China - Jiangxi Integrated Agricultural Modernization Project

Document of The World Bank Report No: 25702-CHA FOR OFFICIAL USEONLY PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDLOAN INTHEAMOUNT OFUS$100MILLION TO THE PEOPLESREPUBLICOF CHINA FORA JIANGXIINTEGRATEDAGRICULTURAL MODERNIZATIONPROJECT October 23,2003 Rural Development and Natural ResourcesSector Unit East Asia and Pacific Region This document has a restricteddistributionandmay be usedby recipientsonly inthe performanceof their official duties. Its contents may not otherwisebe disclosedwithout World Bank authorization.  CURRENCY EQUIVALENTS (ExchangeRateEffectiveSeptember2003) Currency Unit = Renminbi(RMB)Yuan (Y) Y1.00 = US$0.12 US$l.OO = Y8.3 FISCALYEAR January 1 -- December31 ABBREVIATIONSAND ACRONYMS ABC Agricultural Bank o f China NBF Non Bank Financing ADP Agricultural Development Project NPV Net Present Value BP Bank Procedures NCB National Competitive Bidding B P M Beneficiaries Participation Manual NDRC National Development and Reform Commission CAS Country Assistance Strategy N S National Shopping CFAA Country Financial Accountability Assessment O&M Operation and Maintanence CPP Community Participation Procurement OP Operational Policy D C Direct Contracting PAD Project Appraisal Document EIA Environment Impact Assessment PIM Project Implementation Manual E M M P Environmental Monitoring and Management Plan PHRD Policy and Human Resources Development ERR Economic Rate o f Return PLG Project Leading Group FA Force Account PMO Project Management Office FM Financial Management PMP Pest Management Plan FRR FinancialRate o f Return PPMO Provincial Project Management Office ha hectare PRA Participatory Rural Appraisal IBRD International Bank for Reconstruction and PRC People's Republic o f China Development QAG Quality Assurance Group ICB International Competitive Bidding RCC Rural Credit Cooperative ICR Implementation Completion Report SA Social Assessment IDA InternationalDevelopment Association SAR Social Assessment Report I P M IntegratedPest Management SIDD Self-Managed Irrigation and Drainage District JIAMP Jiangxi Integrated Agricultural Modernization Project SOE Statement o f Expenditures M&E Monitoring and Evaluation sw Small Works MIS Management Information System TA Technical Assistance mu Chinese area measurement, 1 mu=0.07 ha. 1ha=15 mu TAG Technical Advisory Group MEIRO Machinery and Electric Product Import Review Office TOR Terms o f Reference MNDP Multi-Nationalities Development Plan WDF Women Development Facilitator M O F Ministry of Finance wso Water Supply Organization MOFTEC Ministry o f Foreign Trade and Economic Cooperation WTO World Trade Organization WUA Water User Association Vice President: Jemal-ud-dinKassum, EAPVP CountryDirector: YukonHuang,EACCF Sector Director: Mark D. Wilson, EASRD Task TeamLeader: Sari Soderstrom, EASRD  FOROFFICIAL USEONLY CHINA JIANGXI INTEGRATEDAGRICULTURAL MODERNIZATIONPROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 3 3. Sector issues to be addressedby the project and strategic choices 4 C. Project Description Summary 1, Project components 2, Key policy and institutional reforms supportedby the project 3. Benefits and target population 4. Institutional and implementationarrangements D.Project Rationale 1. Project altematives considered and reasons for rejection 11 2. Major relatedprojects financed by the Bank andor other development agencies 12 3. Lessons leamed and reflected inthe project design 13 4. Indications ofborrower commitment and ownership 14 5. Value addedo f Bank support inthis project 14 E.Summary Project Analysis 1. Economic 14 2. Financial 15 3. Technical 16 4. Institutional 17 5. Environmental 22 6. Social 24 7. SafeguardPolicies 27 This document has a restricted distribution andmay be usedby recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without World Bank authorization.  F. Sustainability and Risks 1. Sustainability 29 2. Criticalrisks 30 3. Possible controversial aspects 30 G. MainLoanConditions 1. Effectiveness Condition 31 2. Other Loan Conditions 31 H. Readinessfor Implementation 33 I.CompliancewithBankPolicies 33 Annexes Annex 1: Project Design Summary 34 Annex 2: Detailed Project Description 39 Annex 3: EstimatedProject Costs 44 Annex 4: Cost Benefit Analysis Summary 46 Annex 5: Financial Summary 60 Annex 6: Procurement and Disbursement Arrangements 61 Annex 7: Project Processing Schedule 74 Annex 8: Documents inthe Project File 75 Annex 9: Statemento f Loans and Credits 77 Annex 10: Country at a Glance 81 Annex 11: Summary of Social Issues 83 Annex 12: Summary o f EnvironmentalIssues 87 MAP(S) IBRD31793, IBRD31794  CHINA Jiangxi IntegratedAgricultural Modemization Project Project Appraisal Document EastAsia andPacific Region EASRD late: October 23,2003 Team Leader: Sari K.Soderstrom Sector Managermirector: Mark D.Wilson Sector@): Irrigation anddrainage (50%), Agricultural Zountry Managermirector: Yukon Huang extensionandresearch (15%), Agricultural marketingand ?roject ID: PO65463 trade (15%), Animal production (1O%), Crops (10%) Lending Instrument: Specific InvestmentLoan (SIL) Theme(s): h ~ r aServices and infrastr~cture(p), Rural l markets (P), Other rural development(P) [XI Loan [ ] Credit [ ]Grant [ ]Guarantee [ ]Other: For LoanslCreditslOthers: Loan Currency: United States Dollar Amount (US$m): $100.00 Borrower Rationale for Choice of Loan Terms Available on File: Yes Proposed Terms (IBRD): Variable-Spread Loan (VSL) Grace period (years): 5 Years to maturity: 20 Commitment fee: 0.75 % Front end fee (FEF) on Bank loan: 1.00% I 1 I FinancingPlan (US$m): Source Local Foreign Total BORROWER 46.91 [BRD 46'91 68.41 31.59 O.OO 100.00 Borrower: PEOPLE'S REPUBLIC OF CHINA Responsible agency: JIANGXI PROVINCIAL PLANNING AND DEVELOPMENT COMMISSION Jiangxi Provincial Agriculture Foreign FundUtilizing Office Address: 12FL. Provincial PlanningCommissionBuilding, West 2 Road, ProvincialGovernmentCompound,Nanchang 330046, China Contact Person: Mr.Yuan, Jin Mu Tel: +86-791-6211815 Fax: +86-791-6212873 Email: JAFFO@public.nc.jx.cn Project implementation period: 6 years Expected effectiveness date: 01/15/2004 Expected closing date: 06/30/2010  A. Project Development Objective 1. Projectdevelopment objective: (see Annex 1) The development objective of the project is to improve the livelihood of rural households in Jiangxi Province through establishment o f integrated, economically and environmentally sustainable, and market-driven agricultural production systems focusing on productivity and agricultural output of high quality and value. Improved livelihood i s defined as increased income; reduced risks; increased employment, in particular of women; and improved access to irrigation and drainage, technologies, information, training, and markets. 2. Key performanceindicators: (see Annex 1) Key indicators measuring the achievement of the project development objective would be obtained by a comprehensive monitoring and evaluation (M&E) system. The following impact indicators, defined in terms of the difference between participating project householdsand representativenon-project households, would be measured: (i) Growth in on-farm income; (ii) Growth in farm output value per mu; (iii)Increase of yield of crops; (iv) Product value share of three most important products as indicator of diversification; (v) Increaseof volume and variety of sales of local seed companies; (vi) Increase insales volume of local agro-enterprises; (vii) Farmer loan and agro-enterprise repayment rate; (viii) Water fee collection rates; and (xi) Quality o f irrigated land. B. Strategic Context 1.Sector-related Country Assistance Strategy (CAS) goal supportedby the project: (see Annex 1) Document number: 25141 Date of latest CAS discussion: December 19,2002 The project supports the goals of the Bank's country assistance strategy (CAS) to China being consistent with all three central themes o f the CAS: (1) improve the business environment and help accelerate the transition to a market economy; (2) address the needs of the poorer and disadvantagedpeople and lagging regions; and (3) facilitate environmentally sustainable development. (1) HelpAccelerate the Transition to a Market Economy: The project is consistent with the Bank's overall assistance strategy for the rural sector in China, which aims at assisting local governments to accelerate commercialization of agriculture, develop new income generating opportunities in interior provinces, develop new approaches to food security, promote better utilization o f agricultural production resources, and support investments in private enterprises. The focus o f the Bank's overall assistance strategy to the rural sector in China is now on the shift from subsistence grain production to commercial agriculture and from the quantity to the quality o f food products. The need o f this shift in approach is enforced through China's recent accession to the World Trade Organization (WTO). This was also emphasizedin the joint China-Bank in-depthanalysis o f China's rural sector ("Accelerating China's Rural Transformation," World Bank, Albert J. Nyberg and Scott Rozelle, August 1999). That analysis stresses the need for taking an integrated approach to rural development which includes improved land and water use, diversified agricultural productionwith modern technology, and an efficient marketingsystem. (2) Address the Needs of the Poorer and Disadvantaged People: The project is also directly supporting the humanresource development and poverty alleviation goal of the assistance strategy to China. The project is designed to improve the livelihood of farmers in areas with poor irrigation and drainage infrastructure. Farmers without adequate irrigation are one of the poorest strata of the society in Jiangxi Province, which is greatly affected by the large and growing rural-urban income gap. The project aims at increasing the net income of these farmers, which currently averages less than US $1 per day and capita. The project would  also improve these farmers' access to land, water and financial resources, as well as to public services. In particular, great attention would be paid to the provision of information and access to knowledge. In addition, increased production and quality of food will benefit especially the poor, whose expenditure share on food is particularly large. Moreover, the project would address gender issues, directly through a stream-lined approach supported through a specific women farmers' activity and indirectly by targeting farmer households, a large share of which are headedby women. (3) Environmentally Sustainable Development: The project also contributes to the CAS goals o f environmental protection through a more sustainableutilization of natural resources. The rehabilitation and extension of irrigation anddrainage systems incombination with reforming their managementwould leadto more efficient use of water, which would reduce incidents of water logging and salinity threat. Other expected positive impacts are reduced soil erosion and improved soil fertility. The project would promote environmentally sustainable agricultural production (including Integrated Pest Management) and marketing practices. The project concept is also fully in line with the three overarching goals o f the Bank's updated rural development strategy "Reaching the Poor" which are to: (i)craft pro-poor policies and institutions; (ii) facilitate broad-based rural economic growth; (iii)improve access to natural resources and human assets; and (iv) reduce risk and vulnerability. The project would address these goals through: (a) promoting policy changes in the area of water resources management and farmer groups; (b) improving the economic efficiency of farm production systems and promoting product diversification at farm and village group level; (c) improving access to adequately irrigated and drained land, financial means, and training and extension services; and (d) improving sustainability of water and landuse. 2. Main sector issues and Government strategy: In the last two decades, China has not only ensured food grain security for its large and still growing population, but also achieved impressive growth in agriculture and the rural sector. Many elements regarded as critical for rural development, such as upgrading o f marginal lands, investments into the water sector, and agricultural research and technology have contributed to the substantial gains. However, in recent years agricultural growth has slowed and farm income has fallen increasingly behind non-agricultural income. The sector faces considerable challenges, in particular after China's entrance into WTO. In order to maintain the effectiveness o f transitional policies and investment gains, new integrated development approaches have to be developed. Stable and sustainable growth in agriculture and ensuring food security is one of the key areas of the Government's strategy as articulated in the "Ninth Five-Year Plan" and the "Fifteen-Year Perspective Plan." The major challenges defined in these plans are to achieve greater self-sufficiency in grain, to raise farmers' standard of living, to make better use o f technology and to speed up the development o f nearby industriesthat use agricultural products and to eliminate poverty. Inthe "TenthFive-Year Plan," there was a shift in focus from quantity of food supply towards cost effectiveness inproduction and larger diversity and higher quality of products. With growing income inChina and the country's recent WTO membership, it is acknowledged that any sustainable approach to agricultural and rural development needs to be towards meeting consumers demand. With increasing income levels in the urban areas, consumer demand is becoming increasingly sophisticated requiringa higher variety of products and a distinctively higher quality of products at competitive prices. Responding to the changing needs, the Government's focus i s shifting towards regulatory responsibilities and on removing the remaining policy, administrative and regulatory constraints that are preventing the emergence o f full incorporation of socialistic market principles, In addition, to be successful, the public sector has to target investments for creating the necessary market institutions which enable private entrepreneurs to make their resource allocation and marketing decisions basedon undistorted and transparent price signals. - 3 -  3. Sector issuesto be addressed by the project and strategic choices: General. The project reflects a response to the challenges of the Chinese agricultural sector which lie in the need of continued growth while satisfying an increasing demand for food diversification in an increasingly competitive internal and external environment. Hence, the proposed project focuses on the production and marketing of high-quality agricultural and food products through the integration of improvedresources, production, researchand extension, and marketing of the produce. Issues to be Addressed. A major constraint to improvedagricultural productivity and farmers' livelihood in China is the poor state of the resource base, such as: (1) lack of adequate irrigation and drainage facilities; (2) lack o f sufficient farmers' skills and improved agricultural production technologies; and (3) a weak marketing system. (1) Lack of adequate irrigation and drainage facilities. Inadequate farm-level irrigation and drainage facilities limit crop production and prevent farmers from diversifying their production systems in response to market signals, Past investments focused on the construction of infrastructure while their operation and maintenance, including the institutional set-up to do so, was largely disregarded. Consequently, many existing schemes have insufficient water-carrying capacity and can only irrigate and drain a part of the originally designedarea. (2) Lack of improved agricultural production technoloPies, Improved.crop varieties and technologies, on-farm applied research, and access to quality extension and farmer training are very limited. Currently, training, research, and extension, to the extent they exist, are based on yield potential rather than profitability and/or marketability for farmers. Moreover, farmers often lack access to financial means to improve their productionsystem. (3) Weak market svstem. Farm management advice through the extension services has little emphasis on marketing. Farmers have limitedawareness of developments within the agricultural marketing system, and private sector support strategies of local authorities are largely made without sufficient investigation of demand and without consulting producers about product quality, quantity, seasonal supply, delivery arrangements or price. Marketinginitiatives are diffuse and designedto benefit individual companiesrather thanthe entire province. While some of these initiatives have beenwell developed (e.g. trade markingof vegetables and long term contracting of seed supply), the experience and benefits have not been shared. Strategic Choices. Sustainable rural development requires an integrated, community-driven development approach which embraces close association with the private sector, encouraged and assistedby the public sector. Hence, the key approach of this project is beneficiary participation in design, implementation, monitoring and evaluation. The public sector will fhction as a guarantor and facilitator for this process, preparing for and providing an enabling environment for efficient markets so as to maximize the economic benefits to the farmers. The community-driven development aspect of the project comes through the direct involvement of the beneficiary communities in the design and implementation of the proposed project and through supporting the establishment o f water users' associations (WAS)and informal and/or formal farmers' groups. The project would finance various sets of hardware (infrastructure, equipment, etc.) and software (technical assistance), and promote the establishment of self managing entities (e.g. WAS, producer marketingassociations, etc.). An important problem farmers face in marketing their products is high transaction cost, including lack of comprehensive information about market opportunities. Gradual opening o f foreign trade and resulting competition from low cost high quality products from abroad and from other provinces may hrther constrain farmers profits. Hence, the proposed project would support market development along all levels of the marketing chain through helping farmers and traders to reduce the transaction costs (e.g. - 4 -  information, organization of teclmical associations), improving the product quality (e.g. development of quality standards) and supporting value-added activities at the local (e.g. farm, village group, technical association) level. The objective is to promote product diversification (and thus alleviate the price pressures on homogeneous products) at the local markets and to gain access to higher value regional and nationalmarkets though developing specialized andhighquality products. Policy Issues. China's transition towards a filly-functioning market economy provides a generally enabling environment for the project. However, several policies still constrain private sector development, and therefore the implementation of the project. For instance, while market are generally well integrated, trade barriers such as lack of information, put wedges between price for farmers and markets outside the village. Other example include the legal foundation for water user associations and other farmer groups, which is still under development; grain quotas and constraintsto the free movement of goods (formal andor informal transportation restrictions, informal restrictions in inter-county trade), etc. In many cases, adequate policies are in place at least on the national level, and the project would attempt to push the enforcement o f such existing rules and regulations. In past rural development projects, uncertainties in land tenure was an issue for effective project implementation. This i s not the case anymore. Land laws have and continue to develop rapidly. All project beneficiaries have clear landtenure arrangements. Normaltenure arrangementsare 30-50 year land leases with limited inheritance rights. C. Project DescriptionSummary 1. Project components(see Annex 2 for a detailed description andAnnex 3 for a detailedcostbreakdown): General, The project main components are: (i) Irrigation and Drainage; (ii) Production Improvement; Farm (iii)Market SystemsDevelopment; and(iv) ProjectManagement,MonitoringandEvaluation. Applied research, training and extension activities are included ineach component. Irrigation and Drainage Component. The specific objectives of the component are to: (a) ensure sustainable use o f land and water resources for irrigated agriculture (including improving water use efficiency); (b) increase agricultural productivity and reduce risks in production; and (c) demonstrate a model of on-farm irrigation development for agricultural modernization. The component would include (i) physical construction that comprises rehabilitation and extension of existing irrigation works, including main and secondary canals, drainage structures, and pumpingstations (works and goods); construction o f on-farm irrigation and drainage systems (works and goods); construction of access and farm roads (works); and (ii)institutional support for a more efficient and sustainable operation and maintenance o f the infrastructure and the land and water resources for irrigated agriculture (technical assistance and training). The establishment o f Self-Managed Irrigation and Drainage Districts (SIDD) for all irrigation command areas under the project would be ensured. About 90 sub-projects with about 70,000 ha of land would be covered by investments, benefiting about 283,000 farm households. Detailed designs for irrigation and drainage schemes will be developed and include improvements in primary, secondary, and tertiary (household level) systems, including roads. The design of five pilot areas has already been appraised. The other schemes will be designed by official design institutes with participation from the water users and appraised by technical specialists, appointed by the Provincial Project Management Office (PPMO). Acceptable appraisal o f these schemes include the willingness of households to participate, formation of a WUA, and technical, environmental, economic and dam-safety criteria. The appraisal steps for individual schemes are: (i) reservoir dam safety check (if applicable); (ii) development of a construction plan; (iii)establishment o f the water supply organizations (WSOs) and WUA; (iv) participatory detailed design; (v) planning for sources of finding, including farmer's labor - 5 -  input; (vi) selection of supervising institute; (vii) bidding for construction works; (viii) construction; and (ix) check and receipt. Two manuals, onefor the implementation of thephysical works and the otherfor the institutional (SIDD) development, outline the specific implementationprocedures. The development of the SIDDs is covenantedin the legal documents. (see Section GD.l.,D.4.) FarmProduction Improvement Component. The specific objective of the Farm Production Component is to support improved (Le. higher value) agricultural production. The component would specifically target those farmers who benefit from the Irrigationand Drainage Component and includes: (i)SoilFertilityImprovement:Throughone-timefertilizationwithlimeandorphosphatefertilizerofpart of the project area under irrigation rehabilitationthat would require such treatment (estimated at about 10% of the area), Farmers are expected to provide the labor to apply the fertilizer as their counterpart contribution, and as part of a larger loan including also the irrigation and drainage works, would repay the loan which finances the purchaseof the fertilizer. (ii)Training, Extension, and AppliedResearch:This sub-componentwill finance applied researchat universities and research institutes, technical assistance (TA), training of trainers (in line bureaus and extension stations), and training of households and participating enterprises. Activities to be financed include: (1) grants for applied research (identifying, developing and adapting relevant low-cost technologies to solve specific problems to facilitate implementation and enhance benefits from the project activities; (2) training (of trainers; farmers; and of provincial, county and township project staff to ensure smooth project implementation and sustainability). This training would be delivered through TA, individual training, workshops, and study tours; and (3) public extension services (participatory demonstrations, household visits, group discussions, technical training, company led training and extension). An applied research, training and extension strategy i s included inthe Project ImplementationManual (PIM). (iii)Farm ProductionSupport: To facilitate the shift towards higher value production systems and to improve farmers access to markets, the project would, in addition to hnding infrastructure investments, provide sub-loans for individual farm households or farmer groups for the improvement of soil fertility or farm production activities such as: (a) irrigated field crops; (b) livestock (mainly pigs and poultry); (c) small-scale on-farm fish production; and (d) upland crops. Household would be proposed by the communities and selected by the PMO or RCC based on their willingness (as determined by their application), their needs (as determinedby the community) and their fund repayment ability. The farmers would be able to choose their investments into improved agricultural production. The menu o f investment options would be designed in a participatory maimer, in the farmers groups, through Participatory Rural Appraisal (PRA) methods, to ensure that the farmers demands across different farm production systems are met in a flexible manner throughout the project implementation period. This component would be implemented in a community-driven manner, partly including community procurement. A detailed implementation plan (Farm Production Improvement Manual) including the technical design, selection of beneficiaries, and financial arrangementshas been developed. (iv) Support to Women and Ethnic Minority Farmers: While all activities under the project are designed in a non-discriminatory manner, this Sub-component would ensure that women participate actively and benefit from the project. The Jiangxi Provincial Women's Federation will play the leading role in its implementation. Provincial, county, and township level Women Development Facilitators would be appointed and trained. In addition, earmarked funds would be made available to people in the Yaoshan village, avillage inhabitedby people of Yao minority. Market Systems Development Component. The specific objectives of the Market System Development Component are to: (a) increase farmers' access to markets; (b) add value to farm products; (c) ensure efficient processing and delivery of high value products from producers to consumers; and (d) reduce transaction costs. The Component would focus on activities that add value to the investments in irrigation - 6 -  and drainage and in improved agricultural production, consisting of: (i)financial support to agro-enterprises and leading households; (ii) construction, rehabilitation or up-grading of agricultural product markets; (iii) promotion of quality standards and improvements of market information systems; and (iv) promotion o f farmers' marketinggroups (farmers' professional associations). Longer term loans (3-7 years) would be made available to rural enterprises, leading farmers and farmers' groups for capital investments that would increase production efficiency, profitability and add value of farms and processing enterprises (Le. small combines, feed-mills, storage facilities for perishable products, processing space and equipment etc.). Similarly, loans would be made available for the construction and rehabilitation o f agricultural product markets. The loan funds would be channeled through local Finance Bureaus. The screening and appraisal of the proposed investments would be coordinated by the PPMO. The loan decisions would be made by an Investment Committee representing principal stakeholders. An Enterprise Investment Lending Manual has been developed as the implementation guide for these sub-components 6) and (io (Section G.D.1.j The promotion o f quality standards and market information systems as well as the promotion of farmers' marketinggroups would be activities offered to private or public entities. Project Management, Monitoring and Evaluation. The objective of this Component i s to develop and strengthen the overall implementation capacity of the various levels of project management and promote effective community participation in project activities. The component includes: (i)project management; (ii)institutional strengthening of PMOS(goods and training); (iii)establishment of a monitoring and evaluation system that includes environmental and social indicators (technical assistance and training); and (iv) development of community advisory/participation groups (technical assistance and training). A Management Information System (MISj is beenfinalized to enableproject monitoring and timely project reporting. Semi-annual reporting will take place to the Bank, In addition, independent social and environmental monitoring will take place in accordance with the Environmental Monitoring and Management Plan (EMMPj and terms of reference acceptable to the Bank. (Section GB.I.-B.3., E.1.) Indicative Bank- % of Component costs O/Oof financing Bank- (US$M) Total (US$M) financing Irrigation and Drainage 83.17 54.0 54.31 54.3 Farm Production Improvement 45.21 29.4 31.04 31.0 Market SystemsDevelopment 21.16 13.7 12.17 12.2 Project Management, Monitoring and Evaluation 3.44 2.2 1.48 1.5 Total Project Costs 152.98 99.4 99.00 99.0 Front-end fee 1.oo 0.6 1.oo 1.o Total Financing Required I 153.98 I 100.0 I 100.00 1 100.0 1 Integrating Features. The project has a number o f integrating features. This includes: (a) geographic concentration of activities to priority irrigation areas in the project counties, i.e. areas with no or poor irrigation and drainage. The activities proposed under the Farm Productivity ImprovementComponent and to some extent under the Market Development Component are closely linked to and will build on the irrigation and drainage investments in their geographic context. Furthermore; (b) crop and livestock activities would be integrated at the farm household level with the irrigation, drainage and land improvement investments in order to maximize the retum to these infrastructure investments. This would allow for expansion o f production possibilities through diversification and productivity increases. In addition, (c) integrating features also include improving farmers' responsivenessto market signals and add value to agricultural production while ensuring that part of the new value added accrues to farmers. - 7 -  2. Key policy and institutionalreformssupportedbythe project: Main Reforms that the Proposed Project Supports. The project contributes to the continuation of China's reform process towards a market-driven rural economy. I t supports private entrepreneurship in rural areas and complements China's efforts to further integrate with intemational markets and adjust to WTO requirements by developing an integrated agricultural systemwhich producesand marketshighvalue and quality products which can compete internationally. The project also supports the reforms in water resources utilization by promoting the concepts of farmer participation and financial responsibility for investments into irrigation and drainage systems and of WUA and water supply organizations (WSO) in line with the general concept of SIDDs. In addition, the project would attempt to support the enforcement of other national policies such as the elimination of non-tariff domestic trade barriers (e.g. inter-county and inter-provincial transportation barriers) through provincial level implementation support. Moreover, the proposed project would support reforms towards a sustainable and more efficient rural development path based on the active involvement of the farmers. 3. Benefitsandtarget population: The project would target rural households in Jiangxi, a province, where the difference between rural and urban incomes is particularly severe. The average (net) per capita income of these rural households in Jiangxi i s RMB 2,316/year (2001). This figure, equivalent to less than U S $l/day, is less than half of the average urban net annual per capita income in Jiangxi i s RMB 5,506 (2001), and also less than China's average rural income (RMB 2,366/year, 2001). The participating counties were primarily chosen basedon the condition o f their irrigation and drainage works. Counties with greatest need for rehabilitation were given priority. Additional concem was the interest and ability of the counties to provide counterpart funds and their ability to repay the loan. Direct Beneficiaries. The criteria for selecting participating households would be based on their willingness, their needs and loan repayment ability. The target households are the ones that lack or have insufficient irrigation and drainage. Since the amount o f adequately irrigated land is one of the most limiting factors of income increase, the direct benefits of improved infrastructure combined with better production technology and marketing would go to the poorer section o f the rural population. I t i s estimated that about 283,000 households, about 1.3 million people in 21 counties (Chongren, Nancheng, Yihuang, Chongyi, Gan, Golden Development District, Longnan, Quannan, Shicheng, Xinfeng, Xingguo, Xunwu, Zhanggong District, Hukou, Pengze, Wuning, Yongxiu, DexingCity, Hengfeng, Guangfeng, Yugan) in Jiangxi Province would benefit directly from the proposed project. The majority of these beneficiary households (about 230,000) are located on about 70,000 ha (about 16% of the total irrigated area in the project counties) of irrigatioddrainage schemes to be supported under the proposed project. These beneficiaries would receive financial and technical support under the Irrigation and Drainage and the Farm Production Improvement Components. Other households would benefit from training, extension, the Market Systems Development Component and other project activities. Women Beneficiaries. More than a third of rural households in Jiangxi are headed by women as their spouses work as migrant laborers during a large part o f the year. Women are considered as the main beneficiaries of the proposed project; and women's participation in the detailed design and implementation of the project would be closely monitored. In addition to mainstreaming gender into all components and activities o f the project, the "Women Farmer Development Activity" o f the project, involving the Women's Federation, will contribute to a wide participationof women. - 8 -  Indirect Beneficiaries. It is anticipated that the project would create additional income opportunities in areas such as trading and marketing as it improves the quality o f the goods and services o f the agricultural up-stream and down-stream sectors. Therefore, the total number o f beneficiaries i s anticipated to be considerably higher through market multiplier effects. Higher food quality and increased availability o f more diversified food products through improved production and marketing methods would also lead to greater food security for the whole populationin the region. 4. Institutionaland implementationarrangements: InstitutionalArrangements. General, The project would be executed by the ProvincialDevelopment Commission (under the National Development and Reform Commission) under which the PPMO is located. The Provincial Development Commission inJiangxi has successfully managed a number o f Bankprojects before. Project Management Structure. The integrated approach of the project is reflected in the project management structure, in which the various stakeholders, including the beneficiaries, various government line agencies, private sector and civil society, participate. Project Leading Groups (PLGs), Project Management Offices, and Technical Advisory Groups (TAGS)at provincial, county and townships levels have been established. An Investment Lending Committee has been established at the provincial level with the purpose o f evaluating and appraising the agro-enterprise loans. Detailed terms of reference for each of these entities have beenprepared (see Section G C.l.-C.4.) Project Leading Group. The PLG at the provincial level is headed by the Govemor of Jiangxi. Representatives o f the Provincial Finance Bureau and Planning Commission function as deputy heads. To ensure broad ownership for implementing the integrated approach o f the proposed project, all relevant departments and agencies are represented, including: Bureaus o f Planning, Finance, Agriculture, Water Conservancy, and Pricing. Similar P L G structures also exist at the county levels. Establishment and maintenance of the PLGs are covenanted in the legal agreements (see Section G C.1.) The PLGs will provide overall guidance to the project. Specific responsibilities include to: (i)mobilize institutional, technical and financial resources and support for project implementation; (ii)review the annual implementation plans; (iii)monitor the implementation works o f line agencies; (iv) define and supervise the work of the PMOs; and (iv) discuss, define, and bring to the attention o f the Government, policy support measures which, by complementing project investments, could enhance the achievement o f the development objective. Project Management Offices. A Provincial PMO is fully operational and has been in charge of the preparation of the project. Project institutions similar to those on the provincial level have been established at prefecture/municipal and county levels and will be funded by the project. The PMOs, under the guidance o f PLGs, are responsible for: (i)coordinating the day-to-day implementation of the project, (ii) drafting o f annual implementation plans and any readjustment plans; (iii) in cooperation with the line agencies, implementing overall project management rules, financial management methods, procurement management methods, engineering management and training methods; (iv) supervising and monitoring the project implementation plan, engineering quality, financial management and procurement, and training implementation; (v) the coordination o f line agencies and project areadcounties; (vi) reporting to PLGs and the Bank; and (vii) communication and public relation, - 9 -  PMOs are headed by a director o f the Planning Commission, and have a hll-time executive vice-director from the Planning Commission. They further consists o f staff responsible for the different components and their integration, for communications and coordination o ftraining andextension, andfor procurement and financial management. Staff from the Financial Bureaus, working on financial management and disbursement, are part o f the PMOs. Establishment and maintenance of the PMOs are covenanted in the legal agreements (see Section G C.2.)A Project Implementation Manual (PIM) has been prepared by the PPMO and reviewed by the Bank. The P I M will be used as key implementation guide for the proposed project. Duringimplementation, annual project implementation plans will be prepared by the PPMO based on county level plans prepared in accordance with the county level Beneficiaries Participation Manuals (BPM) and PRA techniques. All implementation arrangements including for financial management (provision of counterpart funds, on-lending, disbursement, auditing), procurement, supervision (including reporting), monitoring and evaluation, and the BPMs are included in the PIM (see Section G D.I.,0.3,). In addition, annual workplans will be prepared in aparticipatory manner per the BPM, and submitted to the Bankper requirements in the legal agreements (see Section G0.2.). technical support to the PMOs - under leadership o f PLG. Its major responsibilities are to: (i)provide Technical Advisory Groups. TAGs have been established to provide technical advise to the PLGs and advice in technical issues relevant to the project design, engineering, institutional, technical and financial feasibility and environmental impact; (ii)review technical specifications and project standards; (iii) participate in project monitoring, evaluation, and in the design o f research and extension, formulation o f training plans and appraisal o f scientific achievements; (iv) assist PMOs to carry out market surveys and analyses for the project areas; and (vi) support the coordination with line agencies and strengthen linkages with existing institutes for research, technical extension and consulting services in the project areas. The TAG would be represented by smaller groups at county levels to enable timely participation by beneficiaries. The TAGs are composed o f technical specialists and engineers from technical bureaus, cooperating research institutes, representatives o f Producers Associations, and other agencies involved in the project. The TAGs would be represented by smaller TAG groups at county levels to provide similar services. (See Section G C.3.) Investment Lending Committee. A provincial level committee has been established to make decisions on the loan financing for individual sub-projects under the Market System Development Component. The committee includes decision makers as well as representatives from the PPMO, the private sector, a state-owned commercial bank (ABC), and technical experts. The Committee will meet regularly, review and decide upon loan applications from enterprises, including agricultural product markets, which have been appraised successfully by the appraisal unit o f the PPMO. Based on this review, the board will decide upon the support for these investments. (See Section G C4.) ImplementationArrangements Phased Approach. The implementation of the project will be phased. While irrigation sub-projects and the activities under the other components are clearly defined in terms of technical standards, criteria and implementation procedures, only those approved for implementation in the first year are specified in detail in terms o f sub-project sites, scale, and detailed design and cost estimates. Activities for second year implementation will be prepared and finalized during the first year, those for the third year prepared and finalized in the second year, and so on. Specific site selection criteria is specified in the PIM. This approach would give sufficient flexibility in the implementation o f the project allowing for continuous adjustments o f project activities in response to change in policy and market environment, thereby contributingtowards better achieving the project objectives, -10-  Timing, Sequencing and Combining Project Activities. The integrated implementation approach requires that the timing, sequencing, and combining of the various component activities be carehlly planned to achieve the desired combined benefit. "Timing" is the time allocation to an activity for its completion and a specific point in time for its starting. "Sequencing" is the arrangement of the order of implementation for any two project activities (i-e., which activity comes first and which follows). "Combining" i s the combination of an irrigation sub-project and a group of project activities into a logical flow o f inter-related activities to achieve the desired optimum results. The timing, sequencing, and combining of project activities are elaboratedindetail inthe PIMalong with the definition of standards and criteria and description of proceduresfor the selection and inclusionof activities for implementation. Line Agencies. The main day-to-day implementation o f the project would be in the hands of the line agencies and the PMOs at provincial, prefecture, and county levels. The main responsibilities of the line agencies, in particular Water Resources Department and Agriculture Department, are: (i)to provide assistance in the areas of law and regulation, policy, technical specifications and standards; (ii)to review and comment on the overall design, engineering, technical, financial and economic feasibility studies, and environmental impact o f the proposedproject; (iii)to support and give guidance to the work of the PMOs, and supervise and monitor project implementation; and (iv) to provide technical support and information and give necessary training to the relevant staffs in the project areas. In addition, the Finance Bureau i s actively engaged in the project assuming the main responsibility for the financial aspects of project implementation as part of the PMOs. Cooperation (Work) Agreements between the PMO and the line agencies will be concluded (see Section G C.5.) D. Project Rationale 1. Projectalternatives considered and reasonsfor rejection: The alternative of not supporting Jiangxi's shift to a modern agricultural production system would cause increasing social and economic costs associated with stagnating agricultural productivity and increasing exposure towards external economic shocks while adjusting to WTO requirements. Therefore a number of alternative approaches to achieve the development objective of improving the livelihood of the rural population in Jiangxi were considered. Due to the overwhelming importance of agriculture for the rural population and the lagging development of this sector, the project has to focus on this sectors. Focused Scope. The possibility of carrying out a more narrowly focused project such as a (traditional) irrigation and drainage project, a research and extension project or a rural finance project was considered. These concepts were rejected on the ground that such approach is unable to satisfactorily address the comprehensive issues underlying a stagnated agricultural sector in Jiangxi. For instance, an improved irrigation system does not lead to a sufficiently high return unless new production techniques are applied; and higher value crops do not lead to higher profits unless they are well marketed. The complexity of the challenges in the agricultural sector can only be tackled through an integrated approach including infrastructure activities, farm productionimprovement, marketing and technology transfer. Agro-Processing Project. The option of a traditional agro-processing project was considered. However, the success rate of such projects or project components financed by the Bank has been low, mainly due to unclear ownership rights and poor management o f such enterprises. Another concern was that, given the monopolistic power of many of these enterprises, most o f the value-added generatedby the project may not go to farmers but mainly to the enterprise owners. While the need for support of ago-enterprises i s recognized, the project addresses this on a much smaller scale and only after careful appraisal of individual sub-projects during project implementation, and with an emphasize on the integration of this component with other activities, thus leading to increasedbenefits to farmers. - 11-  2. Major relatedprojects financed by the Bank and/or other developmentagencies(completed, ongoingand planned). Latest Si ervision Implementation Development Bank-financed Progress(IP) Objective (DO) Intensificationof agriculture. Jiangxi Ag. Development S S Project completed. - Integrated ag. production, use of SecondRedSoils Area Dev. S S marginal areas, ag. commercialization. Project - completed. Agricultural commercialization, Songliao Plain Ag. Dev. Project S S relevanceof gender. - ongoing. Sustainablemanagement of irrigation Yangtze BasinWater Resource: S S and drainage systems. Project - ongoing. Rehabilitation, extension, management IntegratedAgriculture S S of irrigation and drainage schemes IntensificationProject Intensificationof agriculture. Sichuan Ag.Dev, Project S S Intensificationof agriculture. HenanAg.Dev.Project S S 3ther development agencies UNDP - institutionaldevelopment, Mountain, River and Lake regionalplanning and training. Development and Control Project - completed. Japan improvement ofmedium and - IncreaseGrain Production low yielding grain fields. Rural Bank of Bangladesh rural micro Micro Financing GB Model - Project IandI1 - completed. financing experiment. Extension Project - ongoing. Germany - comprehensivewatershed Sust. Dev. inMountainous development. Areas inJiangxi I1 - ongoing. Improved seedbreeding, small field Jiangxi State Large Commodib irrigation and drainage, improvement of Grain Base Project. mediumand low yielding fields. Improvement of mediumand low Jiangxi Ag. Comprehensive yielding fields. Development Project. Water supply, electricity and road Jiangxi Poverty Alleviation ;onstruction. Project. PlDO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), I I (Highly Unsatii - 12-  3. Lessonslearned and reflectedinthe project design: The project design has benefitted from the Bank's extensive experience inagriculture and rural development inChinaand other countries around the world. More specifically, the project has built on lessons learned from, among others, the Jiangxi Agricultural Development Project, the Second Red Soils Area DevelopmentProject, the IrrigatedAgriculture Intensification Projects, the Yangtze Basin Water Resources Project, and the Sichuan , Henan, and Songliao Plain Agricultural Development Projects (ADPs). A number o f key lessons include: Government and Beneficiary Commitment. A key lesson from Bank financed projects in general i s that commitment by governments and the active participation o fbeneficiaries and stakeholders (village, township and county governments, and line agencies) in project implementation ensures smooth implementation, success and sustainability o f the project. The nature o f the proposed project requires that its design, preparation and implementation is driven by local entrepreneurial groups and individuals. The proposed project recognizes the need for considerable and sustained long term support of grass-roots organizations such as WUAs or farmers' marketing groups. This support includes both technical assistance through the project, and political support from the government. Benefits of Small Scale Investments. An important lesson leamt from the Irrigated Agriculture Intensification Projects i s that compared to large-scale new irrigation areas, investment to improve and expand existing irrigation facilities for smaller irrigation unit areas is less costly in capital investment, and benefits couldbe accrued in a relatively short period o f time. Beneficiary Ownership of Project. The experience gained from other recent irrigation projects in China provides strong evidence for supporting the formation o f SIDDs. In general, Bank-financed water projects in China show that the recovery o f investments, operating and maintenance costs through water charges and irrigators' ownership is key for project sustainability. The design o f this project therefore supports the "user pays" principle, and user (farmer) participation i s explicitly built into project planning, implementation and operation. The irrigation and drainage investments go in parallelwith support for institutional development and the establishment o f WUAs and WSOs. Integration of Infrastructure Activities with Income Generation Initiatives. Finally, the Implementation Completion Report (ICR) for the Sichuan ADP clearly reveals that the integration o f infrastructure investments with parallel income generation initiatives such as orchard and vegetable crop and livestock development provides a basis for highreturns on investments. Similarly, the ICR for the Henan ADP finds that the establishment o f an integrated system that links production, processing and marketing is necessary for the optimum utilization o f resources and maximum benefit and should be the preferred direction for future development for the agricultural sector. The reasons why some projects have achieved lower than expected retums to irrigation investments include, among other things, lower than expected response o fcrop yields; lack o fdiversification, i.e. the over-emphasis o fthe role o f rice as one crop amongst many which can contribute to household incomes; and the difficulties experienced by farmers in adapting their traditional practices to new technology and technical packages. This project addresses these concern by putting strong emphasize on an integrated approach which combines investments into infrastructure with those into improved and more diverse agricultural production, and the processing and marketing o f these products. Flow of Funds Monitoring. Flow of funds monitoring becomes particularly important in rural development projects where funds come from various sources and are widely disbursed. The project financial monitoring system has been designed to determine the exact timing o f funding needs, thus facilitating the provision of timely and adequate counterpart funds. - 1 3 -  4. Indications of borrowercommitmentand ownership: The Provincial Government of Jiangxi initiated the project and has worked jointly with the Bank's Task Team, the counties, and potential beneficiaries to develop its concept. PLGs, PMOS, and TAGSare in place, the Govemor of the Province i s heading the Leading Group and thorough preparatory work has been undertaken. In-depth discussions have been carried out with the project counties regarding the project concept and the counties and their respective finance bureaus have expressedtheir commitment inwriting to the Provincial Government. The provincial and county Governments have paid considerable attention not only to securing the necessary counterpart funds, but also to establishing a transparent system that ensures their timely and sufficient availability. 5. Value added of Banksupport inthis project: The project is designed to be a "second-generation" agricultural development project. It would give China the opportunity to pilot integrated market-oriented support to the agricultural system that is expected to substantially contribute to improve livelihoods of its rural population. In addition, Jiangxi does not have the financial resources of its neighboring coastal provinces, nor does it benefit from China's Westem Development Strategy. However, Jiangxi has a strong rural agricultural base with a great potential and comparative advantage ina wide range of agricultural and food products. In addition, it is relatively close to important domestic and international markets. Bank support for the project i sjustified through its mandate to lendfor development-oriented activities with a strong element of public goods, such as basic infrastructure, public information systems, training, extension, and research. Provision of these kinds of basic services inJiangxi will provide a firm foundation for future agricultural sector investments by the private sector. Furthermore, they will improve the utilization of scarce public resources (financial and technical) and create a basis for increased government revenuesfor future development. The Bank's extensive experience in this area would add value to the Borrower's efforts to provide an enabling environment for future economic growth in Jiangxi while accelerating the transition process of its agricultural sector into a modern social market economy. In particular, the project would promote and support: (i)ongoing institutional reforms necessary for demand-driven design and construction o f infrastructure and sustainable use of water resources; (ii)newproduction and processing technologies; (iii) better production management and provision of knowledge of commercial agriculture production and marketing to enable producers to respond to market demand; and (iv) a participatory project management approach basedon extensive international experience. In addition, Bank involvement can be instrumental in attracting the interest of domestic and foreign investors and of enhancing and coordinating the work of other donor organizations. It i s anticipated that the project would attract grant financing from other donors and the private sector, especially for some of the technical assistance components. Some activities have already been initiated and active discussions are ongoing with potential donors. E. Summary ProjectAnalysis (Detailed assessmentsare intheproject file, see Annex 8) 1. Economic(see Annex 4): Cost benefit NPV=US$ million; ERR = 17 % (see Annex 4) 0Costeffectiveness 0Other(specify) - 14-  General, Economic analysis has played an important role in identifying costs, benefits and risks, and in evaluating design alternatives duringproject preparation. An overall cost-benefit analysis was carried out for the Irrigation and Drainage and the Farm Production Improvement components combined. An area-based approach was used with farm models that define farmers responses to irrigation and land improvement investments. Projections based on detailed results for three pilot irrigation schemes provided estimates for the whole project area. Net present value (NPV) and Economic Rate of Return (ERR) were estimated for different scenarios of expected farm output mixes in project areas and sensitivity and risk analysis was carried out to determine the robustness of the estimates. It should be noted that each sub-project for rehabilitation and extension of irrigation and drainage sites will be subject to an individual economic appraisal before they are accepted for financing under the project. Moreover, while the types of investments under the Farm Production Improvement Component can be defined, exact allocations to different activities can only be determined in the process of community participation during project implementation. The economic analysis of the Market Systems Development Component i s based on the appraisal reports for those investments proposals that have been accepted for loan financing in the first project year. The loan for agro-processing investments or agricultural product markets account for more than 90% of the investments under this component. It should be noted, that only those investments will be financed that yield an expectedreturn of 20% or more. The ERR for the Irrigation and Drainage Component for the whole area covered by the project is estimated at 14%. While this is still satisfactory, it is significantly lower than the ERR for the three pilot areas. The detailed appraisal o f individual sub-projects will eliminate economically non-feasible sites and increasethe overall ERR o f the project. Moreover, the investments into irrigation alone are calculated only for transparency of the analysis. These investments provide the basis for improved farm production and have to be assessed together with them. The bulk of the investments under the Farm Production Improvement Component are decided upon by the farmer groups and farmers themselves, so that the investments cannot be determined indetail a priory. However, the economic analysis of Irrigation and Drainage with additional potential investments under the Farm Production Improvement Component based on conservative assumptions yields ERR of 17%. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = 16 % (see Annex 4) The overall financial returns for the combined Irrigation and Drainage and Farm Production Improvement Components are estimated at 16%. While this is lower than the economic returns - mainly due to the higher financial than economic labor costs, it is still satisfactory, in particular, taking into account the conservative assumptionsunderlyingthis analysis. Fiscal Impact: The loan is anticipated to have little net impact on the central budget since it would be on-lent to the province. Some positive impacts can be expected from an increased tax income due to greater economic activity. Similarly, a large part o f the loan would be onlent to beneficiaries. This portion of the project should have a very small direct impact on the budget since the sub-loans would be paid back by the beneficiaries. Direct budgetary costs will occur at the provincial and county levels since a substantial share o f the counterpart finds will be born at those government levels. By establishing self-sustained SIDDs, the project is expected to have a positive fiscal impact on provincial budget through cost savings from subsidies and transfer payments. Inaddition, by raisingthe value of marketable farm production output, the project i s expectedto have a positive impact through increasedagriculturaltax revenues. - 1 5 -  The major fiscal benefits would come from agricultural taxes, as a result o f higher yields and diversification of production. Taxes vary according to crops and products. For rice, cotton and vegetables, agricultural taxes depend on cropping area, therefore increases in yields would not affect the amount of taxes paidby farmers. Only changes in cropping pattern would have an impact. The situation is similar for oil crops. For other products, taxes vary according to value o f production. With the changes in cropping pattern assumed under the base scenario, the increase in sales of these products would generate an additional RMB 15.06 million o f agricultural taxes over the project period. This impact would be considerably larger, ifthe on-going tax-for-fee reforms are fully adopted inJiangxi. 3. Technical: General, Technical challenges o f the project vary among components. As a general principle, technical requirements used under the project will conform with or complement Chinese standards. The project will ensure fill implementation o f these generally high standards through its design and institutional set-up, various check and control measures, and its monitoring and evaluation system. In addition, the project would attempt to improve techniques and technical standards through experiences gained during implementation and specific TA. Technically, the main challenge o f the project is to retain its flexible approach that enables quick adjustments in the detailed design to adjust to changing markets. The flexibility has been integrated into the project design and its implementation guidelines. In addition, the Bank will carry out regular reviews in order to make structural changes inthe project possible. Irrigation and Drainage. The technical standards used inthe planning and design o f infrastructure works include: (i)assured irrigation in 4 out o f 5 years (80% irrigation assurance); (ii)sufficient drainage for evacuation o f 24-hr storm water with 10% probability o f occurrence (1 in 10 years) within 24 hrs; (iii) Class IV Road Standards for access roads and lesser standards for farm roads; and (iv) national technical standards for dams. The design and supervision of works will be carried out by a qualified engineering firm and quality will be controlled by an independent design institute. (Section G (2.6.). The national level legal framework for SIDD implementation is inplace, and still evolving. At local levels, there are still remaining issues to be addressed in terms o f how exactly to implement the various activities involved. The project will have to take a flexible approach in order to promote and support this process. Jiangxi Provincial Govemment has demonstrated great commitment in facilitating this process. The PLG will be instrumental inthis regard. The SIDD Manual provides guidance inthese issues. Farm Production Improvement. Detailed technical standards have been included inthe P I M (e.g. the use only of Grade 1 seed and seedlings, meeting recognized land quality standards for soil improvement - manure, straw inputs, and, where possible, basing fertilizer rates on soil testing and known standards for optimal plant requirements.) A Pest Management Plan (PMP) has beenprepared and will be implemented to ensure the technical requirement of integratedpest management. (Section GE.2.) Market System Development. The majority o f implementation standards under this Component are financial and institutional, which have been included in the implementation manual. Technical standards for the physical markets have been developed and included inthe PIM. The legal framework for farmers' associations in China is still very rudimentary. They are currently covered as social organizations with limited legal status. The project will take a flexible approach in order to promote and support firther progress in this area. Additional work on farmers' associations i s ongoing jointly with the Bank and the Development Research Center under the State Council. The project will closely follow recommendations from this study once available. - 16-  4. Institutional: General, Overall, Bank-financed projects in China have had a good implementation record. Areas to improve, per lessons leamed from other Bank financed rural development projects and in recent Bank Quality Assurance Group (QAG) reviews include: (i)monitoring and evaluation; (ii) procurement; (iii) financial management; and (iv) provision o f counterpart funding. These areas o f improvement have been addressed in the design o f the project. Project InstitutionalArrangements. The project's institutional and implementation arrangements are standard and well tried out to most Chinese projects. Based on experience, it is anticipated that project management (PLG and PMOs) will have to pay particular attention to coordination among line agencies and adequacy o f management funds at line agencies. 4.1 Executingagencies: The execution of the various project activities involve a large number o f bureaus and departments and require close collaboration and strong support of the key line agencies. For instance, the Water Resources Department will take substantial responsibility for executing the activities under the Irrigation and Drainage Component, and the Agricultural Department for those under the Farm Production Improvement Component, etc. Several o f the province's line agencies have been involved in implementation of other Bank-supported projects and are technically strong. However, coordination among these agencies has proved to be a pertinacious issue in project execution. This risk is mitigated by that the PMOs are located inthe PlanningCommissionand that the overall management ofthe project is guidedbyhighlevelPLGs at various government levels. Cooperation (work) agreements will be completed between the PMOs and the line bureaus and adequate managementfunding will beprovided to the line bureaus (Section G C.5.). 4.2 Project management: Keys in project management are the PLG, PMOs, TAGs and the Investment Committee. The PLG at the provincial level i s headed by Govemor of Jiangxi, which ensures highest level support for the project. Deputy heads o f the groups are the Directors o f the Provincial Planning Commission and the Provincial Financial Department. Other group members include high ranking representation from the other relevant line departments. Based on experience from other rural development projects, the full attention o f PLGs is key for smooth project implementation. While the PMOs are in place and active, their capacity will be further strengthened during implementation o f the project. PMO staff at all levels will receive specific training in project management (e.g. financial management, procurement, disbursement, monitoring, PRA methodology) in order to better meet the demands of the integrated approach o f the project. For the TAGs and the Investment Committee to be effective, it is necessary that their members are well recognized and experienced individuals. Also, it is imperative the adequate beneficiary representation is included (private sector and farmer households). The Bank will continuously review the effectiveness of these groups. 4.3 Procurement issues: (See Annex 6) Country Procurement Assessment Report. Issues identified in the Country Procurement Assessment Report (July 7, 1997) have been basically resolved or significantly diminished. All procurement under the Bank financed projects in China has been governed by the Bank's Guidelines for Procurement under IBRD Loans and IDA Credits and Guidelines for Selection and Employment of Consultants by World Bank - 17-  Borrowers, The Bank approved Chinese Model Bidding Documents for procurement of goods and works under International Competitive Bidding(ICB) andNational Competitive Bidding(NCB) proceduresare in mandatory use for all Bank financed projects. ChineseBiddingLaw and Local ProcurementRegulations. The Law on Tenderingand Biddingof the People's Republic of China became effective on January 1,2000 ensuring sound proceduresto be followed inprocurement and codifying the duties andresponsibilities ofprocurement agencies. Since developmentof the private sector in China i s still in its early stages, procurement procedures for the private sector and commercial practices are not documented. There are some inconsistencies between the Chinese bidding law/local procurement regulations and the Bank Procurement Guidelines in terms of procedures, in particular for procurement of civil works contracts. While the nationalprocurement laws and provincial regulations do not apply to the World Bank financed projects in China as specified in the Chinese BiddingLaw, they may impact Bank projects, Main issues to pay attention to are: (i)cost estimates are preparedbasedon mandatory but out-of-date norms and guidelines; (ii) bid preparation (20 days); (iii)bracketing is used for evaluation; (iv) a merit point shorter system (scoring system) i s used for bid evaluation; (v) bidding with less than three bidders can be cancelled. All these issues have beenaddressed inthe project's legal agreements and through the Ministry of Finance (MOF) NCB Guidelines which are currently beingprepared with the assistance of the Bank.The MOF NCB Guidelines will supersede the NCB procedures set out in the Bidding Law and other local procurement regulations. Another issue to be paid attention to i s the internal procurement review process, mainly for ICB. The involvement of the Machinery and Electric Product Import Review Office (MEIRO) of the Ministry o f ForeignTrade and Economic Cooperation (MOFTEC) inthe review process has been resulting in delays in the procurement process. MEIRO's function is to review biddingdocuments and bid evaluation reports for mechanical and electric equipment procurement. The World Bank Office in Beijing has been closely working with MEIRO and MOFTEC to improve their efficiency of the review processand help them better understandthe Bank's procurement procedures. However, the central and provincial review processeshave been incorporated into the preparation of the procurement plan of the proposedproject. Operational Procurement Review (OPR). An OPR report for China was completed in February, 2003. The basic conclusion o f the OPR is that, given the large size and complexity of the China portfolio, the number of issues that constitute intractable barriers to good procurement in the long run is small. Nonetheless, the problems identified are serious enough to warrant close attentionby both the Bank and the Government of China. These include weaknesses in procurement planning, use o f unrealistic cost estimates, poor technical specifications, incomplete design studies, inadequate procurement and project management capacity, sub-optimal procurement slicing and packaging, and potential conflicts of interest. Based on the recommendations made in the OPR ajoint Action Plan will be developed for China, Results of this actionplan will be incorporated to the extent possible into the project duringimplementation. Procurement under the Project. Most procurement under the project will involve acquisitions of small items and civil works. The procurement would generally follow the procedures of National Competitive Bidding, Shopping, Small Works, Direct Contracting, Force Account and Community Participation in accordance with the Bank's procurement guidelines. Contracts would cover construction o f access roads, upgrading o f irrigation facilities, on-farm works, farm production establishment, construction of physical markets and funding for rural enterprises, etc. In accordance with other Bank financed projects in China and to assist project implementation agencies in handling the procurement, model procurement documents have been developed for Small Works, Force Account Works, goods under Shopping procedures, and Community-Based Procurement procedures. A Procurement Management Manual, and a procurement plan have been drafted with the objective to provide detailed procedures for PMO staff to follow, minimize - 1 8 -  procurement delays and cost overruns. TA under the project will require various levels of consulting services and will follow the Bank's procurement guidelines for consulting services. The Bank's standard procurement covenants are included in the legal agreements. (See Section GA.6.) Procurement Management Capacity. Lessons learned from previous Bank financed rural development projects in China demonstrate a variety of potential procurement problems. E.g. unless the quality of the designated staff and the filing and management system i s adequate, the procurement of agricultural inputs might lead to substantial delays and, since agriculture is dependent on season and weather, to substantial implementation problems. However, the PPMO has experience with Bank procurement from the Jiangxi Agricultural Development Project and the Yangtze Flood Emergency Project. Review of past experience has shown that procurement in general has been implemented quite well in term of advertising, bidding documents, bid evaluation, contract award and contract execution. An assessment of the procurement capacity of the various levels of PMOSwas carried out during preparation (October 2001, updated in March 2003 and July 2003) in accordance with Bank's requirements identified no significant procurement problems. Potential weaknesses in procurement management identified during this assessment, and recommended actions are describedinAnnex 6. 4.4 Financial management issues: Country Financial Accountability. In general, China is in good compliance with the Bank's financial managementpolicies and procedures. Challenges exists inthe areas of internal financial control procedures, the reporting system, and staffing. A formal country financial accountability assessment (CFAA) has never been carried in China. However, the Chinese government made substantial improvements in the areas of public expenditures, accounting and auditing in China. It strongly supports a strong financial management system in Bank financed projects and has laid the foundation for compliance with Bank policies by issuing several national laws, including the revised "Accounting Law of the People's Republic of China" and the "Audit Law of the People's Republic of China." In 1997, MOF issued a document "Provisional System for Financial Reporting under the World Bank Financed Project", which specifies the procedures for financial management as well as financial reporting for all project implementation entities. The establishment of a financial management systemunder all Bank financed projects i s now standard practice. Simplifiedfinancial reports have beenagreedupon by the Bank and the government and have been used for all Bank financed projects in China appraised after July 1, 1998. In addition, MOF issued "The Regulation on Accounting and Reporting for the World Bank Financed Project in China" in early 2000. These regulations were jointly prepared by the Bank and the government. Project accounting and reporting software developed for Bank-financed projects in China is also available. Project Audits. Auditingquality inBank financed projects inChina has improvedsignificantly and isnow quite satisfactory. Audits have, on occasion, reveal cases of misused project funds, thus enabling the Bank to address financial management issues at project level more forcefully. No outstanding audits or audit issues exist with implementing agencies involved inthe proposed project. Jiangxi Provincial Audit Bureau has been identified as the auditor for the project. This provincial level agency and its local chapters will cany out the audit fieldwork. The audit reports will be issued by the provincial audit bureau under the guidance and supervision of the China National Audit Office. In addition, the intemal audit department already establishedinthe provincial finance bureau will provide intemal audit function for the project. (See Section GA.2.) Financial Control and Accountability. The availability of timely and reliable financial information is essential in enabling monitoring of the project's progress toward its objectives. The financial management capacity o f the implementing agencies of the project has already been strengthened during project preparation and would be further increased through specialized training at the start of the project. The -19-  provincial audit bureau has been actively involved in the preparation of the project and assisted in the design of the financial control and accountability system. The provincialaudit bureau will continue to play an important role duringimplementation of the project. An assessment o f the financial managementsystemand its capacity was carried out inNovember 2001and updated in December 2002 per requirements of the Bank's OP 10.02. The assessment revealed no major weaknesses and concludes that the financial management system under the project will be adequate to provide, with reasonable assurance, accurate and timely information on the status of the project in the reporting format agreed with the Bank. Summary of this assessment and recommended actions are described in Annex 6. The record and accounts keeping is covenanted in the legal agreements (see Section GA.1) Choice of IBRD Loan Instrument. MOF would on-lend IBRD funds to Jiangxi Province on the same terms as the IBRD Loan to the Borrower. Jiangxi together with MOF has chosen the standard US$-denominated variable-spread loan as the IBRD loan instrument (see LA, Art. Io.The reasons for this choice are this instrument's lower interest and administrative costs. On-Lending Arrangements, Flow of Funds (including Counterpart Funds) and Loan Repayment. On-lending agreements would be signed between the various Government levels of the Province, i.e. Provincial Finance Bureau, Prefecture Finance Bureaus, and County Finance Bureaus. Either the county finance bureaus or rural finance institutes, e.g. RCCs, would act as financial agents. Repayment for goods and services of public nature would be made by the government at the county level or, in case of province-wide benefits of such goods, at the provincial level. The financial responsibility for project activities which are of private nature, would be passed on to individual beneficiaries (enterprises and households) under varying on-lending terms for different project activities. The following general guidelines have beenagreedupon: (1) loans will be denominated inlocal currency and no foreign exchange risk would be handed down to the final beneficiaries. Theforeign exchange risk would be borne by the Province (see Section G A.3.); (2) the interest rate of the loans would be fixed at the time of contract signing and cannot be changed over the course of the repayment period; (3) the cost of a loan is expressed in terms of one uniform interest rate, Le. any other costs (fees and charges) have to be converted into a mark-up o f the interest rate; (4) the maturity of sub loans will depend on the repayment capacity of the borrower and the returns from the investments. The detailed onlending terms and conditions are summarized in Table I below and have been specified in the PIM and component implementation manuals (see Section G A.3.). Water charges will be used to recover operations and maintenance (O&M) andpart of the loan (see Section GA.5). Commonly, Bank financed rural development projects in China experience serious delays in the provision o f counterpart funding hindering timely project implementation. The participating counties' financial situation and ability to provide counterpart funds has been assessed and will be closely monitored by the Provincial Finance Bureau. The overall counterpart find requirement for the project i s about 1/3 of the total project funding. Detailsfor sources of funds for the various activities have been agreed upon and are included in the PIM. Repaid loans that have not yet fallen for repayment by the counties to the province would be used for similar activities to the project (see Section G A.4.). To facilitate the monitoring o f counterpart fundprovision, a computerized financial monitoring system will be active before the project will start disbursing. In particular, this system will provide accurate information regarding the timing o f the need for counterpart funds. As the implementation o f the project will involve very large numbers of loan agreements between County Financial Bureaus andbeneficiaries, the M I S will also include a loan tracking module. This would allow for sound control of the recovery of the loans. - 20 -  Table 1. OnlendingTenns and Conditions Repaymnt County (grace; Repaymnt Interest Prov. Pref. (&below) (YO) maturity) Sched. rate (YO) Irrigation and Drainage Damsafety review (and rehabilitation,ifneeded) 20 Rehabilitationand expansionof existing irrigation areas, idaccess Primaryandsecondary dikes Rehabilitationand expansionof existing irrigation areas, incl.access Tertiary dikes 0 Training andestablishment of WUAs andWSOs 10 rovementloans IFarmersgroups TA 30 I I I * grantsto thebeneficiaries(enterprises,leadinghouseholds,markets) which are reimbursableby IBRDand repayableby Government -21 -  5. Environmental: Environmental Category: B (Partial Assessment) 5.1 Summarize the steps undertaken for environmental assessmentand EMP preparation (including consultation and disclosure) andthe significant issues and their treatment emerging from this analysis. EnvironmentalImpact Assessment. An environmental impact assessment (EIA) o f the project has been carried out in parallel with project preparation. The EIA has: (a) screened the project to the most appropriate review and approval option; (b) established a reliable environmental baseline against which to measure future change; (c) established environmental objectives, standards and performance indicators; (d) identified additional environmental project design features; (e) identified benefits and residual impacts or risks (i.e. those that cannot be avoided or mitigated); (f) developed an environmental monitoring and mitigation plan with a schedule and triggers for action; and (g) provided guidance to more detailed planning and implementation. (See also Annex 12) Anticipated EnvironmentalImpacts. The environmental analysis of the project indicates that it would have no major direct negative impact on the natural environment. The overall objective and design o f the project suggest that the net environmental impact o f the project, if successfully implemented, will be positive and that any negative environmental effects will not be irreversible or long-term. The project would bring environmental benefits, through a more efficient use o f natural resources. The rehabilitation and institutional reform o f existing irrigation and drainage schemes would lead to more efficient use o f water, which would reduce incidents o f water logging and salinity threat. Other positive impacts are expected through the farm production improvement and marketing components, which would address issues like soil erosion, soil fertility, nutrient leaching, and promote environmentally sustainable agricultural production (including Integrated Pest Management) and marketing practices. The project, in general, will have a positive impact on the socio-economic conditions o f the farming communities by improving their livelihood through increased purchasing power. The most substantial negative environmental effects o f the project can be expected from a more intensive agricultural production, which might involve higher use o f fertilizer andpesticides. The project inits design will put strong emphasis on mitigating these effects by introducingmore efficient application techniques to farmers. Most importantly, the project would support integrated pest management (IPM), including: (a) managing pests (keeping them below economically damaging levels) rather than seeking to eradicate them; (b) relying, to the extent possible, on non-chemical measures to keep pest populations low; and (c) selecting and applying pesticides, when they have to be used, in a way that minimizes adverse effects on beneficial organisms, humans, and the environment. Other potential negative impacts include a possible increase in the incidents o f schistosomiasis within the project counties in the perimeter o f the Poyang Lake and Yangtze River, and to a much smaller scale, noise or pollution o f construction sites, increased transportation under the project, and increased waste disposal on agriculturalproduct markets. 5.2 What are the main features o f the EMP and are they adequate? To prevent or reduce the adverse direct andindirect environmental impact ofthe project as identified inthe EIA report, an Environmental Management Plan (EMP) has been developed to provide a plan to implement the identified monitoring and mitigation measures. The EMP also provides a budget estimate, manpower needs and trainingkapacity building requirements in order to ensure efficient implementation of the EMP. For activities under the Market Systems Development Component not yet designed in detail, the EIA and EMP spells out detailed environmental assessment procedures to be followed prior to clearance of such activities (see Section GE.I.) - 22 -  The Environmental Management Plan (EMP), developed as part of the EIA, is based on the highest standards of the Government of China. The content i s consistent with the corresponding Bank policies and includes: (i)recommendation of feasible and cost-effective measures to prevent or reduce significant negative environmental impacts to acceptable levels, including proposed work programs, budget estimates, schedules, staffing and training requirements, and other necessary support services to implement the mitigating measures; (ii)identification of the needs of institutions to implement environmental assessment recommendations, including staffing, authority and capability, organization and management, and knowledge and experience on environmental issues; and (iii) preparation of detailed arrangements for the monitoring of implementing mitigating measures and the impacts of the project during construction and operation. A detailed training program for all people involved in the environmental monitoring and mitigation program, including environmental inspectors and other county and provincial level environmental staff has beenpreparedand budgetedinthe EMP. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: 11/12/2001 The project has been categorized in Environmental Risk Category B and Safeguards Risk Category S2. The ratings were given on the basis that the project only involves works in existing schemes and mainly involves rehabilitation of these works. This category i s consistentwith guidance given in GP 4.01 Annex l(b) and is consistent with recent practice in the East Asia Region on projects of similar scope. Adverse impacts, if any, are expected to be localized. Environmental issues which may be encounteredunder the project can be managed with knownmitigationmeasureswhich are defined inthe EMP. The EIA has been carried out by a local institute (Jiangxi Provincial Environmental Protection Research Institute) who is certified to undertake environmental impact assessments according to Chinese regulations. A Bank contracted consultant worked closely with the EIA team to advise them in their work. The EIA work is fully in line with the highlyparticipatory preparationapproach of the project. An inception report including a detailed work plan and outline of the EIA report was prepared and submitted to the PPMO and the Bank before any work started. A first draft of the EIA was completed in mid-September 2001 and submitted to the Bank for review. It was distributed to all project-affected groups and other key stakeholders (as identified by the Social Assessment team) to be used as an element and background for project appraisal. A final EIA report, which takes into account the feedback from all stakeholders, was submitted and reviewed in December 2001. The EIA has been disclosed through the Bank's InfoShop and by the Borrower inJiangxi. 5.4 How have stakeholdersbeenconsulted at the stage of (a) environmental screeningand (b) draft EA report on the environmental impacts and proposedenvironment managementplan? Describe mechanisms o f consultation that were used and which groups were consulted? Inorder to seek local support, to increasetransparencyand accountability to the public, to reachconsensus with various stakeholders, and to enhance ownership of the environmental management and the project, participation of beneficiaries and other stakeholders was of crucial importance in the environmental assessment process. Inorder to keep all beneficiaries informed, the EIA Terms of Reference (TOR) were sent to the libraries withinthe affected communities for review and comment by the interestedparties. Noticeswere issuedand were put up on notice boards. Newsmedia including local newspapers, television and radio were also used extensively to inform all beneficiaries and potentially affected people within the areas of project impact about the plannedenvironmental study, and their inputwas sought actively. - 23 -  A separate Beneficiary Participation Manual was prepared in close cooperation with the EIA (see 6.2 below) and established the means and mechanisms by which project beneficiaries would participate in a meaninghl way in project implementation. All consultations were appropriately recorded. Training and capacity building are proposed as part of the project to enhance the Borrower's ability to implement the project in a participatory manner. 5.5 What mechanisms have been establishedto monitor and evaluatethe impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? Monitoring is an important part of the environmental assessment process throughout project implementation. Detailedarrangements(including costing) for monitoring the impacts of the project during construction and operation and implementation of any mitigating measures has been preparedas part of the EMP in the EIA report. Training and institutional strengthening will ensure that environmental monitoring will be carried out with participationof all stakeholders inthe project. Environmental monitoring indicators are included in the regular monitoring reporting such that they fully reflect and follow the objectives of the EMP. All environmental inspectors and county level environmental staff will be trained as part of the training programs identified in the EMP on identification of project enviroiunental monitoring indicators and triggering points 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. Social Assessment. The Social Assessment (SA) of the proposed project is a continuing process that is focusing on issues that directly and indirectly impact the key stakeholders in the project. The range of issues that were addressed by the SA include, but are not limited to: (a) affordability concerns; (b) land security; (c) inclusion; (d) access to employment, credit, irrigated water, and land; and (e) social cohesion and community decision-making. (See also Annex 11). In addition, a structured statistical baseline survey was carried out to assess the socio-economic situation of the targeted populations. The following summarizes the key social issues relevant to the objectives of the project, which were identifiedby the SA, and specifies the project's social development outcomes. Socio-Economic Situation of Project Beneficiaries. The majority o f the directly targetedbeneficiaries of the project are farm householdswhich farm inpoorly irrigatedand drained areas andare primarily from the poorer strata o f rural society. Their subsistence depends to a high degree on rice and other food produced on the approximately one mu o f land they have per household member. Crop production is frequently complemented by animal husbandry activities such as raising pigs or chickens, and off-farm employment adds significantly to household income. The availability o f effective drainage and irrigation i s of crucial importance for the livelihood of these families, since it enables them to grow a second or even third crop, to reach higher yields, and to become engaged inthe production of higher-value (cash) crops. Other beneficiaries and stakeholdersinclude: (i) farm households inother areas of the project counties who could benefit from the market system development, training, extension, and other project activities; (ii) employees, managers and owners of agro-enterprises; (iii) parts of the population (consumers of food other products); and (iv) government officials and employees inthe project counties. - 24 -  Religious and Linguistic Composition. Followers of Chinese folk religion-that amalgam of Buddhism, Taoism and ancestor reverence-are prevalent among the population in the project areas. A small minority i s Christian. The project areas in the north and central parts of Jiangxi speak the Gan ldialect of Chinese, while most o f those inthe southernproject counties speak Hakka, another Han Chinese dialect. Ethnic Composition. Over 99% of all residents in the directly affected project areas are of Han nationality; only small numbers of the She, Yao, Li, and Huiminorities are resident there. The She, mostly recent migrants from Zhejiang Province to the east of Jiangxi, live fairly dispersed throughout the project areas, and are basically acculturated to Han pattems. The Yao are mostly concentrated in the southeast of Jiangxi province, in the counties adjacent to Guangdong, and have maintained both their residential segregation and their Yao cultural distinctiveness. There is one significant Yao village in the project area, "Yaoshan," where the local Yao are mainly engaged in hunting, timber felling, com, potato and taro planting and the collection of mountain forest products. The proposed project is paying particular attention to this village in its design by allocating funds for infrastructure and small-scale loans and by providing additional support with the help o f the Women's Federation. Social Structure in Villages, Historically, clan organizations were ubiquitous in rural communities of Jiangxi. Today, the project areas can be classified into three types in terms of their social structure: (i) in accord with marriage relations; (ii) village organization; and (iii) degree of clan influence on internal the community affairs. In some areas, the clan elders are the key decision-makers, while in other areas, local entrepreneursor local cadre are equally important, ifnot more so. The project villages have been classified according to social structure to facilitate beneficiary participationinproject implementation. Level of Education and Health Services. As elsewhere in China, all levels of governments are trying to achieve universal elementary school enrollment. Nevertheless, mainly for financial reasons, some problems o f low enrollment rates and highdrop-out rates inbothjunior and senior high schools remain. Medical and public health institutions and villagers' access to medical treatment are of overall satisfactory quality. However, some medical apparati are outdated and women report severe gynecological problems. Most importantly, fees for health services are often not affordable by farmers and other rural dwellers. Status of Women. The status of women in Jiangxi has improved considerably over the last decades. Today, most women actively participate in decision-making on major family matters. However, inequalities still exist. Women are generally less well educated than menand work inrelatively low-paid positions. Due to seasonal out-migration of middle-aged men and younger (both male and female) workers, many farm households are headed by women and a large share of the farm work is carried out by women. This feminization o f agriculture in Jiangxi means that women make up a very large part of the targeted beneficiaries o f the project. Attitude Towards Project. Through Participatory Rural Appraisals (PRAs), fanners and other key stakeholders have shaped the project from the concept stage onwards. The integrated nature o f the project with a strong emphasis on irrigation and drainage infrastructure reflects the preferences o f the great majority of farmers. The participatory approach of the project throughout preparation and implementation will contribute to improvedproject managementand to addressingremaining concerns such as assuringthe equity of the loan distribution process and the integrity of the financial administration of the project by local authorities, as well as operating and maintaining irrigation and drainage areas at a consistently high level of delivery. Social Development Outcomes. The project aims at improving the social situation in the villages and townships by increasing farmer households' access to infrastructure, information and training resources, by increasing their participation inpreparation, implementationand operation and maintenance o f investments, by mitigating social tensions between farmers and local officials, and by improving the status o fwomen. - 25 -  6.2 Participatory Approach: How are key stakeholdersparticipatinginthe project? General. The "bottom-up" approach of the project was initiated through PRAs carried out in July 1999. Duringlater preparation, another roundof PRAs were carried out as an integralpart of a SA process.This approacho f SA will continue during implementation. Beneficiary Participation Manual. The nature of the project requires close involvement of the beneficiaries in the detailed design of the various project activities. In order to "streamline" beneficiary participation, a Beneficiary Participation Manual (BPM) has been prepared (Section G 0.3.). The purpose of the BPM is to describe in detail and formalize the consultation and participation process with affected and beneficiary groups. As such, it is a strategy for allowing stakeholders to influence and share control over the decisions and resources that affect them. The BPM is viewed as a working document that i s modified to reflect any changes in the project andor in the economic and social conditions. The BPM: (1) identifies the project's main stakeholder groups (beneficiaries in general, women in particular, government leaders, academicians, and any other groups that would be affected by the project (2); summarizesthe types o f activities project householdsand affected groups are involved in at differentpoints inthe project life cycle for each ofthe components; (3) describes the extent ofparticipationbyhouseholds and affected groups, and (4) the forum and means for participation. The lowest level of participationwill take place at the village community level where the beneficiaries will select the household FarmProduction Improvement activities through PRAs. The procurement and monitoring of the activities would be community basedas well. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? The project is actively promoting the formation of farmer's organizations which through their active involvement in project implementation would increase project impact and sustainability. Under the Irrigation and Drainage Component, WUAs will be established. Farmers will: (i)participate in finalizing irrigation and drainage scheme layouts, including on-farm systems; (ii)contribute to irrigation investment; (iii)participate in construction; (iv) pay water charges; and (v) be responsible for operating and maintaining on-farm irrigation and drainage facilities. In addition, it is anticipated that such groups would expand their activities beyond irrigation and drainage to other closely related economic areas. Reservoir management bureaus and township water conservancy stations responsible for operation and maintenance of existing irrigation areas would also be involved in the implementation of irrigation sub-projects, and their functions and responsibilities will be re-oriented as WSOs. Their capacity and capability would be strengthenedto carry out the functions and responsibilities of WSOs. The projectwill also support andpromote farmer productionand marketing groups. Inorder to improve the project's targeting of women and female-headed households, the project works with the provincial-level Women's Federation. Under a Women Development Sub-component, women in local Women's Federation branchesget training infacilitating women's access to project activities. 6.4 What institutionalarrangementshave been provided to ensure the project achieves its social development outcomes? As the project has been designed with a community-driven focus, the institutional arrangementsto ensure that the project achieves its social development outcomes are incorporated into the project design. The main tool to ensure this i s the BPM. Targeted project activities such as the Women Farmer and Ethnic Minority Development activities have beendesignedto generateincreasedsocial development outcome. - 26 -  6.5 How will the project monitor performance interms of social development outcomes? Just as for the environment, monitoring o f social performance is an important part of the social assessment process throughout project implementation. Detailedarrangementsfor monitoring the social impacts of the project have been prepared as part of the SA process and includedin the SA report and will be part of the regular monitoring reports. A quantitative/qualitative baseline survey has beenprepared for monitoring purposes. Continuos follow-up monitoring of the baseline survey households will be carried out by an independent local institute in cooperation with project beneficiaries. In addition, the BPM establishes a feedback mechanism that allows project beneficiaries to influence the implementation o f the project. Implementation arrangements of the project are designed in such a way that it can easily respond to ongoing monitoring and evaluation findings. The BPM has also established information dissemination mechanisms(inthe context of a Project Communication Strategy) through which stakeholders can receive continuous information on the projects social impact. 7. SafeguardPolicies: Natural Habitats (OP 4.04, BP 4.04, GP 4.04) 0Yes 0No Forestry (OP 4.36, GP 4.36) 0Yes 0No Pest Management (OP 4.09) 0 Yes 0 NO Cultural Property (OPN 11.03) 0 Yes 0 NO IndigenousPeoples (OD 4.20) 0 Yes 0No Involuntarv Resettlement(OP/BP 4.12) 0 Yes 0No Safety of Dams (OP 4.37, BP 4.37) 0Yes 0No Projects in InternationalWaters (OP 7.50, BP 7.50, GP 7.50) 0Yes 0No 7.2 Describe provisions madeby the project to ensure compliance with applicable safeguardpolicies. EnvironmentalAssessment: see Section 5 above. Natural Habitats. Final sub-project designs will be amended to prevent any impacts on natural reserves and will be reviewed by the Bank prior to implementation. No project works will take place in natural reserves or within bufferingzones of natural reserves.The detailed designs for project activities will be such that natural habitats will not be impacted. Procedures for environmental reviews for final plans have been developed in the EMP (see Section GE.I.) Pest Management. One potential negative impact o f the project could be expected from a more intensive agricultural production that might cause an increase in non-point source pollution through increased usage o f pesticides. The project would mitigate this by supporting integrated pest management (IPM), including: (a) managing pests (keeping them below economically damaging levels) rather than seeking to eradicate them; (b) relying, to the extent possible, on non-chemical measures to keep pest populations low; and (c) selecting and applying pesticides, when they have to be used, in a way that minimizes adverse effects on beneficial organisms, humans, and the environment. A Pest Management Plan, acceptable to the Bank will be implemented (Section GE.2.). - 27 -  Cultural Property. At preparation, it was considered that there was a possibility that cultural heritage could be damaged due to the project, the main threat being the removal o f earth for construction purposes. For this reason, a Cultural Heritage Desk Study was carried out by the Borrower. Based on the outcome o f this study, a full Cultural Heritage survey was determined not to be needed for any project county or site. However, the study will be distributed to all implementing agencies to raise the awareness about risks to cultural heritage under the project. Moreover, training will be provided to the construction teams for the rehabilitationand extension o f irrigation and drainage sites to raise their awareness and teach them how to proceed incase any items with cultural heritage significance are found. IndigenousPeople. While the number of minoritiesinthe project area isvery small, some She, Li,Huiand Yao do reside there. Given this situation, a social assessmentwas carried out to learn more about and from these minorities and to recommend to the Borrower and the Bank as to whether a minorities-targeting development plan needed to be devised. It was determined that current conditions for the "She" nationality and the "Yao" nationality warranted such a plan, as the appropriate approach for the application o f OD 4.20 to the project to ensure that indigenous people benefit from project activities and to avoid or mitigate potentially adverse effects on indigenous people caused by project activities. The Multi-Nationalities Development (MNDP), which: (i) identifies and describes the minority population in the project areas; (ii) specijes the development requirements for minorities in project implementation, wasprepared and is part of the overall implementation plan of theproject (Section GE.4.) . Involuntary Resettlement. Some project activities such as construction o f roads, canals, and market places might make unavoidable the permanent or temporary acquisition o f land that is used by individual farm households or communities. Although at the time o f project appraisal no such land acquisition (or any kind of involuntary resettlement) was identified, a Land Acquisition Framework has been prepared incase such resettlement or land acquisition would occur during project implementation. This Framework is part the overall implementation plan of theproject (Section GE.3.) Safety of Dams. Only rehabilitation o f existing reservoirs will be hnded under the project. However, about three-quarters o f the irrigation districts tentatively included for rehabilitation and construction under the project are served by reservoirs. According to Chinese national regulations relating to dam safety and consistent with World Bank guidelines on Dam Safety, existing dams serving irrigation areas which will be rehabilitated under the project would be subject to safety review in accordance with procedures acceptable to the Bank if such dams exceed 15 meters inheight or other dams subject to dam safety review for safety concerns. Furthermore, other dams o f more than 10 meters in height and with a reservoir storage capacity o f 1 million cubic meters or more are also subject to Dam Safety Review Guidelines. Finally, all other dams will be subject to regular inspections. The dam safety reviews, and strengthening o f dams where necessary, wouldbe financed, on top o f project financing, by various sources o f government funds. Safety reviews shall be carried out prior to any irrigation rehabilitation and construction. Jiangxi Province has good knowledge and capacity in implementing project in accordance with OP 4.37. Jiangxi has had a number o f projects including large-scale irrigation works that have triggered the policy. A Dam Safety Review Management Plan for the project has been prepared and is part of the overall implementation plan of theproject (see Section GE.5.) Disclosure. The EIA, MNDP, and Land Acquisition Framework have been disclosed through the Bank's InfoShop and by the Borrower inJiangxi. - 28 -  F. Sustainability and Risks 1. Sustainability: The overall success of the project depends upon a continuing stable macro-economic environment and the Government's political commitment to private sector development. Whereas continuing liberalization of markets and internationaltrade are critical in terms of China's WTO membership, possible devaluation of local currency may hinder the borrower's ability serve its loan obligations. On the other hand, future liberalization of financial markets (e.g. commercial interest rates) may improve farmers' and agricultural producers' access to credit resources. Three main factors are critical to project sustainability. First, institutional sustainability is important, and i s being pursued by building consensus on the project design among a wide range of stakeholders and adopting a participatory process. Most o f the implementing institutions are at the local level and only strong participation o f all stakeholders during planning and implementation can bring long-term sustainability to project investments. Second, selection o f irrigation areas would be based on economic incentives for farmers to participate. The selection o f irrigation sites would be based on the potential for increased crop yield and potential of production of higher-value products arising from reliable water supply and better maintenance. Only those areas would be selectedwhere the incremental value of farm output are greater than the costs for farmers to participate inW A S ,basedon existing farm productionsystems. Third, a high level o f ownership of the planning and implementation process by project beneficiaries is critical for the project success. For example, the sustainability of the investments into productive infrastructure (e.g. irrigation, drainage, etc.) depend upon the functioning of the relevant resource users' associations, being able to generate revenues for operation and maintenance and organize members to contribute labor. Implementation of project investments and activities will thus go inparallel with capacity building at the local level through a participatory approach. Particular attention would be paid to putting inplace practical arrangements for operation and maintenance (O&M), and in this context, supporting the beneficiaries inbuildingcapacity to take on this responsibility. - 29 -  2. Critical Risks (reflecting the failure o f critical assumptions found in the fourth column of Annex 1): Risk Rating Risk Mitigation Measure N Traininghapacity buildingto achieve integrated not leadto improved product quality and approach of ag. dev., includingbetter ag. higheragricultural value added. technology, differentvarieties, and marketing. Lack o f participationof farmers inW A S M Implementation of IrrigationComponent i s and positive collaborationbetweenWSOs basedon participationby farmers; TNtraining for stakeholders; political support from PLGs. Legislation supportive of SIDD N National-level legislation advanced; strong provincial support for SIDD and project. Low adoption rate o fnew technologies N Techn. packagesconsistent with farmers' skill and technical packagesby farmers. leveldneeds; trainingiextension to build confidence innew prod. techniques/activities. Availability and quality of technical M Strengthenedservice provisionby public assistance and extension services agencies through establishmentof links between continues to be limited centers of technical expertise at all levels. Farmers may not be able to pay back the N Appropriate cost-benefit criteria for establishedactivities; training to private&public sector agents to ensure financial feasibility. From Components to Outputs Lack o f timely and sufficient availability S Commitment from provinciaYloca1govemments of counterpart fundingat (central,) to contribute resourceshave been obtained; provincial and local levels. detailed arrangementsfor allocationand channeling of funds ina timely manner to implementation entities are specified. Unqualified staffwould be appointed to M Close involvement of project staff during projec implementproject activities. prep.; capacity buildingprior to project start-up training/TA during implementation. Procurement delays and cost overruns, M Realistic PIM; adequate attention to project inadequateproject management managementorganizations; execution of strict capability, contractor weakness, excessive pre-qualificationcriteria for civil works contractual claims. contracts. Overall Risk Rating M Risk Rating H (High Risk), S (Substantial Ris I, M (Modest Risk), I [Negligibleor Low Risk) - 3. PossibleControversialAspects: The participatory approach of the project and the handing-over of responsibilities to W A S ,WSOs and other grass-roots organization i s potentially controversial at the local level. However, most officials recognize that this approach is in line with national policies and will improve the situation for the local rural areas as a whole. -30 -  G. Main Loan Conditions 1. Effectiveness Condition Standard Conditions 2. Other [classify according to covenant types used in the Legal Agreements.] A. Procurement and Financial Covenants A.1. Records and Accounts. Project will maintain adequate project records and accounts, including with respect to withdrawals made on the basis of statements of expenditures. (PA Article 111, 3.01.(a), LA, Article IV, Section 4.01,, (a)(g-(iig). A.2. Audits. Jiangxi shall have annual audits of the province's and all project counties project accounts (including Special Account) by independent auditors (this excludes county-level audit bureaus) basedon terms o f reference acceptable to the Bank. (PA Article 111,3.01.(b), LA, Article IV, Section 4.01., (b)(i)-(iii)). A.3, OmLending Arrangements for Beneficiaries. Onlending arrangements for beneficiaries shall take place according to the Project Implementation Manual and various project implementation manuals, The foreign exchange risk would be bornby the Province. (PA, Schedule 2, B, 6(a)-@), 8, 9, 11, 12, 14. A.4. Sources of Funds. Details for sources of funds for the various activities have been agreed upon and are included in the PIM. Repaid loans that have not yet fallen for repayment by the counties to the province would be usedfor activities similar to those of the project. (PA, Schedule 2, B, 14(d)). AS. Water Charges. Water charges shall be collected and used to recover operations and maintenance and part of the sub-loan. Water charges shall be reviewed at regular intervals. (PA, Schedule 2, B, lO(a)-(C)). A.6. Procurement. Goods and works shall be procured in accordance with the provisions of Section Iof the "Guidelines for Procurement under IBRDLoans and IDA Credits." Consultants' services shall be procured in accordance with the provisions of the "Guidelines: Selection and Employment of Consultants by World Bank Borrowers." (LA, Article III,Section 3.02, PA, Section 2.02 and Schedule 1). B. Reportingand Monitoring Covenants B.1. Management Information System. Project will implement and maintain a management information systemacceptable to the Bank. (PA, Schedule 2, A, 6.). B.2. Proiect Monitoring. Project will implement and maintain adequate policies andprocedures to enable to monitor and evaluate the impact of the project on an ongoing basis, in accordance with indicators satisfactory to the Bank. This monitoring includes independent social and environmental monitoring. (PA Schedule 2, C2 and 3). B.3. Reportina. The PPMO shall prepare and furnishto the Bank semi-annual reports for the physical, financial, social and environmental aspects of the project inaccordance with outline and terms o f reference acceptableto the Bank. (PA, Schedule 2, C3). -31-  C. ProjectManagementand Coordination C.1. Proiect Leading Groups (PLGs). Project shall maintain throughout project implementation, provincial, prefecturekity and county level PLGs in accordance with terms of reference acceptable to the Bank. (PA, Schedule 2, A, 1(a)-@)). C.2. Proiect Management Office (PMOS). Project shall maintain throughout project implementation, provincial, prefecturekity and county level PMOSin accordance with terms of reference and staffing acceptableto the Bank. (PA, Schedule 2, A, 2(a)-(b)). C.3. Technical Advisory Groups (TAGS). Project shall maintain provincial and county level TAGS,throughout project implementation, with qualified members under terms of reference acceptable to the Bank. (PA, Schedule 2, A, 3(a)-(b)). C.4. InvestmentLending Committee. Project shall maintainthroughout project implementation, an Investment Committee under terms of reference acceptable to the Bank and comprising members with qualifications acceptable to the Bank. (PA,Schedule 2, A, 4.). C.5. Design and Supervision of Irrigation and Drainage Works. The quality of design and works will be supervisedby an independentdesign firm or institute. (PA, Schedule 2, A, 5.). D.Project Implementation D.1. Proiect Imulementation Manual. The project would be implemented in accordance with the Project Implementation Manual, including Procurement Management Sub-Manual, Community Procurement Sub-Manual, Financial Management Sub-Manual, Beneficiaries Participation Sub-Manual, Irrigation and Drainage Sub-Manual, SIDD Sub-Manual, Farm ProductionImprovement Sub-Manual, and Enterprise Lending Sub-Manual. (PA, Schedule2, B, 6). D.2. Annual Work Plans. PPMO shall prepare in a participatory manner an annual work plans for the Bank's prior review. (PA, Schedule 2, B, 7(a)-(b)). D.3, Beneficiary Participation. Project shall be implemented according to the Beneficiaries ParticipationManual agreedupon with the Bank. (PA, Schedule 2, B, 5.). D.4. SIDD Develoument. Project shall carry out SIDD development in accordance with national guidelines, and procedures acceptable to the Bank. (PA, Schedule 2, B 9(a)-@)). D.5. Market Svstems Development. Project shall implement the market system development programs for the financial support to agro-enterprises and leading households and for the agricultural product markets in accordance with the provisions of the enterprise lending sub-manual. Jiangxi shall prepare, in accordance with guidelines satisfactory to the Bank, and furnish to the Bank not later than December 31,2004, a proposed time-bound action plan for the carrying out of programs to promote farmer marketing groups and provide support for marketing research, marketing information services and promotion of quality standards under Parts C.3 and C.4 o f the Project, and thereafter, carry out said action plan as shall have been approved by the Bank. (PA, Schedule 2, B, 14,15.) E.Environmental,SocialandBank'sSafeguardPoliciesRelatedCovenants E.1. Environmental Monitoring and Management Plan. Jiangxi shall implement an Environmental Monitoring and Management Plan, acceptable to the Bank, in a manner satisfactory to the Bank. For investment sub-projects o f the Market Systems Development Component, the Project will carry - 32 -  out environmental screenings in accordance with guidelines satisfactory to the Bank, and thereafter incorporate adequate mitigation measures into the relevant sub-project. (PA, Schedule 2, B, l(u)-(Z~)). E.2. Pest Management Plan Jiangxi shall implement an integrated pest management plan acceptable to the Bank, in a manner satisfactory to the Bank. (PA, Schedule 2, B, I(c)). E.3. Resettlement and Land Acquisition. Jiangxi shall carry out the Project in accordance with the Land Acquisition and Resettlement Framework. (PA, Schedule 2, 5, 2(a)-(4). E.4. Indigenous People. Jiangxi shall implement the Multi-Nationalities Development Plan (MNDP), consistent with World Bank Operational Policy for Indigenous People, in a manner satisfactory to the Bank. Jiangxi shall not amend, waive or modify the provisions of the MNDP without the prior concurrence of the Bank, and said national minorities communities. The canying out o f the program for the minority nationality villages under part B.4(b) of the Project will be specified by a time-bound action plan, acceptable to the Bank and prepared by Jiangxi by December 3 1,2004. (PA, Schedule 2, B, 3(a)-@), 13). E.5. D a m Safetv. Project will be implemented in accordance with the Dam Safety Review Management Plan, acceptable to the Bank, the Chinese national regulations relating to dam safety, and consistent sith 'A'orld Bank Operational Policy for D a m Safety. (PA, Schedule 2, B, 4(a)-@)). H. Readiness for Implementation 1. a) The engineering designdocuments for the first year's activities are complete and ready for the start o f project implementation. r? 1. b) Not applicable. 2. The procurement documents for the first year's activities are complete and ready for the start o f project implementation. 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. 04.Thefollowingitemsarelackingandarediscussedunderloanconditions(SectionG): I. Compliance with Bank Policies 1. This project complies with all applicable Bank policies. 02.ThefollowingexceptionstoBankpoliciesarerecommendedforapproval. Theprojectcomplieswith j&2z+ ~~~~~ M a r k D.Wilson YukonHuang Sector ManagerlDirector Country ManagarlDirector - 33 -  Annex 1: Project Design Summary CHINA: Jiangxi IntegratedAgricultural ModernizationProject Key Performance Data CollectionStrategy Hierarchy of Objectives indicators C ssumptio ISector-related CAS Goal: ector Indicators: jectorl country reports: rom Goal to Bank Mission) Achieve sustainablegrowth in verage net income of 'eriodic income, production 0 Govemment will rural incomes. articipatingprojecttownships ind consumption statistics; continue to focus on Jmparedwith non-project md poverty reports reports. rural development. wnships increasedby end of Agricultural income roject. 0 generation activities will provide significant contributions toward improving the livelihood inrural China. Project Development htcome I impact ?om Objective to Goal) ~~~ ?reject reports: Objective: idicators: To establish integrated, Iifference between project Eomprehensive monitoring 0 Stable macro-economic economically and ndnon-project households in md evaluation(M&E) environment. environmentally sustainable :rms of: reports; baseline and 0 Continued political and market driven 0 Growth in on-farm subsequent household and commitment to private agricultural production income (%). company surveys camed out sector development. systems focusing on 0 Growth infarm output under the project; and 0 Liberal trade regimes on productivity and highquality value per mu(RMB) domestic household and local (county, province) agricultural output. 0 Increase o f yield o f enterprise surveys. and international level. crops (t/ha). 0 Product value share o f 3 most important products as indicator o f diversification 0 Increase o f volume and variety of sales o f local seed companies I 0 Increase in sales volume o f local agro-enterprises I 0 Farmerloan/ agro-enterprise repayment rate 0 Water fee collection rates 0 Quality o f irrigated lanc. - 34 -  from Outputs to Objective) ~~~~ Atput from each utput Indicators: 'roject reports: mponent: omponent 1: Irrigation B Number o f constructed 0 Project progress reports. 0 Improved irrigation and id Drainage: Adequate and and rehabilitated 0Bank supervision drainage systems will lead stainable irrigation water irrigation and drainage missions. to increased productivity. pply and drainage systems. schemes. 0Monitoring and 0 Active participation of D Number of constructed evaluation reports. farmers in WUAs and and rehabilitated farm 0Farmer household positive collaboration and field roads. surveys. between WSOs and B Land area with adequate 0ICR. W A S . irrigation and drainage 0 Legislation supportive o f (ha). SIDD development. Numberof farm households benefiting from reliable irrigation and drainage systems 0 Number o f WSO and WUA established and operational. :omponent2: Farm 0 Number o f households 0 Sufficient interest and roductionImprovement: benefiting from willingness for farmers to icreasing the quantity, investment funds. adopt new products and uality and diversity o f farm 0 Number o f women headec production technologies. roduction. households participating Quality technical inthe project and assistance and extension receiving funds. available on need. 0 Number o f minority 0 Farmerhave capacity to nationality households repay loan participating inthe project and receiving funds 0 Area o f land receiving one-time fertilization. 0 Number o f new types anc varieties o fcrop, 0 Number o f on-farm fish ponds established 0 Number o f livestock (and type) purchased 0 Number o f research proposals submitted, reviewed, and awarded. 0 Number of onfarm case studies for applied research implemented. 0 Number o f demonstratio; sites established. 0 Numberof farmers activity centers established. - 35 -  Number o f logged technician visits to villages and households. Household satisfaction withtechnicianvisits (wiextension services). 0 Number (and man days) o f technicians trained and their degree o f satisfaction with the training. 0 Number (and man days) o f farmers trained and their degree of satisfaction with the training. 0 Number of public information campaigns to educate farmers (including in marketing) developed and implemeted. :omponent 3: Market 0 Number o f agricultural B Removal of trade ystem development: markets constructed impediments 'armers better able to take 0 Number o f agricultural (inter-county, dvantage o f market markets rehabilitated inter-province) lpportunities 0 Number of appraised 0 Sufficient numbero f rural enterprise activities. market intermediaries 0 Number o f financed rural enterprise activities. 0 Number o f leading household enterprise activities appraised and financed 0 Number of functioning farmers marketing group, established. Zomponent 4: Project 0 Number o f meetings o f 0 PLG and TAG actively Management,Monitoring and the PLG. involvedin project Evaluation: 0 Number o f meetings o f implementation 3evelopand strengthenoverall theTAG . 0 PMOSat all levelsare able xoject implementationcapacity to attractand maintain )fprojectmanagementoffices 0 Number of PMO staff qualifiedstaff on a full time md participatingcommunities. trained. (project basis. management, 0 Operationalsupport from procurement, financial key govemment agencies management, etc.). providedto PMOS 0 Progress reports/annual 0 Beneficiary groups are implementation plans indeedallowedto have prepared on schedule. effectiveinputto project implementation,monitoring 0 Statistical and financial analysis carried out o f th andevaluation. - 36-  results and impact. e Budget versus Actual delivery o fproject inputs and outputs. e Number of M&Eoutputs and their use in adaptive management. e Number of environmental indicator monitoring reports. e Numberoftechnical/ economic indicators, reports of their measurement & their use e Number and coverage of surveys and inventories carried out by scale. e MISsystem usedas a management tool. e Management changes resulting from monitoring information. - 37-  I iierarchy of Objectives *eject Components I puts: (budgetfor each ,eject reports: +om Componentsto .Ib-components: Imponent) Iutputs) rigation and Drainage: SS83.17 million b Project progress reports. 0 Timely and sufficient Rehabilitation and I Bank supervision reports. availability o f counterpart expansion o f existing b Disbursement and funding. irrigation areas, reimbursement data 0 Qualified project including construction of B Project ICR. management staff access and farm roads. assigned and maintained. 0 Training and 0 No substantial establishment o f W A S procurement delays and and WSOs. cost overruns. arm Prod. Improvement: rSS45.21 million 0 Strong farmer interest in e Soil fertility project activities. improvement. e Smooth cooperation with 0 Training, extension and line agencies, in applied research. particular Water e Farm production support. Resources Bureaus e Support to Women and including water Ethnic Minority Farmers ilarket Systems Dev.: JS$21.I million 6 0 Management stations. Supportto 0 Adequate investment agro-enterprises and decision analysis. leading households. e Support to ag. product markets. 0 Marketing assistance grants for promotion o f quality standards and market inf. systems. 0 Promotiono f farmers marketing groups. 0 Marketing advise. 'roject Management, yTSS3.44 million rlonitoring and Evaluation: 0 Project Management 0 Strengthening o f PMO system. 0 Monitoring and evaluation system. 0 Establ. o f community advisory groups. - 38 -  Annex 2: Detailed Project Description CHINA: Jiangxi IntegratedAgricultural ModernizationProject The Jiangxi Integrated Agricultural Modernization Project would achieve its objective through an integrated approach o f (i)rehabilitation and extension of existing irrigation and drainage systems; (ii) improvement of farm production; and (iii)market systems development. The activities under these components are integrated, i.e. they are built on each other and generate a joint benefit that would not be achievable if the individual activities were implemented separately from each other. A consequence of this approach i s that most of the activities are closely linked to the geographical area of the irrigation schemes. Inaddition, the integrated approachwould be achievedthrough careful planning of timing, sequencing and combining of the various activities and components. Another important feature o f the Project i s the active participation of beneficiaries in preparation and implementation. This means that farmers would be actively engagedin the design of irrigation schemes, the formation of water user associations, the choice o f farm productionactivities, the improvement of market systems, etc. The implementation o fthe project would be phased. While project activities are clearly defined interms of standards, criteria and implementation procedures, only those approved for implementation inthe first year are specified in detail in the PIM in terms of location, scale, detailed design and cost estimates. Activities for second year implementation would be prepared and finalized during the first year, those for the third year - inthe secondyear, and so on. This approachwould give sufficient flexibility inthe implementation to allow for adjustments of project activities in responseto changes in the policy and market environment, thereby contributingtowards better achieving the project objective. By Component: Project Component 1 US$83.17 million - Irrigation and Drainage Component. The Irrigation and Drainage Component provides the base for modemizing agricultural undertakings in any chosen irrigation and drainage scheme. Baseline surveys in the project counties identified inadequatewater supply and poor drainage as the most significant constraint for improved agricultural production and diversification. Investment is also justified because: (i) irrigation investments benefit all farmers in the project area, particularly the poorer farmers who are often the most disadvantaged in terms o f gaining access to irrigation supply. Irrigation investments therefore contribute towards social stability; (ii) Jiangxi i s a designated rice production area and a large proportion of farming population has to produce rice to fulfill production quota and for own consumption. By enhancing agricultural production capacity, irrigation investments contribute greatly towards food security; (iii)irrigation investments are long-term investments, for which IBRD loans can be utilized to advantage; (iv) the economic return to investments in irrigation and drainage is attractive; even with the current low agricultural prices, financial analyses demonstrate that the results are robust and that irrigation investments are less prone to risk compared with other investments inthe agricultural sector. The specific objectives of this component are to: (a) ensure sustainable use o f land and water resources for irrigated agriculture (including improving irrigation water use efficiency); (b) increase agricultural productivity; and (c) demonstrate a model of tertiary irrigation development and operation and maintenance for agriculture modemization. Active farmer's participation would be a distinct feature of the component. Farmers would: (i)participate in the preparation and finalizing of irrigation and drainage systems layout and on-farm irrigation and drainage systems; (ii) contribute towards irrigation investment; (iii) participate in irrigation construction; (iv) be responsible for paying water charge; and (v) be responsible for operating and maintaining on-farm irrigation and drainage facilities. -39 -  A total o f about US$83.17 million or about 55% of total project investment have been allocated to the Component. About 70,000 ha (about 1million mu) would be covered at an estimated average unit cost of RMB 680/mu (about RMB 10,000 or US$1,200/ha), including the establishment and operation of W A S and WSOs, dam safety review, design and construction, and training costs. Based on an average area of irrigated landof 4.5 muhousehold, about 230,000 householdsor one million people would benefit directly from this component. Two sub-components can be identified: Phvsical Works WS$81.87 million). Would include rehabilitation and completion of irrigation and drainage systems, provision of on-farm irrigation and drainage facilities including land smoothening, access and farm roads. Dam safety reviews would be carried out of multi-purpose and irrigation storage dams feeding the project irrigation works in accordance with Chinese legislation and consistent with the Bank's guidelines on Dam Safety. Considerable emphasize would be put on a high quality design and implementation o f the Component. A detailed design of the rehabilitation and extension of the irrigation systems would be undertaken by a qualified institutes based on hydrological and geological data, andbased on the demand expressedby the water users. These institutes would also be responsible for the supervision of the works. Institutional Support (US$1.30 million). In parallel to the physical works, the component would support the sustainable operation and maintenance of the infrastructure through training and establishment of water user associations and water supply organizations in line with the general concept of Self-Managed Irrigation and Drainage Districts (SIDD) with the view to ensuring continued use of irrigation and drainage works completed under the project. Water user's associations established in line with the concept of SIDD would be the vehicle used for farmers' participation in the implementation o f the irrigation and drainage component. At the initiation of each irrigation sub-project, water user's association comprising beneficiaries of the sub-project would be established. Reservoir management bureaus and township water conservancy stations responsible for operation and maintenance of existing irrigation areas would also be involved in the implementation o f irrigation sub-projects, and their functions and responsibilities would be re-oriented as water supply organizations. Their capacity and capability would be strengthened to carry out the functions and responsibilities of water supply organizations. Project Component 2 US$45.21 million - FarmProductionImprovementComponent. The Farm Production Improvement Component largely builds on the Irrigation and Drainage Component. The improved infrastructure provides the foundation for the production of greater quantities and better qualities of products and for the diversification of production. The specific objective o f the Farm Production Sub-component is to support agricultural productionbased on ,irrigated and drained land, including: (a) irrigated field crops; (b) livestock (pigs, chickens, ducks, geese); (c) small-scale on-farm fish production; and (d) upland crops. The Component would be targeted to farmers who also benefit from the Irrigation and Drainage Component, and it would include the following sub-components: (i)soil fertility improvement; (ii)training, extension and applied research; (iii)farm production support, and (iv) support to women and ethnic minority farmers. The preliminary cost estimate (including contingencies) for the component is about US$45.37 million or 30% o f total project investments. The number of households directly benefitingfrom the Farm Production Improvement Component is estimated to be 250,000, the vast majority of which would have already received support under the Irrigation and Drainage Component. - 40 -  Soil Fertility Imurovement (US$2.75 million). This sub-componentaims to improve the soil fertility inthe area of improved irrigation and drainage, mainly through one-time fertilization with lime and/or phosphate fertilizer, About 10% of the total project area under irrigation rehabilitationwould require such treatment. Fertilizer would be applied immediately after the irrigation and drainage of the area has been rehabilitated. The costs are estimated to be RMB 175/mu. Farmers are expected to provide the labor to apply the fertilizer as their counterpart contribution, and as part of a larger loan including also the irrigation and drainage works, would repay the loanwhich finances the purchase of the fertilizer. Training, Extension, and Applied Research (US$3.75 million). Training and extension system capacity buildingare key interventions to develop the farmer skill base to add value to the irrigation and drainage, and farm production investments. The activities under this sub-component are proposed to include: (a) training of county and township technicians, farmers; (b) training of Training Program Managers in the PMO system who will plan and implement an integrated training program, oversee the preparation o f training manuals, training information, and develop networks of information providers and technical, marketing and business expertise appropriate to the needs o f the project beneficiaries and project staff; (c) training and extension equipment to improve delivery of extension services; (d) field demonstration sites; (e) farmer activity and training centers; and(9applied on-farm research. Approximately 200,000 households would receive technical training, including those receiving only irrigation and drainage investments as well as those receiving investments under the Farm Production Support Sub-component. Training activities would be timed to precede on-farm production investments. The content of the training would be well targeted to the needs of the farmers, and include subjects such as integrated pest management and business advise. Advise on marketing will also be integrated into the delivery of training and extension services. Farm Production Support (US$38.03 million). The objective of this sub-component is to support agricultural production based on irrigated and drained land. Production activities would include: (a) irrigated field crops; (b) livestock (pigs, chickens, ducks, geese); (c) small-scale on-farm fish pond development; and (d) irrigated upland crops grown. While the type of activities under this component are defined, the final choice would be made based on community participation by farmer groups and farmers themselves. To ensure the integrated nature of the project, only households that have invested in the Irrigation and Drainage component would be eligible for support under this sub-component. The funds allocated under the Farm Production Support sub-component will have to be repaid by the beneficiaries. Households would be able to use the funds on investment items which are according to their own particular situation and farm development strategy. An estimated 100,000 households or about 40% of all households benefiting from the Irrigation and Drainage component would be supported under this sub-component. All beneficiary householdswould have received training under the Extension and Training sub-component. The average investment per household would be about RMB 3,500, with a recommended range in household investment of about RMB 2,000-10,000. Support to Women and Ethnic Minoritv Farmers (US$0.68 million). The objective of this sub-component i s to ensure that women participate actively and benefit from the project. While all activities under the project are designed in a non-discriminatory manner, women and women-headed households, which constitute a considerable proportion of the targeted population, might nevertheless be disadvantaged by default. The Jiangxi Provincial Women's Federation will play the leading role in its implementation, Provincial, county, and township level Women Development Facilitators would be appointed and trained. The WDFs, in close cooperation with the PMOS, would work with women farmers in the project areas ensuring that they have sufficient access to training, extension, and loans under the Farm Production Support sub-component, and other Project activities. Inaddition, earmarked funds would be made available to people inthe Yaoshan village, a village inhabited by people of Yao minority. -41 -  Project Component3 US$21.16 million - Market SystemDevelopmentComponent. While the Irrigation and Drainage Component and the Farm Production Improvement Component would lead to production o f more andhigher quality products, the Market SystemDevelopment Component would provide support in connecting the farmer to the suppliers and to the markets. The Market System Development Component will remove bottlenecks and improve skills, procedures and equipment in the marketing system. As the market system is improved, it will provide greater opportunity for farmers to increase their incomes as they can gain from improvedmarket opportunities, improved decision-making and improved price formation processes. This is particularly important for the smallest farmers who will, under the Project, be producinga marketable surplus, maybe for the first time. The specific objective of the Market System Development Component is to increase farmers' access to markets, add value to farm products and to ensure efficient processing and delivery of highquality products from producers to consumers. The Component will focus on activities that add value to the investments in irrigation and drainage as well as those inagricultural production. The Component consists of the following sub-components: (i)long-term loans (3 - 7 years) for fixed asset investments of agro-enterprises and leading households; (ii) long-term loans for the construction and rehabilitation of agricultural product markets; (iii)promotion of quality standards and improvements in market information systems; and (iv) promotion of farmers' marketinggroups. Proposed investments under this Component amount to about US$21.16 million or about 14% o f total project investment. They will address participating project counties and townships with a focus on enterprises and activities located in project areas as defined in the other two project components and/or involving products produced by householdsparticipatinginthe other project components. Suuuort to Agro-Enterurises (US$12.68 million). This sub-component aims at increasing farm value added - -directlyorindirectly-byremovingbottlenecksandbystrengtheningdistributionandago-enterprises in a competitive market-economy environment. Under this sub-component, successful rural entrepreneurs or leading households in the project area, either providing farm inputs (seeds, feedstuff, chicks, piglets, fish fry etc.) or processing and marketing farm outputs, would be able to finance investments which are both financially and economically viable and beneficial to the targeted farmer population. Five investments out of about fifty proposals have been screened and appraised for implementation in the first year. Future proposals, submitted through the county PMOs, will be appraised during the course of the project by the PPMO and decided upon by a provincial decision-making body (Investment Committee) representing stakeholder interests. A detailed description of the lendingand loan administration procedures are included in the "Enterprise LendingManual". The Manual comprises a detailed description of the lending and loan administration process, includinga loan application form, eligibility criteria, screening procedures, lending terms, appraisal and due diligence methodologies, financial forecasting applications, decision making and disbursement procedures, reporting and monitoring arrangements, and loan repayment and arrears managementprocedures. The PPMO will have an overall responsibility for managing the lending process. It will closely cooperatewith County PMOs, Financial Bureaus and the ABC network. The loanmaturities will vary between3 - 7 years (in case of agricultural product markets they can be longer) and will be tiedto actual project profitability and cash flow requirements. Permanent working capital increase would only be financed in connection with fixed asset investments. ABC has expressed its interest in financing the seasonal working capital requirements of the projects, and in assisting the PPMO in due diligence procedures. - 42 -  Agricultural Product Markets (US$7.00 million). This sub-component aims at improving the agricultural marketing system by renovating, upgrading and construction of agricultural product markets, and thereby increasing farmers' access to markets. Inaddition, projects under this sub-component have to be financially self-sufficient and economically feasible and implemented under sound institutional structures of the investing entities. Priority will be given to rehabilitation investments and to investments in light-weight, low-cost structures providing affordable rental space for farmers and traders o f farm products. The markets should provide an efficiently managed and functional physical and service infrastructure for farm households and small traders, and serve as models for other similar projects. In terms o f appraisal of investment proposals, and decision-making, the sub-component is a window of the "enterprise lending facility." Additional guidingprinciples specific to this sub-componenthave beenestablished. Market Development Assistance (US$0.22 million) This sub-components aims at adding further value to the investments made under the Market Systems Development Component by providing market development support to various entities. Eligible activities would include (i)strategic market studies, to be carried out by experts which could help enterprises to assess their potential on various markets; (ii) investments into testing and grading equipment; (iii)enterprise specific training programs; (iv) quality management and quality certification system development; and (v) the purchase of relevant equipment needed for the market information dissemination activity. Promotion of Farmers' Marketing Groups (US$1.27 million). A large number of farmer's groups already exist in Jiangxi, but many of them are not of a type or status conducive to commercial gain for members. Inaddition, organizations exist at Provincial levelthat support group marketing, althoughtheir contact with farmers is very limited. This sub-component will support the formation of groups amongst small farm households. This will require several years of training and technical assistance. Following formation o f stable groups, project funds would be made available to these groups for loans for market-related investments such as equipment for post-harvest, packaging and other value-adding treatments, transport and storage. Project Component4 US$3.44 million - Project Management, Monitoring and Evaluation. A total of about US3.44 million or about 2% of total project investment have been budgeted for the Component. The objective of this Component i s to develop and strengthen the overall project implementation capacity of project management offices and promote effective community participation in project activities. The component includes: (a) project management; (b) strengthening of the provincial, prefecture/city and county level PMOS (goods and training); (c) establishment of a monitoring and evaluation system that includes environmental and social indicators (technical assistance and training); and (d) establishment ofcommunity advisory/participation groups (technical assistance andtraining). - 4 3 -  Annex 3: Estimated ProjectCosts CHINA: Jiangxi IntegratedAgricultural ModernizationProject Local Foreign Total Project Cost By Component US $million US $million US $million Irrigation and Drainage 58.77 14.69 73.46 Farm Production Improvement 31.25 7.81 39.06 Market SystemsDevelopment 14.79 3.70 18.49 Project Management, Monitoring and Evaluation 2.59 0.65 3.24 Total Baseline Cost 107.40 26.85 134.25 Physical Contingencies 6.12 1.53 7.65 Price Contingencies 8.87 2.21 11.08 Total Project CostsI 122.39 30.59 152.98 Front-endfee 1.oo 1.oo Total Financing Required 122.39 31.59 153.98 Local Foreign Total Project Cost By Category US $million US $million US $million Works 97.42 24.35 121.77 Goods 8.47 2.12 10.59 Services 9.11 2.28 11.39 Training 2.48 0.62 3.10 Miscellaneous \a 4.91 1.22 6.13 Total Project Costs1 122.39 30.59 152.98 Front-endfee 1.oo 1.oo Total Financing Required I 122.39 I 31.59 1 153.98I \a Including management budgets for woman coordinators, ethnic minority village development activities, PMO operations, working capitaland incrementaloperatingcosts for marketandrural enterprise development. Project base cost i s expressedin December 2002 prices and the exchange rateused to convert base cost and physical contingencies is RMB 8.30 to US$l. Physical contingencies are basedon an average rate of 6.5% for costs under Irrigation and Drainage component, 5% for all other costs except these under Project Management, Monitoring and Evaluationcomponent where no physical contingencies have been applied. Price contingencies for costs incurred in foreign exchange are estimated based on an annual international price index of: 2003 2004 2005 2006 2007 2008 3.6% 3.7% 3.5% 2.0% 1.1% 1.6%. Price contingencies for costs incurred in RMB are basedon an annual domestic price index of: 2003 2004 2005-2008 1.6% 2.0% 2.8% - 44 -  Project Cost by Componentand ImplementationYear \a Component 2003 IAnnualImplementation I by Value (`000 yuan) 2004 I 2005 I 2006 2007 I 2008 1 Total \a Total may not addup due to rounding. I Identifiabletaxes andduties are 0 (US$m) and the total project cost, net of taxes, is 153.98 (US$m). Therefore, the project cost sharing ratio is 64.94% of total project cost net oftaxes. - 45 -  Annex 4: Cost BenefitAnalysis Summary CHINA: Jiangxi IntegratedAgricultural ModernizationProject Summary of Benefits and Costs: Benefits. Direct Income Increase. The greatest direct benefits will mainly go to farm households with a lack of efficient irrigation and drainage. I t i s expected that by improving the reliability of irrigation water supply and drainage facilities would increase average crop yields in the project areas by 10to 30% under normal weather conditions. It is expected that incremental increase of farm production, whether it comes through changes incropping pattems higher yields, will be sold on local markets for cash. Employment and Labor Productivity. Improvement of agricultural productivity and diversificationfrom traditional rice production to higher value cash crops and integrated livestock production will result in higher labor demand in rural areas and increased labor productivity. Diversification of farm production activities and development of all-season production activities (Le. fish and greenhouse vegetables), would increase labor demand in the off-season. The project would create short-term direct employment opportunities through hiring contractual labor for irrigation works during the off-season period. It is also expected that the development of post-harvest and marketing services available to farmers will generate additional employment opportunities inthe medium- and long-term. Food Security and Risk Reduction. Farmers in the project area face threats both from drought and flooding. The project area faced on averagethree dry years and two flood years over the last ten years, with paddy yields reduced on average by 25% on a dry year and by 23% on a flood year. Rehabilitation of irrigation and drainage systems would limit yield decrease to less than 10%. Moreover, diversification o f farm production systemswould reducethe reliance on rice for farm incomes and vulnerability to grain price fluctuations. This, combined with improved access to markets and better market information, would help farmers to make better production decisions, that would reduce further farmers' income variability. Environmental Benefits. The major environment benefits will result from improved water conservation, as a result o f improved irrigation infrastructures and institutional reforms (establishment o f W A S )and better agricultural inputs management, through the Farm Production Component. Improved water management in existing irrigation and drainage schemes would reduce water logging and salinity threat. The Farm Production Component would address, through extension and training of farmers, issues of soil fertility and promote sustainable agricultural production (including Integrated Pest management), The Marketing Component will promote quality standards inthe food chain ,including food safety, and address the demand for "greener" products. Social Benefits. The project will empower local communities by promoting farm households' participation in the management of natural resources and agricultural services through supporting the establishment of farmer-driven resource user associations ( W A S )and marketing and trade groups. The establishment of independentand all inclusiveself managedwater user groups, will promote equal access to water resources and improve social cohesion in rural areas. The promotion o f emerging informal farmers groups, through support to farmers' marketing groups, will also contribute to improve farmers organization capacity and control over the food chain. The project would promote gender equality by empowering woman who do often the most of the farm work while men seek employment in urban areas. Women are, therefore, expectedto be the main beneficiaries of the project. - 46 -  Approach of Economicand FinancialAnalysis Economic analysis has been carried out for the Irrigation and Drainage Component and the Farm Production Improvement Component combined. The majority of economic benefits to communities will occur at the clearly defined irrigation area. The project economic analysis will focus thus on area analysis, where the feasibility of the various interventions is assessed through evaluating the change in the value of farm production from the whole irrigation area, where various project activities enter as inputs that influence the total value of final farm output. The financial analysis would be based on farm household and enterprise models, which integrate investments into irrigation and drainage infrastructure and farm production improvement, and quantify then beneficiaries' expectedresponses to these interventions. Economic Rate of Return (ERR) and Net PresentValue (NPV) were first estimated for the Irrigation and Drainage Component only, assuming a "no change in cropping pattem" scenario, where incremental net output value will result only from increased yields, with marginal changes in operating costs. Net output values have been calculated for four pilot irrigation sites and for the whole project area. This represents the conservative lower bound estimated economic benefits, which was used to analyze the robustness of economic and financial feasibility of irrigation investments. Next, ERR and NPVs were estimated for the combined irrigation and drainage and farm production investments using crop budgets, which integrate mutually beneficial interactions among various activities and expected changes in cropping pattems as a response to investments into productive on-farm infrastructure. On farm produced by-products and intermediate products are valued at economic prices only if they are replaced by traded products. This avoids double-counting of project benefits. Shadow prices have been calculated for the main tradable outputs and inputs. The incremental net economic benefits are derived from comparing the "without" and "with project" net value of production from the four pilot sites and the whole project area. Main Assumptions: Prices. All economic and financialprices are converted to local currency at the prevailingexchangerate of Yuan 8.3/US$. The analysis i s expressed in constant 2001 prices. Results and conversion factors are presented in table (number). World market reference prices have been calculated for the major traded products such as rice, cotton, oil crops and fertilizers. Annual average rice prices have bottomed out in 2001, representing a 50% drop since 1996. Commodity markets prospects indicate that prices should stabilize and increase again in the coming years. The average rice price over the last five years has therefore been usedas a conservative estimate of rice price. For all other products financial prices observed inthe project area have beenused. For farm labor andunskilledlabor a conversion factor of 0.8 has been applied to the average wage rate o f Yuan 15/day, which reflects the opportunity cost of labor (existence of surplus labor) in the project areas. For irrigation water .an average charge of Yuan 20/mu has been used. For irrigation and drainage works, a conversion factor of 1has been usedfor equipment and materials. Crop Models and EconomicNPVs. The discount rate of 12% is used as an opportunity cost of capital and projections are made over 20 years. The net value of production for the major crops, fruit, livestock and fish production, is shown in budget models, presenting the inputs and outputs in physical and value terms. Crop models have been calculated for areas with 80% ensured irrigation and drainage (Type I), efficient irrigation and drainage systems (Type 11),andpoor irrigation and drainage systems (Type 111). At project level (21 counties), it was assumedthat the distribution between these three categorieswas 40% for Type I,20% for Type 11, and 40% for Type 111, based on the average observed inthe pilots schemes and first estimates by project counties. The models reflect the differences in performance of crops and other activities depending on irrigation and drainage conditions and production pattem as a result of,farm production improvement investments. A total o f 11 budget models covering the major crops in irrigated - 47 -  schemes have been prepared. In addition, 5 livestock and fish budget models covering the main livestock and fish production systems associatedwith crops inirrigatedschemes have beenprepared. Cropping pattern and land use. Rice represents about 66.5% of the total cropping area, oil crops 12% (mainly rapeseed), cotton 6%, vegetables 5%. Other crops include fruit, estimated to cover 1% of the project cropping area, watermelon (l%), traditional medicinal plants (l%), (0.7%), lotus (0.3%). mulberry Total number of pigs in the project area is estimated to be 570,000 (2 pigs per household on average), chickens 2.8 million, ducks 1.4 million and geese 350,000. Cattle i s mainly used as draught animal and sharedby households. Under the project, the total rice cropping area is expectedto slightly diminish (while part of the single-crop rice areas would be converted to double-cropping), and vegetables, fruit, lotus, and watermelon cropping areas would increase. To evaluate the combined benefits o f irrigation and on-farm production investments, a 50% increase in cropping area over five years for vegetables, hit, watermelon, and lotus i s assumedas a base scenario, resulting from the conversion o f less than 10%o f the rice cropping area over five years. An increase of 10% of the rapeseed cropping area is assumed, as improved irrigation will allow for crop intensification. Increasesintotal livestock number, resultingfrom greater availability of feed, and increases in fish output, resultingfrom improved irrigation and drainage systems and better pond management, is assumed. A 3% increase inpig and chicken numbersand an additional 615 ha o f fishponds (10% increase) over five years is assumed under the baseline scenario (Table 1). Phasing. It was assumedthat the yield increases for major crops would buildup over a three-year period following irrigation works for areas with poor or no irrigation (Type 111) and over a two year period for areas with efficient irrigation and drainage (Type 11) or 80% secured irrigation and drainage (Type 111).An implementation rate of 21%, 26%, 27%, 20% and 6% respectively over five years for the irrigation and drainage component has been assumed. It was also assumed that the adoption of improved cultivation techniques resulting from on-farm investments would follow investments in irrigation during the cropping season following irrigation and drainage investments. Combined with phased investments from year 1 to year 5 for the Irrigation Component and for the Farm Production Component, this means that maximum benefits at full development for the whole project area (21 counties) would be reachedover a 8-year period after the start of the project. Project costs. The analysis is based on total investment costs including physical contingencies. For the Farm Production Component, all training and extension costs have been included, as these activities would be essential in order to reach full benefits of on-farm production investments.The Irrigation and Drainage Component and Farm ProductionComponent would represent over 80% of total project costs. Benefits of Marketing and Enterprise Components. The impact of the Marketing Component on net-benefits from the Irrigation and Drainage Component and the Farm Production Component have not been calculated. It is expected that the implementation of the Marketing Component will have a positive impact on net agricultural prices by reducing the transaction costs to markets, as well as on market opportunities (shift to higher value crops) and volumes of sales. The funding criteria under the Enterprise LendingFacility is minimumof 20% of IRRof a sub-project. Environmental and Social Benefits. Economic analysis does not include the value of environmental and social benefits generatedby the project. - 48 -  Results: Physical Impact. The overall incremental annual rice output would reach 35,521 tons after eight years, representing an increase of 11.0% of the current output level in the schemes covered by the project. I t is assumedthat 20% of the incremental rice output would be usedfor increasedlivestock production (15% for pig, 5% for chicken), representing a 3.6% increase in pig production in the project area after eight years and a 3.4% increase in chicken production. The main increases in production would be for vegetables (+91%), fruit (+73%0), lotus (80%) and watermelon (61%). These increasesare conservative assumptions, i.e. in absolute terms are small. Hence, the potential impact of this additional output on markets at the provincial level, and potential negative impact on prices, is expectedto be low. The project area covers a small proportion of the cropping area in the 21 counties (2.5% of total rice cropping area, less than 1% vegetable area, 1.2% of total oil crop area, 1.1% o f orange and citrus area, and 3% o f pig production, 1% of total poultry production, 1.5% of total fish production in the 21 counties), and the additional output will representa very small percentageof total productionin those counties. Peanuts 897 990 93 10.4% Watermelon 25,337 40,179 15,383 60.7% Pigs 56,500 58,540 2,040 3.6% Chicken 4,480 4,633 153 3.4% - 49 -  Table 2: Results of the Economic Analysis. Baseyear :2001 Activities 1. Irrigation and drainagecomponent (US$ 83.17 million) Lulin 31% 5,729,629 31% 5,331,933 Yaoyuan 9% -1,332,269 8% -1,743,368 Longguoqu 21% 2,206,548 20% 1,863,707 Datian 25% 6,352,347 24% 5,451,950 21 counties 14% 84,620,000 17% 173,633,000 2. Farm ProductionComponent (USrS45.21 million) Lulin 32% 9,390,674 33% 9,459,143 Yaoyuan 14% 1,561,566 15% 2,173,017 Longguoqu 22% 3,501,716 23% 3,449,050 41.0 Datian 25% 8,358,041 25% 8,196,117 21 counties 19% 330,878,000 21% 421,009,000 3. Marketing Component (20%) (US$ 21.16 million) I I Total Project (15.8%)I I a/ Based on 12% discount rate Sensitivity analysis / Switching values of critical items: Risks. The major risks associated with the project include: (a) Reduction o f market prices o f major crops and livestock products; (b) Reduced benefits resulting from lower yields, resulting either from lower irrigation systems efficiency, lower yield response to investments, delays in project implementation or natural disasters; and (c) Increased investment and/or operation costs. Sensitivity Analyses. Sensitivity analysis has been conducted to assess the robustness o f the benefits o f combined irrigation and on-farm investments, which represent together more than 80% o f project funds. The sensitivity of the project ERR has been tested against the following assumptions: (a) 10% and a 20% output price decrease; (b) 10% and 15% decrease in expected crop yields; (c) 10% and 20% increase in costs ; and for the 21 counties, delays in implementation, leading to implementation rates o f lo%, 17%, 23%, 25% and 25% from project year 1to 5. The results show that ERR for the combined irrigation and farm production investments is relatively robust to assumed changes in project costs (Table 3). Costs would need to increase by 55% for the ERR to fall to 12%. Delays in the rate of project implementation for the 21 counties does not affect significantly the project's ERR. However, ERR shows a greater sensitivity to changes in yield and in output prices. Sensitivity to lower yield is relatively high, and therefore special attention will have to be given to factors that may lower yields o fmajor crops in the project area. - 50 -  Scenario Lulin Yaoyuan Longquoqu Datian Totalproject 1/ Prices-10% : ERR (%) 28% 12% 19% 23% 17% NPV (12% ;Yuan) 6,932,742 -48,590 2,210,327 6,926,776 246,266,7 16 2/ Prices -20% ERR("3) 23% 9% 15% 17% 14% NPV (12% ;Yuan) 4,406,34 1 -2,270,197 971,603 3,200,406 75,719,600 3/ Yields -10% ERR (%) 21% 8% 14% 19% 15% 6/ Costs + 20% I [ ERR (%) 10% 17% 19% 16% N P V ( ~ ~;%Yuan) I 25% 6,499,701 1-1,823,739 I 1,833,968 I4,770,127 I192,148,870 1 ERR (%) 121% Risk Mitigation. The major risk that the project will address is lower yield response for investments. Special attention will be given to the quality of infrastructure works, and O&M will be a key factor to guarantee efficiency o f the structures over time. Another key factor to reach maximum crop yields in the project area will be appropriate crop and livestock productiontechniques, which will be channeledthrough supporting extension programs and farmers training inthe project area. The Farm Production Component will address the need to improve the quality of varieties and breeds and production techniques used by farmers in order to benefit from better prices for better quality products. Diversification o f production, combined better marketing channels and better market information should improve farmers' responsesto price fluctuations. FinancialAnalysis: Farm Model Analysis. Farm models analysis has been used to clarify the impact of the project on farm incomes, on labor, and growth in share of production sold on markets. The analysis focuses on the financial impact o f changes in crop budgets and cropping pattems induced by investments in irrigation and drainage combined with production investments. These models are only indicative and farmers would be free to choose the combination of activities they would invest in as long as they are within the project per household investments limits, have adequate income levels to meet production costs and repayment needs, have market opportunity for products, and follow technical norms establishedfor these activities. Ten different farm models have been developed, to reflect the different specialization pattems, which could develop as a result of different irrigation and farm production investment packages (Table 4). For all models, changes in cropping pattems would be accompanied by a greater share of farm production sold on -51 -  market, whether incremental production resulting from higher yields or as a result o f diversification into cash crops or livestock and fish production. The size o f investments inthe models varies from RMB 1,500 to of RMB 12,960 per household. The lower investments correspond to changes in cropping patterns from rice to higher value crops (vegetables, cotton, lotus, watermelon), whereas investments infish production or combined fish and livestock production typically requires higher levels of investments. Limited changes in cropping pattern have been assumed in all farm models. Changes generally represent an intensification and increase in activities already present on the farm, and no total conversion to other farming activity has been used. Inaddition, it was assumed that family consumption, which is presently relatively high, would remain constant over time. Model Family Cropping pattern Invest. (Yuan) size Without With Farm 1 : 3 2.4 muearly rice; 2.4 mulate rice; 1.5 muearly rice; 1.5 mu late Rice - Vegetables -Pigs 0.6 muvegetables; 3 pigs rice; 1.5 muvegetables incl. 0.5 Investing invegetables mugreenhouse; 3 pigs 2,300 per mu: 766 Farm 2 : 3 2.4 muearly rice; 2.4 mulate rice; 2.4 muearly rice; 2.4 mu late Rice-Pigs-Vegetables 0.6 muvegetables ;3 pigs rice; 0.6 muvegetables; 9 pigs Investing inpigs 2,730 Der mu: 910 Farm 3 : 3 2.4 muearly rice; 2.4 mulate rice; 2.4 muearly rice; 2.4 mulate Rice-Chicken-Vegetables 0.6 muvegetables; 30 chicken rice; 0.6 muvegetables; 90 Investing inchicken chicken 5,700 permu: 1,628 Farm 4 : 3 2.4 muearly rice; 2.4 mulate rice; 0.6 2.2 muearly rice; 2.2 mu late Rice-Vegetables-(Rapeseed) muvegetables; 0.5 murapeseed rice; 2 muvegetables including I Investinginvegetables mugreenhouse 4,550 oer mu: 1.900 Farm 5 : 4 6 muearly rice, 6 mu late rice, 3 mu 4 mu early rice, 4 mu late rice, 5 Rice-Fish (Crucian carp)-Pig fishponds, 2 pigs mufishponds, 6 pigs 9,675 Investing in fish-pig per mu: 1,075 Farm 6 : 4 5 mu early rice, 5 mu late rice, 2 mu 3 mu early rice, 3 mu late rice, 4 Rice-Fish-Duck fish ponds, 30 ducks mufishponds, 90 ducks 8,876 Investinginfish-duck per mu: 1,268 Farm 7 : 4 3.5 muearly rice, 3.5 mulate rice, 1 2.5 early rice, 2.5 late rice, 0.5 Rice-Fruit-Vegetables muvegetable vegetable, 1.5 fruit 3,540 Investing in fruit per mu: 787 Farm 8 : 4 3 muearly rice, 3 mu late rice, 1 mu 2 muearly rice, 2 mulate rice, Rice-Cotton-(Peanuts-Vegetab cotton, 0.8 mupeanuts, 0.2 mu 2.8 mucotton, 0.2 mu vegetables les), investing in cotton vegetables 1,500 per mu: 300 Farm 9 : 5 4 muearly rice, 4 mu late rice, 0.5 mu 3 mu early rice, 3 mu late rice, Rice-Lotus-Vegetables vegetables, 0.5 mu lotus 0.5 muvegetables, 1.5 mulotus 2,500 per mu : 500 Farm 10 : 5 4 muearly rice, 4 mulate rice, 2 mu 3 muearly rice, 3 mulate rice, 3 Rice-Fish (Mandarin) fish ponds mufish ponds 12,960 per mu : 2,160 - 52 -  The financial rate o f return (FRR) o f farm models varies from 18 to 56 percent (Table 5). Sensitivity of farm models is presented in Table 6. The percentage of agricultural incomes in total farmer household incomes varies from 12% to loo%, with an average of 60%. Current per capita annual incomes from agricultural activities without the project vary from Yuan 417 to Yuan 1,583, with an average of Yuan 833. The farm models analysis demonstrates that with project, agricultural incomes would increase some 21% to 125%, and total per capita income with project would range from Yuan 503 to Yuan 3,024, with an average of Yuan 1,537. The return to labor varies from 27 to 104 Yuan/day, well above the current opportunity cost of labor (i.e. 15 Yuadday). While most models involve no major change inthe amount o f labor requested, the models, which assume specialization in pig andor fish production assume full-time farm labor involvement. ITable6: SensitivityAnalysis for Farm Models Model [ Prices,-20% I I Yield, - 10%I -53-  Annexes Unit Financial Economic Output Prices Early rice yuanlkg 0.70 0.72 Late rice yuanlkg 1.10 1.14 Middle rice yuanlkg 1.10 1.14 Cotton lint yuanlkg 8.50 8.38 Rapeseed yuanlkg 2.00 1.20 Vegetables yuanlkg 0.60 0.60 Peanuts yuanlkg 2.40 1.62 Lotus yuanlkg 18.00 18.00 Navel orange yuanlkg 4.00 4.00 Watermelon yuanlkg 0.30 0.30 Pork yuanlkg 6.00 6.00 Chicken yuanlkg 10.00 10.00 Duck yuanlkg 5.70 5.70 Eggs Mandarin fish yuanlkg 35.00 35.00 Crucian Carp yuanlkg 9.00 9.00 Input Prices Early rice seed yuanlkg 9.00 9.00 Late rice seed yuanlkg 12.00 12.00 Cotton seed yuanlkg 20.00 20.00 Rapeseed seed yuanlkg 3.00 3.00 Vegetable seed yuanlkg 800.00 800.00 Peanut seed yuanlkg 3.00 3.00 Lotus seed yuanlkg 150.00 150.00 Fruit seedlings yuan1000 pc 75.00 75.00 Urea yuanlkg 1.40 1.31 Phosphate yuanlkg 0.40 0.40 Potassium chl. yuanlkg 1.40 1.46 Compound yuanlkg 1.40 1.40 Manure yuanlkg 0.04 0.04 Pesticide yuanlkg 8.00 8.00 Piglet (20 kg) yuanlkg 6.00 6.00 Mandarin fry piece 0.80 0.80 Crucian fry piece 9.00 9.00 Labor yuanlday 15.00 12.00 Animal labor yuanlday 25.00 25.00 - 54 -  Border Pricesfor Major Productsand Inputs (2001 Constant Prices) a/ Cotton Lint RiceI Peanuts Rapeseed Com Urea Potassium Phosphate Paddy as fodder NetTrade Status Export Import Import Import World MarketPrices US$/ton 1,400 254 256 220 90 100 117 Quality correction factor 15% Ocean Freight US$/ton 45 10 25 45 20 30 30 ClFlFOB Shanghai US$/ton 1,145 244 231 175 110 130 147 ClFlFOB Shanghai bl Yuan/ton 9,504 2,025 1,917 1,453 913 1,079 1,220 Port Charges Yuanlton 70 70 70 70 70 70 70 Distributor's margincl Yuanlton 943 196 185 138 98 115 129 Transport dl 42 42 -- Port to 42 42 42 42 42 Wholesaler Yuan/ton Mill to Wholesaler Yuanlton Ex Factory Price Yuanlton 8,448 1,718 1,621 1,202 1,123 1,306 1,461 Conversionrate % 70% Processing Costs Yuanlton 60 60 Millgate value Yuanlton 8,388 1,142 1,621 1,202 1,123 1,306 1,461 Transport farm to mill Yuanlton 5 5 Economic farm gate price Yuanlton 8,383 1,137 1,621 1,202 1,123 1,306 1,461 Financial farm gate price Yuanlton 8,500 1,100 2,400 2,000 900 1,400 1,400 400 Conversionfactor % 99% 103% 68% 60% 125% 93% 104% 0% Notes : a/ Basic assumptionsof price projectionsare basedon the World Bank Commodity Price Data, October 2001. Price for rice paddy refersto Thai, 5% broken,white rice, milled, f.0.b. Bangkok. Pricefor maize refersto no. 2, yellow, f.0.b. US Gulf ports blExchangerate of Yuan 8.3 = US$ 1. c/lO% dlTransport by fluvial way from Shanghai port - 55 -  Unit Price Quantity FinancialValues (Yuan) Economic Values (Yuan) without Opt. without Opt. without opt. Unit Fin. Econ. 21 22 23 21 22 23 21 22 23 utput Rice kg 0.7 0.7 245 285 313 360 172 200 219 252 177 206 227 261 By-products 0.1 0.1 215 250 275 316 21 25 27 32 21 25 27 32 >talOutput 193 225 247 284 199 231 254 292 perating Costs Cash Inputs Seed kg 9.0 9.0 1.7 1.7 1.7 1.7 14.9 15.3 15.3 15.3 14.9 15.3 15.3 15.3 Urea kg 1.4 1.3 14.0 14.0 14.0 15.0 19.6 19.6 19.6 21.0 18.2 18.2 18.2 19.5 Phosphate kg 0.4 0.4 16.6 16.6 16.6 15.0 6.0 6.0 6.0 21.o 5.4 6.0 6.0 6.0 5.4 Potassium chl. kg 1.4 1.5 15.0 21.9 Compound kg 1.4 1.4 25.0 25.0 25.0 35.0 35.0 35.0 35.0 35.0 35.0 Other fertilizer kg 0.4 0.4 17.0 17.0 17.0 6.8 6.8 6.8 6.8 6.8 6.8 Herbicide kg 3.0 3.0 1.o 3.0 3.0 Plastic mulch kg 8.0 8.0 0.8 6.4 6.4 Pesticide Yuan 3.0 3.0 1.2 1.2 1.2 3.0 3.6 3.6 3.6 9.0 3.6 3.6 3.6 9.0 Hired labor WDs 15.0 12.0 1.o 1.o 1.0 1.1 15.2 15.2 15.2 16.5 12.1 12.1 12.1 13.2 Transportation days 10.0 10.0 0.1 0.1 0.1 1.0 1.0 1.0 0.0 1.0 1.0 1.0 0.0 Animal labor Yuan 25.0 25.0 0.4 0.4 0.4 0.8 10.0 10.0 10.0 20.0 10.0 10.0 10.0 20.0 Other Yuan 70.0 70.0 0.3 0.3 0.3 17.5 17.5 17.5 0.0 17.5 17.5 17.5 0.0 Irrigation Water fee Yuan 10.0 IO.( 10.0 10.0 10.0 10.0 Taxes Tax Yuan 12.0 1.0 1.0 1.0 1.0 12.0 12.0 12.0 12.0 0.0 0.0 0.0 0.0 Non-cash inputs Seed kg 0.7 0.7 5.7 5.7 5.7 4.0 4.0 4.0 4.0 4.0 4.C Manure kg 0.04 0.0 300.0 300.0 300.0 500.0 12.0 12.0 12.0 20.0 12.0 12.0 12.C 20.0 Familylabor WDs 15.0 12.0 5.5 5.5 5.5 6.1 82.5 02.5 82.5 91.5 66.0 66.0 66.C otal Inputs 250 250 250 251 207 207 207 et Value of Production 5/ -26 4 32 a 24 47 Unit Price Quantity Financial Values (Yuan) Economic Values (Yuan) without opt. without opt. without opt. Unit Fin. Econ. 21 22 23 I 21 22 23 I 21 22 23 II 1utput I I Rice 1.1 1.1 266.0 313.0 355.0 410.0 293 344 391 451 303 356 404 466 By-products kg kg 0.1 0.1 234 275.0 311.9 360.2 23 28 31 36 23 28 31 36 otal Output 316 372 422 487 326 383 435 50; lperating Costs Cash Inputs Seed kg 12.0 12.0 1.6 1.6 1.6 1.7 19.2 19.2 19.2 20.4 19.2 19.2 19.2 20.1 Urea kg 1.4 1.3 19.5 19.5 19.5 20.0 27.2 27.2 27.2 28.0 25.3 25.3 25.3 26.( Phosphate kg 0.4 0.4 10.0 10.0 10.0 15.0 3.6 3.6 3.6 5.4 3.6 3.6 3.6 5.4 Potassiumchl. kg 1.4 1.5 15.0 21.0 21.! Compound kg 1.4 1.4 26.5 26.5 26.5 37.1 37.1 37.1 37.1 37.1 37.1 Other fertilizer kg 0.4 0.4 8.8 8.8 8.8 3.5 3.5 3.5 3.5 3.5 3.5 Herbicide kg 3.0 3.0 1.o 3.0 3.( Plastic mulch kg 8.0 8.0 Pesticide Yuan 7.0 7.0 1.3 1.3 1.3 3.0 9.3 9.3 9.3 21.0 9.3 9.3 9.2 21.r Hiredlabor WDs 15.0 12.0 0.8 0.8 0.8 0.9 12.2 12.2 12.2 13.5 9.7 9.7 9.i 10.1 Transportation days Animal labor Yuan 25.0 25.0 0.3 0.3 0.3 0.6 7.0 7.0 7.0 15.0 7.0 7.0 7.C 15.1 Other Yuan 70.0 70.0 0.5 0.5 0.5 0.5 32.2 32.2 32.2 35.0 32.2 32.2 32.2 35.1 Irrigation Water fee a/ Yuan 10.0 lo.( 10.0 10.0 10.0 10.0 Taxes Tax Yuan 12.0 1.0 1.0 1.0 1.0 12.0 12.0 12.0 12.0 Non-cash inputs Manure kg 0.04 0.01 217.0 217.0 217.01 500.01 8.7 8.7 8.71 20.01 8.7 8.7 8.7I 20. Family labor WDs 15.0 12.0 6.0 6.0 6.0 6.1 90.0 90.0 90.0 91.5 72.0 72.0 72.0 73. `otal Input 272 272 272 296 228 228 228 252 let Value of Production 44 100 150 191 9a 156 201 251 - 56 -  Vegetables (based on pepper) Unit Price Quantity I FinancialValues (Yuan) I Economic Values(Yuan) lithout without Unit Fin. Econ. 21 22 23 Opt. z1 22 23 Iwith opt. 21 22 23 I "Itput 1Iwith I I Opt. Vegetables kg 0.6 0.6 1200 1450 1700 2000 720 870 1020 1200 720 870 1020 1200 By-products kg 0.1 0.1 300 363 425 500 30 36 43 50 30 36 43 43 otal Output 1500 1813 2125 2500 750 906 1063 1250 750 906 1063 1243 lperatingCosts Cash Inputs Seed kg 800.0 800.C 0.0 0.0 0.0 0.1 24.0 24.0 24.0 40.0 24.0 24.0 24.0 40.0 Urea kg 1.4 1.3 11.8 11.8 11.8 15.0 16.5 16.5 16.5 21.0 15.3 15.3 15.3 19.5 Phosphate kg 0.4 0.4 15.5 15.5 15.5 25.0 5.6 5.6 5.8 21.o 9.0 6.2 6.2 6.2 10.0 Potassium chl. kg 1.4 1.5 15.0 21.9 Compound kg 1.4 1.4 10.5 10.5 10.5 20.0 14.6 14.6 14.E 28.0 14.6 14.6 14.6 28.0 Other fertilizer kg 0.8 0.8 7.4 7.4 7.4 5.9 5.9 5.E 5.9 5.9 5.9 Herbicide kg 10.0 10.0 1.o 10.0 10.0 Plasticmulch kg 8.0 8.0 12.5 100.0 100.0 Pesticide Yuan 7.0 7.0 1.1 1.2 1.2 3.5 7.6 8.1 8.1 24.5 8.1 8.1 8.1 24.5 1 I I Hired labor WDs 15.0 12.0 Animal labor Yuan 25.0 25.0 Irrigation Water fee bl Yuan 20.0 20.t 1.51 20.0 20.0 20.0 37.51 20.0 Taxes 37.51 Tax Yuan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-cash inputs Own seeds Yuan 3.9 3.9 11.0 11.0 11.0 42.9 42.9 42.9 42.9 42.9 42.9 Manure kg 0.04 0.0 2000 2000 2000 1500 80.0 80.0 80.0 60.0 80.0 80.0 80.0 60.0 Familylabor WDs 15.0 12.0 21.3 21.3 21.3 20.0 318.8 318.8 318.8 300.0 255.0 255.0 255.0 240.0 otal Input 536 536 536 671 452 452 452 591 let Value of Production 214 370 526 579 298 454 611 651 Cotton Unit Price Quantity Financial Values (Yuan) Economic Values (Yuan) rithout Opt. without Opt. without opt. Unit Fin. Econ. z1 22 23 z1 22 23 21 22 23 )utput Cotton kg 8.5 8.4 50.0 58.0 65.0 90.0 425 493 553 765 419 486 545 754 'otal Output 425 493 553 765 419 486 545 754 bperating Cash Inputs Seed kg 20.0 20.0 0.9 0.9 0.9 1.0 18.4 18.4 18.4 20.0 18.4 18.4 18.4 20.0 Urea kg 1.4 1.3 35.0 35.0 35.0 40.0 49.0 49.0 49.0 56.0 45.5 45.5 45.5 52.0 Phosphate kg 0.4 0.4 28.0 28.0 28.0 50.0 10.1 10.1 10.1 18.0 10.1 10.1 10.1 18.0 Potassiumchl. kg 1.4 1.5 0.0 0.0 0.0 20.0 0.0 0.0 0.0 28.0 0.0 0.0 0.0 29.2 Compound kg 1.4 1.4 35.0 35.0 35.0 25.0 49.0 49.0 49.0 35.0 49.0 49.0 49.0 35.0 Herbicide kg 10.0 10.0 1.o 10.0 10.0 Plasticmulch kg 8.0 8.0 1.5 12.0 12.0 Pesticide Yuan 12.0 12.0 4.8 4.8 4.8 50.0 58.1 58.1 58.1 50.0 58.1 58.1 58.1 50.0 Hiredlabor WDs 15.0 12.0 0.1 0.1 0.1 0.1 1.5 1.5 1.5 1.5 1.2 1.2 1.2 1.2 Transportation days 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Animal labor Yuan 25.0 25.0 0.2 0.2 0.2 1.0 5.3 5.3 5.3 25.0 5.3 5.3 5.3 25.0 Irrigation Water fee a/ Yuan 20.0 20.c 20.0 20.0 20.0 20.0 Taxes lax Yuan 24.0 1.0 1.0 1.0 1.0 24.0 24.0 24.0 24.0 Non-cash inputs Manure kg 0.04 0.0 2500 0.0 0.0 0.0 100.0 0.0 0.0 0.0 100.0 Familylabor WDs 15.0 12.0 15.4 15.4 15.4 16.1 230.3 230.3 230.3 241.5 184.2 184.2 184.2 193.2 rota1Input 466 466 466 641 372 372 372 546 let Value of Production 41 27 87 124 47 113 173 209 - 57 -  Peanuts Unit Price Iwithout Quantity I FinancialValues (Yuan) 1 Economic Values (Yuan) Opt. without Opt. without opt. Unit Fin. Econ. Z1 22 23 I z1 22 23 I z1 22 23 1 Itput I I leanuts kg 2.4 1.6 150.0 165.0 175.0 180.0 360 396 420 432 243 267 284 292 tal Output 150.0 165.0 175.0 180.0 360.0 396.0 420.0 432.0 243.1 267.4 283.6 291.' lerating :ash Inputs Seed kg 3.0 3.0 9.0 9.0 9.0 10.0 27.0 27.0 27.0 30.0 27.0 27.0 27.0 30.1 Urea kg 1.4 1.3 7.5 7.5 7.5 10.0 10.5 10.5 10.5 14.0 9.8 9.8 9.8 13.1 Phosphate kg 0.4 0.4 3.5 3.5 3.5 4.0 1.2 1.2 1.2 1.4 1.2 1.2 1.2 1.8 Potassiumchl. kg 1.4 1.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 Compound kg 1.4 1.4 30.1 30.1 30.1 32.0 42.2 42.2 42.2 44.8 42.2 42.2 42.2 44.8 Other fertilizer kg 0.5 0.5 6.4 6.4 6.4 3.2 3.2 3.2 0.0 3.2 3.2 3.2 0. Herbicide kg 0.0 Plasticmulch kg 8.0 8.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0. Pesticide Yuan 6.0 6.0 0.2 0.2 0.2 0.2 1.2 1.2 1.2 0.2 1.2 1.2 1.2 1. Hiredlabor WDs 15.0 12.0 Transportation days Animal labor Yuan 25.0 25.0 0.2 0.2 0.2 0.2 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5. rrigation Water fee a/ Yuan 20.0 20.0 20.0 20.0 20.0 20.0 'axes Tax Yuan 12.0 1.0 1.0 1.0 1.0 12.0 12.0 12.0 12.0 0.0 0.0 0.0 0. ion-cash inputs Own seed Yuan 2.5 2.5 1.2 1.2 1.2 3.0 3.0 3.0 3.0 3.0 3.0 Manure kg 0.04 0.04 300.0 300.0 300.0 315.0 12.0 12.0 12.0 12.6 12.0 12.0 12.0 12. Familylabor WDs 15.0 12.0 14.0 14.0 14.0 14.0 210.0 210.0 210.0 210.0 168.0 168.0 168.0 168, tal Input 347 347 347 350 273 273 273 271 'tValue of Production 13 49 73 82 -30 5 11 li Unit Price Quantity Financial Values (Yuan) Economic Values (Yuan) (ithout Opt. without Opt. without Opt Unit Fin. Econ. z1 22 23 I z1 22 23 I 21 22 23 I Itput I I I iapeseed kg 2.0 1.2 65.0 75.0 80.0 90.0 130 150 160 180 78 90 96 10 3y-products kg 0.1 0.1 300.0 346.2 369.2 415.4 30 35 37 42 30 35 37 3 Ita1Output 365.0 421.2 449.2 505.4 160.0 184.6 196.9 221.5 108.1 124.8 133.1 145 Berating :ash Inputs Seed kg 3.0 3.0 0.8 0.8 0.8 1.0 2.5 2.5 2.5 3.0 2.5 2.5 2.5 3 Urea kg 1.4 1.3 11.3 11.3 11.3 12.0 15.8 15.8 15.8 16.8 14.7 14.7 14.7 15 Phosphate kg 0.4 0.4 6.8 6.8 6.8 7.0 2.4 2.4 2.4 2.5 2.4 2.4 2.4 2 Compound kg 1.4 1.4 13.0 13.0 13.0 13.5 18.2 18.2 18.2 18.9 18.2 18.2 18.2 18 Other fertilizer kg 1.2 1.2 6.7 6.7 6.7 7.0 8.2 8.2 8.2 8.6 8.0 8.0 8.0 8 Pesticide Yuan 8.6 8.6 0.5 0.5 0.5 0.5 4.3 4.3 4.3 0.5 4.3 4.3 4.3 4 Hiredlabor WDs 15.0 12.0 Animal labor Yuan 25.0 25.0 0.3 0.3 0.3 0.3 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7 rrigation Water fee Yuan 10.0 lo.t 20.0 20.0 20.0 20.0 raxes Tax Yuan 2.0 1.0 1.0 1.0 1.0 2.0 2.0 2.0 2.0 Uon-cash inputs Own seed Yuan 3.2 3.2 0.6 0.6 0.6 1.8 1.8 1.8 0.0 1.8 1.8 1.8 Manure kg 0.04 0.0 300.0 300.0 300.0 300.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 11 Familvlabor WDs 15.0 12.0 5.0 5.0 5.0 5.0 75.0 75.0 75.0 75.0 60.0 60.0 60.0 6C )tal input 170 170 170 167 131 131 131 I f !t Value of Production 10 15 27 55 -23 7 2 1 - 5 8 -  Lotus seed Unit Price Quantity FinancialValues (Yuan) EconomicValues (Yuan) without Opt. without Opt. without opt. DtalOutput perating Potassiumchl. kg Compound kg Pesticide Yuan 15.0 15.0 Hired labor WDs 15.0 12.0 Animal labor Yuan 25.0 25.0 Water feed Yuan 20.0 20.0 Taxes Tax Yuan 11.7 % Non-cash inputs Manure kg 0.04 0.0 Familylabor WDs 15.0 12.0 Unit Price vithout Opt. without Opt. without Opt. Unit Fin. Econ. Z1 22 23 I z1 22 23 I z1 22 23 I "Itput I I I Fruits (orange) kg 4.0 4.0 1400 1500 1600 1800 5600 6000 6400 7200 5600 6000 6400 7200 otal Output 5600 6000 6400 7200 5600 6000 6400 7200 lperating Cash Inputs Seedling ooop. 75.0 75.0 1.7 1.7 1.7 2.0 123.8 123.8 123.8 150.0 123.8 123.8 123.8 150.0 Urea kg 1.4 1.3 15.0 15.0 15.0 90.0 21.0 21.0 21.0 126.0 19.5 19.5 19.5 117.0 Phosphate kg 0.4 0.4 10.0 10.0 10.0 120.0 3.6 3.6 3.6 43.2 3.6 3.6 3.6 43.2 Potassium chl. kg 1.4 1.5 91.0 127.4 132.9 Other fertilizer kg 1.0 1.0 100.0 100.0 100.0 100.0 100.0 100.0 0.0 100.0 100.0 100.0 0.0 Pesticide Yuan 1.0 1.0 237.0 0.0 0.0 0.0 237.0 0.0 0.0 0.0 237.0 Hiredlabor WDs 15.0 12.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Animal labor Yuan 25.0 25.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Tax Yuan 13.2 % 1.0 1.0 1.0 1.0 739.2 792.0 844.8 950.4 Irrigation Water fee a/ Yuan 20.0 20.c I 20.0 20.0 20.0 20 0 Non-cash inputs I I 4 I I Manure kg 0.04 0.0 2000 2000 20001 20001 80.0 80.0 80.01 80.01 80.0 80.0 80.01 80.01 Familylabor WDs 15.0 12.0 30.0 30.0 30.0 40.0 450.0 450.0 450.0 600.0 360.0 360.0 360.0 480.0 otal Input 1538 1590 1643 2334 687 687 687 1240 let Value of Production 4062 4410 4lSl 4066 4913 5313 5713 5960 - 59 -  Annex 5: Financial Summary CHINA: Jiangxi Integrated Agricultural Modernization Project Year Ending: 2009 FinancingPlan Sources Implementation Period\a 2004 I 2005 I2006 I 2007 I 2008 I 2009 ITotal IPrefectureKity 0.05 0.09 0.10 0.09 0.05 0.02 0.40 /County 1.13 2.18 2.37 2.09 1.32 0.48 9.57 Beneficiaries 0.83 1.61 1.76 1.55 0.97 0.36 7.07 Total ProjectFinancing 18.99 34.81 37.96 33.48 21.05 7.69 153.98 - 60 -  Annex 6: Procurement and DisbursementArrangements CHINA: Jiangxi Integrated Agricultural Modernization Project Procurement The Bank's Guidelines. "Guidelines: Procurement under IBRD Loans and IDA Credits" (January 1995 revised January, August 1996, September 1997 and January 1999, Guidelines) and "Guidelines:Selection and Employment of Consultants by World Bank Borrowers" (January 1997 revised September 1997, January 1999 and May 2002, Consultant Guidelines) will be followed for all Bank-financed procurement. Bank-approved Chinese Model BiddingDocuments (MBD) and the Standard Bid EvaluationForm will be revised to ensure consistency with changes that have been incorporated into the Bank's SBDs. The Bank's SBDs will be used where no relevant model document exists. To standardize procurement of small civil works, works under force account arrangement and goods under national shopping procedures, PPMO will prepare sample forms for the Bank's review and use during project implementation. Specialized procurement agents will be selectedto assist inICB and NCB procurements. Summary of Procurement Capacity Assessment.A procurement capacity assessment was carried out in October 2001, updated in March 2003 and July 2003, and i s available inthe project files. The assessment concluded that PPMO's performance in procurement of other Bank-financed projects i s satisfactory and recommended the following action plan: (i)PPMO prepare a Procurement Management Manual which will define functions of, and responsibilities between PPMO and county PMO; (ii) prepare a procurement plan for the first year after project appraisal based on agreed procurement procedures; (iii)PPMO organize procurement training after project appraisal for county PMO staff and take action to strengthencapacity of county PMOS;(iv) recruit adequate procurement staff at county level prior to project appraisal; and (v) set up a procurement filing system. All these recommendations have been followed. Deviations between the Bank's procurement procedures and the national laws and regulations include basically: (i) advertising through internet is acceptable under national rule; (ii)cost estimate is mandatory; (iii) bracketing is used for civil works contract evaluation; (iv) merit point system (scoring system) can also be used for bid evaluation; (v) time for preparation of bids can be 20 days; (vi) contract less than three bidders should be rejected and needs re-bidding." All these issues have been addressed in the project's legal agreements and through the Ministry of Finance (MOF) NCB Guidelines which are currently being prepared with the assistance o f the Bank. The MOF NCB Guidelines will supersede the NCB procedures set out in the Law on Tendering and Biddingo f People's Republic o f China and other local procurement regulations. Community Participation inProcurement(CPP). It has beendetermined that community participationin procurement is in the interest of project sustainability in order to promote participation of local communities, increase the utilization of local know-how and materials, and employ labor-intensive and other appropriate technologies. This arrangement isjustified given the needto ensure community ownership and commitment to future operations and maintenance. A separate CPP Manual has been prepared in addition to the project's Procurement Management Manual reviewedby the Bank. The main definitions are as follows: Agreement. The community participation in procurement will: (a) cover activities under the Farm Production Improvement Component only; (b) be initially on a pilot basis involving about 10percent of project communities; (c) be extended to cover a wider project area during project implementation if desirable and mutually agreed between the Bank and the Borrower; (d) follow simplified procedures; (e) start in the second year of project implementation; and (f) be undertaken by implementation coinmittees established within local communities. - 61 -  Scope, Community participation procedures are suitable for works, goods and services associated with project activities o f soil fertility improvement, crop establishment, livestock maintenance, fish pond rehabilitation and construction, ethnic minority village development and agricultural demonstration sites. These contracts are estimated to cost less than US $100,000 equivalent each. The communities themselves will provide labor, materials or cash. They may choose to pay for specialized local labor and materials, which will be costed at prevalent local market rates. Eligibility. An eligible beneficiary community i s defined as a Water User's Association (WUA) which: (a) has been registered as a legal entity; (b) has established a project implementation committee consisting o f a project manager, a project procurement staff, a treasury; (c) is within the project area; (d) will implement the eligible project activities; and (e) meets the conditions for member participation and contribution in financing of the project activities. Responsibility. WUA's fundamental role is to implement project activities within the defined scope in the local project areas including formulation, preparation, execution and monitoring. The community has the main responsibility to implement its project activities including procurement of works and goods, and ensure that the works are carried out and that the goods and services supplied are as agreed upon. County PMO/Finance Bureau will provide managerialltechnical support to the selected beneficiary communities in the following areas: (a) organizational capacity; (b) technical skills; (c) procurement; (d) record keeping and filing skills; and (e) cost-benefit analysis. County PMOSwould help the communities review experiences and lessons with these pilots on a regular basis. The pilot would be subject to the Bank's annual review. The Bank would not be involved inthe approval process for every contract at community level. Procedures. The procurement procedures to be followed by participating communities and other agencies are detailed inCommunity Participation inProcurement Manual. This CPP Manual is subject to the Borrower's annual update for improvement, Procurementmethods (Table A) Procurement Arrangements. A detailed procurement plan for the first year has been discussed and finalized in accordance with the project's phased approach arrangements and included in PIM. A complete set o f procurement packages for the first year o f implementation have been agreed upon, and bidding documents for these procurements are under preparation. The procurement plans for the following implementation years have been estimatedbased on percentage distribution o f total project cost and the first year's cost estimation. Detailed procurement plans for the following years' procurement will be submitted for the Bank's approval on an annual basis. The anticipated procurement profile i s shown in Annex 6 Table A. A considerable number o f NCB contracts is expected under this project. In line with the Operational Procurement Review (OPR) recently carried out by the Bank, (i)the NCB advertisement for goods contracts valued at US$300,000 or less and for works contracts valued at US$2 million or less will be advertised on provincial dailies or the China Water Resource Daily and on the China Tendering web site and (ii)any onsultant service contract below US$300,000 each will use national shortlist only. 0 Works. A total o f US$121.77 million worth o f works would be required. These works would be scattered over thousands o f villages in 21 project counties and carried out over a period o f six years. (i)International Competitive Bidding (ICB). Although not anticipated, any contract for works estimated to cost US$10 million equivalent or more would be procured under ICB procedures specified inthe Bank's Guidelines. - 62 -  (ii)National Competitive Bidding (NCB). Contracts for works estimated to cost less than US$10 million equivalent may be awarded under NCB procedures acceptable to the Bank, paragraphs 3.3 and 3.4 of the Bank's Guidelines will apply. These works, worth about US$35.20 million, comprise o fmedium-sized irrigation and drainage schemes. (iii)Small Works (SW). The project will finance about US$24.79millionworth ofminor works, costing less than US$200,000 equivalent per contract and consisting o f small-sized irrigation and drainage schemes (US$15.09 million) and agricultural market facilities and rural enterprises (US$9.70 million). These works would be suitable for lump-sumand fixed-price contracts awarded on the basis o f quotations obtained from at least three qualified domestic contractors inresponse to a written invitation. (iv) Force Account (FA). About US$50.67 million worth of works consist of access roads, on-farm works, and small scale establishment of crop, livestock and fisheries activities. These works are in small individual assignments not exceeding US$100,000 each and under Irrigation and Drainage Component and Farm Production Improvement Component to be carried out by county or township government, or line agencies that organize WUAs (communities) and farmers to do the actual work. The use of force account for these works isjustifiedthat works involved are very small and spread over numerous local villages and irrigation schemes for which qualified construction firms are unlikely to bid.This procurement will be financed on an output basis only. (v) Community Participation. About US$4.10 million worth of small scale establishment of crop, livestock and fisheries activities under Farm Production Improvement component is expected to be procurement through community participation. Paragraph 3.15 of the Bank's Procurement Guidelines will apply, Procedures acceptable to the Bank are detailed in the Bank reviewed CPP Manual. (vi) Non-Bank Financing (NBF). The cost for construction managementrelated expenses for irrigation and drainage schemes (US$6.16 million), building rehabilitation for farmer teaching centers (US$0.05 million) and land acquisition for market development and rural enterprises (US$0.80 million) will be non-Bank financed. 0 Goods. A total of US$10.59 million worth of goods would be procured for the project. To the extent practical, contracts for goods would be grouped into bid packages estimated to cost US$500,000 equivalent or more to attract competition. (i)International Competitive Bidding. All contracts for goods costing US$500,000 equivalent or more, would be awarded through ICB procedures. A total o f about US$0.90 million would be procured usingICB. A margin of preference equal to 15% o f the CIF price of imported goods or the actual customs duties and taxes, whichever is less, would be allowed to qualified domestic manufactures biddingunder ICB procedures. (ii)NationalCompetitiveBidding.NCBprocedureswouldbeusedforprocurementofgoodscosting less than US$500,000 equivalent per contract with an aggregatedamount of US$3.21million. Rural market equipment (US$O.90 million), small rural enterprises equipment (US$2.00 million) and office equipment (US0.3 1million) would be procured through NCB procedures acceptable to the Bank. (iii)National Shopping (NS).Othergoods, worthUS$5.21millionequivalent, includingagricultural market equipment (US0.82 million), rural enterprise equipment (US$2.15 million), farmer training equipment (US$0.04 million) and fattening livestock (US$2.20 million) would be procured using national shopping procedures with contracts under US$lOO,OOO equivalent each. They will be - 63 -  procured in small batches from local markets and suppliers. All national shopping contracts will require at least three price quotations. (iv) Direct Contracting (DC). Breeding livestock and fish fiys, very often obtainable from only one local source in a timely and dependable manner, would be procured by farmer households or local community groups from local markets and suppliers by direct contracting consistent with paragraph 3.7 o f the Bank's Guidelines. Such contracts would cost less than US$50,000 each up to an aggregate amount of US$0.86 million. Detailed procedures including quality control measures, acceptable to the Bank, will be included inProcurementManagement Manual. (v) Comnzunity Participation. A total of about US $0.34 million worth of goods is expected to be procurement through community participationprocedures. These goods would include various farm production inputs required for small scale establishment of crop, livestock and fisheries activities under Farm Production Improvement component including fattening and breeding animal stocks, fishfrys, fertilizers, plastic mulch, farm tools and other minor inputs. Paragraph3.15 of the Bank's Procurement Guidelines will apply. Procedures acceptable to the Bank are detailed in the Bank reviewed CPP Manual. (vi) Non-Bank Financing (NBF,, The fumiture and teaching materials for farmer teaching centers (US$0.07 million) will be non-Bank financed. Consultant Services. A total of US$11.39 million worth of consultant services, equivalent to about 7.4% of total project cost, would be provided. Consultants for engineering oversight and survey, designing, and review of design would be selected under QCBS (US6.08 million). Consultants for dam safety review would be selected by QBS (US$3.28 million). Consultants for other assignments, very small under $100,000 each, would be hired through selection process based on Consultant's Qualifications (US$0.96 million). A limited number of consultants are expected to be individuals (USSO.12 million). The individual consultants would be selectedthrough comparison of at least three candidates. To obtain expressions of interest, the Borrower will include a list of expected consulting assignments in the General Procurement Notice which will be updated annually for all outstanding procurement. All contracts for consulting firms will be advertised in the national gazette or a national newspaper and all contracts expected to cost over US $200,000 would be advertised in Development Business of the UnitedNations. Some consultant services (US0.95 million) for applied research for farm productionand marketing studies would be Non-Bank financed. 0 Training and Study Tours. A total of US$3.10 million were budgeted for training and study tours, equivalent to about 2.0 percent of total project cost, would be provided. This budget was made based on an overall plan for training and study tours prepared by the PPMOs and agreed by the Bank during the Project preparation. Detailed programs will be developed by the PPMOs during project implementation and included in Project annual work plan for Bank's review. The approved detailed programs will be used as the basis for reimbursement. Some training activities (US$0.30 million) would be Non-Bank financed. Miscellaneous. About US$6.13 million worth of miscellaneous costs are required for the project. These costs are largely related to project management activities including management budgets for woman coordinators (US0.20 million), project management for PMOS(US$2.57 million), working capital and incremental operating costs for market and rural enterprise development (US$3.34 million), and ethnic minority village development activities (US$0.02 million). These costs, non-Bank financed, would be financed by the government and extemal grants. - 64 -  Table A: Project Costs by ProcurementArrangements (US$ million equivalent) Procurement Method' Expenditure Category ICB NCB Othe: N.6.F. Total Cost 1. Works 0.00 35.20 79.56 7.01 121.77 (0.00) (24.10) (54.73) (0.00) (78.83) 2. Goods 0.90 3.21 6.41 0.07 10.59 (0.90) (3.21) (4.80) (0.00) (8.91) 3. Services 0.00 0.00 10.44 0.95 11.39 (0.00) (0.00) (8.87) (0.00) (8.87) 4. TraininglStudy Tours 0.00 0.00 2.80 0.30 3.10 (0.00) (0.00) (2.39) (0.00) (2.39) 5. Front-end fee 0.00 0.00 1.oo 0.00 1.oo (0.00) (0.00) (1.OO) (0.00) (1.OO) 6. Miscellaneous 3 0.00 0.00 0.00 6.13 6.13 (0.00) (0.00) (0.00) (0.00) (0.00) Total 0.90 38.41 100.21 14.46 153.98 (0.90) (27.31) (71.79) (0.00) (100.00) - 65 -  Table AI : Consultant Selection Arrangements (optional) (US$ million equivalent) Selection Method Consultant Services ExpenditureCategory QCBS QBS SFB LCS CQ Other N.B.F. Total cost( A. Firms 6.08 3.28 0.00 0.00 0.96 0.00 0.95 11.27 (5.17) (2.78) (0.00) (0.00) (0.82) (0.00) (0.00) (8.77) B. Individuals 0.00 0.00 0.00 0.00 0.00 0.12 0.00 0.12 (0.00) (0.00) (0.00) (0.00) (0.00) (0.10) (0.00) (0.10) Total 6.08 3.28 0.00 0.00 0.96 0.12 0.95 11.39 (5.17) (2.78) (0.00) (0.00) (0.82) (0.10) (0.00) (8.87) Note:QCBS = Quality- and Cost-Based Selection QBS = Quality-basedSelection SFB = Selection under a Fixed Budget LCS = Least-CostSelection CQ = Selection Based on Consultants'Qualifications Other = Selection of individualconsultants (per SectionV of ConsultantsGuidelines), Commercial Practices,etc. N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the Bank Loan. Prior reviewthresholds (Table B) Prior review of the Bank would include: 0 All NCB contracts for works equal to or greater than US$800,000; The first Small Works contract for eachproject prefecture/city; 0 All ICB contracts for goods; 0 All NCB contracts for goods equal to or greater than US$300,000; ' 0 The first contract for goods under shopping procedures for each project prefecture/city; 0 All direct contracting contracts equal to or greater than US$lO,OOO; and All contracts for consultant services inexcess of US$lOO,OOO for firms andUS$50,000 for individuals. All overseas training andstudy tour plans will be includedinproject annual workplan to be reviewed by the Bank. A prior review ratio of about 20% (one in every five contracts) is expected. All other contracts would be subject to ex-post review by the Bank's supervision missions with a sampling ratio of one in five contracts. Annex 6 Table B indicates the thresholds for prior review. - 66 -  Table B: Thresholds for Procurement Methods and Prior Review Expenditure Category .Works <10,000 and = or NCB >200 each <200 Small Works The first Small Works 0.95 contract for eachproject .Goods orefecturelcitv = or >500 ICB All ICB contracts 0.90 <500 and= or NCB All NCB contractsequalto 1.43 >loo or greater than $300,000 each <loo Shopping The first contract for goods 0.21 undershoppingprocedures for each project mefecturelcitv <loo Direct All direct contracting 0.05 Contracting contracts equal to or greater than$10.000 each 3. Consultant Services NIA QCBS All contracts=or >100,000 N/A for firms <loo Individual for individuals 4. OverseasTraining and N/A All overseas training and 0.32 study tour plans Note: 1. NIA denotes not applicable. Total value of contracts subject to prior review: US31.78 million, about 23% of total value of contracts. Overall Procurement RiskAssessment: Average Frequency of procurement supervision missions proposed: One at project launch, then one every six months (includes special procurement supervision for post-review/audits). - 67 -  Disbursement Allocation of loan proceeds (Table C) DisbursementArrangement, Disbursement arrangements for the project are summarized below in Table C "Allocation o f Loan Proceeds." Disbursement for works would be at 68% of total expenditures. Disb ursement for vehicles, office equipment, market and rural enterprise equipment would be at 100% of the foreign exchange costs of imported items, 100% of the ex-factory price of locally manufactured items, and 75% of expenditures for other goods procured locally. Disbursement for sub-loans, for farm production establishment, would be at 75% of the eligible expenditures which may include minor works, agricultural inputs (except fattening and breeding livestock and fish frys) and related services associated with project activities under the pilot community participation in procurement arrangement. Disbursement for consultant services would be at 85% of eligible expenses, lower than the Standard Disbursement Percentage for consultant services for China. The disbursement would be made at 100% for overseas training and study tours and 85% for domestic training and study tours. The front-end fee would, be disbursed 100%from the Loanproceedsat Loan effectiveness. Disbursementfor Community-Based Investment.The Bank funds will be channeledto and managedby the beneficiary communities. The transfer would be made from the project's Special Account managedby the Provincial Finance Bureau to the project accounts of relevant project county finance bureaus and further to local banks of the beneficiary communities. The Bank funds will be transferred basedon the list of approved project activities of each community and on an estimated average expenditures for a four-month period. Basic description of proceduresis as follows: Flow of IBRLI Funds. The first tranche would be transferred when: (a) a project implementation committee has been established; (b) a project account has been opened in a local bank conveniently located in and easily accessible by the beneficiary community; (c) an agreement with the Provincial Finance Bureau has been signed; and (d) the preparation of agreed project activities is well underway and the first project activity is expectedto be ready for implementation within a period of two months. Eachtransfer will provide for an average expenditure for implementation of four months. Procedures. Annual plan for community-based investment should be prepared by implementing communities and included in the project's overall annual implementation plan for the Bank's review and approval. After the annual plan is approved, Provincial Finance Bureau will sign an agreement with county finance bureau on behalf of the beneficiary community, specifying: (a) the commitment of the government to transfer funds and of the community to use the funds for the agreed purposes; (b) monitoring arrangement for project implementation and sanctions for misuse of funds; (c) on-lending terms and conditions; and (d) intemal auditing arrangement. Financid Control. The intemal audit, in addition to the normal annual financial audit of project accounts, will be carried out by auditors selected or appointed by county finance bureau. The auditors will visit each community andits bank after completion of the work or receipt o f supplies. The auditors will verify the appropriate use of funds by: (a) reviewing the records and supporting documentation related to the financial transactions made by the community; (b) certifying the eligibility o f expenditures; (c) observing the price comparativeness for works, goods and services with annual budget and other similar project activities; and (d) reviewing the process of procurement. In addition, county finance bureaus will provide accounting and cashiering services, and the financial management team in the World Bank's Office in Beijing will provide support to the Provincial Finance Bureau as requested. The auditors will prepare and submit a short standardized report for each community upon completion of each visit which will describe the output, quality, problems encountered, and suggestions for improvement. This report will be made available for World Bank supervision mission's review. - 68 -  0 Forms. A set o f simple forms acceptable to the Bank are under preparation for: (a) approval o f project activities; (b) fund transfer; (c) cash bookhank record; (d) standard audit report; and (e) procurement documents. The bookkeeping system for the communities will be very simple and meet the following minimum requirements: (i)records all transactions (in cash or from bank account) and allow verification of cash and bank balances; (ii)facilitate simple cost-center accounting (separate costs for different components of project activities); and (iii) provide means to retain the supporting documents (invoices, receipts, notes) on expenses made. A community disbursement manual is under preparation by ProvincialFinance Bureau. Reporting. Each beneficiary community will prepare and submit a financial report to Provincial Finance Bureauvia county finance bureau on a semi-annual basis by April 30 and October 31 of each year starting from the first semester following project's first disbursement. Financial reports will be used by the Provincial Finance Bureau for accounting settlement and replenishment of the project Special Account. Supporting documents, not required for financial reports or replenishment application for Special Account, will be retained by respective implementation committee of communities and made available for review by auditors and Bank supervision missions. Table C: Allocation of Loan Proceeds * L Expenditure Category Amount in US$million Financing Percentage 1. Works 75.75 68% 2. Goods 8.66 100%of foreign expenditures; 100%of local expenditures (ex-factory cost); and 75% for other items procured locally 3. Farm Production Sub-loans 3.33 75% of amount of Farm Production Sub-loans disbursed 4. Consultant Services 8.87 85% 15. Training and Study Tours I 2.39 100% of foreign expenditures and 85% of local emenditures Total Project Costs 99.00 Front-end fee 1.oo 100% of fee amount Total 100.00 Retroactive Financing. The following project activities, costing about US$7.5 million with an estimated Bank financing o f about US$5 million (about 5 percent of the proposed Loan amount), have been requested by PPMO and agreed by the Bank for retroactive financing by IBRD funds: (i)construction o f two irrigation schemes; (ii)survey and design for 16 irrigation schemes; (iii)safety review of 9 dams; (iv) establishment o f 19 SIDDs; (v) farm production activities; (vi) construction of three physical markets; (vii) small rural enterprise, leading farmer groups and marketing groups; (viii) training activities; and (ix) office equipment. These project activities are expected to start after October 8, 2003. Appropriate documentation or work plan, consistent with overall project design and technical standards were reviewed by the Bank. The relevant procurement methods applicable to these project activities would be followed. - 69 -  Use of statements of expenditures (SOEs): SOEs will be used for disbursements against: (i) contracts for works under US$SOO,OOO; (ii) contracts for goods under US$300,000; (iii)domestic and international training and study tour expenses; (iv) contracts for consultant services under US$lOO,OOO for firms and under US$50,000 for individuals; and (v) sub-loans for farm production establishment under community procurement. Supporting documents for SOEs will be retained by respective PMOSand made available for review by Bank's supervision missions. In the case o f contracts for goods, works and consultant services above these thresholds, disbursements would be made against full documentation o f the contracts and other supporting documents. Special account: To facilitate disbursement, a Special Account in U S dollars to be operated by Jiangxi Provincial Finance Bureau will be established in a bank with terms and conditions acceptable to the Bank. The Provincial Finance Bureau will be directly responsible for the management, monitoring, maintenance and reconciliationof the special account activities o f the project. The authorized allocation o f special account is proposed not to exceed US$7.0 million equivalent, However the authorized allocation will be limited to US$4.8 million equivalent untilthe aggregate withdrawals and outstanding special commitments are equal to or exceed US40.0 million. Applications for replenishment, supported by appropriate documentation, will be submitted monthly or when the amounts withdrawn equal 50% o f the initial deposit, whichever comes first. The project i s expected to be completed by December 31,2009 and closed on June 30,2010. FinancialManagement Country Issues. To date, no Country FinancialAssessment Audit (CFAA) has been performedfor China, though dialogue with the Govemment o f China in respect o f a CFAA exercise has been initiated. The Bank's current CFAA approach in China i s to buildon the Asian Development Bank's year 2000 study o f Financial Management and Governance Issues in China, analyzing areas that have changed rapidly in the past few years or that deserve further scrutiny, and over time cover all major areas usually part o f a full CFAA exercise. Currently, for reference purpose, the Bank relies on the work conducted by the Asian Development Bank. Based on observations of developments in the areas o f public expenditures, accounting and auditing, and Bank experience with China projects for the past few years, substantial achievement has been made in the area o f public financial management, and further improvement is expected in the next few years. As economic reform programs further unfold, the govemment has come to realize the importance of ensuring transparency and accountability, and minimize potential fraud or corruption. Due to rather unique arrangement in China, hnding o f Bank projects i s controlled and monitoredby MOF and its extensions, i.e. finance bureaus at provincial, municipal/prefecture and county level. However, due to technical expertise required for project implementation, project activities are usually carried out by implementing agencies o f a specific industry or sector. This arrangement requires close coordination o f project related work, as multi-level management o f funding and implementation mechanism often presents a great challenge for smoothproject implementation. Conclusion of Financial Management (FM) Assessment. An assessment o f the adequacy o f the project financial management system of the Jiangxi Integrated Agricultural Modemization Project has been completed and a complete FM assessment report i s available in the project files. The assessment focused on Jiangxi Provincial Finance Bureau, which will handle Special Account activity for the project, and the PPMO, which will be responsible for implementing various components o f the project. - 70 -  The assessment, based on guidelines issued by the FinancialManagement Sector Board on June 30, 2001, concluded that the project meets minimum Bank financial management requirements, as stipulated in BP/OP 10.02. In the team's opinion, the project will have in place an adequate project financial management system that can provide, with reasonable assurance, accurate and timely information on the status o f the project inthe reportingformat agreed with the project and as requiredby the Bank. No outstanding audits or audit issues exist with any of the implementing agencies involved inthe project. FundsFlow. The project will be disbursing based on the traditional disbursementtechniques and will not be usingFMR-baseddisbursements,inaccordancewith the agreementbetweenthe Bank and MOF. Funding sources for the project include Bank loan and counterpart funds. Bank loan agreement will be signed between the Bank and the Government of China with MOF, and an on-lending agreement will be concluded between MOF and Jiangxi Provincial Government with Jiangxi Provincial Finance Bureau. Lower level on-lending agreements will be concluded between upper level finance bureaus all the way to Provincial Finance Bureau - to municipal finance bureaus and county finance bureaus - to contractors or county level finance bureaus. Bank loan proceeds will flow to the special account to be kept at the suppliersvia bank accountswith major commercial banks acceptable to the Bank. Counterpart funds are estimated to 35% of total investment: 17.5% by government at different levels; 17.5% by beneficiaries' in-kindcontributions, such as labor contributions. ImplementingEntities. Project Leading Group comprises several governmental agencies inthe province i s chaired by the Governor of Jiangxi Province. Purpose of PLG i s to provide coordination among different governmental agencies which may become involved in project implementation. A provincial level PMO will assume overall implementation and coordination responsibility. Municipal and county PMOs will carry out direct implementation of the project. The Provincial Finance Bureau will play a major role in project implementation, including overall monitoring, financing arrangement, procurement, financial management, etc. The Finance Bureau will be responsible for maintaining, monitoring and reconciling the project special account. It will also be responsible for reviewing, verifying and approving withdrawal applications prepared by county PMOs before submission by the Provincial Finance Bureau to the Bank for disbursementprocessing. The Finance Bureau has hadprior experience with Bank projects and is familiar with Bank's disbursementprocedures. Strengths. The PPMO has prior experience with project financed by the Bank and staff in the provincial PMO are the same as those in the PMO of another Bank project, i.e. Yangtze Flood Emergency Rehabilitation. The Provincial Finance Bureau also has had extensive experience from other projects financed by Bank and i s familiar with Bank policies, proceduresand requirements. Weaknesses. Some municipal and county PMOs suffered from under-staffing in previous projects financed by Bank or staff were found to lack required skills. Detailed and realistic staffing plans are critical. The PPMO should provide neededtraining to municipal and county PMOs. Project financial and accounting staff should be in position prior to effectiveness; training in project financial management should be provided by the Provincial Finance Bureau and the PPMO to all relevant staff before effectiveness. Staffing. Project accounting staff with educational background and work experience commensurate with the work they are expected to perform is one of the factors critical to successfulproject financial management. Based on discussions, observation and review of educational background and work experience of the staff identified for financial and accounting positions, it is the Task Team's assessment that the staff will be able to carry out a satisfactory work. - 71 -  Some accounting staff inthe PPMO and the municipal PMOShave prior experience with projects financed by the Bank, but many of the staff are new. To strengthen the financial management capacity and achieve consistent quality o f accounting work, training will be provided prior to effectiveness to all key financial and accounting staff o f participating municipalities and counties to ensure good understanding of Bank's policies and procedures. Accounting Policies and Procedures. The administration, accounting and reporting of the project will be set up inaccordancewith the following regulations/circulars issuedby MOF: The "Temporary Regulations on Financial and Accounting Management for Projects Financed by the World Bank" (Circular #127 issued in 1993) by MOF will guide bookkeeping and preparation of project financial statements and management reports. Accrual accounting and double entry bookkeeping basiswill be adoptedby the project. Circular #12: "Regulation for the Submission of Withdrawal Applications" issued in December 1996 by MOF, which includes detailed procedures for preparing and submitting withdrawal applications and retention of supporting documentation. Circular #13: "Accounting Regulations for World Bank Financed Projects" issued in January 2000 by MOF. The circular provides in-depth instructions of accounting treatment of project activities and includes: (i)Chart of account; (ii)Detailed accounting instructions for each project account; (iii) Standard set o f project financial statements; and (iv) Instructions on the preparation of project financial statements. The standard set of project financial statementsmentioned above has been agreed to between the Bank and MOF and applies to all Bank projects appraised after July 1, 1998 and includes: (i) Balance sheet; (ii)Statement of source anduse of fund; (iii) Statement of implementation of loan agreement; and (iv) Statementof special account. Both circular #127 and #13 are simplified versions of the Accounting Standards for State-owned, Infrastructure Oriented Projects (the "Standards"), taking into consideration uniquecharacteristics of Bank projects. The Standards are modeled after the principles of International Accounting Standards and provides detailed guidelines appropriate to accounting for activities of Bank projects. Reporting and Monitoring and Format of Financial Statements. Each implementing agency (i.e. municipal PMO or county PMO) will be managing, monitoring and maintaining respective project accounting records. Original supporting documents for project activities will be retained by originating PMO. Each PMO will prepare its financial statements, which will then be consolidated by the next higher-level PMO. The Provincial PMO will be responsible for final consolidation o f financial statements prepared and submitted by participating municipalities and counties, and providing consolidated project financial statementsto the Bank for review and comment on a regular basis. The format and content of the financial statementsrepresentthe standard project reportingpackage agreed to between the Bank and MOF, and have been discussed and agreed with all parties concerned. The unaudited project consolidated financial statements will be submitted as part o f the Financial Monitoring Report to the Bank on a semi-annual basis (prior to August 15 and February 15 o f the subsequent year) and include the following four statements: (i)Balance Sheet; (ii)Summary of Sources and Uses of Funds by Project Component; (iii) Statement of Implementationof Loan Agreement; and (iv) Statement of Special Account. - 72 -  All participating municipalities and counties will establish a computerized management information system including a module for project financial management. Supervision Plan. As some o f project financial and accounting staff are new to the Bank project, more frequent supervision missions at the initial implementation stage (such as twice a year) will ensure proper financial/accounting setup and implementation. Such missions will also ensure proper and timely recruitment o f project financial and accounting staff. FM/disbursement reviews will be carried out simultaneously with procurement reviews. Internal Audits. The Internal Audit Department o f the Provincial Finance Bureau will provide internal audit functions for the project. The PPMO also has checking arrangement similar to internal audits. Audit Arrangements The Bank requires that project financial statements be audited inaccordance with standards acceptable to the Bank. In line with other Bank financed projects in China, the project will be audited in accordance with the Government Auditing Standards o f the People's Republic o f China (1997 edition). The Jiangxi Provincial Audit Bureau has been identified as the auditors for the project. Audit fieldwork will be carried out by the Audit Bureau and its local chapters, and audit reports will be issued, under the guidance and supervision o f the China National Audit Office. The Bank currently accepts audit reports issued by China National Audit Office or its local counterpart for which China National Audit Office is ultimately responsible. Audit reports on annual consolidated financial statements will be due to the Bank within 6 months of the end o f each calendar year, with a separate opinion on Statement o f Expenditures and Special: Account. - 73 -  Annex 7: Project ProcessingSchedule CHINA: Jiangxi IntegratedAgricultural Modernization Project Project Schedule Planned Actual ITime taken to prepare the project (months) I I I First Bank mission (identification) 09/06/1999 09/06/1999 Appraisal mission departure 11/30/2001 10/13/2002 Negotiations 09/15/2003 09/23/2003 IPlanned Date of Effectiveness I 0111512004 I I Prepared by: The AgricultureForeign FundUtilizing Office inJiangxi Provincial PlanningandDevelopmentCommission Preparation assistance: Japanese PHRD Grant. Bank staff who worked on the Droiect included: * - Nam peciality Sari Soderstrom Task Team Leader, Economist Derek Baker Agricultural Markets Specialists Rinda Bosker Communication Specialist Chup Lim Cheong Rural Infrastructure Specialist Garry C u m i n s Agricultural and ExtensionSpecialist FarzardDadgari Environmental Specialist Paavo Eliste NaturalResources Economist Achim Fock Agricultural Economist Marianne Grosclaude Rural Development Specialist Gregory Guldin Anthropologist Johannes Heymans Water Management Specialist Rabih Karaky Agricultural Economist Martti Lariola Private Sector Specialist NinghuiLi Financial Specialist Zong-Cheng Lin Social Scientist Matrice Mangum Program Assistant Margaret Png Senior Counsel Arlene Reyes ProgramAssistant Jinan Shi Procurement Specialist Rutger-Jan Schoen Communication Specialist Bruce Trangmar Agricultural Specialist Jianping Wu Animal Husbandry Specialist Weiguo Zhou Operations Officer -74 -  Annex 8: Documentsin the Project File* CHINA: Jiangxi IntegratedAgricultural ModernizationProject A. ProjectImplementation Plan 1. Project ImplementationManual 2. Project Management Manual 3. Financial Management Manual 4. Community Procurement FundManagement Manual 5. Procurement Management Manual 6. Community ParticipationinProcurement Manual 7. Irrigationand Drainage Component Manual 8. SIDD Manual 9. FarmProductionImprovementManual (Soil Improvement Sub-Manual) 10. Enterprise LendingManual 11. EnvironmentalMonitoring and Management Plan 12. Pest Management Plan 13. Dam Safetey Review Management Plan 14. Multi-Ethnic Groups Development Plant 15. Beneficiaries ParticipationManual 16. LandAqcuisition Framework 6. Bank StaffAssessments 1. IdentificationAssistance Mission: Back-to-Office Report, September 1999 2. Technical Mission: Back-to-Office Report, February-March2000 3. Project Concept Document (PCD), April 2001 4. Peer Review Comments on the PCD, April 2001 5. Minutes of Project Concept Document, April 2001 6. Preparation Assistance Mission: Back-to-Office Report, May 2001 7. Pre-appraisal Mission: Back-to-Office Report, September 2001 8. Procurement Management Assessment Report, October 2001 9. Financial Management Capacity Assessment Report, October 2001 10. Pre-Appraisal Aide Memoire 11. Technical Appraisal Aide Memoire, 12. Appraisal Aide Memoire 13. Project Cost Estimate C. Other 1. List of PLG and TAG members, and PMO staff 2. Baseline Household Survey and Follow-up Baseline Household Survey 3. Statistical Annex on Project Areas 4. Social Assessment Report 5. Cultural Heritage Report 6. Irrigation and Drainage Feasibility Studies for 6 Pilot Designs 7. SIDD Development Plan 8. WUA Pilot Site Appraisal Report 9. SIDD Policy Advise Study - 75 -  10. Water FeeReport 11. FarmProductionImprovementFeasibilityStudy 12. ExtensionandTrainingFeasibilityStudy 13. Market BackgroundStudy 14. MarketSystems DevelopmentReport 15. Township andVillageMarketFeasibility Study 16. FiveAppraisal Reports for Enterprise LendingFacility 17. EnvironmentalImpactAssessmentReport 18. ConsolidatedFeasibilityStudy inChinese *including electronic files - 76 -  Annex 9: Statement of Loans and Credits CHINA: Jiangxi Integrated Agricultural Modernization Project 24-Sep-2003 Difference betweenexpected and actual Oriainal Amount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd PO73002 2004 Basic Education in Western Areas Project 100,oo 0.00 0.00 0.00 100.00 0.00 0.00 PO65035 2004 CN-Gansu 8, XinjiangPastoralDevelopment 66.27 0.00 0.00 0.00 66.27 0.00 0.00 PO67337 2003 CN-2nd GEF Energy Conservation 0.00 0.00 26.00 0.00 28.00 13.07 0.00 P068058 2003 CN-Yixing PumpedStorage Project 145.00 0.00 0.00 0.00 145.00 1.33 0.00 PO70191 2003 CN-SHANGHAI URB ENVMT APL1 200.00 0.00 0.00 0.00 200.00 0.00 0.00 PO70441 2003 CN-Hubei Xiaogan Xiangfan Hwy 250.00 0.00 0.00 0.00 201.55 -1.78 0.00 P058847 2003 CN-3rd Xinjiang Hwy Project 150.00 0.00 0.00 0.00 118.95 4.79 0.00 PO40599 2003 CN-TIANJINURB DEV II 150.00 0.00 0.00 0.00 150.00 0.00 0.00 PO76714 2003 CN-Anhui Hwy 2 250.00 0.00 0.00 0.00 250.00 3.83 0.00 PO58846 2002 CN-Natl Railway Project 160.00 0.00 0.00 0.00 45.03 -9.14 0.00 PO60029 2002 CN-Sustain. ForestryDev(Natura1Forest) 0.00 0.00 16.00 0.00 16.90 1.13 0.00 PO64729 2002 CN-SUSTAINABLEFORESTRY DEV. PROJECT 93.90 0.00 0.00 0.00 88.46 3.03 0.00 PO71147 2002 CN-Tuberculosis Control Project 104.00 0.00 0.00 0.00 93.33 -10.67 0.00 PO70459 2002 CN-Inner Mongolia Hwy Project 100.00 0.00 0.00 0.00 94.82 3.16 0.00 PO68049 2002 CN-HubeiHydropowerDev inPoorAreas 105.00 0.00 0.00 0.00 93.83 5.16 0.00 PO51859 2001 CN-LIAORIVER BASIN 100.00 0.00 0.00 0.00 80.23 23.73 0.00 PO58845 2001 Jiangxi I1Hwy 200.00 0.00 0.00 0.00 149.49 1.83 0.00 PO56596 2001 CN-Shijiazhuang UrbanTransport 100.00 0.00 0.00 0.00 92.28 48.34 0.00 PO56199 2001 CN-3rd Inland Wateways 100.00 0.00 0.00 0.00 86.95 2.45 0.00 PO45915 2001 CN-Urumql Urban Transport 100.00 0.00 0.00 0.00 61.53 45.44 0.00 PO56516 2001 CN *WATER CONSERVATION 74.00 0.00 0.00 0.00 46.55 5.92 0.00 PO47345 2001 CN-HUAIRIVER POLLUTIONCONTROL 105.50 0.00 0.00 0.00 96.34 -9.16 0.00 P045264 2000 CN-SMALLHLDRCATTLEDEV 93.50 0.00 0.00 0.00 24.04 14.38 0.00 PO56424 2000 TONGBAI PUMPEDSTOW 320.00 0.00 0.00 0.00 285.19 84.92 0.00 PO45910 2000 CN-HEBEI URBAN ENVIRONMENT 150.00 0.00 0.00 0.00 131.29 43.29 0.00 PO64924 2000 CH-GEFBEIJING ENVMTII 0.00 0.00 25.00 0.00 24.71 16.34 1.54 PO64730 2000 CN .Yangtze DikeStrengthening Project 210.00 0.00 0.00 0.00 119.88 79.88 0.00 PO49436 2000 CN-CHONGQINGURBAN ENVMT 200.00 0.00 0.00 0.00 167.69 43.85 0.00 PO42109 2000 CN-BEIJING ENVIRONMENT II 349.00 0.00 25.00 0.00 305.84 167.41 0.00 PO58844 2000 3rd Henan Prov Hwy 150.00 0.00 0.00 0.00 83.45 29.12 0.00 PO58843 2000 Guangxi Highway 200.00 0.00 0.00 0.00 122.51 48.51 0.00 PO51856 1999 ACCOUNTINGREFORM& DEVELOPMENT 27.40 5.60 0.00 0.00 19.24 19.05 0.00 P043933 1999 CN-SICHUANURBAN ENVMT 150.00 2.00 0.00 0.00 94.61 65.50 17.35 P049665 1999 CN-ANNINGVALLEY AG,DEV 90.00 30.00 0.00 0.00 23.08 5.87 0.00 PO50036 1999 Anhui Provincial Hwy 200.00 0.00 0.00 9.60 43.79 27.39 0.00 PO46829 1999 RENEWABLEENERGY DEVELOPMENT 100.00 0.00 0.00 0.00 12.87 99.87 2.60 PO46564 1999 CN - Gansu& Inner MongoliaPoverty Red. 60.00 100.00 0.00 13.30 58.56 38.63 -5.06 PO51705 1999 Fujian I1Highway 200.00 0.00 0.00 0.00 72.68 66.02 0.00 PO46051 1999 CN-HIGHEREDUC. REFORM 20.00 50.00 0.00 0.00 8.34 9.64 0.00 PO57352 1999 CN-RURALWATER IV 16.00 30.00 0.00 0.00 26.95 18.47 6.79 PO58308 1999 CN-PENSIONREFORM PJT 0.00 5.00 0.00 0.00 1.95 2.05 0.00 P003653 1999 CN-ContainerTranspolt 71.00 0.00 0.00 18.61 3.62 22.15 0.00 PO60270 1999 CN-ENTERPRISEREFORMLN 0.00 5.00 0.00 0.00 2.67 4.29 4.07 PO38121 1999 CN-GEF-RENEWABLEENERGY DEVELOPMENT 0.00 0.00 35.00 0.00 27.64 23.10 5.75 PO41268 1999 CN-Nat Hwy4/Hubei-Hunan 350.00 0.00 0.00 0.00 73.18 33.18 0.00 PO42299 1999 TEC COOP CREDIT IV 10.00 35.00 0.00 0.00 36.46 -9.02 0.00 PO41890 1999 CN-LiaoningUrbanTransport 150.00 0.00 0.00 0.00 45.89 40.89 0.00 PO36953 1999 CN-HEALTH IX 10.00 50.00 0.00 0.00 36.61 18.00 0.00 PO56216 1999 CN -LOESS PLATEAUII 100.00 50.00 0.00 0.00 45.52 43.73 0.00 PO51888 1999 CN GUANZHONGIRRIGATION ~ 80.00 20.00 0.00 0.00 39.54 25.42 0.00 P037859 1996 CN-GEFEnergy Conservation 0.00 0.00 22.00 0.00 2.46 22.06 0.00 PO40185 1996 CN-SHANDONGENVIRONMENT 95.00 0.00 0.00 1.40 23.23 23.37 0.00 PO51736 1996 E. CHINNJIANGSU PWR 250.00 0.00 0.00 86.00 56.01 142.01 7.92 - 77 -  Difference behveen expected and actual Original Amount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd PO49700 1998 CN - IAIL-2 300.00 0.00 0.00 0.00 6.13 6.13 0.00 PO36414 1998 CN-GUANGXI URBANENVMT 72.00 20.00 0.00 0.00 74.63 63.07 15.68 P003566 1998 CN-BASIC HEALTH (HLTH8) 0.00 85.00 0.00 0.00 34.73 23.28 0.00 P035698 1998 HUNANPOWER DEVELOP. 300.00 0.00 0.00 145.00 50.88 188.38 -17.70 PO03614 1998 CN-Guangzhou City Transport 200.00 0.00 0.00 20.00 109.54 129.54 78.67 PO03619 1998 CN-2nd Inland Waterways 123.00 0.00 0.00 17.00 45.20 58.04 0.46 P003539 1998 CN .SUSTAINABLE COASTAL RESOURCESDE 100.00 0.00 0.00 2.31 48.49 42.47 16.59 PO46952 1998 CN -FOREST. DEV. POOR AR 100,oo 100.00 0.00 0.00 45.76 -57.54 14.42 PO46563 1998 CN -TARIM BASINII 90.00 60.00 0.00 2.67 32.18 30.76 0.00 PO45788 1998 Tri-Provincial Hwy 230.00 0.00 0.00 0.00 28.60 17.47 0.00 PO03606 1998 ENERGY CONSERVATION 63.00 0.00 22.00 0.00 37.89 15.19 0.00 PO36949 1998 CN-Nat HwyB-Hubei 250.00 0.00 0.00 0.00 21.15 14.49 0.00 PO03643 1997 CN-2nd Xinjiang Hwy 300.00 0.00 0.00 60.00 7.58 67.58 7.58 PO03590 1997 CN .QlNBA MOUNTAINS POVERTY REDUCTIO 30.00 150.00 0.00 0.00 25.95 30.04 -5.25 P003637 1997 CN-NATL RURALWATER 3 0.00 70.00 0.00 0.00 0.00 3.20 3.06 PO38988 1997 CN - HEILONGJIANGADP 120.00 0.00 0.00 0.00 9.85 9.85 1.67 P036405 1997 CN - WANJlAZHAl WATER TRA 400.00 0.00 0.00 75.00 33.40 108.40 30.06 PO35693 1997 FUEL EFFICIENT IND. 0.00 0.00 32.80 0.00 7.33 32.81 0.00 P044485 1997 SHANGHAI WAlGAOQlAO 400.00 0.00 0.00 0.00 100.57 64.34 30.11 PO34081 1997 CN - XIAOLANGDIMULTI. I/ 430.00 0.00 0.00 78.53 0.15 118.59 38.62 PO03654 1997 Nat HwyZ/Hunan-Guangdong 400.00 0.00 0.00 0.00 57.59 57.59 5.89 PO03650 1997 TUOKETUO POWEWINNER 400.00 0.00 0.00 102.50 40.12 136.42 13.08 PO40513 1996 2nd HenanProv Hwy 210.00 0.00 0.00 0.00 35.69 35.69 17.69 P003599 1996 CN-YUNNAN ENVMT 125.00 25.00 0.00 19.48 48.21 68.83 7.03 P003602 1996 CN-HUBEI URBANENVIRONMENT 125.00 25.00 0.00 28.32 44.09 74.45 20.79 PO03648 1996 CN-SHANGHAISEWERAGE II 250.00 0.00 0.00 0.00 57.13 57.13 18.94 PO03649 1896 CN -SHANXI POVERTYALLEV 0.00 100.00 0.00 0.00 1.61 10.81 0.00 P003589 1996 CN-DISEASE PREVENTION(HLTH7) 0.00 100.00 0.00 0.00 7.47 16.88 0.00 PO34618 1996 CN-LABORMARKET DEV. 10.00 20.00 0.00 0.00 5.60 7.77 0.00 PO03594 1996 CN .GANSU HEX1CORRIDOR 60.00 90.00 0.00 0.00 76.77 57.25 0.00 PO03598 1995 CN-LIAONINGENVIRONMENT 110.00 0.00 0.00 8.80 0.00 8.80 0.00 PO03571 1995 CN-7thRailways 400.00 0.00 0.00 119.00 23.84 142.84 27.13 PO03596 1995 Yangtze BasinWater ResourcesProject 100.00 110.00 0.00 1.92 0.34 4.75 4.75 PO36947 1995 CN-SichuanPower Transmission Project 270.00 0.00 0.00 95.00 11.79 106.79 9.26 PO03647 1995 China Economic Law Reform -LEGEA 0.00 10.00 0.00 0.00 1.77 2.17 0.00 P003642 1995 CN-ZHEJIANGPOWER DEVT 400.00 0.00 0.00 33.25 1.09 39.87 0.00 - PO03639 1995 SOUTHWESTPOVERTY REDUCTIONPROJECT 47.50 200.00 0.00 0.01 1.21 25.36 25.36 PO03603 1995 CN-ENT HOUSING8 SSR 275.00 75.00 0.00 50.36 55.97 104.55 25.18 P003540 1994 LOESS PLATEAU 0.00 150.00 0.00 0.00 1.12 0.50 0.00 PO03626 1994 Fujian Prov Highway 140.00 0.00 0.00 18.11 6.65 24.76 24.74 PO03644 1994 CN - XlAOLANGDl RESETTLEMENT 0.00 110.00 0.00 0.00 0.04 -1.85 -1.84 PO03632 1993 CN-ENVIRONMENTTECH ASS 0.00 50.00 0.00 0.00 1.11 1.73 1.41 PO03592 1993 REF. INST'L.8 PREINV 0.00 50.00 0.00 0.00 1.92 2.28 2.28 Total: 13136.07 1982.60 203.80 1006.15 5523.94 3353.31 456.64 - 78 -  CHINA STATEMENTOF IFC's HeldandDisbursedPortfolio June 30 - 2003 InMillions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 2002103 Advantage 0.00 0.50 0.00 0.00 0.00 0.50 0.00 0.00 2003 BCIB 0.00 0.00 11.60 0.00 0.00 0.00 0.00 0.00 1999100102 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00 1996 Beijing Home1 1.79 0.50 0.00 0.55 1.79 0.50 0.00 0.55 2002 CDH China Fund 0.00 19.74 0.00 0.00 0.00 4.69 0.00 0.00 1998100 CIG HoldingsPLC 0.00 3.00 0.00 0.00 0.00 3.00 0.00 0.00 1998 ChengduHuarong 6.73 3.20 0.00 7.82 6.73 3.20 0.00 7.82 1998 Chengxin-IBCA 0.00 0.36 0.00 0.00 0.00 0.36 0.00 0.00 1987192194 China Bicycles 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1994 ChinaWaldenMgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 1994 China WaldenVen 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1994 Dalian Glass 0.00 2.40 0.00 0.00 0.00 2.40 0.00 0.00 1995 DupontSuzhou 9.35 4.15 0.00 0.00 9.35 4.15 0.00 0.00 1994 Dynamic Fund 0.00 8.76 0.00 0.00 0.00 7.10 0.00 0.00 2003 Great Infotech 0.00 3.50 0.00 0.00 0.00 2.10 0.00 0.00 1999 Hansom 0.00 0.08 0.00 0.00 0.00 0.08 0.00 0.00 2002 HuarongAMC 31.50 3.00 0.00 0.00 22.50 0.01 0.00 0.00 2002 IEC 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 LeshanScana 5.36 1.35 0.00 0.00 3.76 1.35 0.00 0.00 2001 MaanshanCarbon 9.00 2.00 0.00 0.00 9.00 2.00 0.00 0.00 2001 MinshengBank 0.00 23.50 0.00 0.00 0.00 23.50 0.00 0.00 2001 NCCB 0.00 26.58 0.00 0.00 0.00 26.46 0.00 0.00 0 NWS Holdings 0.00 2.54 0.00 0.00 0.00 2.54 0.00 0.00 1996 Nanjing Kumho 4.87 3.81 0.00 13.84 4.87 3.81 0.00 13.84 2001 New ChinaLife 0.00 30.70 0.00 0.00 0.00 23.32 0.00 0.00 1995 NewbridgeInv. 0.00 1.95 0.00 0.00 0.00 1.95 0.00 0.00 1997198 Orient Finance 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2003 PSAM 0.00 1.93 0.00 0.00 0.00 0.00 0.00 0.00 1997100 PTP Holdings 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 2001 Peak Pacific 0.00 0.00 25.00 0.00 0.00 0.00 0.00 0.00 0 Rabobank SHFC 0.45 0.00 0.00 0.45 0.45 0.00 0.00 0.45 2000 SSIF 0.00 6.00 0.00 0.00 0.00 0.89 0.00 0.00 1998 ShanghaiKrupp 28.92 0.00 0.00 65.63 28.92 0.00 0.00 65.63 1999 ShanghaiMidway 0.00 16.02 0.00 0.00 0.00 16.02 0.00 0.00 1999 Shanxi 16.75 0.00 0.00 0.00 14.20 0.00 0.00 0.00 1993 Shenzhen PCCP 3.76 0.00 0.00 0.00 3.76 0.00 0.00 0.00 Sino Gold 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 Sino-Forest 25.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 2001 SuzhouPVC 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1995197 WIT 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 Wanjie Hospital 15.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 2000 Weihai Weidongri 1.28 0.00 0.00 0.00 1.28 0.00 0.00 0.00 1996 XACB 0.00 19.93 0.00 0.00 0.00 0.00 0.00 0.00 2003 Yantai Cement 6.33 1.95 0.00 0.00 6.33 1.95 0.00 0.00 1993 Total Portfolio: 206.09 212.16 36.60 88.29 147.94 156.59 0.00 88.29 - 79 -  Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic 2002 ASIMCO 0.00 0.01 0.00 0.00 2003 Anjia 0.00 0.00 0.01 0.00 2004 CCB-MS NPL 0.03 0.00 0.00 0.00 2003 Cellon 0.00 0.00 0.01 0.00 2002 Darong 0.01 0.00 0.00 0.01 2002 HuarongAMC 0.02 0.00 0.00 0.00 2002 IEC 0.00 0.01 0.00 0.00 2002 KHIT 0.00 0.00 0.00 0.00 2003 Peak Pacific 2 0.00 0.00 0.01 0.00 2003 SAIC 0.01 0.00 0.00 0.00 2002 SML 0.00 0.00 0.00 0.00 2002 Sino Mining 0.01 0.00 0.00 0.01 2003 Zhengye-ADC 0.00 0.00 0.00 0.01 2002 Zhong Chen 0.03 0.00 0.00 0.03 Total Pending Commitment: 0.10 0.02 0.03 0.05 - 80 -  Annex I O : Country at a Glance CHINA: Jiangxi Integrated Agricultural Modernization Project East Lower- POVERTY and SOCIAL Asia & middle- China Pacific income Developmentdiamond' 2002 I Population,mid-year(millions) 1,281.o 1,838 2,411 Life expectancy GNI per capita (Atlas method, US$) 950 950 1,390 GNI (Atlas method, US$billions) 1,219.1 1,740 3,352 Average annual growth, 1996-02 Population(%) 0.8 1.o 1.o Laborforce (%) 0.9 1.2 1.2 GNI Gross Per primary Most recent estimate (latest year available, 1996-02) capita nrollment Poverty (% ofpopulation belownationalpovertylmeJ 5 Urbanpopulation(% oftotalpopulation) 38 38 49 Lifeexpectancyat birth(years) 71 69 69 Infantmortality (per 1,000live births) 30 33 30 Child malnutrition(% of children under 5) 10 15 11 Access to improvedwater source Access to an improvedwater source (% ofpopulation) 75 76 81 Illiteracy(% ofpopulationage 15+) 14 13 13 - Gross primary enrollment (% of school-agepopulation) 106 106 111 China Male 105 105 111 _ _ Lower-middle-income group Female I08 106 110 KEY ECONOMICRATIOS and LONG-TERMTRENDS 1982 1992 2001 2002 Economicratios. GDP (US$ billions) 221 5 454.6 1,167.1 1,232.7 Gross domestic investmentlGDP 33 2 36 2 38.5 41.O Exportsof goods and serviceslGDP Trade 34 a 8 9 19.5 25.5 29.5 GrossdomesticsavingslGDP 37.7 40.9 44.0 Gross nationalsavingslGDP 35.1 38.0 40.0 43.8 Current accountbalancelGDP 2 4 1.9 1.5 2.9 Domestic InterestpaymentslGDP 0 2 0.6 0.5 0.5 savings Investment Total debtrGDP 3.8 15.9 14.6 12.6 Total debt servicelexports 8.0 8.6 7.7 6.1 I Presentvalue of debffGDP 14.1 Presentvalue of debffexports 51.8 Indebtedness 1982-92 1992-02 2001 2002 2002-06 (average annualgrowth) GDP 9.7 9 0 7.5 8.0 7.5 "-China GDP per capita 8.1 8.0 6.7 7.2 6 6 - - -Lower-middle-incomegroup I STRUCTURE of the ECONOMY 1982 1992 2001 2002 Growth of investmentand GDP ("A) (% of GDP) Agriculture 33.3 21.8 15.8 14.5 20 Industry 45.0 43.9 50.1 51.7 15 Manufacturing 37.3 33.1 34.2 44.5 10 Services 21.7 34.3 34.1 33.7 5 0 Privateconsumption 50.7 49.2 45.7 42.5 97 98 99 0 01 02 Generalgovernmentconsumption 14.5 13.1 13.4 13.5 Importsof goods and services 7.3 18.0 23.1 26.5 -GDI -GDP 1982-92 1992-02 2o02 (average annualgrowth) Growth of exports and imports ("A) Agriculture 4.6 3.7 2.8 2.9 40 Industry 11.6 11.3 8.4 9.9 30 Manufacturing 11.2 10.4 9.0 8.1 20 Services 11.7 8.4 8.4 7.3 10 Privateconsumption 11.4 8.1 2.8 1.9 0 Generalgovernmentconsumption 9.9 8.4 10.5 7.0 -10 Gross domesticinvestment 9.5 9.7 13.9 14.9 Importsof goods and services -Exports -"Imports 9.7 12.8 10.8 27.5 . -81 -  China PRICES and GOVERNMENT FINANCE 1982 I992 2001 2002 1 Inflation (%) Domestic prices I (% change) Consumerprices 6.0 6.4 0.7 -0.8 ImplicitGDP deflator -0.2 7.9 1.2 -2.6 Government finance (% of GDP, includes current grants) Current revenue 22.9 14.7 17.1 17.9 Current budget balance 2.0 1.1 0.0 Overall surplusldeficit -0.3 -1.o -4.7 -3.0 -GDP deflator -CPI I TRADE I 1982 1992 2001 2002 (US$ millions) Exportand Import levels (US$mill.) Total exports (fob) 22,321 84,940 266,155 325,565 /1Io,ooo Food 2,908 8,309 12,780 14,623 Fuel 5,314 4,693 8.420 8,372 300,000 Manufactures 12,271 67,936 239,802 297,085 Total imports (cifl 19,285 80,585 243,610 295,203 200,000 Food 4,201 3,146 4,980 5,237 Fuel and energy 183 3,570 17,495 19,285 100,000 I I Capitalgoods 3,204 31,312 107,040 137,030 0 Export priceindex (1995=100) 41 85 83 78 98 97 98 99 00 01 Importprice index (1995=100) 71 95 91 86 EnExports Imports Terms of trade (1995=100) 58 89 91 90 O2 BALANCEof PAYMENTS I 1982 1992 2001 2002 (US$ millions) 15;rrent account balance to GDP (%) Exports of goods and services 24,906 94,198 299,409 365,395 Importsof goods and services 20,555 86,752 271,325 328,013 Resource balance 4,350 7,446 28,084 37,383 Net income 376 249 -19,174 -14,945 Net current transfers 486 1,155 8,492 12,984 Current accountbalance 5,212 8,850 17,401 35,422 Financingitems (net) -995 -10,952 30,046 40,085 Changesin net reserves -4,217 2,102 -47,447 -75,507 1 96 97 98 99 00 01 021 Memo: Reservesincludinggold (US$millions) 24,842 220,051 297,721 Conversion rate (DEC, /ocal/US$) 2.4 5.9 8.3 8.3 EXTERNAL DEBT and RESOURCEFLOWS 1982 1992 2001 2002 (US$ millions) :omposition of 2002 debt (US$ mill.) Total debt outstandingand disbursed 8,358 72,428 170,110 155,676 IBRD 0 3,752 11,550 12,051 IDA 1 4,287 8,654 8,729 A: 12,051 Total debt service 2,125 8,618 24,297 23,688 G 43 IBRD 0 460 1,550 1,631 IDA 0 30 151 175 Compositionof net resourceflows Officialgrants 47 327 240 Officialcreditors 657 2,343 2,156 -839 Private creditors -122 8,949 -4,017 -13,593 Foreigndirect investment 430 11,156 44,241 49,308 Portfolioequity 0 1,243 3,015 2,286 F:62,103 World Bank program Commitments 330 1,865 782 563 \ IBRD E Bilateral - Disbursements 1 1,331 1,791 1,733 3 --IDA D Other multilateral . F - Private Principalrepayments 0 197 904 1,157 ;-IMF G Short-term - Netflows 1 1,134 887 576 Interestpayments 0 293 797 649 Net transfers 1 841 90 -73 - 82 -  Additional Annex 11:Summary of Social Issues CHINA Jiangxi Integrated Agricultural ModernizationProject Initial Consultations. A set of Participatory Rural Appraisals (PRA) in four counties (360 farm households in 25 villages) were carried out in the preliminary proposedproject counties in July 1999. The objective o f these PRAs were to identify the needs and interests of possible project beneficiaries. Main issues and needs identified by the farmers included the lack of adequate irrigation infrastructure to improve their crop production, uncertainty over land resources, lack of marketing structure, and lack o f credit. Findingsfrom the P U Splayedan important role inshapingthe proposedproject as it currently stands. Social Assessment Process. Inorder to ensure effective project preparation and implementation, a social assessment (SA) process has been establishedduringpreparation and will continue during implementation. The overall purpose of the SA is to assist in designing and implementing the proposed project with the support and active involvement of individuals and groups most directly affected. This participationranges from simple one-way communication, such as information disclosed in publicity campaigns and semi-structured and structured surveys, to more intensive interactions involving two-way discussions in which the informant's opinion is recorded and considered in the proposed project's design and implementation arrangements. The SA Report (SAR) prepared during project preparation was based on participatory rural assessments (PRA), including anthropological observation and a semi-structured questionnaire survey. However, the SA should be viewed as a continuous process of consultation to take place throughout the project's life cycle. The SA process will encompass a broad set of activities to be conducted during three distinct phases of the proposed project (identificatiodpreparation, implementation, and evaluation.) These activities involve a wide range of methodological tools reflectingthe multi-faceted nature of the issues to be addressed. Included as SA activities are also the consultations with project beneficiaries and affected groups and populations specifically outlined in the Beneficiary Participation Plan prepared by the Provincial PMO and data collection efforts for the purposes of monitoring and evaluation. Any issues that arise during the course of the proposed project as a result of the project or socio-economic developments, that may have an adverse impact on one or more population groups, will be investigated and mitigated if necessary. Objectiveof the Social Assessment. The SA focuses on issues that directly and indirectly impact the key stakeholders in the proposed project. The range of issues addressed by the SA includes, but is not limited to: (a) affordability concerns: Can the proposed project households afford the anticipated financing terms and other expenses, such user fees; (b) land security: Are the leasing arrangements fair and provide farmer households with tenure security? Are leased lands and forests properly maintained from the viewpoint of farmer households?;(c) inclusion: Are there any groups residing inside the proposed area whose needs are not being addressed by the project or who stand to lose from one or more of the proposed project activities? How does the proposedproject impact the poor, the elderly, and women? How are these groups involved in the project's decision-making?; (d) access to employment, credit, irrigated water, land: Do certain groups o f the population have lower access to employment, credit, irrigated water or land than other groups? What is the reasonfor this differential access? Will these groups participate in the proposed project and if so, how is their access improved as a result o f the project?; and (e) social cohesion, community decision-making: How are decisions made in the village? Do all residents o f the village have an equal say inthe matters that affect them? How are resources allocatedwithin the village? Are there any community development projects inthe village inwhich farm households contribute labor? -83 -  The Social Assessment Report. During June o f 2001, 876 farmers were interviewed or participated in focus groups, 239 questionnaires were filled in, and approximately 100 community maps and activity charts were drafted and gathered. The SAR emphasized the feminization o f agricultural labor and the increasing importance o f out-migration labor income to project family households. Agricultural problems stressed included much land remaining untilled due to low agricultural prices and too many peasant tax and fee burdens. Much dissatisfaction with the current water and irrigation service was also reported and a corresponding highinterest inthe project's water usage improvement aspects. The SAR also emphasized the need for the project design to recognize the varying social structure in different project areas, particularly inthe south where clans are well-developed and village leadership tends to be in the hands o f clan elders. Elsewhere successful entrepreneurs and government cadres are more significant local players. The SAR reported the villagers' desires that they actually receive services for the water fees that they already pay and that the agrotechnical stations be revamped to provide training innew agricultural methods. The SAR reported the following villager suggestions for the project - that: 0 Independent thirdparties supervise project loan funds to avoid embezzlement and other problems; 0 A loan implementation group be set up ineach village; All loanprocedures and accounting be made public; Lendingformalities are kept simple; 0 No changes be allowed inthe rate o f interest andpayback period o fthe loans, once set; 0 Local groups supervise money set aside for water conservancy to ensure that it is not diverted to other uses; and Each village be allowed to tailor fit the project to its local circumstances. The Social Assessment Team suggested: 0 A new loan contracting mode, dubbed "Company plus Farmer Households," be implemented for the project; 0 An integrated farm productionand marketingnetwork be set up ineach project district (city); 0 Use existing governmental agrotechnical institutions as enterprises to make agrotechnology more market-oriented; 0 Establish multi-purpose, locally run, farmers associations with leadership based with locally prominent people, whether clan elders, entrepreneurs, or cadre officials; 0 Making SIDDs fully voluntary and allow the WSO to gradually develop into free-standing independent entities; 0 Make training available for project beneficiaries and the project implementingteams; 0 Establish an informationfeedback system; 0 Publicize the project better; 0 Enhance traffic accessibility incommunications-poor areas such as mountain districts; 0 Give special consideration to include the poor inthe project; and 0 A separate social investigation be carried out on minorities inthe project areas. - a4 -  Minority Nationalities in the Project Areas. Jiangxi has very few ethnic minorities, with 99% of the population of the majority Han nationality. Nevertheless, the project area encompasses some thousands of ethnic minorities, mostly Shi and Yao concentrated in 28 minority villages. Shi villages are located throughout the province with the Shi people being either transmigrants from Zhejiang Province to the east or people who recently "rediscovered" their ethnic identity and applied for minority status during the last generation. The Shi are completely acculturated to the Han. They are mostly all farmers, living in marginalizedlands inhilly and mountaindistricts. The Yao are concentratedin one village area of southern Jiangxi, practicing horticulture or gathering mountain products. Both the Yao and Shi are relatively poor communities. The Social Assessment group made the following recommendations regarding minorities in the project areas: 1. A Multi-NationalitiesDevelopment Plan should bewritten and implemented. 2. Local Yao and Shi customs shouldbe respectedduringplan implementation and inplan design. 3. Yao and Shi villages should not be excluded from project participationdue to their relative poverty. BeneficiaryParticipationManual. Inorder to "streamline" beneficiary participationinproject design and later in implementation, a Beneficiary Participation Manual (BPM) has been prepared. The purpose of the Beneficiary Participation Manual is to describe in detail and formalize the consultation and participation process with affected groups. As such, it is a strategy for allowing stakeholders to influence and share control over the decisions and resources that affect them. The BPM should be viewed as a working document that is modified to reflect any changes inthe project andor inthe economic, political, and social conditions. The BPM: (1) identifies the project`s main stakeholder groups (beneficiaries in general, women in particular, government leaders, researchers and scholars, and any other groups that are affected by the proposedproject); (ii) summarizes the types of activities project households and affected groups (including non-project households) are involved in at different points in the project life cycle for each of the components (see table below); and (3) describes the extent of participation by households and affected groups, and (4) the forum for participation. The BPM also contains: (a) a strategy for involving farmer households in the development of the criteria for the selection of project villages and the actual selection of the villages; (b) a needs assessments of the farmer households with respect to production, training, and financing in each o f the project counties. Lastly, the BPM includes a clear set of criteria for targeting, selecting, supervising, and monitoringand evaluation. - 85 -  Below is a sample list of participative activities that are included in the BPM. Component Particioative Activities Water Peasantsorganize WUAs and participate inthe formulation o f regulations thereof. conservancy Peasantsparticipate inthe design o f location, route o f water conservancy works to be built w o h and the discussion o f maintenance and budget programs o f existing damaged water conservancv works. Peasantsoarticioate inthe construction o f water conservancv works. Peasantsparticipate inthe management o f loan funds for water conservancy works. Peasantsoarticioate inthe collection of reoavments for water conservancv works. Peasantsparticipate inthe maintenance and management o f water conservancy works. The level of water rate have been widely discussed by peasants and fixed with reference to comments from water users. Peasantsare consulted o f comments and suggestions for road construction. Peasantsparticipate inthe design and implementation o f whatever compensation programs for land expropriation. Improvement Peasantsoarticioate inthe establishment and management o f "land banks". of agricultural Peasantsparticipate inthe determination for the contents and manner o f technical production training. Peasantsparticipate inthe design o f action plans as to technical popularizing activities. Terms o f debit and credit o f the Project are widely discussed, peasants are involved inthe discussion for conditions and course to aDdv for loan. Peasants are involved inthe granting, management and recovery o f loan. Construction Peasants are involved inthe desien o f articles o f oeasant associations. of mallret Peasantsparticipate inthe establishment and management o f marketing associations. system Establishing the market information service system. Constructing the production and marketing system in"company +peasant household" mode. 1st stage training for social appraisal: given to managerialand appraisalpersonnel at Project offices. Discussion meetings with people concerned at the affected counties. 1st round of participative social appraisal: to understand the demand of participation of villagers andvillage cadres. 2nd round of training for social appraisal: givento managerialand appraisalpersonnel at provincial and county Project offices. Furtherunderstanding of the situations of the affectedcounties andthe 2nd roundof quick rural appraisal Definingthe list andprogramof participant activities. Project supervision: establishing information interactive networkswith the affected counties, townshim and vitlaees. - 86 -  AdditionalAnnex 12: Summary of Environmental Issues CHINA: Jiangxi IntegratedAgricultural Modernization Project Background. The Jiangxi Integrated Agricultural Modemization Project (JIAMP) consists of three components (irrigation and drainage; farm production improvement; and market system development) in 21provinces, the irrigation component beingimplemented on 70,000 ha. Project Location Jiangxi Province, with a total area of 166,900 km2 including cultivated areas of 22,532 km2, has 11cities and 99 counties. It is located on the south bank of the middle and lower reaches of the Yangtze River. The population of the province in 2000 was about 41,5 million, including about 32,8 million farmers. River Catchments Except for project areas of Xunwu County that lies in Pearl River catchment of Guangdong Province and Pengze County that lies inthe Yangtze (Changjiang) Riverwatershed, the project areas of the other counties are situated inthe Poyang Lake watershed that lies south of the middlereach of Yangtze River innorthem part of Jiangxi Province. Poyang Lake, the largest fresh water lake in China, i s located in the northern part of the province. It i s a flowing through and seasonal lake that accepts the water coming mainly from 5 river catchments (Gan, Fu, Xinjiang, Rao, and Xiuhe Rivers). The drainage area of the Poyang Lake river system is 162,220 km2 and occupies about 97% of the total area of Jiangxi Province. Natural Conditions The project areas are located in the subtropical zone with a monsoon humid climate with mean annual rainfall between 1,387-1,795 mm. The rainfall from March to June usually comprises 60% of the annual total. The mean annual temperature range between 16-2OC. The yearly mean frost-free period is 273 days. The yearly mean sunshine is 1,970 hours. Forest Cover and Nature Reserves Forest coverage in most of the project counties i s good, but it differs greatly from county to county. Congyi County has the highest forest coverage with 81.6% and the counties beside the Poyang Lake the lowest with only 11.8%. Inmost irrigation areas, forest cover is composed o f artificial (planted) forest, while the dominant species of wildlife are rabbits and various mice, usually o f low protection levels. Therefore, no significant effect on vegetation and wild animals is envisaged in the project areas. Based on a desk study, a number of natural reserves are found to be either very close to the proposed irrigation projects, or the preliminary drawings indicate sections of the proposed irrigation area andor water conveyance and reservoir appear to be within the buffer zone of the natural reserves. Before any construction activity starts within such areas, the project proponent should contact the respective authorities at the Jiangxi Wildlife Protection Administration Bureau of the Jiangxi Forestry Department or their Nationalcounterparts. Public Participation In order to seek local support, increase transparency and accountability to the public, reach consensus with various stakeholders, and enhance ownership of the environmental management and the proposed project, participation of beneficiaries and other stakeholders was of crucial importance in the environmental assessment process. In order to keep all beneficiaries informed, the EM TOR were sent to the libraries within the affected communities for review and comment by the interested parties. Notices were issued and were put up on notice boards. News media including local newspapers, television and radio were also used to inform potentialbeneficiaries and potentially affected people about the planned environmental study. Environmental Impact Assessment Report The EIA o f JIAMP is prepared to meet the requirements o f both the World Bank and the Government of Peoples Republic of China and Government of Jiangxi Province environmental assessment processes. According to the EIA TOR, this report presents the results - 87 -  of the Class B environmental impact assessment for the JIAMP based on the study of five counties comprising of 27 irrigation schemes that were selected to represent the major topographic, social and ecological norms that are present within the project counties. A detailed environmental analysis of the 27 irrigation districts located inthe 5 project counties of Pengze, Wuning, Hengfeng, Nancheng and Gan, each located in a different river catchment, was carried out by the EIA team. Whenever the irrigation schemes were in the proximity of natural reserves or ecologically sensitive areas, additional investigations were carried out outside the project counties to ensure that the proposedproject have no significant impact on the natural reserves, and ifneeded, propose further study programs. Inaddition, the counties for the EIA study were selectedso that all major river catchment, flowing in or out of Poyang Lake, be presentedto dete&ne the potential impacts of the proposed project, if any, on the Poyang Lake, a Ramsar site of international importance. Analysis was also made for each irrigation scheme around the Poyang Lake and on the banks o f Yangtze Rwer associatedwith the problem of Schistosomiasisbeyond the 5 typical counties. Possible Environmental Impacts The environmental analysis of the Jiangxi Integrated Agricultural Modemization Project indicated that the project would have no major direct negative impact on the natural environment. The overall social impact is positive. The project, if successfully implemented, should increase agricultural productionthrough improvement of the economic and social well beingof the farmers o f the project area. A reliable irrigation water supply should reduce yield reduction during drought periods, while provision of on-farm research and extension services and adequate market system should assist the project farmers with the technical know how and better means of obtaining maximum income from their effort without major negative environmental impact. The proposed project, in general, should also have a positive impact on the socio-economic conditions of the farming communities by improving their livelihoodthrough increasedpurchasing power. There are, however, a number of aspects of project implementation, which, ifnot properly mitigated, might have potential adverse effects on natural andor social environment within the project areas. The identified impacts are reversible and the magnitude of their impacts would depend on how the proposed project specific mitigation plans are implemented. It is believed that the successful implementation of the mitigation plans should reducethese impacts to insignificant levels. Other environmental impacts identified duringconstruction phase are o f temporary nature. Theses impacts include vegetation damage, temporary land occupancy, local soil erosion, public heath deterioration, minor noise and air pollution, and water pollution mainly due to sediment loading due to soil erosion and unintentional oil/fuel contamination by construction equipment. The main sources for such impacts include construction of access roads, rehabilitation or construction of main canals, soil mixing plants, labor camp, soil erosion within borrow sites, construction areas, and fuelinghtaging areas. Duringthe operation phase, potentialnegative environmental impacts include: Potential cumulative impact of increased application o f fertilizers on water quality and eutrophication inwater bodies includingthe PoyangLake; Potential impact due to potential increase in the use of highly toxic pesticides that could negatively impact not only the aquatic and terrestrial biota, but also the local and downstream residents; Social impacts of possible land acquisition and the compensation policies associated with the market construction in the project area; Potential increase in the incidents of waterborne diseases, including Schistosomiasis (Schistosoma japonica) implementation inthe irrigation areas (Pengze and Yongxiu Counties); and Social impacts of permanent loss of farmland and the compensation policies associatedwith the market construction inthe project area. -88 -  The most substantial envisaged negative environmental effects of the proposed project can be expected from a more intensiveagriculture productionduring the operation phase o f the project, which mightinvolve higher use of fertilizer, pesticides and herbicides. The proposed project in its design will put strong emphasis on mitigating these effects by introducingmore efficient application techniques to farmers. Most importantly, the proposed project would support integrated pest management (IPM), including: (a) managing pests (keeping them below economically damaging levels) rather than seeking to eradicatethem; (b) relying,to the extent possible, on nonchemical measures to keeppestpopulations low; and (c) selecting and applying pesticides, when they have to be used, in a way that minimizes adverse effects on beneficial organisms, humans, and the environment. Based on a desk study, the Fang Lake irrigation area inPengze County is close to a natural reserve, and the Yishui irrigation area appears to potentially be located inside the buffer zone of the Yihuang South China Tiger (Panthem tigris amoyensis) Natural Reserve. Taipingjiang irrigation area in Longnan County is also appeared to potentially have impact on the Jiulian Mountain Natural Reserve, while the Xiaojiang irrigation area is located in the fringe of the Yangling Natural Reserve. In addition, in recent years the Fang and the Taibo Lake o f Pengze, the Nanbei Lake of Port Hukou, and the lakeside beach in Yugan had become the over wintering habitats of some species of rare migratory birds. During final project design, attention should be paid to avoiding environmental sensitive areas like natural reserves and wildlife habitats. I t is proposed that PPMO should submit the project design documents of the sub-projects near natural reserves and wildlife habitats to the wildlife administrative department for review and approval before finalizing the project construction plans within such areas. Ifany project encroachthe buffer zone or the core region of the natural reserve, the environmental screening team will reject them. In addition, construction period within areas that are in the proximity of over wintering habitats of migratory birds should be reduced to avoid construction duringpeak use of the over wintering habitats. Environmental Impact Mitigation Measures Mitigation measures are proposed to preventheduce the identified potential environmental impacts of the project development. Since the project schemes are scattered throughout the province and involve a large area of Jiangxi, effective implementation of the proposed mitigation measures, if not well organized, would be a major challenge to the project proponent. In order to cope with this challenge, a detailed environmental management plan (EMP) is developed including institutional strengthening, environmental training requirements and environmental monitoring plan is developed, budgeted and presented in this report. The EMP recommends the development of an independent environmental management organization (EMO) within the present project management organization to be responsible for the implementation of the proposed mitigation measures during every stage of project development from pre-construction to operation to ensure the environmental sustainability o f the proposed project. - 89 -