundments with long irrigation canals required large quantities of manual labor and made pooling of the labor force essential. This seems to be more easy in Fujian where the collective approach to farming is already a first step in organizing community labor. It is, however, more difficult in Jiangxi where individual farm households assign priority to the tasks of developing and maintaining their own little operational units. 3.29 This difference in approach of doing things together or separately has had a profound impact on the civil works which have been undertaken in Jiangxi and in Fujian. In respect to roads, Jiangxi has exceeded its target by 5 percent, but Fujian could do so by 100 percent. Similar differences have occurred with irrigation canals, i.e., 4 percent versus 79 percent, and with pumping stations, i.e., achievements on target versus plus 328 percent. 3.30 This difference between Jiangxi and Fujian has also had significant impact on the type of irrigation development undertaken. Whereas in Fujian relatively large-scale developments are undertaken which can serve the requirements of the much larger units, in Jiangxi small-scale irrigation schemes predominate which serve one or a few individual households. The per hectare costs of small irrigation works are likely to be higher, but small water empoundments, individual wells and pumps to irrigate 2 to 6 ha with short water conveyance distances are the only way of developing irrigation in Jiangxi. It is, therefore, not surprising that some farms in Jiangxi still work without irrigation whereas practically all the large enterprises in Fujian have irrigation, and some schemes are quite sophisticated. 3.31 In this situation, the results of recent research on the opportunities for commercial fruit production without irrigation in Jiangxi assume special significance. First results are encouraging and need careful follow-up and due replication. 3.32 Lessons Learned. The pooling of labor is easy in Fujian so that large civil works can be undertaken more easily than in Jiqngxi with its individual household system. Jiangxi needs small civil works which can be built and managed by one or a few households. The development of red soil land use systems which do not require irrigation would, therefore, be of particular significance for Jiangxi. Agroprocessing 3.33 The project has achieved its targets set for establishing new, or expanding and modernizing existing agroprocessing capacities. These developments have been achieved at a cost overrun of about 83 percent. Nearly 90 percent of all such expenditures have been incurred in Jiangxi. 3.34 Fujian has made only simple investments in this subsector (a) for waxing, grading and storage of oranges, and(b) for one feed mill to produce a premix for compounding balanced pig rations at the farm level. Both facilities are being used at near capacity. 3.35 In Jiangxi, rather complex agroprocessing facilities have been established. Two were modernizing the milk processing facilities at the large collective dairy farms. At the Red Star Farm, a 40 t/d spray tower has been installed to replace the (existing) outdated 20 t/d drying equipment for the manufacture of milk powder. Present fresh milk intake is at the 20 to 25 t/d level so that sufficient reserve capacity exists to handle the increased intake which will occur when the 275 milk production settlements reach full development. At the Provincial Livestock Farm, various equipment has been  - 19 - installed to allow UHT treatment and aseptic filling of milk (or fruit juices), milk-fat standardization, pasteurization and automatic filling of milk powder. Total installed capacity is 80 t/d and average daily intake during 1990 was 35 t/d. Peak intake during winter months approaches 55 t/d. Spare capacity is partly used for treating and packing fruit juices. Also this plant has sufficient capacity to handle the additional milk which the 275 settlers are likely to produce at full development. 3.36 The Jiangxi fruit processing plant, owned and operated by the Provincial ADC, has been constructed for grading, waxing and storing oranges. It works at capacity. The ramie processing plant owned and operated by the County-level ADC has been developed with an overcapacity. Three shifts per day work a reduced handling capacity so that only about 400 t of ramie yarn are produced per year at present instead of the 1,000 t installed capacity. 3.37 Lessons Learned. It is difficult to predict accurately the costs involved in purchasing and installing sophisticated imported equipment. Considerable difficulties are to be expected when individual equipment items for complex, interrelated operations are purchased from different manufacturers who make the lowest bids: it was extremely difficult and costly to make the dairy equipment at the Provincial Livestock Development Farm operational-the automatic milk powder packing machine is still not working. 3.38 ADC has succeeded to plan and install processing capacities in line with raw material supplies and domestic marketing potential. The only exception is the ramie processing plant where the volume of local production and of international demand have been greatly affected by unpredictable product price changes. The investments made in ramie processing give employment to 483 people at a total investment of Y 10,090 per person employed. This is only about one-third of the people which were planned to be employed and for whom the basic facilities are now available. At present utilization rates, ADC has difficulty servicing its loan and the IRR of this investment will remain much below its appraisal estimate unless than plant's output can be significantly increased. 4. Project Organization and Management Organization 4.1 The independence of the two provinces in the execution of the project has been maintained throughout the project, but the same time, common approaches to the development and application of technology and administrative procedures have been achieved by regular interprovincial consultations which were obviously more frequent at the start of the project. 4.2 The project's joint office in Beijing has made a strong contribution towards coordinating provincial activities. It has also been important to prepare, and follow-up on, project action with the state authorities concerned. Its major task during initial years was, however, to assist with project purchases, particularly with ICB. 4.3 Within the provinces, the project has established leading groups at the provincial level-Prefecture Nanping in Fujian-technical committees at the county levels and advisory groups down to the township level. The first two assisted ADC project offices at the levels concerned with policy formation, overall planning/budgeting and the coordination of line-agency contributions. The latter assisted with day-to-day project implementation.  - 20 - 4.4 ADC operations stopped at the county level. The responsibility for the lower level activities in the townships and villages was assigned to self-accounting entities which were normally specifically created for this purpose by ADC and which remained under ADC's supervision, but were self-accounting. 4.5 Lessons Learned. The project's organizational structure has worked well. It remained sufficiently flexible to adapt to changes in the project's geographical spread and in the range of its activities, but allowed a uniform approach. Of particular value has been the integration of local administration with the different line agencies concerned to ensure the project's full support at the lowest level. Management 4.6 Both provinces maintain headquarters offices to manage the day-to-day project business. Nearly all staff have joined ADC from former positions in the Bureau of Agriculture. By far the majority of all staff works at the county level. In all cases (seen during the PCR mission), the offices and buildings provide the basic amenities to carry out the work. Bookkeeping and registration procedures allow quick information on questions as they arise. 4.7 All development proposals foreseen for project credit are raised by the village or township committees which hold the land use right of the area to be developed. The proposals are technically guided by the ADC county-level technical staff and the required credit agreements are also raised at that level. The essential administrative procedures are well understood and credit can be approved quickly. 4.8 Average loan sizes in Fujian are more than ten times higher than in Jiangxi. This has had a profound influence on ADC's management task, loan supervision and debt collection. However, also in Jiangxi debt collection is highly satisfactory. Particularly noteworthy is the fact that borrowers in both provinces have started with the repayment of principal ahead of schedule. 4.9 The major technical advisory services are the responsibility of ADC provincial and county- level staff. Below that level, technicians are selected by ADC and then employed by different units at the township or village levels. Their salaries and other emoluments are part of the incentive systems under which these units operate. 4.10 ADC also provides commercial assistance for its project borrowers with input supply and marketing of produce. At the provincial level this includes an ADC unit for export promotion (peanuts and pigs have been exported from Jiangxi to Hong Kong). At the lowest level, this includes farmers' associations in Jiangxi, and commercial units attached to the enterprises in Fujian. Basically all the commercial services consist of bulk procurement for retailing, and produce collection for wholesale marketing. Commissions are charged for the transactions of between 1 and 3 percent of product values. 4.11 ADC's expenditures for administrative, credit and technical services down to the county level are partly financed by grants. Jiangxi ADC receives 70 percent of these costs from grants, 20 percent from management fees and interest spread, and 10 percent from commissions on trading. Fujian ADC receives about 50 percent of these costs from grants, 20 percent from management fees, 25 percent from interest spread, and 5 percent from commissions on trading. 4.12 Lessons Leaned. The project has developed efficient and low-cost management procedures for implementing its tasks of (a) advising borrowers technically, (b) providing credit for farm-based agricultural development, and (c) providing commercial assistance to its clients. Of particular importance  - 21 - has been the multitude of training activities for all levels and covering a tremendous width of topics from orange or pig diseases to refinement opportunities in incentive systems. Of great value has also been the harmonious integration into the package of project support services, of activities which are paid by incentive systems. 5. Project Benefits 5.1 All development took place on wasteland. Only some sites in Fujian had a sparse population of bushes or trees, but these had no commercial value. 5.2 Both provinces have conducted farm surveys to estimate the impact of project activities on the income of farming collectives and of individual households. 5.3 In estimating net income, farmgate prices have been applied to total production and deductions have been made for all purchased inputs and hired labor. The value of family labor has been left as part of net income. 5.4 Lessons Learned. There has been a general increase in per capita income over the project years in all farm enterprises. The Jiangxi data put this increase at about 45 percent. However, there has been a much more rapid increase in net income on project farms. The Jiangxi data indicate an increase over five years of about 155 percent. The net income in 1989 on project farms was about 35 percent higher than on nonproject farms. In Fujian this increase varied between 30 and 90 percent, depending on the duration during which project farms had been operational. 6. Aspects of Project Sustainability 6.1 The environmental impact of the project is quite positive. Some of the areas were subject to considerable erosion before development started, and the attention to erosion control and water harvesting reduces this problem. The project has demonstrated that with the massive labor input of settlers, soil fertility can be improved to an extent that the land use systems developed by the project become sustainable in the long term. 6.2 The cost per hectare of land development is an important aspect of the development program's sustainability-even the development is on a credit basis. Development costs per hectare are lowest in the Fujian approach with the large operational units there, but also the specialized households in Jiangxi Province offer good potential for future program expansion. Only the dairy development undertaken by the project needs attention in order to reduce the unit cost per settled family by reducing farm size and the number of cows per herd. 6.3 A third aspect of sustainability is the influence of the project on the long-term financial position of ADC. The larger operational units and loans make it much cheaper for ADC in Fujian to fulfill its task, but also in Jiangxi, long-term financial position of ADC remains positive and attractive. 6.4 Lessons Learned. The positive influence of the project on stabilizing and improving the ecological balance in the development area has been clearly demonstrated. The project technology may be made more replicable by reducing the size and investment level for dairy farming, but little prospect exists to reduce the cost of land development and crop establishment to levels which are lower than those achieved until now without losing the essential lasting positive impact on soil fertility and erosion control. The larger enterprises in Fujian can be developed at a cost per hectare and per beneficiary which is lower  - 22 - than in Jiangxi with its individual households, but the risk of not having sufficient organic matter for the long-term sustainable increase in soil fertility requires attention before the approach is replicated in other provinces. The tasks and operations to be undertaken by ADC in such a land-improvement/settlement scheme appear to be sustainable financially in both provinces. 7. World Bank Performance 7.1 The Chinese project authorities wish to express their appreciation for a remarkable performance of the World Bank and its staff. 7.2 At the time of project preparation and appraisal, World Bank staff have shown their ability to assess the technical feasibility of a largely research based land development technology, and their understanding of the interrelation between the existing development procedures and the available managerial skills which could be used for effective project execution. The project remained sufficiently flexible to take care of many uncertainties, but it was at the same time sufficiently clear in technological and organizational proposals to determine the direction of project action. 7.3 World Bank staff have also made substantial contributions during project implementation. Supervision mission members recognized, for instance, quite early during the project the danger of an overemphasis on orange planting; they introduced the Vetiver technology; or made technical proposals for efficient livestock breeding and production. All these suggestions were quite practical and allowed quick response by the project authorities. 7.4 Finally, the World Bank allowed sufficient flexibility throughout the course of the project to make adjustments which were necessary to adapt project action to changes in local conditions, and to evolve a development technology suitable for future application on a much larger scale.  - 23 - PART III. STATISTICAL INFORMATION 1. Related Bank Loans and Credits Year of Loan/credit title Purpose approval Status Coaments Second Rural Credit Proj- Support ABC in its lend- 1986 Completed ect ing program for the di- Cr. 1642-CHA versification and modern- ization of agricultural production and processing Jiangxi Agricultural Establish livestock, 1990 Under Implementa- Development Project fish, tea rehabilitation, inplemen- tion pro- Cr. 2097-CHA and forests on hilly tation ceeding landt satisfacto- rily National Afforestation Assist in establishment 1990 Under Project of 985,000 ha of forest impleme n- Cr. 2145-CHA in 16 provinces tation Hid-Yangtze Project Establish citrus and 1990 Under Implementa- Cr. 2172-CHA other fruit orchards on implemen- tion pro- hilly lands tation ceeding satisfacto- rily after delay in credit effective- ness Agricultural Support Ser- Strengthen agricultural n/a Under vices Project extension services; im- prepara- prove seed supplies; tion develop Animal Husbandry Centers; upgrade quaran- tine services; strengthen management of gover ment services Red Soils II Land Reha- Extend RSI rehabilitation n/a Under bilitation Project technologies to entire prepara- vatersheds in five south- tion ern provinces.  -24 - 2. Proiect Timetable Item Date planned Date revised Date actual Identification (EPS) NA NA Preparation NA 06/85 Appraisal mission 10/85 09/85 Loan/credit negotiations 04/86 07/86 Board approval 07/86 09/09/86 Loan/credit signature 09/86 12/18/86 Loan/credit effectiveness 11/86 03/23/87 Loan/credit closing /a 06/30/92 06/30/92 Loan/credit completion 06/91 06/30/92 La Though the loan officially closed in June 1992, project implementation was almost fully complete by September 1990, and 98 percent of the original Bank credit had been disbursed by that time. 3. Credit Disbursements Cumulative Estimated and Actual Disbursements ($'000) 1986 1987 1988 1989 1990 1991 1992 Total Appraisal estimate 0.00 4.00 14.00 25.60 36.00 39.20 40.00 40.00 Actual 0.00 5.27 19.84 30.83 43.18 44.22 44.70 44.70 Actual as x of estimate 100 132 142 120 120 113 112 112 /a Date of final disbursement 08/03/92 /a Actual disbursements larger than appraisal estimate due to depreciation of the dollar against the SDR.  - 25 - 4. Proiect Implementation Appraisal Actual/SAR Indicators Unit estimate Actual (X) Beneficiary households /a no 18,783 13,619 73 Land development ha 27,000 27,577 102 Crop establishment ha 22,332 23,095 103 Citrus/fruit 8,515 9,079 107 Ramie /b 4,575 724 16 Tea lb 2,407 6,255 260 Forage 2,485 2,521 101 Forest 4,350 4,515 104 Dairying (households) no 550 550 100 Pig breeding (secondary) /c no 240 115 48 Irrigation Up-lift stations no 111 193 174 Canals km 415 537 129 Roads km 418 608 146 Agroprocessing no 4 4 100 ia Decrease in beneficiary households due primarily to increase in size of landholding of average Fujian tea household. /b Bank approved shift of 3,850 ha of ramie to tea rehabilitation due to decline in ramie prices. /c Fujian did not implement the secondary pig breeding households due to changing market conditions.  - 26 - 5. Proiect Costs and Financint A. Project Costs ($ million) La Actual/revised Appraisal /b Revised /c Actual percent Land reclamation 29.3 32.6 24.4 75 Infrastructure 15.0 12.4 9.6 77 Building 14.3 27.5 17.8 65 Machinery and vehicles 5.8 4.4 3.2 73 Crop planting 42.0 39.1 40.9 105 Animal breeding 6.7 4.7 3.7 79 Agroprocessing 4.4 3.2 8.8 275 Pilot experiment 0.8 0.6 0.7 117 Research equipment 1.1 0.8 0.2 25 Training and TA 2.9 2.3 1.0 43 Total Investment /d 122.2 127.5 110.3 87 /a Average exchange rates during project implementation were as follows: 1986 $1 - Y 3.2 1987 3.7 1988 3.7 1989 4.7 1990 5.2 1991 5.3 1992 5.4 /b Physical and price contingencies allocated. /c Investment costs were revised following Board presentation as a result of devaluation of the Yuan from Y 3.2 to Y 3.8 per $1.00. /d In local currency, project costs were 4 percent over budget as shown in Annex 1. When converted to US dollars, project costs are 13 percent under budget due to the devaluation of the yuan during project implementation.  - 27 - 5. (cont'd) B. Proiect Financing ($ million) Planned Percent Percent Source (Credit Agreement) of total Actual of total IDA expenditure categories 40.0 32.7 44.7/a 40.5 Domestic sources Provincial & local governments 11.1 9.0 8.7 7.9 Central government 3.8 3.1 3.4 3.1 Agricultural Bank of China 27.8 22.7 16.3 14.8 Self-financing by beneficiaries 39.5 32.3 37.2 33.7 Subtotal 82.2 67.3 65.6 59.5 Total 122.2 100.0 110.3 100.0 La The final credit allocation excludes SDR 44,700, which was canceled. 6. Proiect Results A. Direct Benefits Appraisal Estimated at Estimated at Indicators estimate closing date full development Beneficiary households (no.) 18,783 13,619 13,619 Incremental production (tons/year) Fruit 175,000 18,000 150,000 Ramie 7,100 500 1,100 Tea 3,400 6,600 9,000 Milk 17,300 13,800 18,100 Employment /a 41,000 37,000 37,000 /a Actual employment estimate lower than appraisal estimate due to decrease in number of households.  -28 - 6. (cont'd) B. Economic and Financial Impact (percent) Original SAR Revised ERR FRR ERR FRR Total Project 29 n/a 21 14 ComDonent Jiangxi Citrus 32 29 12 7 Fujian Citrus 32 30 24 16 Jiangxi Ramie 32 46 <0 <0 Jiangxi Tea n/a n/a 34 24 Fujian Toa 24 19 38 26 Jiangxi Dairy HH 21 36 37 29 Without Frost Dam-ae Total Project 27 20 Jiangxi Citrus 22 16 Fujian Citrus 31 22 Notes: 1. Rates of return were reastimated for citrus, tea, ramis and dairy compo- nents, which comprise 80 percent of project investment. Overall project rate of return is based on performance of these project components. 2. Historical and projected revenues, costs, and investments are based on Provincial ADC estimates adjusted as follows: (a) Land development, infrastructure, machinery/vehicles, and a portion of building investment cost were allocated to project components on a per-hectare basis for crop *stablishment and on a total investment basis for livestock and agroprocessing components. Research/training and a portion of building costs (schools, housing, etc.) were not included in the investment per SAR methodology. (b) Loan vs. beneficiary self-financing varied by component per ADC estimates. Interest calculated at actual rates for historical years and at 8 percent a year for projected years. Principal repaid in eight equal installments commencing 1993. (c) Working capital requirements estimated from information provided by ADCs. (d) Steady-state citrus yields projected at 85 percent of ADC estimates to account for possible declines in yields due to high-intensity farming, long-term deficiency in organic fertilizer inputs, and potential weather-related poor harvests in some future years. (e) All cash flows converted to constant currency basis using actual provincial inflation rates 1986-92.  - 29 - 6 (cont'd) B. Economic and Financial Impact (cont'd) (f) Cash flows exclude intercrop, pig raising, and off-farm income. (g) Rate of return calculations are after financing. 3. Frost damage estimates have been incorporated into the financial and eco- nomic analysis as follows: (a) Fujian Fruit (i) 20 percent planted with noncitrus, no yield decline. (ii) 70 percent planted with damaged citrus, 50 percent yield decline in 1992, returning to normal yields by 1996. (iii) 10 percent planted with root-killed citrus, to be replanted with noncitrus. Crop establishment investment costs of Y 1,200/ha total in 1992 and 1993, yields increase per yield curve starting in 1994. (iv) Citrus price increase due to supply reduction of 30 percent in 1992, returning to normal in 1994 (b) Jiangxi Citrus (i) 30 percent noncitrus, no yield decline. (ii) 16 percent damaged citrus, yield curve delayed four years and Y 4,000/ha total additional investment over 1992-96. (iii) 54 percent severely damaged citrus, yield curve delayed four years and Y 10,000/ha total additional investment over 1992-96. (iv) Citrus prices increase as above. (c) Fuiian and Jiantxi Tea (i) 85 percent of plantings unaffected by frost. (ii) 15 percent frost-damaged; 30 percent yield decline in 1992, 20 percent yield decline in 1993, and 10 percent yield decline in 1994. 4. Jiangxi tea rates of return are based on Fujian data adjusted for greater frost damage.  -30 - C. Studies Purpose as defined at Impact of Study appraisal Status study Technical and financial For IDA Completed Improved but feasibility of project- approval of still question- financed agroprocessing investments able agropro- facilities ceasing invest- ments 7. Status of Covenants Covenant Subject Status PA. Article II, 2.04 Maintain and staff JCC In compliance. However, Secretariat, Project Coor- little coordination between dination Committee and two provinces-managed sep- Provincial PO*. arately like two projects. PA. Article II, 2.05 Annual chemical fertilizer In compliance during imple- provision plan. mentation period. Com- pleted. PA. Article II, 2.06 Agroprocessing technical Submitted prior to IDA and financial studies for approval of agroprocessing IDA review, investments. Completed. PA. Article II, 2.08 ADCa to monitor farm bud- Early monitoring did not gets and family income, include control group of nonproject farmers. Subse- quently in compliance. PA. Article II, 2.09 ADCs subloans at prevailing In compliance except for a ABC rates for similar period in 1988. Problem loans. was identified by Bank supervision mission and corrected subsequently. PA. Article II, 2.10 ADC accruals to finance Disposal of ADC profits agricultural development unclear. Will likely to be and agroprocessing. used to fund loan payment delays due to citrus frost. PA. Article III, 3.01 Each ADC to maintain sepa- In compliance. rate accounts. Audited accounts and auditor's report to be furnished to IDA.  - 31 - 8. Use of Bank Resources A. Staff Inputs (weeks) Planned Revised Final Comients Through appraisal n.a. n.a. 112.6 Appraisal through Board approval n.a. n.a. 3.7 Board approval through effective- ness n.a. n.a. - Supervision n.a. n.a. 60.3 Total 176.6  -32 - B. Mission. Stage of month/ Days in Specialization Performnce Types of project cycle year Persons field repreeented /a rating status problem. Reconnaissance 7/84 n.a. - . Preparation 6/85 4 14 E,A,C,L,S Preappraisal Appraieal 9/85 7 18 1,AF,C,L,AP,C1 - Supervision 1 2/87 4 6 9,L,AP 1 Supervision 2 12/87 2 15 A,C 1 Supervision 3 9/88 2 6 C,AY 1 Supervision 4 9/89 2 12 C,L 1 Supervision 5 4/91 1 10 C 1 ia Key to specialization: E - Economics A - Agricultur- C = Credit L - Livestock S - Soils AP - Agroprocessing OM - Organization and Management AF - Agric. Fruit Crop Specialization  33- ANEX 1 PROJECT COMPLETION REPORT CHINA RED SOILS AREA DEVELOPMENT PROJECT (CREDIT 1733-CHA) PRojEcr CosTs iN LoCAL CURRENCY (Y'OOO) ADoraisal estimate Actual Percent Jiangxi Fujian Total Jiangxi Fujian Total Total Land reclamation 61,911 28,800 90,711 63,560 26,830 90,390 100 Infrastructure 30,300 16,000 46,300 20,735 14,890 35,625 77 Building 38,279 5 5,460 43,739 54,038 11,800 65,838 151 Machinery and vehilels 15,861 3,520 19,381 7,297 4,400 11,697 60 Crop planting 96,832 42,560 139,392 100,344 50,830 151,174 108 Citrus 70,354 15,961 86,315 71,493 36,440 107,933 125 Ramie 13,354 0 13,354 5,065 0 5,065 38 Tea 0 22,261 22,261 13,148 11,430 24,578 110 Afforestation 8,238 3,578 11,816 6,050 2,660 8,710 74 Fodder 4,886 760 5,646 4,588 300 4,888 87 Animal breading 21,106 320 21,426 13,224 300 13,524 63 Agroprocessing 13,687 960 14,647 30,867 1,760 32,627 223 Pilot experiment 2,558 0 2,558 2,669 0 2,669 104 Research equipment 2,948 640 3,588 405 340 745 21 Training and TA 7,035 2,580 9,615 3,705 120 3,825 40 Total Investment 290.517 100.820 391.337 296.844 111.270 408.114 104  PROJECT COMPLETION REPORT CIONA RED SOILS AREA DEVELOPMENT PROIECr (CREDIT 1733-CIIA) CASH FLOW FOR KEY PROJECT CWONENTS RED SOILS 1 PCI 1987 1968 1989 I9O 199 1992 3 1994 1995 1996 1997 199 1999 2000 2001 Z002 2003 2004 2005 ErWICnIC RATE OF RETtIRU JIANGXI FtUIT - VIhN fROST DAMACE CASN IhFLOWS (000 T) area (ha) 913 4692 5527 6028 6028 6028 6028 6028 6028 6028 6028 6028 6028 6028 6028 6028 6028 6028 6028 yield (tons/ha) 0.85 0.00 0.00 0.00 0.00 0.58 1.04 2.09 3.70 4.80 7.20 10.20 11.96 16.53 16.47 17.76 17.76 17.76 16.15 16.15 output (tons/yr) 0 0 0 0 3496 6257 12586 22298 28914 43175 61495 84154 99640 9269 107087 107087 107087 97352 91352 price (yaton) 700 800 900 1000 1000 1300 1150 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 ecoromlc value 0.60 1.33 1.20 1.05 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 levenue 0 0 0 0 3965 9224 16414 25285 32812 49187 69735 95431 129 112570 121437 121437 121437 110397 110397 Loan 107465 22320 15177 32140 19641 4547 4547 4547 4547 1 Met cash Ilntows 22320 15177 32140 19641 3965 13771 20961 29832 37358 49187 69735 95431 11292 112570 121437 121437 121437 110397 110397 > CASN WTFLOUS Investmnta 122300 30575 20791 44028 26906 9093 9093 9093 9093 econmic value 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 Adjusted Invwestnt 28741 19544 41386 25292 0 8548 8548 8548 8548 0 0 0 0 0 0 0 0 0 0 Productlon cost 0 0 0 0 29537 86 8861 9523 9523 31743 31741 31743 31743 31743 33756 33756 33756 31756 33756 economlc value 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.91 0.93 0.93 0.93 0.93 0.93 0.93 Adjusted productlon cost 0 0 0 0 27469 8241 8241 8856 8856 29521 29521 29521 2ff21 29521 31393 31393 31393 31393 31393 Sales fee 0 0 0 0 40 92 164 253 328 492 697 954 1130 1126 1214 1214 1214 1104 1104 taxes 0 0 0 0 317 738 1313 2023 2625 3935 5579 7634 9039 9006 9715 9715 9715 83Z U32 Working capitol 2500 2500 3750 3750 -12500 Loan Interest 1719 3375 7869 9017 8597 8597 8597 8597 8597 7523 6448 5173 7523 6448 5373 7523 6448 0 Principat repayments 13433 13433 13433 13433 13431 13433 13433 13433 H lotal debt service 1719 3375 7869 9017 8597 8597 8597 8597 8597 20956 198I I1806 20956 19881 18806 20956 19881 0 0 0 0 met cash outflows 30459 25418 51755 38059 40173 26216 26863 28277 28954 54904 55678 56916 60646 59533 61129 61278 62204 41329 28829 4 INCREMENTAL CASI fLOE -8139 -10241 -19615 -18417 -36209 -12445 -5902 1555 8404 -5716 14057 38514 52346 53037 60308 58159 59234 69069 81569 Ilk 0.140 CONSTANT CIMRENCY -8139 -9580 -15065 -11927 -23147 -7769 -3659 964 5210 -3544 8715 23879 32454 32883 37391 36059 36725 42823 5073 IRR 0.123  RED SOILS 1 PCR 198 198 1989 1990 1991 1992 1993 1994 195 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ECONONIC IRATE OF RETURN JIANIGXI FRUIT - WIUThT FROST DAMAE CASH INFLOWS (000 T) area (ha) 913 4692 5527 6028 6028 6028 6028 6028 6028 6028 6028 6028 6028 6028 6028 6028 6028 6028 6028 yield (tons/ha) 0.85 0.00 0.00 0.00 0.00 0.58 3.46 6.96 12.33 16.00 15.91 17.76 17.76 17.76 17.76 17.76 17.76 17.76 16.15 16.15 output (tons/yr) 0 0 0 0 3496 20857 41955 74325 96448 95918 107087 107087 107087 107087 107087 107087 107087 97352 97352 price (y/ton) 700 800 900 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 economic value 0.60 1.33 1.20 1.05 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 Rev a 0 0 0 0 3965 23652 47577 84285 109372 108770 121437 121437 121437 121437 121437 121437 121437 110397 110397 Loan 89279 22320 15177 32140 19641 met cash Inflows 22320 15177 32140 19641 3965 23652 47577 84285 109372 108770 121437 121437 121437 121437 121437 12143? 121437 110397 110397 CASH WUFLOWS Investments 122300 30575 20791 44028 26906 econoic value 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 Adjusted Investent 28741 19544 4136 25292 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 . Production cost 0 0 0 0 29537 29537 29537 31743 31743 31743 31743 31743 31743 31743 33756 33756 33756 33756 33756 1 economic value 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 Adjusted production cost 0 0 0 0 27469 27469 27469 29521 29521 29521 29521 29521 29521 29521 31393 31393 31393 31393 31393 Sales fee 0 0 0 0 40 237 476 843 1094 1088 1214 1214 1214 1214 1214 1214 1214 1104 1104 Taxes 0 0 0 0 317 1892 3806 6743 8750 8702 9715 9715 9715 9715 9715 9715 9715 U32 8832 Working capital 2500 2500 3750 3750 -12500 Loan Interest 1719 3375 7869 9017 7142 7142 6250 5357 4464 3571 2678 1786 893 446 Principal repay nts 11160 11160 11160 11160 11160 11160 11160 11160 lotal debt service 1719 3375 7869 9017 7142 7142 17409 16517 15624 14731 1383 12945 12053 11606 0 0 0 0 0 met cash outflows 30459 25418 51755 38059 38719 36740 49161 53623 54988 54041 54289 53396 52503 52057 42322 42322 42322 41329 28298 INCElElTAL CASN FLOW -8139 -10241 -19615 -18417 -34754 -13089 -1584 30662 54384 54729 67149 68041 68934 69381 79115 79115 79115 69069 81569 0 IRK 0.247 CONSlTAT CURRENCY -8139 -9580 -15065 -11927 -22217 -8171 -982 19010 33718 33932 41632 42186 42739 43016 49051 49051 49051 42823 50573 a InI 0.218  RED SOILS I PCI 1967 1968 1969 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ErOm OIC RATE Of RETURN FUJIAY FRUIT - WITH FROST DAN"CE CASh INFLOWS (000 T) area (hb) 1387 2530 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 yield (tons/h 0.85 0.00 0.00 0.46 1.82 5.94 3.66 5.82 8.88 10.05 12.54 14.25 14.53 14.87 15.28 15.10 15.10 15.10 12.81 12.81 output (tons/yr) 0 0 1409 5553 18123 11176 17762 27108 30671 38254 43484 44317 45360 46617 46058 46058 46058 39083 39063 price (y/ton) 1000 1000 1100 1001 999 1300 1150 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 ecnomic valu 0.60 1.33 1.20 1.05 1.13 1.13 0.85 0.99 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 Renoven 0 0 1627 6270 20531 12378 20222 30740 34781 43380 49311 50255 51439 52864 52230 52230 52230 44320 44320 Loan 42096 10074 6850 14507 8865 1000 800 Net cash Inflows 10074 6850 16134 15135 20531 13378 21022 30740 34781 43380 49311 50255 51439 52864 52230 52230 52230 44320 44320 CASH OUTFLOWS Investments 55200 13J00 9384 19672 12144 2000 1600 econmic value 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 Adjusted Investment 12972 U21 1680 11415 0 18 0 1504 0 0 0 0 0 0 0 0 0 0 0 0 Production cost 0 0 0 0 10596 10596 10596 14462 14462 14462 20046 20046 20046 20046 20046 20046 20046 14462 14462 economic value 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 Adjusted production co 0 0 0 0 9654 96s4 9654 13450 13450 13450 18643 18643 18643 18643 16643 18643 18643 13450 13450 Sales fe 0 0 16 63 205 124 202 307 348 434 493 503 S14 529 S22 522 S22 443 443 Taxe 0 0 130 502 U42 990 1618 2459 2753 3470 3945 4020 4115 4229 41784178 4178 3546 3546 Working capital 150 1300 3000 1500 -7300 Lemn Interest 776 1523 3552 4070 3368 3368 3366 336J 2947 2526 2105 1684 1263 142 421 210 Prlincipal r ysasnt5 5262 5262 5262 5262 S262 5262 5262 5262 Total debt service 776 1S23 3552 4070 3368 3368 3366 33ea 8209 7788 7367 6946 6525 6104 56U 5472 0 0 net cash outflos 13748 11844 23678 19050 16570 16216 16546 19584 24789 25142 30448 30112 29797 2954 29026 23516 23343 17439 10139 IIC_ UTAL CASI fLOW -3674 -4994 -7544 -3915 3961 -2838 4476 11156 9993 18238 11863 20144 21U2 23360 23203 23414 2336 26132 34132 IZ 0.2a6 CUISTAIT uEUC -3674 -445 -5356 -2310 2377 -1617 2552 6359 5696 10396 10752 11462 12336 13315 13226 1334 14 1S323 193 3.237  RED SOILS 1 PCR 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ECONOMIC RAIE OF RETURN FUJIAN FRUIT - WITHCUT FROST DAMAGE CASH INFLOWS (000 1) area (ha) 1387 2530 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 3051 yield (tonS/h 0.85 0.00 0.00 0.46 1.82 5.94 6.66 9.39 12.81 12.99 14.39 15.10 15.10 15.10 15.10 15.10 15.10 15.10 12.81 12.81 output (tons/yr) 0 0 1409 5553 18123 20320 28649 39083 39626 43905 46058 46058 46058 46058 46058 46058 46058 39083 39083 price (y/ton) 1000 1000 1100 1001 999 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 economic valu 0.60 1.33 1.20 1.05 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 1.13 Revenue 0 0 1627 6270 20531 23042 32488 44320 44936 49789 52230 52230 52230 52230 52230 52230 52230 44320 44320 Loan 40296 10074 6850 14507 8865 Net cash Inflows 10074 6850 16134 15135 20531 23042 32488 44320 44936 49789 52230 52230 52230 52230 52230 52230 52230 44320 44320 CASH OUTFLOWS Investments 55200 13800 9384 19872 12144 econoeIc value 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 1 Adjusted investment 12972 8821 18680 11415 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Production cost 0 0 0 0 10596 10596 10596 14462 14462 14462 20046 20046 20046 20046 20046 20046 20046 14462 14462 economic value 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 Adjusted production co 0 0 0 0 9854 9854 9854 13450 13450 13450 18643 18643 18643 18643 18643 18643 18643 13450 13450 Sales fee 0 0 16 63 205 230 325 443 449 498 522 522 522 522 522 522 522 443 443 Taxes 0 0 130 502 1642 1843 2599 3546 3595 3983 4178 4178 4178 4178 4178 4178 4178 3546 3546 Working capital 1500 1300 3000 1500 7300 Loan Interest 776 1523 3552 4070 3224 3224 2821 2418 2015 1612 1209 806 403 201 Principal rep yments 5037 5037 5037 5037 5037 5037 5037 5037 Total debt service T76 1523 3552 4070 3224 3224 7858 7455 7052 6649 6246 5843 5440 5238 0 0 0 0 0 Net cash outflows 13748 11844 23678 19050 16426 15152 20636 24893 24546 24579 29589 29186 28783 28582 23343 23343 23343 17439 10139 INCREMENTAL CASH FLOW -3674 *4994 -7544 -3915 4105 7891 11852 19427 20391 25209 22640 23043 23446 23648 28886 288J6 28866 26882 34182 0 let 0.380 CONSTAMT CURRENCY -3674 -4445 -5356 -2310 2463 4498 6756 11074 11623 14369 12905 13135 13364 13479 16465 16465 16465 15323 19484 N 0.311  RI 1OILS 1 PC 1967 1968 1969 1990 1991 1992 1993 1994 1995 1996 1997 1996 1999 2000 2001 2002 2003 2004 2005 ECOUGIC RATE Of RETUlRN FWJIA TEA - WITH FROST DACE CASH INFLOWS (000 T) area (ha) 554 1509 2396 2396 2396 2396 2396 2396 2396 2396 2396 2396 2396 2396 2396 2396 2396 2396 2396 yield (torn/ha) 0.45 0.37 0.39 0.49 0.62 1.25 1.63 1.99 2.02 2.22 2.22 2.22 2.22 2.22 2.22 2.22 1.54 1.54 1.54 output (tons/yr) 249 558 934 1174 1486 2998 3905 4767 4840 5319 5319 5319 5319 5319 5319 5319 3690 3690 3690 price (y/ton) 5680 4792 5266 5651 5583 6400 6400 6400 6400 6400 6400 MOO 6400 MOO 6400 6400 640 6400 6400 economic valu 1.00 1.07 1.23 1.26 1.18 1.08 1.05 1.05 1.05 1.05 1.05 1.05 1.05 1.05 1.05 1.05 1.05 1.05 1.05 1.05 Revmnje 1515 3291 6200 7829 8957 20143 26238 32036 32524 35744 35744 35744 35744 35744 35744 35744 24796 24796 24796 Loan 23652 5913 4021 8515 5203 Het cash Inftows 7428 7312 14715 13032 8957 20143 26238 32036 32524 35744 35744 35744 35744 35744 35744 35744 24796 24796 24796 CASH OU FLOWS Irnestmnts 32400 8100 5508 11664 7128 econmic value 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 Adjusted Ivestment 7614 5178 10964 6700 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 I Production cost 0 0 2103 3547 3547 8629 11073 13291 13291 14620 14620 14620 14620 14620 14620 14620 10134 10134 10134 0 economlc value 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 Adjusted production co 0 0 1956 3299 3299 8025 10298 12361 12361 13597 13597 13597 13597 13597 13597 13597 9425 9425 9425 Sales fee 15 33 62 78 90 201 262 320 325 357 357 357 357 357 357 357 248 248 248 Taxes 121 263 496 626 717 1611 2099 2563 2602 2860 2860 2860 2860 2860 2860 2860 1984 1964 1964 Working capital 1000 1000 1000 1000 1000 Loan Interest 455 894 2085 2389 1892 1892 1656 1419 1183 946 710 473 237 118 Principal repyents 2957 2957 2957 2957 2957 2957 2957 2957 Total debt service 455 894 2085 2389 1892 1892 4612 4376 4139 3903 3666 3430 3193 3075 0 0 0 0 0 Net cash outflows 9206 7368 16563 14092 6997 11730 17271 19620 19427 20716 20480 20243 20007 19888 16814 16814 11656 11656 11656 Inceme Without Project 299 813 1291 1291 1291 1291 1291 1291 1291 1291 1291 1291 1291 1291 1291 1291 1291 1291 1291 P INCREMENTAL CASH FLOW -2076 -869 -3139 -2351 669 7122 7676 11126 11806 13737 13974 14210 14447 14565 17640 17640 11848 11848 11848 1 iAN 0.457 L CONSTAMT CURRENCY -2076 -775 -2218 -1388 399 4081 4375 6342 6730 7830 7965 8100 8235 8302 10055 10055 6754 6754 6754 0 0.378 -4  RED SOILS I PCR 1967 1968 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 200S ECONOIIC RATE OF RETURN Jinagxi Dairy SHN CASN INFLOIS (OW Y) cows (nuwber) 0 154 636 1528 2141 3080 3667 4033 4033 4033 4033 4033 4033 4033 4033 4033 4033 4033 4033 yield (tons/cow) 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.S0 4.S0 output (tons/yr) 0 694 2860 6874 9635 13860 16500 18150 18150 18150 18150 18150 18150 18150 18150 18150 18150 18150 18150 price (y/ton) 800 800 800 900 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 economic vaLue 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 Renvem 0 566 2334 6310 9828 14137 16830 18513 18513 18513 18513 18513 18513 18513 18513 18513 18513 18513 18513 Loan 15480 3870 2632 5573 3406 Net cash Inflows 3870 3196 7907 9716 9828 14137 16830 18513 18513 18513 18513 18513 18513 18513 18513 18513 18513 18513 18513 CASN 5TFLOhS Investments 17200 4300 2924 6192 3784 ncoomlic value 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 Adjusted Investment 4042 2749 5820 3557 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 Production cost 0 345 1649 3864 5416 7791 9275 10202 10202 10202 10202 10202 10202 10202 10202 10202 10202 10202 10202 economic value 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 Adjusted production co 0 320 1534 3593 5037 7245 8625 9488 9488 9488 9488 9488 9488 9488 9488 9488 9488 9488 9488 Sae fee 0 6 23 63 98 141 168 185 185 185 18S 165 185 185 18S 185 185 185 165 Taxes 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 a working capital 1000 1000 1000 1000 1000 Loan Interest 296 585 1364 1563 1238 1238 1084 929 774 619 464 310 155 77 Principal repay ents 1935 1935 1935 1935 1935 1935 193S 1935 Total debt service 296 585 1364 1563 1238 1238 3019 2864 2709 2554 2399 2245 2090 2012 0 0 0 0 0 met cs h outftows 5340 4660 9742 9m 7373 8625 11812 12537 12382 12227 12072 11918 11763 11685 9673 9673 9673 9673 9673 INUCEIEUTAL CASN FLOW -1470 -1462 -1836 -61 2454 5512 5018 5976 6131 6286 6441 6595 6750 6628 8840 8840 8840 8840 o840 iRR 0.457 Cunstnt currency -1470 -1303 -1297 -36 1464 3158 2875 4224 3620 3749 3690 3779 3867 4826 5220 5272 5065 5065 5065 0 0.369 -  S oeIts I PCR 1967 1966 1969 1990 1991 1992 1993 1994 1995 1996 1997 1996 19m 2000 2001 2002 2003 2004 200w Eco IC 1tATE OF ItETU JIANGXI tMIIE CASH INFLOWS (000 T) area (ha) 92 92 556 725 725 725 725 725 725 725 725 725 725 725 725 725 725 725 725 yield (tons/ha) 0.15 1.00 1.00 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 output (tons/yr) 14 92 556 1088 1088 1088 1088 1088 1088 1088 1088 1088 1088 1088 1088 1088 1088 1088 1088 price (y/ton) 8000 8000 3000 3000 2600 2600 2600 2600 2600 2600 2600 2600 2600 2600 2600 2600 2600 2600 2600 economic value 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Revenue 110 736 1668 3263 2828 2828 2828 2828 2828 2828 2828 2828 2828 2828 2828 2828 2828 2828 2828 Loan 8176 2044 2044 2044 2044 Met cash lnfLoes 2154 2780 3712 5307 2828 2828 2828 2828 2828 2828 2828 2828 2828 2828 2828 2828 2828 2828 2828 CASH OUTFLOW.S investmnts 11200 2800 280 2800 2800 economic value 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 0.94 Adjusted Investmeint 2632 2632 2632 2632 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Prcduction cost 0 0 0 0 2736 2736 2736 2736 2736 2736 2736 2736 2736 2736 2736 2T36 2736 2736 2736 economc value 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 Adjusted production co 0 0 0 0 2544 2544 2544 2544 2544 2544 2544 2544 2544 2544 2544 2544 2544 2544 2544 Sales fee 1 7 17 33 28 28 28 28 28 28 28 28 28 28 28 28 28 28 28 Taxes 9 59 133 261 226 226 226 226 226 226 226 226 226 226 226 226 226 226 226 Uorking capItal 1000 1000 1000 Loan interest 157 368 693 826 654 654 572 491 409 327 245 164 82 41 Principal repayments 1022 1022 1022 1022 1022 1022 1022 1022 Total debt service 157 368 693 826 654 654 1594 1513 1431 1349 1267 1186 1104 1063 0 0 0 0 0 Net cash outflows 3799 4066 4475 3751 3453 3453 4393 4312 4230 4148 4066 3984 3903 3862 2799 2799 2799 2799 2799 INCRIENEETAL CASH FLOW -1645 -1286 -763 1555 -626 -626 -1566 -1484 -1402 -1320 -1239 -1157 -1075 -1034 29 29 29 29 29 IRE -0.520 Constant currency -1645 -1146 -539 918 -373 -358 -897 -1049 -828 -788 -710 -663 -616 -731 17 17 16 16 16 0 -0.530