China - Hebei Agricultural Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 18859 IMPLEMENTATION COMPLETION REPORT CHINA HEBEI AGRICULTURAL DEVELOPMENT PROJECT (CREDIT 2159-CHA) January22, 1999 Rural Development and Natural Resources Sector Unit East Asia and Pacific Regional Office 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.  CURRENCY EQUIVALENTS Currency Unit = Yuan (Y) At Appraisal (1990): $1.00 = Y 4.72 Completion Year (end-June 1998): $1.00 =- Y 8.3 (Intermediate years are given in Annex C, Appendix 5, Table 1) FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS ABC Agricultural Bank of China DAP Diammonium Phosphate FAO/CP FAO/World Bank Cooperative Programme ICB International Competitive Bidding ICR Implementation Completion Report IDA International Development Association IFAD International Fund for Agricultural Development IPM Integrated Pest Management MAP Monoammonium Phosphate O&M Operation and Maintenance PMO Project Management Office POM Plan of Operation and Maintenance SAR Staff Appraisal Report SIDD Self-Financing Irrigation and Drainage District Vice President : Jean-Michel Severino, EAPVP Country Director : Yukon Huang, EACCF Sector Manager : Geoffrey Fox, EASRD Task Managers : Richard Reidinger, EACCF and Qun Li, EASRD  FOR OFFICIAL USE ONLY CONTENTS PREFACE ......................................................III EVALUATION SUMMARY ......................................................V PART I: PROJECT IMPLEMENTATION ASSESSMENT ..................................I A. Project Objectives and Description .....................................................l I B. Achievement of Project Objectives ...................................................... 3 C. Major Factors Affecting the Project ...................................................... 8 D. Project Sustainability ......................................................9 E. IDA Performance ..................................................... 10 F. Borrower Performance ..................................................... 10 G. Assessment of Outcome ..................................................... 11 H. Future Operation ..................................................... 12 I. Key Lessons Leamed ..................................................... 12 PART II: STATISTICAL TABLES ..................................................... 14 Table 1: Summary of Assessmen ts ..................................................... 14 Table 2: Related Bank Loans/Credits ..................................................... 1 5 Table 3: Project Timetable ..................................................... 15 Table 4: Credit Disbursement: Cumulative Estimate and Actual .................... 16 Table 5: Key Indicators for Project Implementation ....................................... 16 Table 6: Key Indicators For Project Operations .............................................. 18 Table 7: Studies included in Project ..................................................... 19 Table 8a: Project Costs ..................................................... 20 Table 8b: Project Financing ..................................................... 20 Table 9: Economic Costs and Benefits ..................................................... 21 Table 10: Status of Legal Covenants ..................................................... 22 Table 11: Compliance with Operational Manual Statemlents .......................... 23 Table 12: Bank Resources: Staff Inputs ..................................................... 23 Table 13: Bank Resources: Missions ..................................................... 24 ANNEX A: BORROWER'S CONTRIBUTION TO THE ICR ............................ 27 ANNEX B: ICR MISSION'S AIDE MEMOIRF .................................................... 34 ANNEX C: DOCUMENTS IN PROJECT FILE .................................................... 48 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.   - iii - IMPLEMENTATION COMPLETION REPORT CHINA HEBEI AGRICULTURAL DEVELOPMENT PROJECT (CREDIT 2159-CHA) PREFACE This is the Implementation Completion Report (ICR) for the Hebei Agricultural Development Project in China for which Credit 2159-CHA in the amount of SDR 116.1 million ($150 million) was signed on July 2, 1990 and made effective on September 21, 1990. The original financing plan was modified by two extensions of the original credit closing date, each of six months, to June 30, 1998. Final disbursement occurred on January 6, 1998, when the credit was entirely disbursed. This ICR draft was prepared by a joint World Bank and FAO/World Bank Cooperative Program (FAO/CP) mission,' which visited China in October 1998. The Hebei Agricultural Development Project Office had prepared a draft ICR and two volumes of supporting tables on investment costs and component analysis, which provided much of the basis of the mission's work. In addition, reference was made to the Staff Appraisal Report (SAR), President's Report, Credit and Project Agreements and Supervision Reports. With the full collaboration of the project authorities, the mission also undertook a program of field visits in order to allow on-site inspection and discussions with staff and authorities in some of the various counties and cities covered by the project and with the beneficiaries. J. H. Weatherhogg (FAO/CP Mission Leader, Agricultural Economist); W. Price (World Bank, Irrigation Engineer), R. Chisholm (Agronomist, Consultant): A. Kaclin (Aquaculturist, Consultant) and D. Gue (Agroindustry Specialist, Consultant).   - v - CHINA HEBEI AGRICULTURAL DEVELOPMENT PROJECT (CREDIT 2159-CHA) EVALUATION SUMMARY Introduction I. In the late 1 980s the World Bank Group supported a series of provincial development projects in which an area development approach was applied. More general land development and intensification of agriculture was promoted by the North China Plain Project (Credit 1261-CHA) and the closely related Hebei Agricultural Development Project financed by the International Fund for Agricultural Development (IFAD Loan 1 07-CHA). The Bank Group was responsible for appraisal and supervision of the latter project, which was implemented over the period 1983-87. Technology developed and tested during the IFAD project and lessons learned from the implementation experience were embodied in the subsequent International Development Association (IDA) project, which is the subject of this ICR. Project Objectives 2. The project objective was to alleviate poverty and increase farm incomes by raising productivity and marketability of agricultural, livestock and aquatic products in the area administered by the cities of Tangshan and Qinhuangdao in the northeast of the province and the Heilonggang area in the south. For this purpose, the project was to: (a) strengthen the province's ability to effectively manage its available water resources; (b) increase and intensify productivity of existing low-yielding crops and diversify the cropping patterns; (c) promote market analysis as a criteria for increasing production and improving processing of major commodities; (d) expand agroprocessing activities to rationalize fertilizer production and make use of agricultural by-products; (e) promote an effective use of crop residues in expanding livestock production; and (f) strengthen provincial applied research and extension programs for crop, livestock, aquaculture and water conservancy. The largest component was for water conservancy, accounting for about one-third of project costs. In Heilonggang this included increase in surface water irrigation, including provision of gates to existing drainage channels to increase storage and replacement of pumping stations lifting water from the Wai He (river). This was to enable full irrigation of 24,000 hectares (ha) and a further 120,000 ha to receive partial or supplementary irrigation. In addition, a total of 9,950 new shallow wells were to be sunk and both these and a proportion of existing wells would be equipped with water-saving pipes, enabling an additional 103,400 ha to become irrigated. In the northeast, improvements to existing surface irrigation schemes through provision of reservoirs and  - vi - control gates and expansion of area by development of wasteland was expected to increase irrigated area by about 29,000 ha. Finance was also provided for a Water Resources Development Plan to strengthen monitoring, planning, operating and managing of surface and groundwater resources, with particular reference to conjunctive surface and groundwater use and competition from other water users; training; and Water Resources Research covering: (a) investigation of the changing surface water runoff patterns; (b) study of methods to improve or reclaim partially saline lands through surface and groundwater irrigation practices; (c) survey, evaluation and assessment of wastewater use in agriculture; and (d) future water use efficiency and water allocation. 3. Agricultural development accounted for about a quarter of total project costs and included financing of imported agrochemicals, namely 63,500 tons of diammonium phosphate (DAP), 740 tons of pesticides and 6,000 tons of resin for production of plastic film; improvement to seed production, particularly cottonseed in Heilonggang through renovation and expansion of 17 existing cottonseed production ginneries, introduction of acid delinting technology, strengthening and upgrading 18 seed farms and 2 seed companies and in the northeast upgrading 7 seed companies producing wheat, paddy, maize, oil crops and vegetable seeds; introduction of date intercropping of cereals over about 20,000 ha and improvement of existing date intercropped areas as well as establishment of 1,700 ha of new pear orchards and rehabilitation of 4,000 ha of existing pear orchards; provision of fuel storage, fuel pumps and other small equipment at 360 Agromachinery Service Centers; strengthening agricultural extension by construction of eight County Agrotechnical Extension Centers, 124 Township Technical Service Centers and provision of equipment and training with particular attention to Integrated Pest Management (IPM) programs; and agricultural research programs including: (a) development of improved cotton varieties; (b) irrigation and fertilizer applications for cotton; (c) cotton pests and diseases; (d) development of small farm machinery; (e) irrigation and fertilizer application and pest control for Chinese dates; (f) improving quality of pears and dates; (g) economies of drip irrigation for fruit crops; and (h) development of high-yielding, short-season paddy varieties, water and fertilizer application. 4. Livestock development accounted for about 10 percent of project costs and aimed at integrating livestock into the farming system-particularly supporting the use of straw after ammonia treatment and planting of alfalfa to allow 1,775 specialized households to have sheep and goat breeding and fattening enterprises and a further 600 farms to specialize in beef fattening. Research topics covered by the project included artificial insemination technology; sheep feeding, management and breed improvement; livestock product processing and preservation; and artificial pasture establishment and management. Six small slaughterhouses were to be constructed, each with a daily capacity of around 115 animals (mostly pigs). 5. Aquaculture also accounted for about 10 percent of project costs and included rehabilitation of 3,200 ha of existing shrimp ponds and construction of 530 ha of new ponds, construction of 716 ha of freshwater fish ponds, scallop production in the Bo Hai  - vii - (sea) and supporting infrastructure, including hatcheries, feedmills and freezers/cold stores, research on selection of suitable freshwater fish species and training. 6. Agroindustry investment amounted to over 20 percent of project costs and included expansion and upgrading of a nitrogenous fertilizer plant to have an annual capacity of 53,000 tons of granular urea; a related phosphatic fertilizer plant upgrade to produce 30,000 tons annually of monoammonium phosphate; a particle board factory with a 30,000 cubic meter (m3) annual capacity and a 10,000 tons per year paper mill. This component was expanded at post-appraisal and at mid-term review by technological enhancement of the two fertilizer plants and the Quxian paper mill, and by the addition of the Gucheng Wholesale Market for I million tons per year of produce, Changli Fishnet Factory for 90 tons per year of net and twine, and Quxian Paper Mill Phase II for 15,000 tons per year of coated card and cardboard cases. 7. Overall institutional development was supported by training and technical assistance to the Project Management Offices (PMOs) at all levels (provincial, county, prefecture), particularly in project monitoring and evaluation, as well as in cost accounting and reporting systems. 8. As part of the subcomponents for wells and water-saving pipes, agrochemicals, agricultural mechanization and livestock development, four revolving funds were to be established with the Agricultural Bank of China (ABC) with respective values of Y 32.5 million, Y 11.2 million, Y 1.5 million, and Y 16.2 million, or a total value at appraisal equivalent to around $13 million. Responsibility for managing the revolving funds rested with the PMOs, and establishment of the funds was made a covenant. Other covenants related to groundwater monitoring and control on sinking of new wells, project management and accounts, environmental aspects, management of agroindustry units, production of operation and maintenance (O&M) guidelines for pumping stations, and annual review of cotton prices paid to farmers. 9. Evaluation of Project Objectives. Project objectives were clear and appropriate, soundly based on experience from the earlier project. The emphasis on water conservancy but otherwise wide scope of the components was appropriate for the province's agricultural sector development and poverty reduction. Implementation Experience and Results 10. Project performance has generally been highly successful, with most of the targets set at appraisal attained or surpassed, as described in the following section and summarized in Table 5. 11. Sustainability of the investments and improvements made by the project is assessed as likely. However, close continued attention will be required to ensure that: (a) there is continued careful monitoring and management of groundwater resources; (b) further determined efforts to reach agreement on the sharing of water resources, both between irrigation and other uses and between the project area and other upstream and  - viii - downstrearn areas; (c) a strategy for cotton growing is adopted that fully embodies IPM and mitigates cotton growers' production risks; (d) still greater reliance is placed on the production household responsibility system; (e) further encouragement is given to pnrvate sector farm machinery services; (f) water charges for farmers should reflect the true cost of supply from whatever source; and (g) charges for other services provided by the Government, such as veterinary assistance or agricultural machinery, should cover the cost of provision. 12. Regarding the above issues to project sustainability, the provincial project management reiterated its firm policy and determination to continue to promote the household production responsibility system as the basis for Hebei's agricultural development. Adoption of realistic water charges (according to source of irrigation water), introduction of water-saving technology, rationalization of water use in agriculture, and measures to recharge groundwater were Hebei's main goals in water resource development. Project management was also concenned to ensure the long-term sustainability of cotton growing and was promoting intercropping with vegetables and other green crops as a means of improving fertility and reducing the proportion of cotton in the rotation. Project management also expected steadily greater reliance to be placed on the private sector for provision of agricultural machinery services in the future. Good arrangements have been made for handover of components to the responsible agencies (as described in Section H below) and project sustainability is rated likely. 13. Project Cost and Financing. Total project costs are estimated at credit closing at $342.6 million, or about 11 percent higher than the appraisal estimate of $309.6 million. Savings in the cost of the water conservancy component (9.2 percent of SAR estimate, including contingencies), agriculture (87 percent) and farmn machinery (91 percent) were more than offset by increases in the other components. Most importantly the agroindustries component cost increased to $98.3 million, or 154 percent of the $63.7 million including contingencies estimated at appraisal, causecl by increases in the cost of high-specification imported equipment and increased local costs for final design and construction. The cost of institutional development at $10.3 million was 163 percent higher than the $3.9 million estimated at appraisal, but this includes technological redesign of the two fertilizer factories and the addition of three post-appraisal and mid- term subcomponents. Aquaculture costs, at $41.2 million, were 116 percent of the appraisal estimate of $35.4 million including contingencies, clue to the increased cost of high-quality imported cold stores and higher cost design of deeper shrimp ponds. The livestock cost was marginally higher at 111 percent of appraisal estimates (Table 8a). As shown in Table 8b, the main feature of project financing was a reduction in the proportion of funds derived from provincial, prefectural and county governments, which was compensated by an increase in beneficiary contribution, which increased to $102 million, or about 30 percent of total funding, compared to an estimated $43 million, or only 14 percent at appraisal. In general, the implementation schedule was well adhered too. Delay in construction and equipping of the Junliu pumping station was the main reason for extension of the credit closing date, which also accommodated the delays in completion, commissioning and startup of the agroindustry components.  - ix - 14. The main factors affecting the project were the generally good perfornance of project management during implementation, despite natural disasters including a typhoon in 1992, shrimp diseases and cotton bollworm infestation. Delays in implementation were due to a lack of agreement on water-sharing of the Wei He (river), which ultimately led to redesign and rescheduling of construction of the Junliu pumping station; difficulties in procurement through international competitive bidding (ICB) for agroindustry development, mainly due to inadequate technical specification; and difficulty in raising adequate counterpart funding (including working capital) for the agroindustry component, which delayed awarding of civil works and equipment contracts as well as plant startup. 15. IDA's performance was generally highly satisfactory in embodying in the design the lessons learned from the earlier project. Subsequent supervision was also well carried out with considerable technical assistance provided in project implementation, most notably in the agroindustries component. The care taken in supervision has been a major contributing factor to the project's success. The borrower's performance in project implementation and compliance with covenants was highly satisfactory. Project management was very good in keeping to the planned implementation timetable and incorporating recommendations of the supervision missions. Weaker points have been the lack of agreement on sharing of surface water resources; the need for still closer monitoring and management of groundwater; the requirement for a better, less risky, strategy for cotton production; the desirability of still greater reliance on the household production responsibility system; the necessity of adjusting charges for irrigation water from whatever source and for other government services to farmers, to reflect the cost of provision of such services; and delays in implementation due to difficulty in raising counterpart finance. 16. Assessment of Project Outcome. Overall, the project has been highly successful in achieving or exceeding the targets set at appraisal. However, a number of potential risks remain for project sustainability, as mentioned in para. 11 and discussed further in Section D. These could constitute major shortcomings for the project, but the provincial project management has firmly empahsized the policies as detailed in para. 12, and good arrangements have been made for handover of the project components to the responsible agencies (see Section H). Overall, the project is therefore rated satisfactory, although with continued attention to these weaknesses it might be that this assessment would be increased to highly satisfactory by any subsequent audit mission. Summary of Findings, Future Operations, and Key Lessons Learned 17. The general conclusion is that the project has been highly successful in achieving its physical implementation targets, increasing yields and incomes and combating poverty and introducing international standards of technology in agroindustries and aquaculture. These successes in implementation need to be consolidated by still further emphasis on the aspects mentioned earlier, namely surface and groundwater resource management, cotton agronomy, household production responsibility system emphasis, water charges and realistic pricing of government services.  - x - 18. Future project operation will benefit from the plans already prepared for the three project pumping stations and operational guidelines on use of the Wei He (river) waters. All of these will require regular updating. For future irrigation system O&M, water charges will need to be reviewed and adjusted to reflect true costs and farrners encouraged to form water user associations and follow the self-financing irrigation and drainage district (SIDD) concept. 19. Key Lessons Learned. The main lessons learned are: (a) although the wide scope of activities included in the project design was appropriate at the time, future projects could consider a simpler approach based on water resource development; (b) in order to ensure sustainability, careful monitoring of water resources and efficient water use for irrigation are essential, particularly for conservation of groundwater; (c) the household production responsibility system is of key importance for successful rural development; (d) investments in agricultural research and extension must be adequate, and channeled into human resource development and linkages rather than buildings and equipment; (e) for agroindustries it is essential to involve the private sector and to ensure adoption of international standards of technology and management training; and (f) experience in the aquaculture component shows the desirability of a range of focused aquaculture activities, conservative stocking rates, attention to environmental concerns and sound marketing strategy.  CHINA HEBEI AGRICULTURAL DEVELOPMENT PROJECT (CREDIT 2159-CHA) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. PROJECT OBJECTIVES AND DESCRIPTION 1. The Hebei Agricultural Development Project was designed to address persistent rural poverty and underemployment in 53 of the 130 counties in Hebei through a series of initiatives aimed at accelerating growth in agricultural production, which had lagged behind industrial growth through the 1980s. The project's specific objectives were as follows: (a) Strengthlen the Province 's ability to effectively manage its water resources. Improved management in the southern Heilonggang area was sought through investments in both improved distribution of surface waters to assist in groundwater recharge (including floodgates for storage/distribution, pumping station construction and irrigation district rehabilitation) and in improved efficiency of use of groundwater (new wells, well rehabilitation, water-saving pipe for distribution). In the northeast, the project aimed to assist in wasteland development, flood control (through floodgates) and water savings by canal lining. The project also sought to contribute to the strengthening of the overall water use plan for agriculture and industry in Hebei by emphasizing water management and monitoring, use of shallow tubewells (rather than high-quality deep aquifers) and assisting the development of conjunctive use of water. (b) Increase and intenisify productivity of existing low-yield crops and diversif!; the cropping pattern. Increased productivity in the predominantly saline lands to be developed was linked in the project design to expansion of irrigation and improved input supply (fertilizers, seeds, mechanization and agrochemicals), as well as the intensification of rotations to promote orchard development and emphasize winter as well as summer crops in the predominantly summer rainfall environment. In areas unsuitable for agricultural production, the project aimed to rehabilitate and construct shrimp ponds and supporting feedmills and cold stores, as well as to improve the output of fish and scallops.  - 2 - (c) Promote market analysis as a criterion for increasing production and improving processing of major commodities. (d) Expand agroprocessing activities to rationalize fertilizer production and make use of agricultural by-products. Agroindustry development was to emphasize state-of-the-art techiologies and equipment, particularly in rehabilitating existing fertilizer factories for monoammonium phosphate (MAP) and urea production, but also for particle board, pulp and fluting paper manufacture from cotton stalk. The agroindustries component was linked to aquaculture development through support for cold stores, feedmills and aquaculture product processing. It was also linked to livestock development by the construction of six small slaughterhouses (one in each project prefecture). (e) Promote an effective use of residues in expanding livestock production. Excess straw from maize and winter cereals is a major agricultural and environmental problem in Hebei, given the absence of zero or reduced tillage techniques. Ruminant livestock product demand was growing quickly at the time of preparation and the project aimed to link expansion of ruminant livestock production to poverty reduction by promoting the breeding and fattening of sheep and cattle on a small scale by individual households. The techniques to be used included both alfalfa development on saline wastelands and use of ammonification of straw for nonprotein nitrogen supplementation. (f) Strengthen provincial applied research and extension programs for crops, livestock, aquaculture and water conservancy. The project sought to strengthen agricultural extension by investments in infrastructure, equipment and training, particularly at the county, township and village levels. The emphasis was to be on an integrated supply of services by the range of bureaus involved at the township and village levels. Active involvement of national and provincial specialists in extension was envisaged, particularly in IPM for cotton. Research investments were to be spread across agriculture, water resources and aquaculture. In agriculture, topics included cotton agronomy, plant breeding and irrigation, fruit production and quality, and improved paddy varieties, water and pesticide application. 2. The project objectives were clear and based on considerable preparatory work by IDA and the Borrower, including experienced gained in implementation of the IFAD- funded Hebei Agricultural Development Project (1983-87). Project design was, therefore, based on realistic assumptions concerning available techmology for groundwater development and agricultural modernization. The wide scope of components was  - 3 - appropriate given the multiple requirements for effective agricultural development in Hebei at the time of preparation. 3. The design emphasized efficient water allocation (including conjunctive use of surface and groundwater) and efficient on-farm use of water, including the use of both direct project funding and revolving funds to install water-saving distribution pipe rather than earth canals. Limitations of surface water supply were identified. Appropriate attention was given to water resource planning, monitoring and management. Design of the agroprocessing component recognized the need to introduce modem technology in order to be competitive in international as well as domestic markets. The aquaculture component was based on the best available knowledge of stocking densities and suitable species at the time. Problems with support to agricultural machinery stations have only arisen since the mid-termn review and the extent of support to this activity actually realized was not envisaged at design. Adequate attention was paid to poverty alleviation by use of household-based models for livestock breeding and fattening appropriate to landless households or those with minimal holdings, including technology for improved utilization of stubbles (a successful feature of the earlier project). The attention to marketing evident in the design of the agroprocessing component was continued in the aquaculture component as part of species selection. 4. The project's objectives thus supported the Bank Group's country assistance strategy for the agriculture sector, which was designed to support the Government's efforts to increase and diversify agricultural production through more efficient use of land, labor and capital resources and through the improvement of support services such as credit, research and agricultural education. B. ACHIEVEMENT OF PROJECT OBJECTIVES 5. The project was appraised without major changes to its scope and proposed investments. The estimated project cost at appraisal was $309 million equivalent, comprising $150 million as Bank Group assistance, compared to an estimated total cost at design of $310 million. The credit became effective on September 21, 1990. Early progress was excellent and 42.5 percent of the credit was disbursed by October 1992, close to the estimate of 48.5 percent. Compliance with guidelines and accounting standards were of a high order. Complex designs and international competitive bidding (ICB) procurement procedures did, however, reduce the early rate of achievement in the agroprocessing and aquaculture components. A typhoon in scallop production areas in 1992 and shrimp disease infestations from 1992 to 1995 compounded problems with aquaculture. The agriculture component suffered a severe setback due to bollworm infestation of cotton during 1992-95. Disbursement slowed during 1993, again due to slow procurement of machinery and equipment and actual disbursement after the mid- term review (December 1993) was 63.8 percent (SAR estimate: 82.2 percent) by February 1994. By mid-1994, however, the groundwater development activities were largely completed and the overall water resource component was 70 percent complete. Agroprocessing was 52 percent completed and proceeded to completion by end-1996,  - 4 - although misprocurement occurred in livestock slaughterhouses owing to faulty specifications. The major delay in finalization of the Junliu pumping station caused the project to be extended twice (to December 31, 1997 and June 30, 1998). Final disbursement of IDA funds was 100 percent, although total p:roject costs ($343 million) exceeded the original estimate by 10.8 percent. 6. The project has been generally successful in achieving its engineering objectives in improving the efficiency of groundwater-based irrigation. As designed, groundwater irrigation emphasized efficient distribution of water, a limited number of new shallow wells and intensive monitoring of groundwater levels to ensure sustainability of the resource. These objectives were generally complied with in t1he use of project funds. A total of 10,129 wells were drilled (SAR estimate: 9,950) and supplied with 3,535 kilometers (km) of distribution pipe, which benefited about 100,000 ha as per SAR estimates. However, revolving funds intended mainly for distributary pipe installation on existing wells were used to rehabilitate and expand the well network. An additional 350,000 ha of irrigation was assisted in this way. A total of 2,072 wells were drilled, 31,070 were replaced and some 70,425 were rehabilitated with revolving funds. Some of the wells rehabilitated and replaced accessed deep grounclwater and the extent of rehabilitation demonstrated the use of project funds for deferred maintenance, indicating that water charges (Y 0.55/kilowatt) were too low to allow adequate maintenance. The project developed a monitoring mechanism but is not conducting annual updates of the groundwater map. The performance of the engineering plaining and water resource management activities was thus less satisfactory. This problem is widespread throughout the North China Plain. 7. Achievements in surface irrigation and the development of conjunctive use of water in the south have been slower than expected, owing to a series of dry years and a water supply shortfall due to inadequate water-sharing arrangements among river users. Nevertheless, all structures (three pumping stations and three flood control gates) were completed. By 1999, it is estimated that the project will have converted 21,332 ha from dryland to partial surface irrigation. A further 18,355 ha will have been converted from partial to full irrigation and 142,125 ha converted to full irrigation from dryland. All six irrigation system upgrades have been completed, although the implementation program and design of Yinluan irrigation scheme in Qinhuangdao Prefecture was modified and the scale of irrigation adjacent to Junliu pumping station (Jianz;huang irrigation area) in Handan City was reduced. 8. In the northeast, the project was successful in developing more efficient canal distribution and flood protection for surface irrigation. A total of 14,820 ha of wasteland was converted to paddy in the Tangshan area. In addition, project water resource improvements stimulated expansion of irrigated paddy area using private sector funds on some 5,353 ha in the counties of Fengnan and Tanghai. Reduced flooding as a result of construction of control gates benefited an additional 570 ha upstream of the project area. In Qinhuangdao Prefecture, the project exceeded SAR targets of 14,000 ha of expansion in fully irrigated area by development of 8,000 ha of new lands and rehabilitation of  existing areas totaling 8,019 ha. Improvements included system upgrading by canal lining, secondary and tertiary system development, drainage and lift pumps and a major storage and flood control gate. 9. Estimates of average increases in yield at appraisal were modest and have been generally exceeded, even by yields under partly irrigated conditions. Yield increase rather than higher crop intensity has been the main source of benefits from irrigation improvement. Agricultural development was supported by import of some 94,716 tons of DAP. The increase from 63,000 tons estimated at appraisal was financed by reductions in agrochemicals. The targets for seed company rehabilitation and improvement of seed farms and processing plants were generally met. The cottonseed processing investments have placed the industry in a position to process and market disease- and pest-resistant lines as one basis of rejuvenation of the cotton industry, although much more attention to IPM and crop rotation for disease and pest control is still needed. 10. Livestock enterprises provided a potentially valuable means of addressing poverty in the counties. However, actual performance has been somewhat disappointing because in a number of cases households were grouped into cooperative style units under single management. Administration and debt repayment accounting was thereby improved but physical performance has sometimes suffered compared to single household units. Another major problem with this component has been the quality of feeding. Ammonification of straw proved financially unattractive after ammonia price increases in 1992. The ammonification plants were reduced from six to two, and even the plant constructed is largely unused. Residue feeding thus developed in combination with feeding of fairly low-grade concentrates containing a high proportion of wheat bran. Actual reproductive and weight gain perfonrnance has thus been lower than expected. The objective of promoting an effective use of residues by the project has not been met in this regard by most livestock households, who rely principally on grazing and concentrates for production. 11. Benefits to livestock producers have also been reduced by generally declining beef prices since 1992, particularly in 1996. Mutton and particularly, wool, prices, although lower than full economic prices, have contributed to attractive returns for sheep households. Overall, however, the financial performance of livestock has met or exceeded SAR estimates. 12. Agricultural extension system improvements met all physical targets in terms of construction. The project built all eight planned new Agricultural Extension Technical Centers at the county level and rehabilitated all 45 centers identified at appraisal. The project also developed 124 new township-level centers and rehabilitated a further 119 as per targets. The project was responsive to suggestions made during supervision to purchase laboratory equipment and to expand the range of extension methods used. Equipment valued at Y 34.494 million was procured and distributed. The procurement ranged from audiovisual equipment to soil- and water-testing equipment (including relatively sophisticated items such as neutron probes and water quality test equipment).  - 6 - Nevertheless, results in terms of productivity increases in Heilonggang have been mixed, with good extension messages developed in one county often not spreading to even neighboring counties. In the northeast, with smaller areas, simpler technology, a smaller range of crops and, most importantly, a willingness to seek out new technology by extension staff, results have been better. Adoption rates have frequently exceeded 85 percent for single technologies and 60 percent for a packagJe of technology in paddy areas. 13. Agricultural research was efficiently conducted and published but its benefits often did not spread much beyond the source of the informnation. The total investment represented only 0.45 percent of project funds, considerably less than the goal of 2 percent sought in many Bank Group-financed projects. 14. The investmenit in ag,ricultural machinery was changecl at the mid-term review to include support for machinery at Agricultural Machinery Stations, whereas only fuel supply improvement was included at design. The change has not generally been a success owing to inadequate charges and resulting poor maintenance and replacement policies. In some areas, the investment appears to have been used to subsidize an inefficient structure, which should have been discontinued in favor of privatization of services. In contrast, the activity appears to have been most successful in the northeast where subcontracting machinery to contract operators who then hire services to farners has been established. 15. Orchard enterprises are generally successful but often involve higher-density plantings than projected in response to greater profits from fruit than grain. The scale of graii/date intercropping was expanded from a target of 20,000 ha to 33,220 ha and a further 3,333 ha was rehabilitated, although with little success in terrns of yield benefit. Household areas appear to have been reduced to about 0.25 ha from SAR estimates of 0.4 ha. New pear orchards totaled 1,700 ha and rehabilitated orchards covered 4,000 ha as estimated at appraisal. Yields will easily meet SAR targets (35 tons/ha new pear orchard, 2 tons/ha dry date for new date orchard). 16. The aquaculture component undertook several adjustments to design during implementation and faced major challenges with disease, a typhoon and water pollution. It has nevertheless been quite successful. Relationships with Bank Group staff were always good and suggestions by Bank Group staff, such as subcontracting production areas to households, were adopted, thus increasing the numbers of beneficiaries and benefits. 17. The project financed 3,525 ha of shrimp ponds against 3,752 >a (533 ha new and 3,219 ha rehabilitated) estimated at appraisal. High-density stocking and the occurrence of white spot virus disease in 1993, however, significantly reduced yields from an estimated 1.8 to 2.0 tons/ha to 2-300 kg/ha. Density was reduced and Japanese shrimp were substituted for Chinese White shrimp in three of five counties. The Japanese shrimp command a premium price when sold live, which has contributed to improved returns. For the future, consideration will have to be given to adoption of specific pathogen-  - 7 - resistant stock from specialized hatcheries or the.. adoption of methodologies such as the Thailand Model, which requires disease prevention methodologies such as water chlorination and recirculation. 18. Fish ponds, wlhich adopted the high-production carp model over the whole SAR estimated area of 716 ha after implementationi in 1991, have been successful and sustainable. Yields aver-age 11,250 kg/ha. Prices have been stable and provided acceptable benefits for the households involved. 19. Scallop production was moved from Funing County to Changli County during implementation and expanded from an SAR estimate of 2,500 chains of 75 hanging purse lanterns to 8,000 chains of 100 lanterns. The hatchery has become a multipurpose unit, producing scallops, shrimp post-larvae and wintering globefish. The yields have ranged from 800 to 1,200 kg/ha with shell and are considered sustainable. The main concern is the potential for further deterioration of water quality from "red tide" algal contamination as a result of industrial pollution, although the project areas have not been affected as yet. Future designs must include comprehensive water quality monitoring programs, to ensure production in areas free of major existing or likely pollution. 20. Terrapin production was added after the mid-term review as an activity for inland rivers of Gucheng and Gaocheng counties. Gaocheng concentrates on adult production, while Gucheng emphasizes production of hatchlings. Prices are high (Y 140/kg for hatchlings, Y 160/ kg for adults) and production varies from 55,000 to 100,000 kg at 100 percent production load. 21. River crab production was also added during the mid-tenn review. Button crab and adult crab production areas are complete and the mission was pleased to note the change to household production systems. Production ranges from 750 to 1,125 kg/ha. Yields from 800 to 1,000 kg/ha are considered sustainable. T'he project area supports 350 households. Excellent profits are being made but lessons need to be leamed from Liaoning Province, where narrowing of the genetic base in breeding ponds drastically reduced productivity. 22. Feedmills constructed under the project in support of aquaculture have almost reached appraisal capacity estimates. A total of 980 tons/year is produced at Luannan compared to 1,000 tons at appraisal and 2,800 tons per year is produced at Tanghai (rather than Changli) compared to 3,500 tons at appraisal. Further consideration should be given to construction of a regional feedmill, which could produce high-quality pelleted feed at lower cost. The Fengan County cold store suffered a series of design changes, which delayed implementation and drastically increased the debt service requirement, but the final facility is excellent, with international certification. 23. After considerable early delays due to poor technical specifications by design institutes and a lengthy ICB approval and bidding process, agroprocessing was successfully implemented at both fertilizer plants and the particle board and paper plant. Work progressed rapidly and to high standards, once contracts were awarded. All plants  - 8 - reached or exceeded design capacity and specified product quality. Both fertilizer factories suffered failure of individual components; however, with intervention by IDA, the foreign suppliers satisfactorily resolved these problems. The project constructedl rehabilitated 15 cotton seed production ginneries and constructed two acid delinting plants, although one plant is now operating at less than full capacity and the other is closed, pending a resumption of production with improved seed in 1999. 24. The major constraint to operation was found to be the lack of counterpart funds in provincial agencies for both capital and operating costs. Private sector involvement is crucial to success. The shortage of counterpart funds delayed slaughterhouse construction and delays in the ICB specifications and approval process in China and in IDA also delayed cold store equipment importation. Three of the six plants had to be dropped from the project and the funds repaid, owing to acceptance of technical specifications well below agreed standards. The remaining plants are well constructed and equipped and have excellent cold store facilities. C. MAJOR FACTORS AFFECTING THE PROJECT 25. Factors Not Generally Subject to Government Corntrol. The main factors affecting performance were natural disasters such as the 1992 typhoon, shrimp disease, cotton bollworm infestation and the delays in procurement due to inferior standards of design by design institutes and the need to follow ICB bidding procedures. Senior staff resignations to accept more attractive positions in the private sector during the 1992-93 period also reduced the impact of training and created additional demands on management. 26. Factors Generally Subject to Government Control. Shortages of counterpart funding delayed implementation of some of the components, and has resulted in inadequate working capital for others, especially in many agroindustry plants. Inadequate O&M funding was a factor affecting agricultural extension (fo:r building maintenance) and irrigation development (owing to inadequate water charges, leading to the use of revolving funds for deferred maintenance). The delayed release of vehicles during 1993 affected the management capacity of project staff and probably slowed project progress. The shortage of counterpart funds in provincial and county government companies involved in agroprocessing delayed implementation and has highlighted the need for private sector involvement. 27. Factors Generally Subject to Implementing Agency Control. The project has generally been implemented to high management and financial accounting standards with the exception of a declared misprocurement in livestock slaughterhouses owing to promulgation of inferior specifications to favor a particular supplier. The problem was investigated by project management and rectified by reimbursement of expenditures to IDA.  - 9 - D. PROJECT SUSTAINABILITY 28. Sustainability of the investments and improvements made by the project is assessed as likely. Overall, good arrangements have been made for handover of components for O&M and management to the responsible agencies (as described in Section H below). Facilities under the project were generally built to high design and construction standards, and should be able to operate efficiently. During implementation, the PMO promoted effective training and employment based on qualifications for management and staff for the various facilities, which should enable efficient operation, and IDA supervision missions provided specialized technical assistance and training on- site in specific areas. The PMO also promoted joint ventures for the agroindustry components, which will provide infusions of both management expertise and operating capital, and joint venture prospects appear good. 29. Although project sustainability prospects are in general good, close continued attention by the provincial govemment will be required to: (a) promote the household responsibility system in agricultural production; (b) fund O&M adequately through appropriate, well-researched charges for irrigation water and other services, such as veterinary services or agricultural machinery, and ensure that service or user charges reflect the true cost of service supply; (c) establish a strategy for cotton growing that fully embodies IPM, mitigates cotton growers' production risks, and promotes appropriate agricultural practices and crop rotation; (d) encourage development of private sector farm machinery services; and (e) promote government action to control pollution in scallop production areas. 30. Regarding the above issues for project sustainability, project management has emphasized their firm policy and determination to continue to promote the household production responsibility system as the basis for Hebei's agricultural development. The new household contracts will be implemented during the current nationwide round of household responsibility contracting starting from 1999. With regard to cotton production and the new contracts, the provincial government expects to counteract poor crop rotation practices by reducing the size of the household responsibility contracts. The smaller contracts tend to promote more diversified cropping patterns due to household preferences and risk aversion. Project managements were also concerned to ensure the long-term sustainability of cotton growing and were promoting intercropping with vegetables and other green crops as a means of improving fertility and reducing the proportion of cotton in the rotation. 31. Adoption of realistic water charges according to source and cost of irrigation water, introduction of water-saving technology, rationalization of water use in agriculture, and measures to recharge groundwater are primary goals of the Hebei Govemment in water resource development. In addition, the government has led and strongly supported the establishment of the first self-financing irrigation and drainage district (SIDD) in Hebei at the Junliu pumping station, which is intended to ensure costs  - 10- are covered, resources are adequate for good O&M and management of facilities, and retums to investment are improved through better water managernent by farmers. 32. In the future, project management also expected steadily greater reliance to be placed on the private sector for provision of agricultural machinery services. The private sector is now well developed to supply machinery services in the Heilonggang area as witnessed by the number of private tractor and machinery outlets operating. The govenment is encouraging further privatization by eliminating subsidies to support govenment machinery stations, which must now become self-financing. 33. To help protect scallop production, a pollution monitoring program was established in 1998 based on the recommendations of IDA supervision missions. In addition, the State is initiating the "Blue Sky/Blue Sea Project" to rehabilitate the Bohai Sea, which aims to reduce pollution in the region and should reduce risks to the project scallop investments. E. IDA PERFORMANCE 34. Project Design and Appraisal. IDA performance was generally highly satisfactory with considerable care taken in design of both infrastructure and activities relating to monitoring of water resources and provisions for poverty alleviation. The components were based on sound experience and IDA was supportive in funding a follow-i p water resource project, with another planned. Despite concern expressed at design, however, the pumping stations were included and implernented under the project and have, as expected, encountered problems with water supply and regulation of riparian use. 35. Supervision. Eleven supervision missions were conducted over the seven-year implementatiorn period, with generally two per year until the mid-term review and one per year thereafter. An engineer, agroindustries specialist and an economist participated in most missions, with support from an agnrculturist, aquaculture specialist, specialist engineers and a livestock specialist as required. Particular attention was given to high standards of supervision, which was especially helpful in achieving successful implementation of the agroprocessing component. More attention to supervision of the livestock and agriculture components, particularly after the mid-term review, might have improved the quality of implementation of these components, but was constrained by budget limitations and the fact that they were largely completed by that time. F. BORROWER PERFORMANCE 36. Borrower performance has been highly satisfactory in pro ject implementation and compliance with covenants. Project management has paid close attention to the pace of implementation in most components and shown a ready will[ingness to adopt high standards of construction. The project management structure fuictioned efficiently and financial management and monitoring was of a high standard. Some delays occurred due  - 11 - to lack of counterpart funds in the agroindustries, a lack of familiarity with management of commercial enterprises and difficulties with IDA procurement procedures. Full acceptance of the household responsibility system in implementation might have improved project performance, although impacts on poverty in project areas nevertheless appear considerable and sustained. Despite assurances at negotiations, new wells in excess of those agreed were drilled (albeit using project revolving funds rather than credit funds). Lack of commitment to improving distribution efficiency and inadequate recognition of the importance of water resource monitoring and management have been disappointing aspects of borrower perfornance. G. ASSESSMENT OF OUTCOME 37. The project was successful in achieving its major physical construction targets, in increasing yields and farmer incomes and in introducing international standards of technology in agroprocessing and aquaculture. These achievements must be followed up with supporting policies on water pricing (to allow for adequate O&M and replacement) and with attention to aspects of sustainability of the groundwater resource. It should be noted that, based on recommendations of IDA supervision missions, the Govemment, on its own initiative, introduced self-financing irrigation and drainage district (SIDD) reforms to help deal with these issues. The Government of Hebei has also gained useful experience in the management and benefits of the household responsibility system, which needs to be adopted in full in future projects. 38. Analysis of project impact on farm incomes (Annex C, Appendix 3) shows very positive effects, in excess of SAR estimates, with incomes from fully irrigated arable lands increasing by 116 percent in Heilonggang and 150 percent in the northeast compared to original rainfed conditions. The overall economic rate of return, is recalculated at 39.7 percent (Annex C, Appendix 6), compared with 32.4 percent at appraisal. 39. Overall project outcome at ICR is therefore rated satisfactory and some aspects were highly satisfactory. Generally, the targets set out at appraisal have been achieved or surpassed. Nonetheless, despite the commendable energy and competence of project management in implementation, there still remain some items that present potential weaknesses for the project and could therefore be considered shortcomings not adequately dealt with under the project. These have already been mentioned and include the vulnerability of groundwater to overexploitation; lack of agreement on sharing of surface water resources; lack of adoption of sustainable cotton-growing practices and mitigation of cotton farmers' production risks; the need for still greater reliance on the household production responsibility system; the necessity of encouragement of private sector farm machinery services; the desirability of developing structured charges for irrigation water, which reflect the true cost of supply; and the need to increase charges for veterinary assistance and agricultural machinery charges to cover the cost of their provision. Depending on the resolution of the above problems, it may be appropriate for the assessment to be increased to highly satisfactory by any subsequent project audit. In  - 12 - fairness to the project, however, most of the above problems are endemic to agriculture projects in China, and reflect more on the stage of Chinese reform and development than on any particular project. H. FUTURE OPERATION 40. Further attention to development of a schedule of O&M charges and the encouragement of the self-financing irrigation district concept, based on farmer organizations, is required. A system of water charges for different classes of water is needed to allow for cost recovery of O&M, including expenditure on power. For all three of the project pumping stations a Plan of Operation and Maintenance (POM) has been prepared and will be updated as required, and a SIDD comprising a water supply corporation and water user associations was introduced at Junliu. Technical assistance was provided during the project to set Wei He (River) operational guidelines, minimum flows past existing pumping stations, and water-sharing arrangements between Handan, Xingtai and Chahezhui Prefectures, although the issue of other provincial riparians is not yet resolved. This preliminary work needs to be continually addressed in the early years of the project operation. Provision of technical advice to farmers and aquatic products producers and monitoring and evaluation will continue to be provided by the responsible agencies. Each of the processing plants, and the wholesale market, have provided ample evidence of their joint sector approach to plant operation and commercial activities that will provide increasing revenue flows in the coming years. 1. KEY LESSONS LEARNED 41. A comprehensive approach to design was necessary at the time of preparation of this project. Nevertheless, the outstanding success in terms of benefits has been the water resource development component, which underpinned the economic and financial viability of the project. Given the more advanced state of development in China, future projects might therefore consider a simpler approach to design based on sound water resource development and investment to provide a basis for improvement in farm incomes that would drive private sector implementation of aspects such as mechanization, livestock development, agroprocessing and input supply. 42. Sustainability in both technical and environmental terns is a key concern in this part of China and Hebei will need to give greater attention to monitoring and managing the use of water by agriculture, commerce and industry. Improved irrigation water delivery efficiency, particularly in groundwater-based irrigation, must be a priority in spending on future projects. The needs for improved rural incomes must be balanced against the environmental cost in all areas. 43. Individual initiative and incentive have been proven to be keys to success in this project and in many Bank Group agriculture projects in China. Their full expression requires a full acceptance of the principles of household responsibility and careful consideration and limitation of the need to group household models in order to improve  - 13 - administration. Project planners should avoid the use of project funds for development of production bases that aim to use industrial production principles in an agricultural situation. In this project, the production-base concept has been shown to be particularly inadequate for sustainable cotton production in this project. 44. Future Bank Group investments in agricultural research should place more emphasis on the transfer of technology from researchers to extension workers, and on field-testing of technology. A goal of 2 percent of project funds invested in research is worthwhile, especially as the needs of agriculture become more sophisticated and technically demanding. In extension, a greater proportion of funds need to be invested in personnel development and in development of linkages to research as a technology provider and a smaller share spent on infrastructure. 45. Private sector involvement in agroprocessing is vital to supply adequate counterpart funds and technology and management transfer. Similarly, adequate operating capital must be assured at appraisal. Adoption of international standards of technology and adequate management training has been a key reason for success and must also receive continued attention in future agroprocessing investments. 46. A successful aquaculture component developed in this project on a broad base after starting with a narrow range of activities and optimistic expectations of yields and prices. To ensure stable returns, future investment in aquaculture should be based on a range of focused aquaculture developments with conservative stocking rates, attention to environmental pollution hazards, and sound marketing plans.  - 14- PART II: STATISTICAL TABLES TABLE 1: SUMMARY OF ASSESSMENTS A. Achievement of Objectives Substantial Partial Negligible Not Applicable Macroeconomic policies X Sector policies X Financial objectives X Institutional development X Physical objectives X Poverty reduction X Gender issues X Other social objectives x Environmental objectives X Public sector management X Private sector development X B. Project Sustainability Likely Unlikely Uncertain x C. IDA Performance Highly Satisfactory Satisfactory Deficient Identification X Preparation assistance X Appraisal X Supervision X D. Borrower Performance Highly Satisfactory Satisfactory Deficient Preparation X Implementation X Covenant compliance X Operation (if applicable) X E. Assessment of Outcome Highly Satisfactory Unsatisfactory Highly Satisfactory Unsatisfactory x  - 15 - TABLE 2: RELATED BANK LOANS/CREDITS Year of Loan/Credit Title Purpose Approval Status Preceding Operations North China Plain Agriculture Irrigation Development & Land FY82 Completed (Cr. 1261-CHA) Improvement Pi-Shi-Hang Chaohu Area Development Irrigation & Area Development FY85 Completed (Cr. 1606/Ln. 2579-CHA) Northern Irrigation Irrigation Development & FY88 Completed (Cr. 1885-CHA) Improvement, and Settlement Gansu Provincial Development Irrigation & Agriculture FY88 Completed (Cr. 1793/Ln. 2812-CHA) Development Shaanxi Agriculture Development Irrigation & Agriculture FY89 Completed (Cr. 1997-CHA) Development Following Operations Irrigated Agriculture Intensification Irrigation & Agriculture FY91 To be completed (Cr. 2556/Ln. 3337-CHA) Development in 12/98 Yangtze Basin Water Resources Irrigation & Area Development FY95 To be completed (Cr. 2710/Ln 2874-CHA) in 12/2001 Irrigated Agriculture Intensification II Irrigation & Agriculture FY98 Implementation (Cr. 4354-CHA) Development underway Water Conservation Irrigation Improvement Under preparation TABLE 3: PROJECT TIMETABLE Steps in project cycle Date planned Date actual Identification (Executive Project Summnary) Nov 1987 Preappraisal Jan 10 - Feb 2, 1990 Appraisal Nov-Dec 1989, Jan 1990 Negotiations May 1990 Board presentation Jun 14, 1990 Signing Ju12,1990 Effectiveness Sep 21, 1990 Mid-term review Dec 7-18, 1993 Project completion Jan 31, 1998 Loan closing Jun30, 1998  - 16 - TABLE 4: CREDIT DISBURSEMENT: CUMULATIVE ESTIN11ATE AND ACTUAL ($'()