China - Songliao Plain Agricultural Development Project

CiZ 2r7,1- c,-u7 Documat of The World Bank `)R OFFICIAL USE ONLY Rqept No. P-6169-CRA MEMORANDUM AND RECOMOFNDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATIOE TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 148.5 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A SONGLIAO PLAIN AGRICULTURAL DEVELOPMENT PROJECT FEBRUARY 1, 1994 MICROGRAPHICS Report No: P- 6169 CHA Type: MOP 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 authonzation.  CURRENCY gQUIVALENTS (as of January 1, 1994) Currency unit - Yuan (Y) $1.00 - Y 8.7 Y 1.00 - $0.115 WEIGHRI AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) - 0.62 mile (mi) 1 hectare (ha) - 15 mu 1 ton (t) = 1,000 kg - 2,205 pounds 1 kilogram (kg) 2.2 pounds - 2 jin ABBREVIATIONS AND ACRONYMS ABC - Agricultural Bank of China PEPB - Provincial Environmental Protection Bureau PLC - Project Leading Group PMO - Project Management Office PPMO - Provincial Project Management Office FISCAL YEAR January 1 - December 31  FOR OMCIAL USE ONLY CHINA SONGLIAO PLAIN AGRICULTURAL DEVELOPMENT PROJECT Credit and Proiect Summary Borrower: People's Republic of Cbina Beneficiaries: Liaoning and Jilin Provinces Amounts SDR 148.5 million ($205 million equivalent) Terms: Standard, with 35 years' maturity Financina Plan: Local Forei2n Total ----- ($ million) --------- IDA 18.2 186.8 205.0 Provincial, prefecture, municipal and county governments 62.6 0.0 62.6 Commercial banks 57.8 0.0 57.8 Enterprises and farmers 56.9 0.0 56.9 Total 195.5 186.8 382.3 Economic Rate of Return: 32 percent Poverty Catexorys Not applicable Staff Appraisal Report: Report No. 12374-CHA MaDs: IBRD 24858, 24859 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.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT BANK TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE PEOPLE'S REPUBLIC OF CHINA FOR A SONGLIAO PLAIN AGRICULTURAL DEVELOPMENT PROJECT 1. *I submit for your approval the following memorandum and recommenda- tion on a proposed development credit to the People's Republic of China for SDR 148.5 million ($205 million equivalent) to help finance the Songliao Plain Agricultural Development Project. The proposed credit would be on standard IDA terms, with a maturity of 35 years. The proceeds of the development credit would be onlent to Jilin and Liaoning provinces for 15 years, including 5 years of grace, with interest at 5.3 percent per year. The foreign exchange risk and commitment charges would be borne by the provincial governments. 2. Backaround. China's sustained rural reform progrsm, with its introduction of the production responsibility system, has revitalized the agricultural sector, increased producer prices and enlarged the role of the market. Agricultural GNP increased at 6 percent per year during the 1978-92 period in real terms. While significant growth in grain production was achieved in the early part of the period, stagnatin8 grain production during the latter years has been the Government's central concern, and more efforts have been made to increase grain production. They appear to have had consid- erable success and production has recently risen to a new plateau of around 440 million tons in 1992. The Government's strategy to increase grain produc- tion includes diverse measures, such as increasing state investment in irriga- tion rehabilitation and expansion, restoration of saline and alkaline land, and introduction of reforms in grain procurement, distribution, prices and subsidies. The reform program to date, involving the steady elimination of grain consumption subsidies, the substantial reduction of grain procurement quotas, the opening of the internal grain trade to all intere.ted units and individuals, the commercialization of grain wholesaling and retailing enter- prises and the establishment of a futures market in grain, all aim eventually at market-determined pricing of virtually all grain in China. These reforms have changed the grain balance from shortage to surplus in several regions of the country, including the proposed project area in respect cf corn, and this has determined the design of the project. 3. The proposed project would be located in the Songliao plain, which lies in central Liaoning and western Jilin Provinces. The plain is an impor- tant food and feed production area but suffers from serious waterlogging, salinity, seasonal drought and flooding, and wind- and sandstorms, which con- tribute to low crop yields and rural poverty. The project area would be located in 40 counties of the plain (among which are 12 classified among the poorest counties in China) and covers 2.4 million ha of arable land farmed by 2.5 million farm families. Corn is the major crop, with wheat, paddy and soybeans as the minor crops. Long cold winters limit the growing season and droughts during the critical spring period frequently lead to crop failure. 4. Lessons Learned from Previous Bank QRerations. Completed projects similar to the one proposed have indicated the most effective approaches to  - 2 - correcting waterlogging and salinity problems and the organizational and man- agement requirements of integrated rural development operations. In light of the lessons learned in these projects, the design of thid project incorpo-ates the following features: (a) the use of proven irrigation and drainage tech- nologies to correct waterlogging and soil salinity; (b) carefully balanced, joint use of ourface and groundwater and alfalfa planting for salinity con- troll (c) rational vater resource management and effective operat&on and main- tenance of facilities to ensure sustainability; (d) supply of sufficient inputs to maintain the agricultural productivity of reclaimed areas; (e) pro- vision of technical experts to assist in the design and management of agropro- cessing facilities; and (f) effective coordination of organization units at all levels. 5. Rationale for Bank Groui Involvement. The Bank's Country Assis- tance Strategy presented to the Board in August 1993 highlighted an intention to support interventions in the agriculture sector aimed at income enhancement and poverty alleviation in regions of concentrated absolute poverty. The proposed project is a direct outgrowth of that strategy as it is designed to promote sustainable agricultural practices in impoverished and environmentally vulnerable regions. The project would address the key constraints limiting agricultural productivity in the project areas: soil salinity and waterlog- ging problems, wind- and sandstorm damage, the shortage and poor quality of irrigation water, inadequate crop diversification, poor inputs and feed qual- ity, limited availability of extension services, and weak linkages between production, processing and marketing activities. During the project prepara- tion process, IDA involvement resulted in a change in project design from primarily an irrigation and grain production project to one that emphasizes livestock and agroindustrial production and, thus, results in stronger income- generation potential. IDA's continued involvement would promote the efficient use of limited resources, introduce appropriate new production and processing technologies, and promote better planning and management to respond to market demands. It would do this by strengthening research and extension, supporting training for farmers, researchers, extension agents and managers, and provid- ing technical assistance. IDA participation would also be instrumental in introducing environmental standards in the design of agroprocessing plants, developing monitoring systems and promoting environmental protection prac- tices. 6. Project Obiectives. The main objectives of the project would be to increase agricultural production, farm-family incomes and rural employw*at. The proposed project emphasizes the effective use of existing resources to increase agricultural production and processing in response to market demands. The project would increase the hectarage of productive lands by expanding irrigation and drainage facilities, developing unutilized wastelands, and developing intertidal areas for aquaculture production. In the course of developing hilly wasteland into fruit orchards, programs of soil and water conservation would be introduced. The project would also diversify crop pro- duction away from corn to rice and wheat and would invest in livestock pro- duction and agroprocessing activities to make use of surplus corn and by-products. It would include components where women are the primary benefi- ciaries. 7. Proiect DescriDtion. Over a five-year period, the project would: (a) reclaim wastelands for paddy production, convert low-yield corn areas into  - 3 - irrigated wheat hoctarage and solve waterlogging problems by financing invest- ment in new and rehabilitated low-lift surface irrigation and drainage net- works; (b) construct check dams, gully head protectors, intercepter channels and associated cross-drainage works; carry out afforestation with larch and poplar; (c) provide farm inputs, support purchases of farm machinery by farmer groups, improve management and facilities of farm machinery stations and strengthen crop extension services; td) support development of marginal lands for orchards, improve existing orchards of apples, pears, apricots and apple- pears and finance construction of fruit cold stores; (e) provide for the inte- grated prcduction and processing of cattle, sheep, rabbits, deer, pigs and geese; end strengthen livestock support services; (f) develop low-lying mud- flat wastelands for shrimp, shellfiah and river-crab production; and construct and equip hatcheries and cold stores; and (g) construct or rehabilitate and equip various agroprocessing and agroindustrial facilities that utilize agri- cultural outputs or by-products and produce corn starch, industrial alcohol, gelatin, fruit juice, edible oil, paper (from straw and dogbane), textiles, leather, other products. The proposed project would also strengthen overall project management, resesarch and extension, and the environmental protection program by providing equipment, technical assistance and train:.ng. 8. Prolect Implementation. The Liaoning and Jilin provincial govern- ments would be responsible for overall project implementation. In each prov- ince, a project leading group (PLG) headed by a vice-governor would be com- posed of members from the bureaus of planning, finance, water conservancy, agriculture, livestock, aquatic products, environmental protection and audit, the women's federation, and the Agricultural Bank of China (ABC). The provin- cial PLGs would formulate policy guidelines, examine and approve project plans, oversee project activities and facilitate interagency coordination at the provincial level. Provincial project management offices (PPMOs) would be responsible for project design, planning and execution. The PPMOs would be assisted by the provincial government's technical bureaus in planning, orga- nizing, executing, monitoring and evaluating project activities. The provin- cial PLGs and PMOs would be assisted by PLGs and PMOs set up at the prefec- ture/municipal and county levels to supervise project activities at those levels. The project cost is estimated at $382 million equivalent, with a foreign exchange component of $187 million (49 percent). The Association would finance $205 million equivalent (54 percent). To facilitate early start-up activities of the project, retroactive financing of up to $14.5 mil- lion equivalent is proposed for expenditures made after July 15, 1993. The breakdown of project costs and the financing plan are shown in Schedule A. The amounts and methods of procurement and disbursement and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in China are presented in Schedules C and D, respectively. Maps IBRD Nos. 24858 and 24859 are also attached. The Staff Appraisal Report, No. 12374-CHA, dated February 1, 1994 is being distributed separately. 9. Proiect Sustainabilitv. Project components have been rigorously evaluated for their financial, economic and environmental viability. The project would promote technical sustainability by financing research and training programs and promoting research and extension linkages through the establishment of techrical committees. It would provide management sustaina- bility by providing training to the PM08 and technical staff. Managers of the enterprises financed under the project would also be trained in modern manage-  ment and marketing techniques. The project would promote coat recovery in and commercialization of a range of support services that would be self-financing over time. Three revolving funds for inputs financed by the project would ensure sustained availability and finance of essential inputs. The project would set up a water monitoring and evaluatlon system and develop a water resources plan for the provinces. An environment monitoring program is included for each province te monitor agroindustrial effluent and, in Liaoning, to monitor water quality in the Bo Sea. Sustainability of the irri- gation and agroindustrial capital would be enhanced by maintenance and opera- tion programs to be established under the project. 10. APreed Actions. The main assurances that were obtained at negotia- tiono are as followss (a) Jilin -ould construct the farm-level drainage net- works related to the Songqi irrigation scheme in accordance with construction plans satisfactory to IDA; (b) dams and reservoirs supplying the irrigation systems under the project would be maintained and inspected periodically in accordance with sound engineering practice, under arrangements satisfactory to IDA; (c) the Liaoning PMO would provide an annual report on groundwater moni- toring and assessment in each of the different project areas during the period Hay 1 to April 30 by October 31 of each year; (d) Jilin and Liaoning Provin- cial Environmental Protection Bureaus (PEPBs) would approve the final designs of the treatment facilities for each agro- and livestock-processing plant prior to constr-iction, and these enterprises would implement and maintain effluent monitoring and treatment systems according to the final designs approved by the PEPBs; (a) the provinces would ensure that any persons who would be involuntarily resettled or whose rights to land are compulsorily acquired as a result of the project development would be provided compensation for assets, logistic support and relocation assistance; (f) the Jilin PMO would prepare a plan for operation and maintenance of the pumping stations in the irrigation and drainage schemes and submit it to IDA for review by June 30, 1996; and (g) the PMOs would charge farmers the full cost of imported fertilizers and pesticides. 11. Environmental Asgects. Some project components would have positive effects on the environment. Others would generate pollutant emissions which would require management and treatment. The irrigation and drainage component would reduce the effects of drought, flooding, waterlogging and salinity. The soil and water conservation measures would provide a model for the management of watersheds to reduce soil erosion. Livestock manure would reduce the amount of chemical fertilizer used and improve soil fertility and texture. Possible adverse environmental impacts from agrochemicals and effluent dis- charged from agroprocessing plants w_-ald be minimized by careful monitoring and specific treatment programs designed under the project. 12. Program Oblective Categories. The project would be carried out in poor counties and would provide opportunities for women to participate in income-generating enterprises, such as pig, rabbit and geese production. The project would increase participation of women in all types of project-related training activities, especially as candidates for in-service training in vet- erinary, agriculture, livestock and aquaculture extension. Women farmer tech- nicians and women farmers would also be selected for 40 percent of the techni- cal training opportunities under the project. The environmental monitoring programs in the project areas along the Bo Sea would reduce contamination of shellfish industries. Commercialization of enterprises and cost recovery for  support services under the project would reinforce the government's ongoing reform program. i3. Proiect Benefits. The project would directly increase incomes, employment and living standards of some 518,000 farm families. At full devel- opment, crep development under the project would generate incremental sanual production of 177,000 tons of grain (paddy, wheat and soybean) valued at $30.5 million in 1993 dollars and 187,600 tons of fruit (apples, pears, apricots and apple-pears) valued at $56.1 million. In aggregate, crop and orchard develop- ment would provide incremental value, after adjusting for the associated reduction in corn output ($2 million), of $86.6 million annually. The live- stock component, including the value of processing, would provide incremental production of beef, mutton, rabbit mest, goose meat and deer antlers together valued at $37.5 million annually. The aquaculture component would generate incremental production of shrimp, shellfish and crabs valued at $24 million annually. The agroindustrial plants would produce total value-added of $40.2 million per year. The project's total incremental annual production would be $188 million. At full development, average net farm income from crop produc- tion would be tripled (from $55 to $175) or quadrupled for orchard development (from $290 to $1,150). The project would provide substantial employment for the rural labor force, in particular, income earning activities and job oppor- tunities for women. The project economic rate of return would be 32 percent. 14. Risks. The project faces no unusual technical or organizational risks. Under the project, management of project entities would be strength- ened, and farmers who already have experience and basic knowledge would be further trained. The potential risks to effective livestock production, i.e., ineffective straw ammonification and pasture development, would be minimized by applied research and monitoring. The risk of insufficient inputs for cat- tle fattening [live cattle and brewery wastes (for feed)) has been minimized by sizing the cattle subcomponent according to verified input availability and farmer-group contracts with breweries. The risk that shellfish areas would be contaminated by industrial waste has been minimized by careful site selection and strict monitoring programs. The potential marketing risk for agroindus- trial and livestock products would be minimized by provision of technical assistance and improved processing technology, quality and design. 15. Rec_mendatqons. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Lewis T. Preston President Attachments Washington, D.C. February 1, 1994  - 6 - Schedule A CHINA SONGLIAO PLAIN AGRI?ITLTURAL DEVELOPMENT PROJECT Estimated Cogts and linancina Plan ($ million) Local Foreign Total Estimated Costs Irrigation & drainage 16.9 12.5 29.4 Field crop development 4.7 16.8 21.5 Orchard developmern 17.9 12.4 30.3 Soil & vater conservation 2.7 1.3 4.0 Livestock development 39.3 19.9 59.2 Livestock processing 15.9 16.2 32.1 Aquaculture 11.5 8.9 20.4 Agropro.cessing 37.0 69.5 106.5 Institutional support 1.7 3.6 5.3 Base Costs .a 147.6 161.1 308.7 Physical contingencies 7.3 14.2 21.5 Price contingencies 40.6 11.5 52.1 Total Project Costs 195.5 186.8 382.3 Financina Plan IDA 18.2 186.8 205.0 Provincial, prefecture, municipal and county goverrnments 62.6 G.0 62.6 Comercial banks 57.8 C.0 57.8 Enterprises and farmers 56.9 0.0 56.9 Total finencint 195.5 186.8 382.3 La Project is exempt from taxes and duties.  - 7 - Schedule B Page 1 CHNA SONGLIAO PLAIN AGRICULTURAL DEVELOPMENT PROJECT Procurement Methods and Disbursements (S mAillion) Procurement meth' Total ICB LCB Other NIP project cost Land acquisition & - - - 3.6 3.6 crop compensation (0.0) (0.0) Works - 42.9 18.2 - 61.1 (20.6) (8.8) (29.4) Machinery & equipment 60.0 24.8 28.5 - 113.3 (55.8) (19.0) (18.3) (93.1) Vehicles 7.4 - 1.5 0.9 9.8 (6.3) (1.1) (0.0) (7.4) Materials 32.1 21.0 34.7 - 87.8 (28.9) (16.4) (22.7) (68.0) Overseas training & - - 1.6 1.6 technical assistance- (1.6) (1.6) Domestic training & - - 5.5 - 5.5 research (5.5) (5.5) Design, engineering & - - - 33.2 33.2 management (0.0) (0.0) Labor - - - 20.0 20.0 (0.0) (0.0) Working capital - - - 46.4 46.4 (0.0) (0.0) TotaI 99.5 88.7 104.1 382.1 (91.0) (56.0) (58.0) (0.0) (205.0) Notess (1) kigures in parentheses represent the amounts financed by IDA, including contingencies. (2) NIF - Not IDA-financed. (3) Others - Other procurement methods include force account for works, direct purchase and shopping for small equipment and mate- rials, Limited International Bidding (LIB) for specialized vehi- cles, equipment and pesticides, training and consultant con- tracts.  - 8 - Schedule B Page 2 Disbursements Category Amount Percent ($ million) Liaonina ProvLnce Works 10.7 451 Goods 68.8 1001 of foreign expenditures; 1001 of local expenditures (ex-factory cost) and 75Z of local expenditures for other items procured locally Training, study tours & technical assistance 2.2 100X Unallocated 3.3 .Total 85.0 Jilin ProvInco Works 18.7 502 Goods 91.8 1002 of foreign expenditures, 1002 of local expenditures (ex-factory cost) and 752 of local expenditures for other items procured locally Training, study tours & technical assistance 4.4 1001 Unallocated 5.1 Total IV20.0 Egtimated Disbursements: IDA FY 1995 1996 1997 I199 1999 2000 2001 -------------------- ($ million) ----