Document of

The World Bank FFOR OFFICIAL USE ONLY

Report No. 2265a-BR

STAFF APPRAISAL REPORT

BRAZIL

SXO FRANCISCO II IRRIGATION PROJECT

June 4, 1979

Projects DepartmentLatin America and the Caribbean Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit - Brazilian Cruzeiro (Cr$)US$1 ' Cr$16.15 (January 1978)*CrSI - USSO.062CrSl million - US$62,000

Average Exchange Rates (Selling): Oct. Jan. May Sep. May1975 1976 1977 1978 1978 1978 1979

1US$ - Cr$ 8.13 10.73 15.00 16.15 17.27 19.15 24.64

*The January 1978 rate was used throughout the report and price contingenciescomputed accordingly.

GOVERNMENT OF BRAZIL FISCAL YEAR - January 1 to December 31

WEIGHTS AND MEASURES

1 meter (m) - 3.28 feet1 kilometer (Li) - 0.62 miles1 hectare (ha) - 10,000 m

2* 2.47 acres

1 square kilometer (km2) - 100 ha - 247.1 acres - 0.386 sq. miles

1 cubic meter (m3) - 1.31 cubic yards - 264.2 US gallona

1 kilogram (kg) . 2.2 pounds1 ton . 1,000 kg - 2,205 pounds

GLOSSARY OF ABREVIATIONS b SPECIAL TERMS USED IN THE TEXT

BB - Banco do Brasil (Bank of Brazil)BN'B - Banco do Nordeste do Brasil (Bank of the Northeast of Brazil)BNCC - Banco Nacional de Credito Cooperativo (National Cooperative

Credit Bank)BNH - Banco Nacional de Habitacao (National Housing Bank)Camurupim - Cooperativa Agricola Mista e de Colonizaqao do Camurupim,

Ltda. (Mixed Agriculture and Settlement Cooperativeof Camurupim, Ltd.)

CEHE - Central de Medicinas (Medicine Center)CHESF - Companhia Hidroeletrica do Sao Francisco (Sao Francisco

Hydroelectric Company)CIBRAZEM Companhia Brasileira de Armazenagem (Brazilian Storage

Company)COBASF - Cooperativa Mista de Irrigacao do Baixo Sao Francisco (Lower

Sao Francisco Irrigation Cooperative)CODEVASF - Companhia de Desenvolvimento do Vale do Sao Francisco (Sao

Francisco Valley Development Company)Combro - Irrigable river banksConv;nio - Contractual agreement between Goverrment institutionsDER - Departamento de Estradas de Rodagem (Department of Roads)EMATER (SE) - Empresa de Assistencia Tecnica e Extensao Rural (Sergipe)

or (AL) - or (Alagoas) (Technical Assistance & Rural ExtensionCompany)

EMBRAPA - Empresa Brasileira de Pesquisa Agropecuiria (BrazilianAgricultural Research Company)

EMBRATER - Empresa Brasileira de Assistencia TIcnica e Extensio Rural(Brazilian Technical Assistance & Rural Extension Company)

FSESP - Fundacao Servicos de Saude Publica (Public Health ServiceFoundation)

FUNRURAL - Fundo de Assist^ncia ao Trabalbador Rural (Rural WorkersAssistance Fund)

IJNPS - Instituto Joaquim Nabuco de Pesquisas Sociais(JoaquimNabuco Social Research Institute)

INAN - Instituto Nacional de Nutri,ao (National Institute ofNutrition)

INCRA - Instituto Nacional de Colonizacao e Reforma Agr;ria(National Institute of Colonization and Agrarian Reform)

PIN - Programa de Integracio Nacional (National IntegrationProgram)

POIWNORDESTE - Programa de Desenvolvimento de Areas Integradas do Nordeste(Development Program for Integrated Areas in the Northeast)

ST I - Lower Sao Francisco Folders ProjectSF II - Sao Francisco II Irrigation ProjectSUCAM - Superintendencia de Campanhas Medicinais (Superintendency

of Public Health Campaigns)SUDENE - Superintendincia de Desenvolvimento do Nordeste (Northeast

Development Superintendency)SUVAIE - Superintendencia do Vale do Sao Francisco (Sao Francisco

Valley SuperintendencyUEPAE - Unidade de Execur,ao de Pesquisa de Ambito Estadual

(Agricultural Research Station at State Level)V;rzea - Flood plain

FOR OFFICIAL USE ONLY

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page

I. THE AGRICULTURAL SECTOR

A. The Sector in the Economy ............................ 1B. Government Policies .................................. 1C. Agriculture in Northeast Brazil ...................... 2D. Bank Involvement in the Agricultural Sector .... ...... 3

II. THE PROJECT AREA

Introduction ... 3Location ......................................... 4Climate ......................................... 4Soils ....... .................................. 4River Regime ......................................... 4Population and Income ........... ................. 5Land Tenure ......................................... 6Cropping Systems ...................................... 6Present Rice Production ...... ..................... 7Agricultural Support Services . ................ 7Communications and Urban Facilities .. ................. 9Social Support Services . ...................... 9

III. EXECUTING AGENCIES

A. The Sao Francisco Valley Development Company (CODEVASF) 10B. Supporting Agencies . .......... 11

IV. THE PROJECT

A. Background .12B. Brief Description .13C. Detailed Features .14

Productive Capital Expenditures .14Incremental Recurrent Expenditures .19Social Infrastructure and Studies.. 19

The report is based on the findings cf appraisal missions in May and August1978 staffed by Messrs. Y. Pret, M. Asseo, C. Vidalon and A. Tobelem (Bank)and Messrs. E. Calderon, F. Damborenea, F. Gariboldi and R. Moreno (Consultants).

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Table of Contents (Continued)

PaRe

D. Cost Estimates ................... ..................... 20E. Financing ............................................. 22F. Procurement ..................... ...................... 22G. Disbursement ...... .................................... 23

V. PROJECT IMPLEMENTATION

A. Organization and Management ........................... 23B. Farmer Cooperatives ................................... 26C. Agricultural Support Services ......................... 28D. Social Support Services ............................... 29E. Network Operation and Maintenance ..................... 30

Network Operation ........ ........................... 30Irrigation Water and Other Development Charges ...... 30

F. Project Implementation Schedule ....................... 32G. Accounting and Auditing ............................... 32H. Monitoring .......... .................................. 33

VI. TECHNICAL COEFFICIENTS AND SPECIFICATIONS

A. Farm Development ...................................... 34B. Rice Processing ........................ 36

VII. PRODUCTION, MARKETS, PRICES AND MARKETING

A. Production ........................ 36B. Markets and Prices .. ...................... 37C. Marketing ........................ 38

VIII. FINANCIAL ANALYSIS

A. Farm Budgets ........... ............. 39B. Paddy Storage and Processing ............. ............. 40C. CODEVASF Budget ................... .................... 40D. Fiscal Impact of Project ............... ............... 41

IX. BENEFITS AND JUSTIFICATION

A. Economic Rate of Return ...... ......................... 41B. Project Beneficiaries ...... ........................... 43C. Environmental Impact .................................. 44D. Project Risks and Uncertainties .................. . 44

X. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION .... ....... 45

Table of Contents (Continued)

ANNEXES Page

1. Implementation Schedule ...................................... 50

2. Cropping Pattern .... ........................... ................. 51

3. Supporting Tables:

Table 1: Present Land Use and Crop Production ............. 522: Proposed Development of Project Area .... ........ 533: Irrigation Efficiencies ......................... 54

4: Annual Distribution of Project Costs ............ 55

5: Foreign Exchange Component of Project Costs ..... 566: Sample Unit Costs .................. .. ........... 577: Proposed Bank Disbursement Schedule ... .......... 58

8: Rent Recovery and Cost Recovery Indices ... ...... 59-60

9: Distribution of Farms by Model and Land Use 6110: Summary of Yields., Area Planted and Output ...... 6211: Expected Evolution of Paddy Production . ......... 6312: Projected Rice Prices ........................... 6413: Border Prices for Various Project Inputs and

Outputs ....................................... 6514: Farm Budgets ..... ...................... ......... 66-6915: Financial Analysis of Paddy Drying, Storage

and Milling ................................... 7016: CODEVASF Cash Flol ..................... 71

17: Draft Loan Amortization Schedule ................ 7218: Fiscal Impact of Project ..... ................... 73

19: Paddy Processing Unit Economic Cash Flow .... .... 7420: Agricultural Component Economic Cash Flow ....... 7421: Aggregate Project Economic Cash Flow .... ........ 7522: Analysis of Unit Investment Costs .............. . 76

4. Related Documents Available in Project Files ................ 77

MAP

Map of the Project Area (IBRD-11565 R)

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT

STAFF APPRAISAL REPORT

I. THE AGRICULTURAL SECTOR

A. The Sector in the Economy

1.01 Agricultural production in Brazil has been growing at a lower ratethan the GDP as a whole. Agricultural output decreased by 1.8% in 1978 dueto the drought which strongly affected crop production (-7.3%). Yet agricul-ture continues to be an important sector in the economy, providing 11% of thenet internal product of the country. The national agricultural work forcenumbers 12.8 million, or 39.5% of the economically active population, and43.1 million ha (out of a national territory of 8.5 million km2) are in agri-cultural use. About 56% of merchandise exports originate in the agriculturalsector, with coffee, soybeans and sugar alone generating about 40% of thecountry's export earnings. Brazil is the world's largest exporter of coffee,the largest producer of cane sugar, and the third largest producer of soybeans.It is also a major supplier of cotton, peanuts, cocoa, orange juice, castoroil and sisal.

1.02 The most important crops for the domestic market include cassava,maize, rice, wheat, beans, potatoes, vegetables, bananas, citrus fruit, dairyproducts, poultry, beef and swine; coffee, sugar, soybeans, cotton, and cocoaare also important for the domestic market. With the exception of wheat,Brazil is largely self-sufficient in basic food production, although somestaples (such as garlic, onion, potatoes and even beans) are imported seasonally.Half of the wheat consumed in Brazil is still imported.

1.03 Over 1967-74, the agricultural sector performed well in meetingdomestic demand for food and fiber as well as supplying a rising volume ofexport commodities, with output growing at 5.7% annually despite adverseweather conditions in three of the seven years. Farm output increased 4.2%over 1975/76, an increase due more to productivity gains with livestock(12.2%) than with crops (0.4%, though 9% if coffee is excluded). Until 1977,the value of output increased steadily, more as a result of an expansion ofproduction area than of improved productivity. Despite increased attention toproductivity and increasing market integration, subsistence and semi-commercialproduction and use of rudimentary technology continue to be widespread,particularly in the Northeast, North and Center West. Real wages in agricul-ture have been rising sharply in recent years, suggesting that the traditionalpattern under which the sector was a source of surplus labor for the rest ofthe economy, may not continue indefinitely.

B. Government Policies

1.04 The agricultural development strategy of Brazil's Second NationalDevelopment Plan (1975-79) aims at more efficient exploitation of the country's

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agricultural potential by increasing agricultural output by 40% in real terms

during the 1975-79 period. This goal reflects the Government's intention to

provide an increasing share of Brazil's growing domestic requirements for food

and fibers as well as to increase agricultural exports. In addition, the

Government has acknowledged the gravity of the country's income distribution

problems. Major measures to increase agricultural output have included:

(a) utilization of substantial public resources to incorporate new areas into

production, (b) significant expansion in the supply of agricultural credit,

most of it at subsidized rates, (c) reorganization of federal research and

extension services, and (d) special regional programs, such as the Development

Program for Integrated Areas in the Northeast (POLONORDESTE), that focus on

poorer regions and smaller scale farmers.

C. Agriculture in Northeast Brazil

1.05 The nine states of Northeast Brazil have a population of about 35

million, two-thirds of whom live in rural areas, and growing at a rate of

800,000 inhabitants per year. Much of the region has a semi-arid climate,

with periodic serious droughts and extensive areas of poor soils. Nonetheless,

the Northeast is a significant agricultural region, with 40% of the agricul-

turally employed population of Brazil usually accounting for 20% of Brazil's

agricultural production and a major share of the national production of cocoa,

cotton, cassava, beans and sugar. In 1977, 26.9% of the area harvested in

Brazil was in the Northeast. Throughout the region, much of the food and

industrial crops is produced by small farmers, technology is unsophisticated

and yields are poor, farming systems are adjusted to conditions prevailing:

lack of credit for working capital or investment, limited agricultural exten-

sion services, market isolation and weak linkages with the regional economy,

insecurity of land tenure and, in some areas, a difficult physical environment.

These problems are compounded by a highly skewed distribution of land ownership.

Less than 1% of the total number of farm establishments account for 40% of the

area, whereas in some areas up to 80% of the rural labor force owns no land at

all. Among Northeastern states, the proportion of land holders who have under

10 ha ranges from 49% in Ceara to 87.6% in Maranhao.

1.06 Numerous Government programs have been directed at speeding economic

development in the Northeast. The Government operates a special agency, the

Northeast Development Superintendency (SUDENE), and a special development bank

for the Northeast, Bank of the Northeast of Brazil (BNB). Substantial

fiscal and monetary incentives have been made available over the past decade

for both industry and agriculture. Programs to generate jobs in the industrial

sector have not kept pace with population increases, and continuous emigration

from rural to urban areas has been coupled with considerable emigration to the

more industrialized Center South of Brazil. Past Government programs directed

to the rural population have often been in the areas of public works, with

substantial efforts in drought-prone areas to develop dams and ponds. The

present Government has moved toward the reorientation and strengthening of the

institutions offering the services required to develop more productive labor-

intensive small scale farming, particularly under the POLONORDESTE program (in

which the Bank is involved).

D. Bank Involvement in the Agricultural Sector

1.07 The Bank has so far made 13 loans, totalling US$480.4 million, foragriculture and rural development in Brazil. These include two, amounting toUS$60.5 million, for livestock development; two, amounting to US$137 million,for agro-industries; one, of US$18.2 million, for grain storage; one, of US$40million, for an agricultural research program for the Northeast, North andCenter West of Brazil; one, of US$100 million, for the development of agri-culture extension services; and six, totalling US$124.7 million, for varioussettlement, irrigation and rural development projects, five of which arelocated in the Northeast. Bank loans for a nutrition project and a secondaryand feeder road project are also providing benefits to the rural population.Additional agricultural and rural development projects and a rural educationproject, all in the Northeast, are under consideration for possible futureBank financing. A combined Project Performance Audit Report (PPAR) has beenissued on the two livestock development projects. It shows that the secondproject was cancelled after a major part of the loan had been disbursed,because of disagreement between the Government and the Bank on relendingconditions. A Project Completion Report has been submitted on the grainstorage project and the corresponding PPAR is expected shortly. The projecthad to face difficulties similar to those of the livestock projects.

II. THE PROJECT AREA

Introduction

2.01 The proposed project would be located in the Lower Sao FranciscoValley, which is that part of the Sao Francisco River basin lying downstream ofthe Paulo Afonso Rapids (see Map 11565R). The Sao Francisco River is 2,600 kmlong. Its basin covers an area of 640,540 km2, much of which is in the NorthEast. The river has an energy potential of the order of 13,900 MW, of which4,500 MW are in the Paulo Afonso complex alone and another 900 MW at Sobradinho.Preliminary surveys conducted in the Sao Francisco Basin have shown that sometwo million hectares of the basin are potentially irrigable, of which govern-ment aims to develop some 500,000 ha by the year 2000. The Paulo Afonso IVhydroelectric works, financed in part by a US$81 million Bank loan, havemodified the downstream regime of the Sao Francisco river, threatening toleave the lower parts of a number of fertile flood plains (varzeas) permanentlyunder water, while production in their upper fringes would no longer benefitfrom natural seasonal floodings. To protect the modest livelihood of some4,500 families growing paddy on some 15,000 ha of varzea land, the Bankapproved in 1975 a US$23 million emergency loan (Lower Sao Francisco PoldersProject - SF I) to the Sao Francisco Valley Development Company (CODEVASF),responsible for the development and utilization of the water and land resourcesof all the Sao Francisco basin. The main objective of the SF I project is torestore the varzeas' original agricultural potential by building dikes andpumping stations around them to create hydraulic conditions similar to thoseprevailing before the change in river regime. SF I also provides for fullirrigation development of two of the eight larger varzeas. The proposedproject is a continuation of the SF I project.

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Location

2.02 The Lower Sao Francisco area, within which the proposed Sao 2Francisco II Irrigation project would be sited, covers an area of 13,300 kmIt includes 47 municipalities in the states of Alagoas and Sergipe on the leftand right banks of the river, respectively. The region does not form a homogen-eous unit, and, because of limitations of topography and soils and a lack ofgroundwater, opportunities for irrigation are limited mainly to the few floodplains or "varzeas" near the mouth of the river. There are nine large varzeasdownstream of Propria (see map) ranging in size from 1,300 ha to some 9,000 ha,and 67 small varzeas upstream from Propria, with areas ranging between 1 and400 ha. The area of the SF II project would consist of four of the largevarzeas (Boacica in Alagoas, Cotinguiba, Pindoba and Brejo Grande in Sergipe)with a combined gross agricultural area of some 11,000 ha, of which 9,645 hanet would be cultivated.

Climate

2.03 The climate of the area is semi-humid tropical with rainfall de-creasing gradually away from the coast. The mean temperature is around 25°C,varying from about 22½C in August to 27 0C in January/March, with absolutemaximum and minimum temperatures registered at Propria of 40.8 0 C and 150C,respectively. Relative humidity varies from 85% at the height of the rainyseason to 70% in the dry season. Downstream of Penedo, average rainfallexceeds potential evapotranspiration from April to September, when rainfedannual crops can be grown with a high degree of security. Annual rainfallvaries between 800 and 1,200 mm in the downstream zone, which comprisesthe main varzeas. Seventy to 75% of the total rain falls from March to August.The period from September to February is dry, with rainfall less than 50 mmper month, although precipitation varies considerably from one year to another.This rainfall pattern is in marked contrast to that in the upper part of theriver basin, where the main period of rainfall is from December to April.

Soils

2.04 The soils of the Sao Francisco basin in general are quite poorexcept for the alluvial flood plains, or varzeas, which consist of low-lying basins formed where tributary rivers and streams join the Sao Francisco.Such lands represent 70% of the project area. The lower parts of the varzeasare flooded every year. Soils of the varzeas are heavy clays of low permeabil-ity with moderate amounts of organic matter (1 to 3%), poor in phosphate butwith good levels of potash. Within present agronomic and social constraints,these soils are suitable only for rice cultivation. The rest of the areaconsists of (a) river banks (combros) of gently undulating topography withmainly fine textured silty or sandy clays suitable for most field crops (20%of the area), and (b) plateaus (tabuleiros) with deep well-drained latosolsof low natural fertility, better suited for tree crops or pasture (10% of thearea).

River Regime

2.05 The Sao Francisco River has an annual average discharge of almost100 billion cubic meters. Monthly discharges varied from a minimum average

flow between 700 m 3/sec and 1,850 m 3/sec in September to a maximum between

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2,500 m /sec and 11,250 m /sec in February before upstream regulation for powerprojects. Minimum flow is now increasing to about 2,100 m /sec. The SaoFrancisco River would be the main source of irrigation water for the SF IIproject. Ample water of good quality for irrigation 1/ will continue to beavailable in the lower valley from the Sao Francisco River well beyond theassumed project life, irrespective of future water use increases upstream.Irrigable land is the limiting factor. The river normally has only onelarge flood crest in the lower valley, peaking during the January/Marchperiod, then slowly receding to minimum levels in August-September.Occasionally a second, smaller flood occurs after the main peak, due eitherto the Sao Francisco or its tributaries, forcing farmers to replant theircrop. The floods are governed by the rainy season in the interior river basin,which precedes by a few months the lower valley rainy season. This unusualcombination of floods preceding rains in the project area has made possiblethe traditional cultivation of rice on the varzeas.

Population and Income

2.06 The entire basin's population is about 10 million (of which 1.5million live in Belo Horizonte), growing at 3% per year. Fifty-five percentis under 20 years of age. Fifty-four percent of the total population is inthe state of Minas Gerais, 20% in Bahia, 16% in Pernambuco, 8% in Alagoas and2% in Sergipe. Rural population of the Lower Sao Francisco increased at about2.2% per year between 1950 and 1970, but more rapidly on the Sergipe side(3.1%) than on the Alagoas side (0.8%) 2/. Meanwhile, urban population onboth banks has grown at 4.7% and 2.6%, respectively.

2.07 Because most of the people living in the project area have beensharecroppers, tenants or salaried workers, there is no reliable informationconcerning their number. Experience from previous projects has shown,furthermore, that a number of these families, mainly large land owners,prefer to move out after adequate compensation, rather than stay and complywith the land ownership and use structures and size limitations imposedby a project. No survey has been conducted on the intentions of the presentpopulation, but, with 3-ha plots in the combros, 3.5 ha in the varzeas and5 ha in tabuleiros (+ 1 ha of varzea land), which would meet: minimum incomecriteria, it is estimated that some 2,700 families, probably all formersmall- to medium-scale land owners, farmers and shareholders, would be settledas farmers in the project area.

1/ USDA Salinity Laboratory class ClS1, with low salinity and low sodiumcontent during the whole year.

2/ Source: Anuario Estatistico do Brasil, 1952, 1961, 1972. FIBGE, CensosDemograficos-Sergipe e Alagoas.

2.08 A recent survey showed per capita income in the Lower Sao Franciscoregion in 1977 to be around US$250 to US$300. Though this range is much

higher than the 1968/69 figure of around US$80, it still represents no more

than 35% of the average national income and is below the relative poverty

income level, considered to be around US$465 per capita in urban areas and

US$332 per capita in rural areas of Brazil. If the project varzeas are

considered alone, per capita income is lower still (US$190 per year), with

three-quarters of the population, including the project target group, below

this figure and some 40% below the US$100 mark. The Boacica varzea, the

largest and most heavily populated, has the lowest average per capita income

(US$130 per year).

Land Tenure

2.09 Traditionally, most of the landed property in the area has been

of two types: (a) a few very large farms cultivated through sharecropping

arrangements, and (b) very small farms cultivated by their owners. Recent

cadastral surveys show that there were 1,982 farms in the four varzeas in 1977

with a total area of 15,066 ha (average size: 7.6 ha). Some 44.5% of these

farms had less than 1 ha (2.8% of the total area), 63.5% had less than 2 ha

(6.4% of area), 82.5% had less than 5 ha (14.2% of area) and 93.6% had less

than 20 ha (27.9% of area), whereas 0.9% had more than 100 ha with 41.2% of

the total area. This analysis does not reflect the further subdivision of

agricultural properties among sharecroppers. The following table provides

further details.

Area ofNumber of Cadastral Survey Average gross Cultivable Cultivable

Varzea farms (ha) area/farm (ha) area (ha) area/farm(ha)

Pindoba 154 1,478 9.8 1,143 7.6

Cotinguiba 430 2,502 5.8 2,009 4.7

Boacica 1,190 6,026 5.1 4,958 4.2

Brejo Grande 208 5,062 24.7 2,600 12.5

Total 1,982 15,066 7.6 10,710 5.4

Cropping Systems

2.10 Rice is the dominant crop in the area. It covered about 58% of the

cropped area of the varzeas in 1976. Paddy production was then estimated at

about 6,500 tons cropped over 4,100 ha with an average weighted yield of 1.6

tons/ha. The average yield of SF I assisted farmers has been about 4 tons

per hectare in their first harvest under the project. Production of the

other crops--beans (18% of the area), maize (20%), cotton (5%) and some

cassava--is relatively insignificant, especially considering the very low

yields achieved. Table 1 of Annex 3 provides detailed area and production

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data per varzea. The prevailing cultural practices are primlaitive due mainlyto the land tenure situation and climatic risks which do not favor capital-intensive agriculture. Rice is transplanted at the beginning of the rainyseason on lands previously prepared at the end of the seasonal flooding(March). Because of the heavy textured soils, plowing must be done bytractor, and little work is done after planting until harvesting time inAugust. Combro lands, where most of the population lives, are used for asubsistance type of farming in small areas during the rainy season.

Present Rice Production

2.11 The present variety of paddy (SUVALE 1), locally produced by CODEVASF,is of a long grain type with remarkable thickness. It has a 150-day vegetativecycle. However, chalky and unriped grains reach 30% by weight in some samples,mainly because of lack of good levelling of the fields, improper spacing ofthe seedlings, inadequate fertilization practices, water logging and the wrongchoice of harvesting time. The present system of paddy cutting causes furtherbreakage and fermentation. Threshing machines provided by contractors are notof the proper design or power. The climate, soils and proposed availabilityof controlled irrigation and technical support suggest, however, that riceproduced in the Lower Sao Francisco varzeas could be among the best in thecountry.

2.12 After threshing, the grain is bagged and left in the open until itis moved by truck to the mill. The mills are equipped with dryers originallydesigned to dry coffee beans, and there is no grading system nor testingequipment. Paddy prices are established on the basis of the area where it hasbeen grown. Storage capacity is limited. However, present milling technologyis reasonably good and compares favorably with several Asian countries whererice is the staple food. The main deficiencies of the local mills stem fromtheir design as small, standard and compact units which cannot be adapted toprocess different varieties or to ensure a constant flow of the product.Yields vary considerably from one mill to another. An approximate compositionof milling recoveries based on a limited number of samples shows that 64%of the paddy is transformed into a highly broken low grade rice. Bran ismixed with pulverized husk for use as animal feed. The remaining husk createsa disposal problem.

Agricultural Support Services

2.13 The agricultural support services (research, extension, mechanization,storage and marketing, farm inputs supply, credit) in the project area areweak. There is also a duplication of efforts between agenciLes. Limitedresearch facilities are available at a small regional station, "Unidade deExecucao de Pesquisa de Ambito Estadual" (UEPAE), operated by the BrazilianAgricultural Research Company (EMBRAPA). It conducts research in tropicalcrops including rice, with special attention to fertilizer use. The AlagoasExtension Company (EMATER-AL) is just starting to assist the Itiuba irrigationarea. EMATER-AL and its Sergipe counterpart (EMATER-SE) have seven offices inthe project area, the main ones being at Penedo and Propria. all understaffed.Both institutions require major strengthening before they can become usefullyinvolved in project activities to replace ongoing CODEVASF assistance, espe-cially in the field of irrigated agriculture.

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2.14 There are now some 81 tractors in the Lower Sao Francisco area, all

privately owned, and 19 threshers. However, only 13 of the threshers are inusable condition. State mechanization companies do not provide such servicesin the area.

2.15 There are two cooperatives in the immediate project area: the LowerSao Francisco Irrigation Cooperative (COBASF) and the "Cooperativa Agricola

Mista e de Colonizacao do Camurupim, Ltda.," hereafter called Camurupim.COBASF, with headquarters in Propria, was restructured by CODEVASF as the

farmer organization around which to develop all the Lower Sao Franciscoirrigation projects and to implement the simultaneous land reform exercise.COBASF was planned to be, at least in a first phase, the sole owner of the land

now being purchased by CODEVASF for allocation to member farmers of COBASF.Farmer members subscribe shares of Cr$ 10,000 per hectare allocated, payable

in 20 years. In August 1978, COBASF served 478 small farmers, 367 of whomwere in Propria, Itiuba and Betume. COBASF establishes cultivation plansand supplies its members with farm inputs, channels institutional credit atpreferential rates and markets all their output. It is equipped with storage

space of varying quality that can accommodate up to 3,600 tons of paddy inbags, plus a bag storage unit planned to have a capacity of 9,000 tons now

being set up on some 30,000 m2 of levelled land in the vicinity of Propria.The unit has electric transmission lines and a link to the city water andsewerage systems. COBASF has an office staff of 10, eight of whom, includingthe president, are CODEVASF employees seconded to COBASF. Many members of the

cooperative have not been paying their share annuities and have been defaultingin their debts to Banco do Brazil because of poor initial crops, due in partto weak cooperative management and in part to exceptionally bad weather

conditions. The cooperative has been kept solvent in its early years throughthe injection of US$350,000 of CODEVASF funds. Full development of the SF Iand SF II projects would put excessive strain on COBASF by bringing its totalmembership to some 4,600 farmers while spreading its involvement to new linesof activities. A reformulation of the cooperative structures would thereforebe required under the proposed project.

2.16 The production cooperative of Camurupim was established in theCotinguiba and Pindoba varzeas by some 110 farmers sharing land sold to themby the Church under special financial arrangements. It now has 195 members

growing mainly rainfed rice in the varzeas and some livestock in the upperlands. Although the Camurupim cooperative is considered to be in a difficultfinancial situation, and half of its land falls within the scope of theproposed project, its members have in the past refused to merge with COBASF,

partly because of the poor image of the latter and partly because of conflictbetween CODEVASF and local Church authorities. A cooperative formula preservingCamurupim's identity and land ownership has now been devised and an agreementalong those lines has been reached between COBASF and Camurupim.

2.17 The Bank of Brazil's (BB) regional agency in Propria provides creditfor agricultural inputs of both COBASF and Camurupim. In November 1977, out-

standing credit to COBASF amounted to Cr$ 9,140,958 (US$592,000 at thecurrent exchange rate of 15.43) with Cr$ 4,537,085 (US$294,000) to Camurupim,mainly allocated to finance recurrent costs. The local agency is, in principle,

authorized to approve directly loans up to Cr$ 5 million. BB reports nolimitation to credit to the cooperatives as long as they are backed by CODEVASF.

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A 13% interest rate is charged to cooperative members and loans are processedindividually, although BB would prefer collective processing. BB can alsoprovide warrants on crops awaiting marketing, at 18% interest per annum.Similar conditions can be obtained from the Bank of Northeast Brazil (BNB).

Communications and Urban Facilities

2.18 The project area already has an extensive road network. Federalhighway BR-101 crosses the Sao Francisco River on a recently built bridgebetween Porto Real de Colegio and Propria. It links the main towns of thearea to the state capitals, Maceio and Aracaju, and runs south to Salvadorand north to Recife. All varzeas in the project area have feeder links to themain highways. The Sao Francisco river, navigable year round up to Pao deAcucar, could link all project varzeas, especially for the transport of bulkyproduce, if road access were available from the varzeas. A railroad runsparallel to BR-101. There is a major airport at Aracaju, 80 km from Propriaor Neopolis, plus two landing strips at Propria (CODEVASF-owned) and Penedo(owned by the road construction and maintenance services of Alagoas, DER-AL).

2.19 All urban centers of the region have electricity supplied from thePaulo Afonso installations of the Sao Francisco Hydroelectric Company (CHESF)through state electricity companies owning three sub-stations in Sergipe andtwo in Alagoas. However, rural consumption is below 8 kwh per capita peryear, less than 1% of urban consumption. Postal services cover all municipal-ities of the area through eight offices in the main towns. Telephones arelimited to Propria and Penedo. Penedo also has a telex link. From 60% to 70%of urban houses in the area were linked to a water distribut-ion system inApril 1977, up from 13% in 1970, but there is no such system connected to anyof the rural houses. Most rural homes are built of adobe, and 65% requiremajor repairs to provide for adequate protection from the Barber bug, carrierof Chagas disease. 1/

Social Support Services

2.20 The educational level of the area population is low. Only 50% ofadults in the project area were considered as "literate" in 1977 (comparedto a national average of 64% in 1970). In the rural areas of Sergipe andAlagoas, only 30% of the 7 to 14 year age group are at school, and 98% ofthose are concentrated in the first four grades. Socio-economic conditions,inadequate curricula and an inappropriate school calendar contribute to an 80%dropout rate after the first grade. None of the teachers in the rural areashas any pedagogical training. Physical infrastructure is also very poor andmore than 40% of existing schools need to be replaced.

2.21 The project area is characterized by a high incidence of communicablediseases, widespread malnutrition, mainly in pre-school children, and a highprevalence of parasitic infestation (schistosomiasis, trypanosomiasis and hook-worms). Unless adequate measures are adopted, the introduction of irrigationsystems would further increase cases of schistosomiasis which, accordingto the scant statistics available, already affects 13% to 59% of the populationin different varzeas.

1/ A parasitic disease causing severe damage to the heart and intestines(tripanosomiasis).

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2.22 The Alagoas and Sergipe State Secretariats of Health, responsiblefor the formulation of health policy in the project area, have contracted the

Public Health Service Foundation (FSESP) to deliver preventive care and some

sanitation services in their areas. The Rural Workers Assistance Fund (FUNRURAL)

also finances some health services, hospitals and ambulatory care centers,including those of FSESP and of COBASF. The latter serves SF I projectbeneficiaries in two municipalities (Ilha das Flores and Betume). The Superin-

tendency of Public Health Campaigns (SUCAM) and FSESP are developing a specialProgram for Schistosomiasis Control, which has up to now covered only a small

part of the project area. Other government agencies active in the project

area are (a) the Medicine Center (CEME), which produces pharmacologicalproducts and vaccines to be distributed to all public services, and (b) the

National Institute of Nutrition (INAN), which is financing supplementaryfeeding programs for breast-feeding mothers, preschool and school children.Most agencies have concentrated their efforts in urban areas. CODEVASF has

funded the construction and equipment of rather costly health centers inMarituba and Betume, and has provided some health screening services. Coor-dination between CODEVASF and other health agencies has been insufficient inthe area.

2.23 There are seven hospitals in the region, with a total of 316 beds,and 26 health centers, 60% of which have permanent medical services. Profes-

sional personnel number 42 physicians, 21 dentists and three nurses, almostall employed by FSESP, to serve a regional population of 210,000.

III. EXECUTING AGENCIES

A. The Sao Francisco Valley Development Company (CODEVASF)

3.01 The Sao Francisco Valley Development Company (Companhia deDesenvolvimento do Vale do Sao Francisco - CODEVASF) will be the main executing

agency of the project. It was established in 1974, as a public sector enter-prise under the Ministry of the Interior to succeed the Sao Francisco ValleySuperintendency (SUVALE) in promoting the economic development and utilizationof the natural resources of the Valley, principally its water and soils.

SUVALE's main activity since its establishment in 1967 had been to identifypriority areas for irrigation and agricultural development and minor implemen-

tation of selected projects.

3.02 CODEVASF, with headquarters in the Federal District of Brasilia,operates like a private sector development company, with planning, coordination,

and executive functions. It acts on behalf of the Ministry of the Interior as

the leading federal development agency in the Sao Francisco Valley. CODEVASF

objectives are to develop and utilize the water and land resources of the

Valley, either directly or through the public and private sectors, using them

whenever possible for the execution of projects through contracts or agreements

(convenios).

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3.03 By mid 1977, CODEVASF was operating some 5,000 ha of irrigated land,1,500 ha of which were in the Lower Sao Francisco and some 3,500 ha spreadamong seven projects in the Middle and Upper Sao Francisco, six of which are

pilot projects. CODEVASF is carrying out construction work on nine projectsoutside the Lower Sao Francisco with a total irrigable area adding up tosome 50,000 ha. CODEVASF's 1978 budget was of the order of Cr$ 1.9 billion

(US$116 million). Some 71% of the budget is financed through the NationalIntegration Program (PIN).

3.04 CODEVASF has a Board of Governors (Conselho Director) made up of one

representative each from the Department of National Planning; the Ministriesof Agriculture, Transportation, and Mines and Energy; and four additionalmembers appointed by the Minister of the Interior. The Board of ExecutiveDirectors, appointed by the President of the Republic, is composed of the

Chairman of the Corporation and three Directors in charge, respectively, ofPlanning and Finance, Operations, and Technical Activities. All four Directorswere changed in March 1979 when the new Federal Government itook office. A

team of FAO experts has been advising CODEVASF on essentially technical mattersfor the past few years. There are four regional directorates with a certaindegree of statutory autonomy with field units under them.

3.05 The actual execution of the project would be the responsibility ofthe 4th Regional Directorate, in charge of all Lower Sao Francisco Basinprojects. Its headquarters are at Aracaju, capital of the 'State of Sergipe.

The Directorate has two main divisions (Irrigation and Administration), plustwo smaller units (Production and Services). It is at present supervisingongoing construction works, providing social assistance to area farmers,closely assisting the COBASF cooperative, managing existing irrigation networks,conducting expropriation activities, and, in some cases, preparing engineeringdesigns. While lower level staff has been increasing rapid:Ly, the office

remains understaffed in professional positions, 45 in all, half of whom areagronomists, with an excessive concentration of responsibiliLties in the personof the Regional Director. A new Regional Director was also appointed inMarch 1979.

B. Supporting Agencies

3.06 Some of the proposed project components would be implemented throughexisting federal and state (Sergipe and Alagoas) agencies under operationalagreements (convenios) with CODEVASF to construct and/or operate schools (StateSecretariats of Education), roads (Departments of Roads), health services

(mainly FSESP and SUCAM) and electric lines (state electricity companies), andprovide agricultural services (mechanization companies, the Brazilian TechnicalAssistance and Rural Extension Company (EMBRATER), EMBRAPA, the BrazilianStorage Company (CIBRAZEM), and such). Agricultural credit would be providedthrough BB, BNB or the National Cooperative Credit Bank (BNCC), withoutrequiring any special operational agreement.

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IV. THE PROJECT

A. Background

4.01 Farmers in the Lower Sao Francisco varzeas have traditionallyrelied on the variations of the river's discharge to flood their rice fields,

and on natural rainfall to grow their crops, without having had any controlover either. However, one or the other of the two sources of water havefrequently failed in the past, or else too abundant rains have caused the

local streams to flood, resulting in varying degrees of crop loss. Smallerfarmers and share croppers in the Lower Sao Francisco area have also lackedtechnical assistance, credit, fertilizers, adequate seeds, proper storage andrice processing facilities. They have been further hampered by skewed landownership structures, a buyers' market, lack of formal education and poorhealth facilities. The construction of the Paulo Afonso IV hydroelectricworks, financed in part by a US$81 million Bank loan (1008-BR), has resultedin further potential problems since the construction works modified the regimeof the main river and its tributaries, increasing the minimum flow of theSao Francisco river from 700 to 2,100 m3/sec, with peak flows of 4,500 m3/sec.This would have left the lower parts of the varzeas permanently under water,while rice production in their upper fringes would not have benefited from the

natural seasonal flooding which reached those areas one year out of two in thepast. In view of the circumstances, CODEVASF studied in 1973 and implementedthereafter a protection cum irrigation project in two of the eight largevarzeas affected by the new river regime (Propria and Itiuba). To protectthe remaining six large varzeas and 63 smaller ones, the Lower Sao FranciscoPolders Project (SF I) was also prepared on an emergency basis and financedpartly by a US$23 million Bank loan (1153-BR), signed in August 1975.

4.02 The principal objective of SF I has been to build protective dikesand pumping stations in the varzeas of Boacica and Marituba in Alagoas andCotinguiba, Pindoba, Betume and Brejo Grande in Sergipe. SF I is alsoaiming at providing full irrigation development and supporting physical andsocial infrastructure for the Marituba and Betume varzeas, a fish hatcheryand 64 km of feeder roads built or upgraded to all-weather conditions. Thefour remaining large varzeas in the area (Boacica, Pindoba, Cotinguiba andBrejo Grande), which are the subject of the proposed Sao Francisco II (SF II)irrigation project, are being provided by SF I with only the dikes and pumpscapable of artificially recreating the seasonal flooding and draining patternprevalent before Paulo Afonso IV construction. However, during projectimplementation, it was decided (with Bank agreement) to contain rapidly risinginvestment costs by reducing the size of the dikes and especially the pumps tothe more modest requirements which the subsequent (SF II) construction of anirrigation network would make possible. Local financing was provided for theexpropriation of project lands in view of their redistribution in 3- to 4-haplots under cooperative arrangements, to farmer, sharecropper and agriculturalworker families living in the area, thus avoiding an unequal distribution ofproject benefits which would favor the larger farmers. Works at Propria werecompleted in 1977, and, in August 1978, the varzea had already been cropped

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twice under irrigation by 254 settlers. Another 20 families were expected to

be settled by the end of 1978, bringing their number close to the target 296.

Also 78 families of 231 planned for I'tiuba have already been settled.

4.03 A specially complex project; entrusted to a young and relatively

inexperienced agency, SF I has been proceeding with a number of implementation

problems. Some of these problems are of a managerial and political nature,

while others are due to untimely and unusually heavy rains, which, combined

with inadequate preparation, have been delaying construction works since early

1977, both in Betume and Itiuba. The whole project's development has further-

more suffered major setbacks from floods of highly exceptional intensity

(resulting from a flow of up to 14,000 m3/sec in the Sao Francisco River) which

have been covering the area since February and are only now starting to recede.

As a result, only 22 settlers had achieved a harvest up to August 1978 in Betume;

20 others have since taken possession of their plots, and 42 more are under

training on temporary plots, awaiting final settlement. Marituba civil works

are still at the drawing board stage, and construction work on the other varzeas

is just starting. Completion date of SF I, originally set for June 30, 1979,

is expected to be postponed by some three years. By completion, some 1,200 to

1,300 farmer families should be settled on SF I areas. The objectives of SF I

may have to be substantially reviewed in the near future to provide for the

rehabilitation of all Lower Sao Franc^isco varzeas which have suffered from the

recent floods.

4.04 Difficulties in the implementation of the Propria, Itiuba and SF I

projects, both in the technical and social fields (mainly in the expropriation

of owners and compensation of workers), precipitated strong complaints from

the local Church and politicians in 1977. However, a number of measures taken

since by CODEVASF, including the appointment of eight social assistants to work

in the project area, the elaboration of more appropriate settler selection

criteria, the establishment of work teams for unemployed farmers ("Frente de

Trabalho") and some compensation payments, have improved relations with the area

population, increased farmer awareness of and interest in CODEVASF activities

and opened the way for a smoother implementation of the proposed SF II project.

4.05 The SF II irrigation project was prepared by CODEVASF staff 1/ with

periodic supervisions from the FAO/W.B Cooperative Program, and more recently,

a number of visits by Bank staff and consultants. As a direct follow-up of

and complement to the SF I project, it has been conceived along lines very

similar to the irrigation works of Betume and Marituba since the physical and

social environment created by SF I have left little scope for fundamentally

different alternatives.

B. Brief Description

4.06 The SF II project aims at: (a) increasing by 50% to 250% the income

of some 2,720 farmer families, today among the poorer segments of the area

1/ Preparation documents were based on pre-feasibility studies by SCET-SIRAC

and feasibility level studies for the various varzeas carried out by

Electroconsult, Geotecnica and Seebla/SB/Ilaco. The rice processing

component was prepared by a Brazilian consultant firm, Florencio

Engenharia, with direct assistance from the Bank consultant in post-

harvest operations.

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population; (b) providing improved health and education facilities; (c) increas-ing rice production and improving its quality; and (d) strengthening CODEVASF'smanagement capability. The project seeks to achieve the above goals by(a) providing irrigation facilities; (b) developing cooperatively owned familyplots of more or less equivalent production potential (in most cases, 3.5 haof irrigated varzea land or 3 ha of irrigated combro land) to replace thepresent skewed land tenure pattern; (c) providing cooperative production andmarketing structures and preparing local farmers to participate in cooperativeactivities; (d) introducing technological improvements which would increaseyields through better input supply, farm mechanization, and reduced post-harvestlosses; (e) developing improved extension services and applied research insmall farm cultural and post-harvest practices; (f) developing better storagefacilities and a modern paddy processing plant which would increase the valueadded in the region; (g) providing the area with improved social and supportinfrastructure; and (h) reinforcing CODEVASF with locally recruited high-levelstaff to be initially advised by FAO specialists.

4.07 Rice would be grown on all varzea lands under irrigation. In combrolands under irrigation, the project envisages fairly intensive crop rotationsincluding cotton, peanuts, watermelon, maize, and bananas until more profitablecropping patterns can be identified through the proposed research activities.Rice farmers are expected to gradually introduce fish ponds, which wouldoccupy up to 6% of the total rice area if the practice becomes generallyadopted and would help control the vector of schistosomiasis. Since, however,little experimentation has been done up to now on fish farming, potential incomefrom this activity is not considered among project benefits.

4.08 The main production oriented components are an irrigation anddrainage network with the corresponding power lines and maintenance equip-ment, agricultural machinery, rice storage and milling facilities, agriculturalresearch and extension services, access roads, reinforced project administra-tion with complementary technical assistance, and a network of primary andsecondary cooperatives. Compensation for harvest losses during constructionis to be financed by the project as a cost inherent to the proposed works.Agricultural credit is not included among project components since amplecredit is available through various local banks. Social components providedunder the project include housing, schools, rural health centers, sewerage,water supply and rural electrification. The project would also financefurther studies. Land acquisition costs are not considered since this itemhas already been included in the SF I project. The project would be imple-mented by CODEVASF, assisted in specialized areas by existing federal andstate agencies.

C. Detailed Features

Productive Capital Expenditures

4.09. Irrigation and Drainage Network. The project is intended to cover anet cultivated area of 9,645 ha of which 8,778 ha would be irrigated (Table 2of Annex 3). Rice would be cultivated by flood irrigation over a net area of

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about 6,887 ha (or 78% of the total irrigated project area), while 560 ha net

of a variety of crops would be furrow irrigated on combro lands. Subject to

favorable results from pilot plots, sprinkler irrigation would be installed on

1,331 ha net (15% of the irrigated area) on further combro lands where (a) a

combination of undulating topography and relatively light soils creates a

potential danger of erosion if irrigated by furrows; and (b) higher costs of

land planing and canal lining for furrow irrigation make sprinkler irrigation

competitive. The hydraulic infrastructure provided by the SF I project would

be used for SF II irrigation. It consists of 41 km of protective dikes and

four control structures, with pumps with a total discharge capacity of 45 m3/s

(8,090 hp) with heads between 3.30 aLnd 8 m. Their timely and adequate comple-

tion is a prerequisite for the construction of the proposed irrigation network.

4.10 Individual paddy fields to be irrigated by flooding would be sub-

divided into plots by 35-cm-high bunds following contour lines 10 cm to 20 cm

equidistant, depending on the slope of the terrain. This method would minimize

land shaping costs. Paddy fields would be grouped into "irrigation units"

("modulos de irrigacao") of about 20 ha each, supplied through a single outlet

structure delivering a continuous flow.

4.11 Furrow irrigation in combros is limited by the micro-relief. During

the months of major water demand, water would be applied to the field 24 hours

a day. The crops considered for furrow irrigation (Pindoba and Brejo Grande)would have irrigation cycles of 10 clays, and each irrigation unit would cover

40 ha. The distribution network would convey the water to a feeder canal

from which plastic siphons would del,iver the water to the furrows.

4.12 Sprinkler irrigation of various crops in Cotinguiba and Boacica

would operate 22 hours a day during the months of maximum demand. Water would

be applied to irrigation units of about 16 ha in cycles of eight to 10 days.

The irrigation intensity would be of about 10 mm/hour. The final design

features would be adjusted to reflect the results of the sprinkler pilot plots.

Irrigation efficiencies by varzeas are shown in Table 3 of Annex 3.

4.13 New pumping stations would be installed as follows: 1/

(a) Cotinguiba: One pumping station of 120-hp installed capacity

located at the northwest corner of the varzea, to lift 0.6 m3/sec 6 meters

above the Sao Francisco River to irrigate 452 ha net of combro land by

sprinklers and 56 ha net of rice land by flooding; three 300-hp pumping

stations on canals for sprinkler irrigation (0.2 m3/sec discharge, each

with a 58 m head).

(b) Boacica: (i) Two pumping stations at the upstream (northern) end of

the varzea, to lift, respectively, 1.43 m3/sec (200 hp) and 0.5 m3/sec (50 hp)

of water for rice flooding 4 to 6 m above the channels of the Boacica River

and its tributary.

(ii) Three 225- ito 375-hp pumping stations located along

canals, with a total discharge of 0.58 m3/sec for sprinkler irrigation of

636 ha net of combro land in the southwest of the varzea.

1/ Technical features are subject to review during final design. This

is not expected to affect significantly overall cost estimates.

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4.14 The project would provide the varzeas of Cotinguiba-Pindoba, Boacica

and Brejo Grande with about 137 km of primary and secondary irrigation canals

(about 16 meters of canal per gross irrigated hectare), of which about 86 km

would be concrete lined and the remainder would be earth canals. Sprinkler

irrigation would require main and secondary pipelines of a total length of

about 36 km (about 45 meters per gross hectare of sprinkler area). Main

drains would have a total length of about 100 km (10 meters per gross irrigated

hectares). The internal road system along canals and some of the main drains

would cover about 230 km (23 meters per gross irrigated hectare).

4.15 Network and pumping capacities would be based on the water required

during the months of maximum demand (December and January), when round the

clock pumping would be necessary. The cropping pattern considered in the

combros allows for two to four months per year, between March and September,

of very low water demand when overhaul and repair works could be done on

equipment and network. However, maintenance time available under double

cropping of rice would be relatively short, unless a satisfactory short cycle

rice variety is introduced. The irrigation canals would have a trapezoidal

cross section and bank slopes of 1.5:1 (horizontal to vertical). The dimen-

sions of freeboards and berms would vary with the conveyance capacity 1/.

Longitudinal canal slopes would be designed to maintain water velocity at

or above 0.30 m/sec in order to limit excessive sediment deposition. The

justification for concrete lining, where advisable, has been studied in detail

and its economic merits compared with the alternative of unlined canals.

4.16 Since the rice crop would be lost if submerged seven or more conse-

cutive days, the drainage network would be dimensioned to limit the recurrenceof such floods to once in 10 years. On this basis, the network would be

designed for the discharge of 2.5 to 4.3 1/sec per hectare of surface water,mainly rainfall runoff from both the project and outside areas, plus unavoid-

able operational losses and waste of irrigation water.

4.17 Irrigation and drainage network layout and designs have been carried

out by different consultants for each varzea, following their individual

criteria, which CODEVASF has not tried to unify. Detailed designs along more

acceptable criteria and standards would therefore be needed for each varzea

preceding work implementation to eliminate the present shortcomings and

heterogeneity. Those final designs are expected to provide for measurementof water actually delivered to each irrigation unit (a) for the purpose

of adequate on-farm and overall water management, which would be further

improved by flow measurements at the head of major canals and by regular

monitoring of the water table and salinity content in sensitive areas; and

(b) so that water charges be applied on a volumetric basis as an incentive for

water and energy conservation.

4.18 Electrical Network. Since most pumping stations are provided

through the SF I project, the proposed project would provide only about 3 kmof 13.8 KV lines to four new pumping stations in Cotinguiba and another 8 km of

1/ Following the standards of the "Secretaria de Recursos Hidraulicos de

Mexico."

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13.8 KV lines, most of it from the main pumping station tco three sprinklerpumping stations in Boacica. These transmission lines are being designed bythe state electricity companies of Sergipe and Alagoas.

4.19 Network Operation and Maintenance Equipment. The equipment to beprovided under the project for the operation and maintenance of the irrigationand drainage network would consist of three 100-hp crawler tractors withvarious attachments (blades, excavat:or, ditchers, ripper, scraper); sixfour-wheel-drive vehicles; five motorbikes for irrigation inspectors; and129 bicycles for canal attendants. The equipment would be owned by CODEVASF.Servicing, parking space and offices for O&M staff would be provided by COBASFat its own facilities for agricultural machinery maintenance.

4.20 Agricultural Machinery. 'The project would provide 30 tractors, 30threshing machines, 60 trailers and other implements, together with repairshops and sheds, to be leased or so:Ld by CODEVASF to COBASF. Twenty-four moretractors and 15 threshers required (luring peak periods would be rented fromlocal owners, as in the past. Such intensive mechanization is necessitated bythe heavy soils of the varzeas, by the short time available for harvesting andland preparation in order to achieve two crops per year, and because of theneed for paddy transport out of the varzeas.

4.21 Agricultural Services. The project would provide new buildings,equipment and training for the agricultural staff of CODEVASF. It wouldalso finance incremental recurrent expenditures for services provided byCODEVASF during the first five years of project development, as an institutionbuilding cost.

4.22 Paddy Drying and Storage. Three drying and storage units would beinstalled, with a total storage capacity of 25,000 tons of paddy. The largeststorage unit (14,000 tons) would be at Propria, adjacent to the mill, whilethe two other units would be located at Igreja Nova 1/ (5,000 tons) and Betume(6,000 tons). These facilities would handle the production of all eightvarzeas of the Lower Sao Francisco. The production of Propria, Itiuba,Cotinguiba, Pindoba, and half of Boacica would be stored at Propria; the otherhalf of the production of Boacica, together with that of Marituba, would bestored at Igreja Nova, and that of Betume and Brejo Grande would go to theBetume storage unit. All new storage units would be of the silo type, to storepaddy in bulk for better conservation. The existing storage building in Propriawould be adapted to house the milling plant, while silos and drying equipmentwould be built on the adjacent industrial plot. The project would also providefour rice grading laboratories (one in each drying center and another one forthe mill). All drying, storage, milling and transport equipment would bemanaged by COBASF, either as direct owners or possibly under lease from CODEVASF.

4.23 Rice Milling. The SF II project would aim at complementing theexisting milling capacity in the project area to meet the needs of all theLower Sao Francisco varzeas. Total milling requirements would be of the orderof 81,500 tons per year, excluding 1,500 tons for seed production. Available

1/ An alternate location, which would not affect project costs, would bePenedo.

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private milling capacity is estimated at 15,000 tons per year and arrangementswould be sought whereby such mills would process part of the cooperative'sproduction. The SF II project would, however, aim at providing an independantcapacity to process all 81,500 tons per year by working in three shifts 30 daysinstead of 26 days during peak months in case these arrangements can not bemade. The mill would be in Propria (close to the national highway BR-101and the railway), where the present storage unit of COBASF recently built bythe Brazilian Storage Company (CIBRAZEM) is located (para 2.15). It wouldhave three white rice modules with a total capacity of 12 tons per hour, thelast module to be built to also have parboiling equipment with 4 tons/hourcapacity. The mill would operate 11 months of the year, 24 hours per day, ona three-shift basis, 26 or 30 days per month during the peak months of Januaryto April, and 23 to 25 days during the other months.

4.24 Transport Equipment. Twelve trucks pulling 6-ton trailers each totransport rice from the varzeas to the stores and between storage units andthe mill, two pickups and a jeep for maintenance services and three vehiclesfor mill managers would be provided by the project. Within the varzeas, thetrailers would be hauled by tractors, thus ensuring the transport of eachfarmer's paddy directly from the thresher to the grading and drying center.

4.25 Roads. The project would finance about 12 km of gravel roads toprovide access from the lower part of the Boacica varzea to the paved road(AL-110) between Penedo and BR-101, from where transport to the Propria millcould proceed (see map). A second gravel road about 9 km long is included andwould link Betume (and therefore Brejo Grande) along the river to Neopolisacross from Penedo. The proposed roads are being designed by the HighwaysDepartments of Sergipe and Alagoas. Service roads would be built along theirrigation canals and have been costed together with them (para 4.14).

4.26 Technical Assistance and Farmers Organization. The project wouldprovide buildings and vehicles for a number of farmer associations that areproposed under the project. It would also finance all operating costs ofthose associations and half of the incremental operating costs of the centralcooperative and of the 4th Directorate of CODEVASF, the other half being linkedto the development of the remainder of the Lower Sao Francisco. The projectwould also finance training abroad for CODEVASF staff, together with 13.5man-years of technical assistance to be obtained from FAO (over and above 6.5man-years already financed through the SF I project), all under cost-sharingarrangements with UNDP (para 5.05) at standard FAO rates of US$5,000 per-monthincluding international travel, installation costs and other allowances butexcluding reporting and agency overhead costs. Other consultants employedby CODEVASF should cost, all benefits included, between US$2,500 (juniorlevel) and US$9,000 (top senior level) per month.

4.27 Compensation of Harvest Losses. Construction of the irrigationnetwork would result in the loss of one crop in all project areas to beirrigated and of a second crop on half of that area. Since combro areas areat present almost totally unutilized, these harvest losses would affect mainlypaddy production. As CODEVASF would be expected to compensate farmers directlyor indirectly for those losses, an amount equivalent to the value of the lostproduction is included among basic project costs. In return, settlers wouldbe required to provide labor for the construction or improvement of individual

houses.

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Incremental Recurrent Expenditures

4.28 The project would finance as institution building costs those incre-mental recurrent expenditures during the first five years of project implemen-tation which are not recovered from project beneficiaries. These expenditureitems include services provided by CODEVASF to the project area and farmerorganization overheads. On-farm, network and agro-industrial operating costsare excluded from project financing since they generate their own financialreturns. Bank loan funds would not be disbursed directly against projectrecurrent expenditures, but disbursement rates on other project costs havebeen adjusted slightly upwards to compensate for the foreign exchange component(about 10%) of recurrent expenditures.

Social Infrastructure and Studies

4.29 Housing. The construction of new houses for displaced farmers andfor farmers whose present houses are not considered usable constitutes themain social support expenditure. Two-thirds of the houses now in the projectarea are considered to be usable. Thus, of the 2,720 sett:Lers, it isassumed that some 1,000 would require new houses. Of the remaining 1,720settlers, some 1,000 would have their houses upgraded to meet minimum healthand comfort standards. The actual number of houses to be built or upgradedcan only be determined on the basis of final settler selection results.

4.30 Education. The project would construct, furnish and equip 17 primaryschools, providing a total of 1,360 places accommodating, on double shift,about 2,700 students from grades 1 to 8. This would permiit an increase of 30%in enrollment (800 new students), priority being given to new students inthe seven- to ten-year-age group. Each school would have itwo classrooms formultigrade teaching, one office for two teachers, a library/meeting room,space for teacher housing, a canteen area and storage space. Twelve schoolswould be replacements. The exact siting of the five new schools would bedetermined before loan negotiations.

4.31 The schools would also be used to provide adult education coveringsubjects such as the use and maintenance of the irrigation structures andequipment, cooperativism, rural electrification, woodwork and construction,mechanics and handicrafts.

4.32 Health and Sanitation. The project would construct and equipsome eight rural health posts supported by the existing referral healthcenters of FSESP in the main towns of the area. The project would also trainthree health professionals, 10 outreach health auxiliaries, one laboratoryauxiliary and 10 water supply operators. Water would be supplied to theproject families through the construction of 10 wells of an average depth of100 meters, and an equal number of public fountains. Six of these would bein Boacica, two in Cotinguiba/Pindoba and two in Brejo Grande. Each wellwould be equipped with two 4-hp pumps, a 50-m3 storage tank and a distribu-tion system to individual houses. Septic tanks or pit latrines would beprovided to all the houses occupied by project farmers and employees.

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4.33 Rural Electrification. A total of 25 km of transmission lines to

two villages in Cotinguiba/Pindoba, three in Boacica and one in Brejo Grande

would be built under the project. Distribution systems in the villages would

include street lighting. Individual house connections are not included among

project costs but would be provided upon request, at consumer expense.

4.34 Further Studies and Monitoring. The project includes funds for the

following categories of studies: (a) technical and social studies for projects

under consideration by CODEVASF in the Sao Francisco basin; (b) a detailed

analysis of on-going CODEVASF operations in the Middle and Upper Sao Francisco;

(c) a review of the functions and structures of CODEVASF; and (d) a study of

the means to improve the Propria sewerage network, on which the industrial

component of the SF II project would be particularly demanding. CODEVASF

would implement the recommendations of the sewerage study out of its own funds.

4.35 CODEVASF is negotiating with the University of Vicosa for the estab-

lishment of an impartial monitoring unit, which, along guidelines approved by

the Bank, would monitor simultaneously SF I and SF II operations in the Lower

Sao Francisco area. Expansion of monitoring activities to SF II operations would

require, however, that new funds be made available over and above SF I alloca-

tions from the "Further Studies and Monitoring" item of SF II project costs.

D. Cost Estimates

4.36 The total project cost over the six year project period (mid 1979

through mid 1985) is estimated at US$74.6 million, which includes physical

contingencies equivalent to 14.9% 1/ of the baseline costs, and price

contingencies equivalent to 31.0% of baseline costs plus physical contin-

gencies 2/. Baseline costs have been estimated at January 1978 prices 3/,

1/ High physical contingencies, mainly linked to irrigation network con-

struction, reflect appraisal conclusions on (a) the possibility of

adverse weather conditions, such as the floods in February/May 1979,

which have delayed site progress or damaged completed works in the SF I

project; (b) the amount of field work that has been completed on topo-

graphical surveys and location of construction material sources; (c) the

possibility of design changes during construction; and (d) the status of

design of access roads and electric distribution lines, only now being

located in the field.

2/ Price contingencies were calculated in US dollars. Since equipment

represents a minor share of project costs, an average contingency of

7.5X was applied between January 1978 and January 1979, and 7% per year

cumulated thereon, resulting in the following cumulated contingency

percentages: Year 1, 15%; Year 2, 23%; Year 3, 31.7%; Year 4, 40.9%;Year 5, 50.8%; Year 6, 61.3%. (The middle of Year 1 would fall around

January 1980.)

3/ Most baseline costs for the irrigation network and other local procurement

items are based on actual quotations for the on-going construction of

the SF I Project. Equipment that has to be imported is costed on the

basis of current international prices.

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PROJECT COSTS(Us$ 000)

% of Total % ofBaseline Foreign

Local Foreign Total Costs Exchange

Productive Capital Expenditures

Irrigation and Drainage 13,879.6 6,296.3 20,175.9 40.7 31Electrical Network 51.0 12.8 63.8 .1 20Network 0 & M Equipment 77.5 165.- 242.5 .5 68Agricultural Machinery 704.9 469.9 1,174.8 2.4 40Agricultural Services 150.0 64.3 214.3 .4 30Paddy Drying and Storage 977.0 2,995.3 3,972.3 8.0 75Rice Milling 567.5 4,110.2 4,677.7 9.4 88Transport Equipment 19.8 488.2 508.- 1.0 97Access Roads 618.8 265.2 884.0 1.8 30Technical Assistance - 980.- 980.- 2.0 100Farmers Organization 146.5 102.- 248.5 .5 41Compensation for Harvest Losses 1.641.7 - 1,641.7 3.3 -

18,834.3 15,949.2 34,783.5 70.1Incremental Recurrent Expenditures

Agricultural Services 5,242.9 583.1 5,826.0 11.8 10Project Administration 511.2 56.8 568.0 1.1 10Farmer Organization 1,036.3 115.2 1,151.5 2.3 10

6,790.4 755.1 7,4. 15.2Social Infrastructure and Studies

Housing 1,694.5 726.2 2,420.7 4.9 30Education 777.6 333.3 1,110.9 2.2 30Health and Sanitation 1,609.0 201.5 1,810.5 3.7 IIRural Electrification 909.8 227.4 1,137.2 2.3 20Further Studies and Monitoring 300.0 450.- 750.- 1 < 60

5,290.9 1,938.4 7,229.3 14.6

TOTAL BASELINE COSTS- 30,915.6 18,642.7 49,558.3 100.0 37.6

Physical Contingencies-/ 4,791.8 2,615.3 7,407.1 14.9

Price Contingencies 11,016.1 6,674.4 17,690.5 35.731

TOTAL PROJECT COSTS 49,723.5 27,932.4 74,655.9 150.6 37.4

US$ I.- = Cr$ 16.15

1/ At January 1978 prices.2/ 10% except for irrigation network, access roads and rural electrification (20%) and Cotinguibairrigation network (25%).3/ 31.0% as percentage of baseline cost plus physical contingencies.

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using where required an exchange rate of US$1.00 = Cr$ 16.15. The estimatedforeign exchange component is US$27.9 million, or about 37.4% of total projectcosts. Main cost items are the irrigation and drainage network (40.7%)and the paddy processing plant (18.4% including drying, storage, millingand transport). The latter, however, would service the whole Lower SaoFrancisco area, where overall paddy production is double that of the SF IIproject area. Project costs include about US$3.7 million of readily identi-fiable taxes. The project cost summary follows and the yearly phasing isgiven in Table 4 of Annex 3. The foreign exchange component of investmentcosts is in Table 5 of Annex 3. Unit costs of main project inputs are shownin Table 6 of Annex 3.

E. Financing

4.37 The proposed Bank loan of US$28 million would finance 37.5% of totalproject costs, or approximately the direct and indirect foreign exchangecost of project components, including a proportionate share of physical andprice contingencies, under the most probable procurement assumptions. Thebalance of project financing would be provided by Government. Seasonal creditwould be provided directly by local banks, and are not considered among projectcosts. Material for the construction of houses would be financed under creditfrom the National Housing Bank (BNH). The Bank loan would be for 15 years,including a three-year grace period, at the current Bank interest rate of 7%per annum. The Federative Republic of Brazil would be the borrower and wouldassume the foreign exchange risk. The closing date of the loan would be June 30,1986. Assurances were received at negotiations from CODEVASF that it wouldpresent to the Bank its proposed budget for the project for the following yearby October 31 of each year, and its finalized budgetary allocations for theproject each year as soon as its general budget had been approved.

F. Procurement

4.38 Contracts for the construction of the irrigation network and equip-ment, agricultural machinery, drying storage and processing structures,equipment and management services, and transport equipment (totalling in allabout US$46 million) would be awarded following international competitivebidding in accordance with the Bank's procurement guidelines. Brazil has awell developed civil works contracting industry, and it is likely that mostcivil works contracts would be won by Brazilian contractors or consortia whichinclude such contractors. Local manufacturers would be accorded a preferenceof 15% or the customs duties, whichever is lower, in bid evaluation. Contractsbelow US$50,000 equivalent and minor civil works, buildings, access roads,sanitation and educational infrastructure (totalling in all about US$7 million)would be awarded on the basis of competitive bidding advertised locally andin accordance with local procedures, which are satisfactory to the Bank. Anexception would be the health posts which would be constructed by FSESP along

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its own standardized procedures and in accordance with a contract negotiated

with CODEVASF, for a total estimated base cost of US$183,000 (paras. 5.04 and

5.15). As far as possible, family labor would be utilized iEor the construction

of individual farmer houses during the period when irrigation network construc-

tion impedes agricultural activities in the area. Minor civil works with an

aggregate cost not exceeding US$500,000 would be carried out by force account

when not suitable for carrying out through contracting.

G. Disbursement

4.39 The Bank would disburse over a period of six years. Disbursements

would be made against normal documentation at the rates of (a) 47% of total

expenditures for civil works, equipment and vehicles for the irrigation and

electrical network except for pumps and motors, irrigation operation and

maintenance, rice drying, milling and transport, agricultural machinery, access

roads, agricultural support services, the farmers organization, education,

health and sanitation, and rural electrification; (b) 100% of foreign expendi-

tures or 90% of total expenditures for irrigation pumps and motors, depending

on source of procurement; (c) 100% of foreign expenditures for CODEVASF's cost

share of FAO Technical Assistance, training, further studies and monitoring.

Disbursement for minor civil works tc, be carried out by force account would be

made against a certificate of expenditure, the documentation for which would

not be submitted for review by the Bank, but would be available for inspection

by the Bank during the course of project supervision missions. There would be

no disbursement on operating costs, compensation of harvest losses and housing.

No retroactive financing is envisaged. Loan disbursements are expected to

extend until June 30, 1986. The schedule of disbursement is given in Table 7

of Annex 3.

V. PROJECT IMPLEMENTATION

A. Organization and Management

The 4th Regional Directorate

5.01 The 4th Regional Directorat:e of CODEVASF would be the unit respon-

sible for the implementation of the project. Since CODEVASF would remain the

owner of the irrigation network, the 4th Directorate would provide for its

operation and maintenance and ensure liaison with local farmer cooperatives

and other agencies. A number of measures to strengthen the Directorate's

ability to implement both the SF I and SF II projects are already being

introduced. An assistant to the Regional Director has been appointed to plan

and supervise all CODEVASF assistance to area farmers in production and

social activities. The new structures of the 4th DirectoraLte are to comprise

three units oriented to project execution on the field. ThLe Rural Development

Unit will have four sections of (a) assistance to agricultural production;

(b) assistance to processing and markceting operations; (c) assistance to the

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cooperatives; and (d) social support to area farmers. The Operations and

Management Unit would take responsibility for all irrigation and drainage

structures in the Lower Sao Francisco area as they become operative. The

Construction Supervision Unit would be headed by a high-level Resident Engineer

to control and supervise contractors and consultants working for CODEVASF in

the area. Appointment of qualified staff as Chiefs of the Rural Development

Unit and its four sections and as Resident Engineer would be conditions of

loan effectiveness. The Chief of the Operations and Management Unit is

expected to be appointed soon after that. All staff of the project implemen-

tation units would be stationed within the project area (Penedo or Propria).

Assurances were received at negotiations that CODEVASF would, at all times

during the implementation of the project, employ a suitably qualified resident

engineer within its 4th Directorate and a chief and at least four suitably

qualified specialists within the Rural Development Unit of its 4th Directorate.

Land Acquisition Procedures

5.02 All project lands are to be acquired by CODEVASF at SF I costs, as

authorized by a Government decree dated March 1975. The decree provides for

all land expropriations in the Lower Sao Francisco to be completed within five

years of its signature, that is by March 1980. Since, however, much of the

social disturbances observed in the project area have been attributed to the

long periods of time elapsing between the purchase of land by CODEVASF and

its full development, and in view of the delays resulting from recent weather

conditions in the project area, the following modifications would be introduced

to the original land acquisition schedule: (a) acquisition would be completed

by March 1980 in the varzeas of Betume (already almost fully acquired), Boacica

(60A already acquired) and Cotinguiba/Pindoba (where a large share of the land

already belongs to Camurupim which has agreed to put it at the disposal of the

project for development and more intensive settlement purposes); and (b) after

a period of one year beyond March 1980, required by law before a new expro-

priation decree can be promulgated on lands which were within the scope of the

first decree, a new decree would authorize CODEVASF to acquire lands in the

Brejo Grande varzea, which is planned to be developed starting only in 1982.

CODEVASF's budget for land purchases has been increased to meet the March 1980

deadline. Approximately Cr$ 210 million (US$11 million) have been allocatedin the 1979 budget for that purpose. The 1978 budget provided only Cr$ 68.3

million. Assurances were received during negotiations that CODEVASF would take

all action necessary to acquire all land and rights in respect of land required

for the carrying out of the Project and would furnish to the Bank evidence that

land and rights in respect of land are available for project purposes.

Acquisition of all project lands in the varzeas of Boacica, Cotinguiba and

Pindoba by March 16, 1980 would be a condition for Bank disbursements beyond

that date. Acquisition of project lands in the varzea of Brejo Grande would

be a further condition for Bank disbursements relative to Brejo Grande beyond

that date. Assurances were received from Government during negotiations that

measures would be taken by March 1981 authorizing expropriations in the Brejo

Grande varzea.

Settler Selection and Eviction Criteria

5.03 Initial selection criteria established by CODEVASF on the basis

of conventional standards of the National Colonization Institute (INCRA) did

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not meet the specific requirements of the Lower Sao Francisco, where land hasto be redistributed rather than colonized. CODEVASF has now substantiallymodified the original criteria, giving absolute priority to area farmers overother candidates, dropping the condition of literacy, accepting candidateswith Chagas disease once their houses have been improved, and accepting womenwho are family heads as potential settlers. These new criteria will bepublicized before project implementation, after including specific medicalstandards. Eviction criteria have not yet been established. Assuranceswere received at negotiations that CODEVASF would complete by December 31,1979 a settler relocation study which would include a census of landlessfarmers entitled to relocation by the project and a sample survey of movementintentions of the various segments of the area population.

Operational Agreements with Supporting Institutions

5.04 Negotiations are under way with most institutions whose contractualparticipation in project development is envisaged. A general agreement hasbeen reached between the Ministries of Health and of Interior ensuring FSESPand SUCAM participation in project activities. CODEVASF has signed generalagreements (convenios) with the State Governments of Sergipe and Alagoas forthe operation and maintenance, at state expense, of support and social infra-structure developed with CODEVASF funds, such as roads, rural electrificationand schools. More detailed "convenios" have already been signed with theSecretariats of Education of Sergipe and Alagvas. Conditions of disbursementwould be that CODEVASF had signed detailed agreements ensuring continuousoperation and maintenance of project financed facilities with (a) the StateRoad Departments (DER) of Sergipe ancd Alagoas for the construction and mainte-nance of project feeder roads; (b) the local electricity companies for theconstruction of the transmission and distribution lines and the power stationsrequired by the project; (c) FSESP for the construction and operation ofhealth posts; and (d) SUCAM for the :implementation of a campaign againstcommunicable diseases in the project area. An agreement exists betweenCODEVASF and BNH for financing housing construction in the project area.CODEVASF would provide agricultural extension services through its own agentsuntil arrangements are worked out for the local extension services (EMATERs)to be responsible for irrigation extension. Assurances were received duringnegotiations that CODEVASF would maintain contractual arrangements satisfactoryto the Bank with all above institutions. Assurances were received at nego-tiations from Government that it wouLd (a) take all steps, including theprovision of refinancing facilities to credit intermediaries, which may benecessary to ensure the availability to project farmers of adequate creditfrom banks in the public as well as the private sector and (b) take actionrequired for the prompt issuance to CODEVASF of import and other permits andlicenses necessary for the acquisition and importation of goods and servicesrequired for the carrying out of the project.

Technical Assistance

5.05 Strengthening of CODEVASF and the cooperatives' administrativecapacity is to be achieved mainly through local recruitment. There remains,however, during the first years of project implementation, a need for technicaladvice which CODEVASF intends to obtain through UNDP/FAO under cost-sharing

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arrangements by which UNDP would finance the cost of the FAO project manager(four man-years), and CODEVASF would meet all other foreign exchange or localcosts. Local costs are to be provided through the standard budget of CODEVASF.Only CODEVASF's share of foreign exchange costs are considered among projectcosts and would be paid out of the proposed Bank loan. The FAO technicalassistance team would consist of a team leader specialized in rural development(four years), one rice post-harvesting/storage/milling specialist (three years),one irrigation engineer (three years), one fisheries specialist (one year),and 30 man-months of various consultants. Three specialists in on-farm irri-gation, procurement and cooperative development provided by FAO under SF Iand UNDP cost sharing would also join the team for the remainder of theircontract. The last two would be further extended 2-1/2 and 1-1/2 yearsrespectively at SF II costs. The cooperatives specialist is only now beingrecruited. FAO experts would have only advisory functions and would beresponsible for training CODEVASF and cooperative personnel. All FAO staffshould be based at Aracaju rather than Brasilia, with the possible exceptionof the procurement specialist. Conditions of loan effectiveness would be thata draft UNDP/FAO project document, comprising detailed terms of referenceacceptable to the Bank, had been prepared by CODEVASF and approved by allparties and that the cooperatives specialist had been recruited.

B. Farmer Cooperatives

Proposed Structures

5.06 Farmers would be encouraged to participate fully in the developmentof the area. This objective would initially be achieved by some 20 localfarmer associations with statutes acceptable to the Bank ("Associacoes deAgricultores"), to be established according to the project's geography,cropping pattern and implementation schedule. Twelve of these would coverthe SF II project area, while the rest would be located in the Propria,Marituba, Itiuba and Betume varzeas. The associations would be transformedwithin four years of their establishment and after consultation with theirmembers into primary cooperatives, owning their own land and statutorilylinked to a secondary regional marketing and processing cooperative alsoproviding inputs and technical assistance. Assurances were received duringnegotiations that such a secondary cooperative would be established in theproject area by June 30, 1981, with statutes acceptable to the Bank. TheCamurupim cooperative, which already owns land within the proposed projectarea, is being integrated into this structure but would retain its identityand land ownership. The COBASF and Camurupim cooperatives have signed anagreement for collaboration between the two cooperatives. Minutes of anagreement between CODEVASF and the Camurupim cooperative have already beendrafted, defining the conditions of participation of the latter in projectactivities. Signature of this agreement would be a condition of projecteffectiveness. All project farmers would be members and shareholders of theestablished cooperative system and would be allocated family plots of aspecific size (paras 5.22 and 8.01). Their rights to the use of the landwould be negotiable to third parties within certain limits and would betransferable by inheritance. The harvest would be the farmer's personalproperty, the only condition being that it be processed and marketed exclu-sively through the cooperative. The new CODEVASF management is studying thepossibility of providing each project farmer with personal title to his land.In such a case, the number of primary cooperatives in the area could bereduced below the number envisaged at present.

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Function and Staffing of the Farmer Associations

5.07 The "Associacoes de Agricultores" would (a) represent and assistthe farmers in their relations with the secondary cooperative and in allsocial, productive and commercial aspects related to project implementation;(b) train farmers to function productively as members of a cooperative;(c) prepare (with the secondary cooperative) and supervise the implementationof the annual production plan, including harvesting and threshing; (d) colla-borate in the irrigation network 0 & M; (e) supervise paddy grading on behalfof its members; and (f) initiate eviction actions against settlers who do notfulfill their contractual obligations. To perform these functions, each localassociation would elect a five- to seven-member committee, assisted by oneagronomist acting as operational manager (Gerente), and one accountant to keepthe books of each settler and of the local association. Establishment offarmer associations in already settled Propria, Itiuba and SF I areas would bea condition of loan effectiveness. Assurances were received at negotiationsthat CODEVASF would (a) organize project farmers into about 12 farmer associa-tions with statutes acceptable to the Bank, to be gradually established assettlement proceeds, with not more than 400 members in any single association;(b) carry out appropriate education and training programs designed to preparethese farmer associations to be converted into primary cooperatives withinabout 4 years of their establishment; (c) upon a decision of the members of anassociation to convert into a primary cooperative, take all necessary stepswithin its competence to enable the association to be so converted, and ensurethat at the time of conversion, title to the land cultivated by the members ofthe association concerned is transferred to the new cooperative; (d) subjectto the decision of the members of the primary cooperative, take all necessarysteps within its competence to ensuLre that primary cooperatives in the projectarea become members of the secondary cooperative, and that the latter providesadequate supply, processing and marketing services to such primary cooperatives;and (e) periodically in the course of project implementation, review with theBank the arrangements referred to above in the light of monitoring results,the recommendations of special studLies and consultations with farmers.Further assurances were received that Government would take all necessarymeasures to facilitate the conversion of farmer associations into primarycooperatives and would, through its competent agencies responsible for coopera-tive organization, participate, as appropriate, in the periodic reviewsreferred to above.

Functions and Staffing of the Secondary Cooperative

5.08 The secondary cooperative would act mainly as a marketing agencyand an input supplier. Its main function would be to: (a) channel seasonalcredit from financial institutions to the primary cooperatives or directly totheir members; (b) provide technical assistance in cooperative operation toeach association as required; (c) operate a tractor and thresher pool; (d) ownand operate the rice drying and storage facilities located in each varzea; (e)ensure efficient marketing of members' production; (f) operate or contracttransportation facilities for that production; (g) own and operate or contractagro-industrial processing; and (h) represent the area population on issuesrelating to social needs (schools, health units, and such) in the projectarea. The secondary cooperative would recruit qualified staff to manage andoperate its processing and marketing units (para 5.10 and 7.10).

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CODEVASF Assistance to Farmer Organizations

5.09 CODEVASF, being a shareholder of all cooperatives in the area, wouldselect the settlers for each local organization, take final actions in evictionprocesses, supervise the development of each local organization, assist thesecondary cooperative in its internal strengthening process, provide theguarantees when necessary for credit to be supplied to the settlers and to thecooperatives, and assist the latter in internal staff training. To ensure thatCODEVASF's initial role in cooperative management would not become permanentor impede adequate farmer involvement, (a) cooperatives personnel would not bekept on CODEVASF payrolls beyond a transitional period lasting no more thanthree years; and (b) the presidents of the cooperatives and of the farmers'associations would be elected solely from among farmer members. CODEVASFassistance to the farmer organization would be managed by the Development Unitof the 4th Directorate.

Management of Post-Harvest Operations, Processing and Marketing of Rice

5.10 Post-harvest operations would be managed by the cooperative organiza-tion. Mobile threshing equipment owned by the secondary cooperative would beloaned to local farmer organizations in accordance with their harvest schedules,for operation by the farmers. Threshed paddy would immediately be transportedto the drying and storage centers where the cooperative would formally takedelivery of the farmers' production after the paddy was graded. Farmers wouldbe paid when their paddy was delivered to the drying center.

5.11 Since neither the cooperatives nor CODEVASF have the necessary experi-ence or expertise to manage the complex and risky industrial and commercialoperations which follow on-farm production, two semi-independent units would beset up linked to the secondary cooperative and fully staffed with professionalsqualified to take over the responsibility. One unit would be in charge ofstorage and processing, the other in charge of sales. Industrial managementtalent would be imported, either from the south of Brazil, where the riceindustry is mainly located, or possibly from abroad. The sales and distribu-tion unit is discussed in paragraph 7.10. The proposed management system would(a) maintain the cooperative organization as principal or sole owner of thetransport, drying, storing and milling facilities; (b) provide for independenttechnical and commercial decisions; and (c) distribute the profit derived fromprocessing and selling the rice to farmer members. Executive staff of theprocessing unit would comprise one general manager, one mill manager, onemaintenance manager and three managers for the storage centers. They would beassisted by an FAO specialist (para 5.05).

C. Agricultural Support Services

Agricultural Research and Extension

5.12 Agricultural research and extension activities would be intensifiedby CODEVASF under the project. The project would provide three researchagronomists who would work in close contact with the extension agents and with

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the EMBRAPA research staff at the UEPAE at Penedo. Agricultural extensionwould be provided by CODEVASF during project implementation with special

attention to irrigation practices. Each agricultural extens,ion agent would

assist about 30 farmers in the first year of development and 40 farmersthereafter. The local extension agencies of Alagoas and Sergipe (EMATERs)would gradually take over according to an agreement between CODEVASF and the

federal extension organization (EMBRATER). Similarly, each social extension

agent would assist about 50 families for two years, at which time the EMATERs

would take over the activity. A total of eight agricultural graduates, six

home economists, 55 agricultural technicians and 33 home economics assistantsare expected to participate in these activities during the peak years of

project implementation.

Input Supply

5.13 Improved seeds, fertilizers and pesticides would be supplied on

credit by the secondary cooperative. Maize, and cotton seeds would beproduced by a group of farmers in Cotinguiba. Foundation seed would be

supplied by EMBRAPA for processing and multiplication by CODEVASF on area

farms (rice) and the Camurupim cooperative (cotton, maize, banana and water-melon).

Credit

5.14 Seasonal credit would be financed by BB and BNB and provided to all

project farmers through the cooperative system, on the basis of individualcropping plans.

D. Social Support Services

Health and Sanitation

5.15 The health and sanitation components of the project would be imple-mented, maintained and operated by FSESP through its local offices using

its current standards and procedures. The campaign against communicablediseases would remain under SUCAM. FSESP would contract additional staff tomeet supervision and administrative support requirements. FUNRURAL wouldfinance the incremental recurrent costs of FSESP. COBASF would transfer itsexisting health services to FSESP. FSESP was selected as executing agencybecause it is the only agency with an operational network in the area, andbecause its rural programs have a higher cost effectiveness than those ofState Health Secretariats, notwithstanding the fact that they have higheroverall costs. These higher costs, however, reflect better installations andmore intensive medical coverage with full-time doctors.

5.16 The water supply systems would be constructed by CODEVASF and either

be contracted to the state water supply companies, which would use their owninfrastructure, including offices in Propria and Penedo, to operate and maintainthe systems or be entrusted directly to the farmer associations. Assurances werereceived at negotiations that CODEVASF would maintain contractual arrangements

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with the water supply companies for the above activities, if they were entrustedwith them. A condition of disbursement on the health and sanitation componentof the project would be that CODEVASF had completed a water supply pre-invest-ment study, satisfactory to the Bank.

Rural Electrification

5.17 Electricity distribution lines to project area villages, branchingoff from the network supplying the SF I and SF II pumping stations, would beprovided and operated by the state electricity companies.

Education

5.18 New school buildings would be constructed by CODEVASF using standardspecifications accepted by the Bank for other education projects in NortheastBrazil. The State Secretariats of Education, through existing convenios withCODEVASF, would be responsible for improving teaching quality, budgeting ofadequate teacher salaries in accordance with State rather than municipalcriteria, and for the general maintenance and operation of project-financedschools. Non-formal training would be provided by various agencies andCODEVASF itself. Implementation of this program would be preceded by a studyof population characteristics and appropriate communication channels, by theFederal University of Sergipe or a similar institution. Assurances werereceived from CODEVASF that it would maintain contractual arrangements withthe above agencies for project purposes.

Housing

5.19 Houses would be constructed or improved in accordance with technicaland financial norms used elsewhere by the national health institution, FSESP.Construction labor would be provided by the farmers as far as possible.Financing of construction material would be ensured by CODEVASF through BNHor other sources.

E. Network Operation and Maintenance

Network Operation

5.20 The dikes, pumping stations, irrigation and drainage systems, andthe internal varzea farm and maintenance roads would be operated and maintainedby CODEVASF. Maintenance equipment would be provided under the project.CODEVASF would require further equipment to measure actual water consumptionby the farmers.

Irrigation Water and Other Development Charges

5.21 National guidelines established by decree No. 75,510 of March 19,1975, provide for water charges to be the sum of two fees: the first essen-tially based on the capital invested adjusted to the ability of the farmer topay, and the second based on annual O&M costs and the quantity of water used.

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CODEVASF already has experience in assessing and collecting water charges,based on a fee per cubic meter of estimated water use. Farmers in the LowerSao Francisco are currently required to pay Cr$ 30 per thousand m3. This

corresponds to some Cr$ 600, or US$35 per hectare planted in rice 1/. Sincewater from the Sao Francisco River is not a scarce resource., making itsefficiency price equivalent to marginal transport costs to the farm or,

conservatively, to network O&M expenditures, and since the level of incomeof project farmers justifies a certain degree of subsidization (see para 8.02),it is proposed by full development, to charge project farmers water rates whichwould enable CODEVASF to recover all incremental O&M costs 2/ related to the

SF II irrigation network, and, subject to a determination that water usershave the capacity to pay, at least 30% of the capital investment costs. Theproject's financial. and fiscal effects have been computed on that basis.Brazil being, however, a country comraitted to a high growth. rate, these waterrates should be periodically reviewed to take into account possible increasesof farmer incomes in real terms. Assurances have therefore been receivedat negotiations from CODEVASF and Government that (a) water charges wouldbe gradually introduced which would recover full incremental O&M costs and,subject to a determination that water users have the capacity to pay, at least30% of capital investment costs of the irrigation and drainage networkincluded in the project once individual farms reach full development; and

(b) the water rates would be reviewed periodically with a view to determinewhether water rates could be increased to recover an additional share ofthe investment cost, giving due regard to the ability of water users to pay

and the need to maintain an incentive for them to make the best use of theland and water available to them. Further assurances were received fromGovernment that it would cause its agency or agencies responsible for the

setting of water rates under the project to take all such aLction as shall benecessary or advisable (including approval of water rates proposed to beintroduced from time to time in the project area), to enable these conditions

to be met. No benefit taxes beyond the water charges, a 2.5% FUNRURAL tax andthe cooperative shares discussed in the next paragraph would be levied onfarmers. It is expected that the proposed rates would, if adequately metered(see para 4.17), be sufficiently high to discourage farmers from excessiveconsumption which would both affect pump operating costs arLd raise the watertable, with ensuing salinity problems. Identical water rates would be chargedto SF I farmers. Rent recovery indices have been computed in Annex 3,Table 8a for rice and combro farms at a full development year, includingdividends from rice milling in the rient of rice farmers. Considering therespective incomes of rice and combro farmers, capital recovery has beencharged exclusively to rice farmers, with 8 years of grace plus 22 years ofpayment at 8% interest. The rent recovery index from these direct chargeswould thus be 36.9% for rice farmers and 36% for combro farmers. The resultingdirect cost recovery index at a 10% discount rate, would be of the order of

1/ In other projects along the Valley, CODEVASF has been charging betweenUS$25 and US$80 per hectare.

2/ Farmers would be expected to pay only O&M costs incremental to those

which, in the absence of the project would be incurred to restore inthe project area a hydraulic regime similar to the one prevailingbefore construction of the upstream hydroelectric works.

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60% over 30 years of project life (Annex 3, Table 8b). Public savings,

however, would not be negatively affected by the project since the Government

would capture part of the increased benefits through the sales ta on

processed rice, which corresponds to about Cr$ 185 per thousand m of water

used in rice cultivation. The total cost recovery index of the irrigation

network at a 10% discount rate would thus be about 160% over 30 years. It

would allow Government to break even on all project costs (of both productive

and social investments) by the 17th year of the project (para 8.06).

5.22 Besides the water charges, the farmers would be expected to reimburse

loans on house construction or improvement material and to pay Cr$ 500 per

hectare (US$31) per year during 20 years, without monetary correction for

their cooperative shares. The latter is a nominal contribution which corres-

ponds approximately to the value of undeveloped land, but does not cover

the improvements brought about by the project.

F. Project Implementation Schedule

5.23 The project would be implemented over a six-year period. Most of

the storage and milling facilities would be built in the last years of imple-

mentation for optimal modular development parallel to the increase in paddy

production. By year 7, when the last modules would start operating, paddy

production in te Lower Sao Francisco area would have virtually reached full

target production.

5.24 Construction work would start in the Pindoba varzea (years 1 and 2),

expanding then to Cotinguiba (years 2 and 3), Boacica (years 2 to 4) and Brejo

Grande (years 3 to 5). This schedule reflects both the need for priority

attention to the financial and social difficulties of the Camurupim cooperative

located in Cotinguiba and Pindoba and the relative state of progress of SF I

infrastructure construction (dikes and pumps) in the various varzeas. An

implementation schedule is provided in Annex 1. The tight schedule of the

project requires that bidding documents be prepared for the irrigation network

of the Cotinguiba/Pindoba varzea and that corresponding tenders be issued

before the project actually starts. Assurances were received at negotiations

that CODEVASF would complete by June 30, 1980 a study of post-harvest operations,

satisfactory to the Bank, including drying, storage, milling and qualitative

and quantitative rice transport requirements in the Lower Sao Francisco area.

Completion of this study would be a condition of further Bank disbursements

against the storage, milling and rice transport components of the project.

G. Accounting and Auditing

5.25 Assurances were received at negotiations that CODEVASF would have

its accounts, including a separate account for the project, and financial

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statements for each fiscal year audited in accordance with sound auditing

principles by independent auditors, acceptable to the Bank. Further assurances

would be sought at negotiations that certified copies of CODEVASF's financial

statements and the report of such audit would be furnished to the Bank not

later than four months after the end of such year.

H. Monitoring

5.26 Monitoring of the SF II project would, through adequate sampling and

correlation techniques, pay particular attention to:

(a) Farmgate water consumption;

(b) Water table levels and salinity control;

(c) Agricultural inputs, yields, areas cropped, farmer income, and

hired labor use;

(d) The time harvested paddy remains in the field before threshing;

(e) Conflicts arising between farmers and the cooperative on

paddy quality controls, price determinations, timing of inputs

and machinery and marketing procedures;

(f) Problems arising from contracting privately owned agricultural

machinery and transport facilities;

(g) Farmer contributions to cooperative shares and operating costs;

(h) Maintenance of social infrastructure provided by the project

and demand for such infrastructure;

(i) Significant organizational problems of farmer associations,

the central cooperative and the CODEVASF project unit;

(j) All storage, milling and marketing operations;

(k) Project accounts, sub-accounts, cost recoveries and, especially,

recovery of water charges.

5.27 Assurances were received at negotiations that a detailed document

describing the project monitoring program, its staffing requirements, tech-

niques and cost would be prepared by CODEVASF and the monitoring unit and

would be presented for approval by the Bank by August 31, 1979.

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VI. TECHNICAL COEFFICIENTS AND SPECIFICATIONS

A. Farm Development

Cropping Intensity

6.01 As a result of the project, and assuming that most of the farmerswould continue to grow the traditional rice variety under controlled floodirrigation conditions, the annual cropping intensity would reach 180% inCotinguiba, Pindoba and Brejo Grande at full development -- 100% during therainy season, plus 40% of a ratoon crop and 40% of a second crop during thedry season. In Boacica, due to severe flood risks between May and July andthe lack of well-adapted early varieties with acceptable yields, it is ex-pected that rice transplanting would take place in August and harvesting inDecember, followed by a ratoon crop on 80% of the area. Limiting factors tofull double cropping are the traditional rice variety with a long growingcycle (1.50 days), the lack of farmer experience in handling a second crop ontime, and possible delays in tractor services for land preparation. Croppingintensity in irrigated combros, where a continuing crop rotation is feasible,would be around 150%. Dry farming of other temporary crops under the projectwould remain at 100% cropping intensity. Land use data is provided in Table 9of Annex 3.

Farm Labor

6.02 Farm labor is expected to remain the main agricultural productioninput in the area under the project. Due to heavy textured soils, landpreparation (plowing and harrowing) must be done by tractor, but labor isrequired for all other farm operations (sowing, transplanting, fertilizing,pest control, weeding and harvesting). Annual labor requirements wouldaverage 80 man-days/ha, or a 116% increase over the 37 man-days/ha currentlyused. Hired labor would be used only during rice transplanting and harvestingand cotton picking. It has been costed at the 1978 minimum wage of Cr$ 40(US$2.5) per man-day.

Cultural Practices

6.03 The present rice variety (SUVALE 1) would be utilized under theproject, although new ones would be tested (IR-841 is promising because ofits high yield). Detailed fertilizer recommendations have been worked out,based on agronomic practices in Propria and Itiuba and on preliminary recom-mendations by the local EMATERs for other crops. Crop pests and diseases arecommon in the area. Their control, already regularly practiced, is expectedto improve under the project.

Mechanization

6.04 Land development works, including land leveling and construction offarm ditches would be provided before the farmers are resettled. This isexpected to have a substantial impact on rice yields as has recently been

- 35 -

demonstrated in Betume. On well leveled fields, farmers would have their landdisc-plowed once and harrowed twice and their land preparation completed withone puddling before transplanting. Land preparation for other crops on combrosoils would also be done by tractor. Because the demand for tractor servicesis restricted to a few months during land preparation and crop harvesting,their utilization factor would be only about 57%. The use of stationarythreshers would continue under the project, but each step of the harvestingoperation would be improved as practicable.

6.05 While it appears that privately owned machinery has been sufficientin the past to cultivate most of the rice fields in Propria, Itiuba and partof Betume, occasional shortages have been reported because tractor and thresherowners serve other farmers only after having cultivated their own land. Sincefarmers owning machinery are expected to disappear under the project, projectfarmers will have to rely on new mechanization services for timely plowing andharvesting. The project would provide a machinery pool which would be madeavailable to the cooperatives.

Crop Yields

6.06 Yields are assumed to increase gradually, mainly because of landleveling, controlled irrigation and the adoption of improved techniques.Without-project yields reflect current experience in undeveloped farms ofthe area, whereas projected yields are based on results achieved in Propria,Itiuba, Betume and elsewhere in the valley where similar conditions prevail.Assumed yields are 25 to 40% below experimental results in the area for variouscrops (Annex 3, Table 10). Risks invDlving severe flooding, damage to irriga-tion structures, and failure to receive the necessary inputs on time have beentaken into consideration in determining future rice yields. Thus, a gradualincrease of 150% over four years, from 1.6 tons per ha to 4 tons per ha hasbeen assumed. Present dry-farming maize yields are very low, about 0.7 tonper ha, but yields of 2 tons per ha are attainable. Under irrigation, andemploying improved hybrid varieties, yields of 4 tons per ha have been assumed.Present dry-farming cotton yields are extremely low (0.3 ton/ha) due to poorcultural practices, including lack of fertilization and pest control. Withbetter practices, yields of 1.6 tons per ha of rainfed cotton and 2.4 tons perha of irrigated cotton can easily be obtained.

Water Requirements

6.07 Farmgate water requirements have been computed on the basis of themonthly consumptive use of the propos(ed cropping patterns arnd correspondingeffective rainfall with a 75% probability. Those requirements would be of theorder of 20,000 m3 per year per hectare on rice lands (somewhat higher in theBoacica varzea), and between 5,000 and 6,500 m3 per year per hectare on sprinklerand furrow irrigated combros. Peak demand would occur for all crops in Decemberand/or January. The project would provide diversion capacities of the order of2.0 to 2.8 1/sec per ha for rice land and 0.9 to 1.2 1/sec per ha for irrigatedcombro land in the various varzeas. These capacities inclucle an allowance forpossible future changes of the proposed cropping pattern to more demanding crops.

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B. Rice Processing

6.08 Two-thirds of the paddy would be processed into white rice, theremaining third into parboiled rice. In both cases, yields would be of theorder of 60% of high quality (10% broken) rice, 9% of brokens, 10% of bran and21% of husk. Brokens would be mixed to one-third of the high quality rice tomeet the needs of less demanding markets.

VII. PRODUCTION, MARKETS, PRICES AND MARKETING

A. Production

7.01 Agricultural production has been projected on the basis of illustra-tive farm types reflecting different sizes, cropping patterns, cropping in-tensities and crop yields. The increase would result from an expansion ofabout 78% in cropped areas, an improvement of yields of more than 150% overthe respective pre-project levels, and the introduction of new crops, alldue mainly to irrigation under controlled conditions. Annual incrementaland total agricultural production at full project development are estimatedas follows:

Incremental TotalProduction ProductionI(tons) (tons)

Rice 36,517 43,095Cotton 3,762 3,861Maize 1,927 2,872Maize (earcorn) 2,280 2,280Peanuts 888 888Watermelon 2,250 2,250Bananas 9,450 9,450Beans - 508 0

7.02 At full development, marketed rice production would amount to 21,600tons of high quality (10% broken) white rice, 10,800 tons of high qualityparboiled rice, 15,700 tons of lower standard rice, 2,500 tons of brokens (forbreweries), 8,150 tons of bran and 2,550 tons of husk ashes. About half ofthe marketed rice and sub-products would come from SF II areas. Table 11 ofAnnex 3 shows the expected growth of paddy production in the Lower Sao Franciscoarea between 1980 and 1988.

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B. Markets and Prices

Rice

7.03 Rice is by far the major production item of the project. Rice pro-

duction in Brazil increased in an irregular fashion from 6.6 million tons in

1973 to 8 million tons in 1977 1/, at an average growth of 4.8% per annum.

Longer term growth prospects are of the order of 3 to 4% per annum, to reach

a total production of 9.2 million tons by 1985. Compared to these figures,

the incremental production resulting from the SF II project (about 25,000

tons of processed end product) is marginal, around 2% of the increase of

national production through the project development period. Ihe production

of all the Lower Sao Francisco, which the cooperative would have to market

(54,000 tons), still represents less than 0.7% of the expected national produc-

tion in 1988, or 4.5% of the increase in production between now and 1988.

7.04 Brazil is a marginal rice exporter, the quantity exported (about

50,000 tons per year) always remaining below 1% of the total production, except

in 1977 when the sale of subsidized Government buffer stock surpluses resulted

in exports equivalent to 8% of that year's production. Northeast Brazil

produces little more than 20% of the rice it consumes. Seventy percent comes

from the South where che main production areas are located, and almost 10%

from the Central West. The preference for rice from the South comes from

(a) the cooking characteristics of Sout:hern rice; and (b) lower transport costs

resulting from coastal shipping.

7.05 The traditional market for Lower Sao Francisco rice used to be

the area itself, Aracaju, Maceio, Salvador, Recife and their hinterland.

Almost all the production is sold unprocessed at prices prevailing during

the harvesting season. As the quantity and quality of rice produced in the

Lower Sao Francisco area declined during the last few years, due in part

to many varzeas remaining inactive for a long period of time, the main

market was gradually reduced to the Recife urban area. It is expected

that the project would reopen the tradiLtional markets. An extrapolation of

consumption trends in those areas shows an increase from 140,000 tons in

1979/80 to 212,000 tons in 1987/88. Through the same period, Lower Sao

Francisco production would grow from 7,700 tons to 54,000 tons, or from

5.5% to 25% of the total target market., Incremental Lower Sao Francisco

production would cover 65% of the expected consumption incremtent of the

target market.

7.06 Economic prices for rice have been computed on the basis of Bangkok

fob prices for 5% broken, forecast by the Bank's Commodities Division, adjusted

successively to account for 10% broken (- US$30 per ton), cif Recife (+ US$38

per ton), handling (+ US$5 per ton), two months' average wait (+ 2%) and

transport from the Propria mill (- US$10 per ton), in constant 1978 values

(Table 12, Annex 3). Based on average expected milling yielcls and average

1/ The Brazilian Institute of Geography and Statistics and the Ministry of

Agriculture, cited in L. Harlan Davis, "The Current Position of Agricul-

ture in Brazil."

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prices relative to standard white rice (= 100) of 114, 90, 38 and 39 forparboiled, below-standard white, bran and husk ash respectively, revenues perton of dry paddy would correspond to 71.1% and 79.2% of the market price perton of whole milled rice (10% broken) for white and parboiled rice, respec-tively, or an average of 73.8%. The market value of unprocessed paddy, trendadjusted, is assumed to be equivalent to its economic value since the downwardadjustment required to express it in border prices (- 20%) is approximatelyoffset by the upward adjustment needed to compensate for subsidized credit andwater rates.

7.07 With no indication of pending changes in the domestic productionor market structures, trend adjusted retail prices at Recife have beenprojected proportionally to world prices, after accounting for retail, whole-sale and transport margins, to establish the price of ex-mill rice for thefinancial analysis of mill operations. Since the mill would also be purchasingpaddy outside the SF II area, the market value of paddy observed in 1978 hasbeen adjusted along the same lines (Table 12, Annex 3).

Other crops

7.08 Among secondary project crops, cotton is the most important, followedby corn. Seventy percent of Brazilian cotton is planted in the South, and theremainder in the Northeast, for a relatively stable total production of 550,000tons per year. Domestic and world prices have increased recently but farmerresponse has been weak because of rising cultivation and harvest costs. Ex-ports involving 2 to 10% of the production, have often been subsidized. Fobvalues ex-Recife have been adjusted from lint to raw cotton for an economicvalue of US$500 per ton (Table 13, Annex 3). Going market prices were used tocompute value added to the farm budgets, as for all other crops except rice.

7.09 Corn production has increased rapidly in Brazil since the early1960s to reach 18 million tons by 1977, through cyclical supply/priceadjustments. Exports are of the order of 1.3 million tons per annum, witha sharp drop in 1978 due to the draught. Fob values are used for grains,adjusted for cob maize. Cotton, corn and other secondary project crops havelittle impact on national production or exports and are intended mainly forlocal consumption.

C. Marketing

7.10 The only product requiring organized marketing is rice. This wouldbe handled by the secondary cooperative through a semi-independent sales anddistribution unit it would establish for that purpose (para 5.11). Specializedstaff would be recruited within the Northeast for best knowledge of the regionalmarket. The sales and distribution unit would consist of five departmentscovering (a) sales by contract; (b) sales to retailers and main consumers;(c) transport and distribution; (d) stock control; and (e) marketing andpromotion. Potential clients would be wholesale dealers, supermarkets, indi-vidual or grouped retailers, caterers and direct consumers such as hospitals.

- 39C -

7.11 Limited seasonal variations of rice prices in Northeast Brazil

(maximum 11%) would not justify concentration of rice milling during the

high price months of January - April, since interest on the capital in-

vested in paddy procurement, plus amortization of the additional storing

and milling facilities, together with the losses due to longer storing wouldlargely exceed the potential difference in income between the low and high

milling seasons. Furthermore, the sales organization would need a continuous

contact with its customers during the whole year. Paddy would initially be

allocated between two milling alternatives -- white and parboiled, besides

the possibility of contracting existing mills. Some head rice may be combinedwith brokens for sale as a below-standLard rice, bringing a higher return than

sales to breweries. Bran would be sold for animal feed and rice husk ash tochemical industries.

VIII. FINANCIAL ANALYSIS

A. Farm Budgets

8.01 Farm budgets have been established for four illustrative farm types

of different size, location, farming system and cropping pattern, as follows:

(a) Farm type 1: 1,124 farms in Boacica of 3.5 ha each, growing

one full rice crop plus a ratoon crop on 80% of the area, undercontrolled flood irrigation (Table 14a, Annex 3).

(b) Farm type 2: 291 farms in Cotinguiba/Pindoba plus 504 inBrejo Grande, of 3.5 ha each, growing two full rice crops on

40% of the area, a full crop plus a ratoon crop on another40% and a single crop on the remaining 20%, under controlledflood irrigation (Table 14b, Annex 3).

(c) Farm type 3: 143 farms in Cotinguiba/Pindoba and 30 farmsin Brejo Grande, growing 1 ha of rice under controlled flood

irrigation, and 5 ha of dry--farmed cotton, maize and peanutsduring the rainy season (Table 14c, Annex 3).

(d) Farm type 4: 392 farms in Gotinguiba/Pindoba, 212 in Boacicaand 27 in Brejo Grande, rotating cotton, maize, peanuts andwatermelon on 3 ha under controlled gravity irrigation (Table14d, Annex 3).

8.02 Potential financial results of each farm type are summarized in the

following table:

Gross Prod. Prod. Costs Family Net Prod. Total Family -income Income Increments

Farm Type Area (ha) (Cr$) (Cr$) Labor (Cr$) (Cr$) iLs$ Boacica Others

1 3.5 74,760 43,194 7,472 24,094 31,566 L,954 179% -

2 3.5 82,236 47,626 8,144 26,466 34,610 2,143 - 108%

3 6.0 65,132 44,390 11,032 9,710 20,742 L,284 83% 25%

4 3.0 59,082 32,902 10,664 15,516 26,180 L,621 132% 58%

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Rice farms have positive cash flow balances from the year of establishment.Combro farms have financial rates of return of at least 50%. However, sincethe pre-project reference situation used to compute financial returns istheoretical inasmuch as farms of the proposed size and tenure do not existtoday, the financial impact of the project can best be appraised by comparing"iwith project" family incomes to present average rural incomes of US$700 inBoacica and US$1,025 elsewhere in the area for an average five-member family.Project-induced increments would thus be between 83% (combros) and 179%(paddy farms) in Boacica and 25% (dry-farming) and 108% (paddy farms) else-where. It is to be noted that family income of rice growers at full develop-ment (year 9 of project) would reach Cr$ 47,300 in 1978 prices, includingmilling dividends of the order of Cr$ 13,000, or US$800 per year (afterallowing for marketing and management uncertainties).

B. Paddy Storage and Processing

8.03 Paddy storage and processing is expected to provide a major sourceof value added in the project area. The cash flow of the mill is detailed inTable 15 of Annex 3 which shows that mill profits would reach US$5 millionby the sixth year of the project and climb to US$7.5 million five years later,once the mill has repaid its initial investment debts. This could result individends of Cr$ 26,000 (US$1,600) by the sixth year of the project andGrS 37,000 (US$2,200) as from year 11, for each of some 3,300 rice growers inthe Lower Sao Francisco area. These profits, however, have a high inherentrisk,, since they would be reduced approximately by half if ex-mill riceprices were to decrease by 10% as a result of market fluctuations, inadequatemill or marketing management or improper agronomic practices affecting thequality of mill output.

8.04 Mill profits are, in any case, substantial enough to warrant thatCODEVASF relending of storage and mill investment funds to the secondarycooperdtive exclude elements of subsidization. Current interest rates chargedby domestic lending institutions for similar investments are of the order of16% per annum for middle sized enterprises of agro-industries. This is ahighly subsidized rate, bearing in mind that the rate of inflation was 28%,41% and 43% in 1975, 1976 and 1977, respectively, and is expected to remainaround 40% in the coming years. The financial analysis of the mill assumesthat at least the full constant dollar value of the corresponding investmentswould be recovered from the cooperative.

C. CODEVASF Budget

8.05 CODEVASF is expected to recover its irrigation network operatingcosts plus 30% of capital investments in network construction through watercharges. The shares it holds in the farmer organization do not entitle it todividends on the profits. CODEVASF will initially bear the totality of bothproductive and social investment costs, plus the costs of the extensionservices and social assistance it will provide in the project area. Its main

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sources of funds would be Government allocations and the Bank loan, the latter

being later repaid directly by Government. The corresponding cash flow isshown in Table 16 of Annex 3. Land purchase costs, which require specificGovernment funding, are not shown in that table since they have already been

formally committed under the SF I project.

D. Fiscal Impact of Project

8.06 Government would finance the major part of the CODEVASF project

budget and ultimately repay the Bank loan. Against these expenditures, itwould derive an indirect income from an average 12.5% sales tax on processed

rice besides recovering US$3.7 million of taxes on project investments plusthe totality of investments in rice storage, transport and milling facilities.Operating costs of educational and health facilities have not been consideredsince Government would have to provide similar services whether the projectwere implemented or not. From year 9 onwards, it would save on its partici-

pation to the overall CODEVASF budget as the project's cash-flow becomespositive through higher water charges incorporating 30% of capital recovery.At full project development, Government gross income would lbe of the order

of US$5.5 million per annum, without distinction between Federal and StateGovernments. Government's annual cash flow becomes positive as from year6 of the project, to reach a surplus of US$3.7 million per year from year 17

onwards, once the Bank loan is totally repaid (Table 17, Annex 3). The netpresent value of project impact on Government cash-flow would be aboutzero at a 0% discount rate in constant dollar terms over the first 17 yearsof project life. Fiscal impact data are summarized in Table 18 of Annex 3.

IX. BENEFITS AND JUSTIFICATION

A. Economic Rate of Return

9.01 The economic rate of return of the project has been computed on the

basis of a cost stream including all directly productive capital and recur-rent expenditures, the working fund immobilized to meet operational require-ments and capital renewal costs. The cost stream also includes the purchaseof paddy from outside the SF II area for processing at the mill. The benefitstream comprises all incremental production, processed (rice) or otherwise(all other crops), generated by the project. Social infrastructure costs,justified by benefits which are mostly non-quantifiable, have been excludedfrom rate of return computations.

9.02 Both cost and benefit streams have been computed in border prices,using the following assumptions:

(a) The project's economic rate of return would not be sensitive tothe use of a shadow rate of exchange since such a rate would affectto a comparable degree the present value of both productive costsand main outputs of the project;

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(b) Cif Recife prices based on Bank projections of fob Bangkok

prices were adjusted ex-Propria mill as the border price for

processed rice, since (i) present domestic production of rice

is practically equivalent to present demand, (ii) incremental

project production at full development corresponds to 65% of

the growth of Northeast demand by that time, and (iii) this

incremental demand would have to be met through imports unless

domestic production were to increase through projects such as

the one proposed;

(c) Cotton, maize and peanut production border prices were established

on the basis of fob prices derived from Bank projections and

adjusted ex-Propria;

(d) Unskilled labor such as construction workers or hired farm hands

have been shadow priced at 50% of their actual wages because of

heavy regional unemployment; skilled labor has been shadow priced

at full wages;

(e) Farm family labor has not been considered among project costs,

since (i) the actual number of family laborers is not expected to

increase as a result of project activities, and (ii) more intensive

farm activities are not expected to reduce ancillary employment

opportunities enjoyed before the project, such as family gardening

or fishing;

(f) Indirect benefits, such as increased trade resulting from improved

economic conditions in the area, have not been considered;

(g) Taxes and other transfer payments were not charged to the

project; and

(h) All dikes and pumps constructed or to be constructed under

SF I financing have been excluded as sunk costs, since their

primary purpose is to protect the area from Paulo Afonso IV

effects. As a corollary, "without project income'" is computed

on the basis of the production level achieved before the river

regime was modified. This income reflects the opportunity

cost of land protected by SF I works.

9.03 Under all above assumptions, reflected in the data shown in the

following table, the economic rate of return of the project is estimated

to be of the order of 27% for the processing component (Table 19, Annex 3),

the cost of which is US$13 million, and of the order of 17% for the agricul-

tural component, the cost of which is US$54 million (Table 20, Annex 3). The

economic rate of return on overall productive expenditures, which have a

combined share of 86% of total project costs, is of the order of 22% (Table21, Annex 3). This rate decreases to 17.8%, with a 10% relative decrease of

production value, and further to 14% if at the same time all costs were to

increase by 10%. A 10% relative increase of output prices would, on the other

hand, raise the economic rate of return to 27%. Those figures show that the

project is not highly sensitive to relative price variations.

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Economic Cash Flow(million US$)

11Year 1 2 3 4 5 6 7 8 9 10 Onward

Investment Costs 6.2 13.3 11.4 9.8 5.7 2.6 - - -Renewal Costs - - - - - - 0.4 0.2 0.1 - 0.6Operating Costs 0.8 5.0 7.4 11.7 14.6 16.5 16.7 16.8 16.8 16.8 16.8

Total Project Expenditures 7.0 18.3 18.8 21.5 20.3 19.1 17.1 17.0 16.9 16.8 17.4

Project ProductionRice ex-mill 0.9 5.1 9.3 15.4 Z1.7 27.7 29.3 30.0 30.1 30.1 31.2Other crops 0.3 0.3 0.8 1.8 2.8 3.3 3.3 3.3 3.3 3.3 3.4

Total Project Production 1.2 5.4 10.1 17.2 24.5 31.0 32.6 33.3 33.4 33.4 34.6

Without Project Produiction 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5

Incremental Project Production -0.3 3.9 8.6 15.7 23.0 29.5 31.1 31.9 31.9 31.9 33.1

Net Value Added by Project -7.3 -14.4 -10.2 -5.8 +2.7 10.4 14.0 14.9 15.0 15.1 15.7

B. Project Beneficiaries

9.04 The project would benefit directly some 2,700 farmer families plusabout 300 network, store, mill and cooperative employees, adding up toabout 3,000 families, all with present income levels well below the absolutepoverty level. Education and health facilities would benefit at least another500 neighboring families, although thLeir precise number cannot be ascertained.Another 1,800 families growing rice in the area would benefit from the paddystorage and milling facilities. Baseline costs of productive and socialinvestments 1/ of US$43.7 million, including physical contingencies, repre-sent an expenditure of about US$14,570 per family, or US$4,530 per hectare.Baseline costs of the irrigation facilities (network, electric lines andmaintenance equipment) correspond to an expenditure of about US$2,800 perirrigated hectare, including physical contingencies. These figures comparefavorably with recent Bank projects, in which costs of irrigation facilitieshave varied between US$1,600 and US$6,200, and total base costs are anywherebetween US$13,500 and US$44,500 per family (Table 22 of Annex 3).

9.05 The project is intended to resettle families already employed inagriculture in the project area. As such, it will have no appreciable effecton overall employment. However, the intensity of employment of the projectpopulation will radically increase from an average 37 man-days per hectareto 80 man-days per hectare, or 280 man-days per family cultivating a 3.5 harice plot. Indirect employment is expected to be consideralbly enhanced bythe overall improvement of economic conditions in the project area.

1/ Excluding (a) half of the cost of paddy stores, mill and transportfacilities, which do not directly relate to the SF II project and (b)project financed recurrent expenditures.

- 44 -

C. Environmental Impact

9.06 Thirty-six percent of the project area, at present idle or under

low-yield natural pasture, would be recuperated for intensive, mainly irri-

gated agriculture, while the use of the remaining land would also be intensi-

fied and improved. Widespread schistosomiasis in the project area, which

could tend to increase under the proposed irrigation activities, would, on the

contrary, be reduced through the area-wide endemic disease control program to

be developed by SUCAM. Improved housing, sanitation and health facilities are

expected to have a major impact on overall health conditions of the area

population. As with the SF I project, CODEVASF would advise farmers on the

selection of pesticides that would not be harmful to fish resources, other

crops or health, and would help initiate control programs to monitor applica-

tions of agricultural chemicals.

D. Project Risks and Uncertainties

9.07 The Sao Francisco II Irrigation Project is a difficult project to

implement. CODEVASF has limited experience in such multifaceted operations,

and quantitative and qualitative staff limitations at middle management level

have hampered CODEVASF in its supervision of engineering consultants and

contractors in other projects. However, considerable technical assistance and

institution strengthening is built into the project to help overcome present

shortcomings.

9.08 The central role played by the cooperative organization at all

stages of agricultural production, harvesting, storage, processing and market-

ing considerably increases the dependence of favorable project results on the

professional level of the cooperative staff and management, and on the depth

of involvement of the area farmers in cooperatives established through outside

initiative. Careful attention must therefore be given to the proper staffing

and motivation of all farmer organizations, especially for processing and

marketing activities, and a rigorous monitoring system of cooperative activi-

ties must immediately be set up.

9.09 Project risks may also result from exceptional floods such as those

which occurred early in 1979 and more possibly from unpredictable rainfall,

which reached in 1978 the highest level recorded since measurements were

started some 50 years ago and has been delaying implementation of the SF I

project. The tight schedule already resulting for the SF II project (which

cannot be implemented until SF I works are completed in the corresponding

varzeas and the area is effectively protected from flood risks) could be

further strained if exceptional rainfall were to continue during SF II imple-

mentation.

- 45 -

X. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION

10.01 Assurances were received at: negotiations from Government that:

(a) it would take the necessary measures to ensure expropriations

in the Brejo Grande varzea after March 31, 1981 (para. 5.02);

(b) it would take all steps, including the provision of refinancing

facilities to credit intermediaries, which may be necessary to

ensure the availability to project farmers of adequate credit

from banks in the public as well as the private sector (para 5.04);

(c) it would take action required for the prompt issuance to CODEVASF

of import and other permits and licenses necessary for the

acquisition and importation of goods and services required for

the carrying out of the project (para 5.04);

(d) it would take all necessary measures to facilitate the conversion

of farmer associations into primary cooperatives and would, through

its competent agencies responsible for cooperative organization,participate, as appropriate, in the periodic reviews of the

development of the cooperative system (para 5.07); and

(e) it would cause its agency or agencies responsible for the setting

of water rates under the project to take all such action as

shall be necessary or advisable (including approval of waterrates proposed to be introduced from time to time in the project

area), to enable the recovery of all O&M costs and at least

30% of the capital cost of the irrigation network, subject tothe financial capacity of project farmers (para 5.21).

10.02 Further assurances were received at negotiations from CODEVASF

that:

(a) it would present to the Bank its proposed budget for theproject for the following year by October 31 of each year,

and its finalized budgetary allocations for the project eachyear as soon as its general budget had been approved (para 4.37);

(b) it would, at all times during the implementation of the project,

employ a suitably qualifiedl resident engineer within its 4thDirectorate and a coordinator and at least five suitably

qualified specialists within the Rural Development Unit of

its 4th Directorate (para .5.01);

(c) it would take all such action as shall be necessary to acquire by

all such land and rights in respect of land as shall be required

for the carrying out of the Project and would furnish to the

Bank, evidence that such land and rights in respect of land are

available for purposes related to the project (para 5.02);

- 46 -

(d) it would complete by December 31, 1979 a settler relocationstudy which would include a census of landless farmers entitledto relocation under the project and a sample survey of movementintention of the various segments of the area population(para 5.03);

(e) it would maintain contractual arrangements satisfactory to theBank with:

(i) the State Road Departments (DER) of Alagoas andSergipe for the construction and maintenance of projectfeeder roads;

(ii) the local electricity companies for the construction,operation and maintenance of the transmission lines anddistribution systems required by the project;

(iii) the National Housing Bank (BNH) for purposes offinancing house construction materials;

(iv) the Public Health Services Foundation (FSESP) forconstruction and operation of the health posts;

(v) the Superintendency of Public Health Campaigns (SUCAM)for the implementation of a campaign against communicablediseases in the project area (para 5.04);

(vi) the water supply companies of the States of Alagoas andSergipe (or other institutions satisfactory to the Bank)for purposes of operating and maintaining the water supplysystems included in the project, unless these activitiesshall be entrusted by CODEVASF to the farmer associationsto be established in the project area (para 5.16); and

(vii) the Secretariats of Education of the States of Alagoasand Sergipe, FSESP, and the Federal University of Sergipeor a similar institution for purposes of carrying outthe education component of the project (para 5.18);

(f) it would ensure the establishment of a secondary marketing andprocessing cooperative in the project area with statutesacceptable to the Bank by June 30, 1981 (para 5.06);

(g) it would:

(i) organize project farmers into about 12 farmer associationswith statutes acceptable to the Bank, to be graduallyestablished as settlement proceeds, with no more than400 members in any single association;

(ii) carry out appropriate education and training programsdesigned to prepare these farmer associations to beconverted into primary cooperatives within aboutfour years of their establishment;

- .47 -

(iii) upon a decision of the members of an association toconvert into a primary cooperative, take all necessarysteps within its competence to enable the associationto be so converted, and ensure that at the time ofconversion, title to the land cultivated by the membersof the association concerned is transferred to the newcooperative;

(iv) subject to the decision of the members of the primarycooperatives, take all necessary steps within its competenceto ensure that primary cooperatives in the project areabecome members of the secondary cooperative, and that thelatter provides adequate supply, processing and marketingservices to such primiary cooperatives; and

(v) periodically in the course of project implementation,review with the Bank the arrangements referred to abovein the light of monitoring results, the recommendationsof special studies and consultations with farmers(para 5.07);

(h) it would:

(i) take all such action within its competence (includingaction with respect to the filing of appropriateapplications with respect to the setting or adjustmentof water rates in the project area), as will result inthe gradual introduction in the project area of watercharges adequate to recover at full farm developmentthe incremental operation and maintenance costs ofthe irrigation and drainage network included in theproject and, subject to confirmation of the capacity ofwater users to pay, at least 30% of the capitalinvestment cost of the irrigation and drainage networksover a period of not more than 30 years, at a rate ofinterest of 8% per annum; and

(ii) periodically review the water charges to be introduced inthe project area on the basis of the results obtained fromthe monitoring and evaluation carried out under the projectwith a view to establishing the capacity of users to paysuch charges and determining whether a larger share ofthe capital investment cost of the irrigation and drainagenetwork can be recovered (para 5.21);

(i) it would complete a study of post harvest operations, satisfac-tory to the Bank, including drying, storage, milling andqualitative and quantitative rice transport requirements inthe Lower Sao Francisco area by June 30, 1980 (para 5.24);

- 48 -

(j) it would have its accounts, including a separate account forthe project, and financial statements for each fiscal yearaudited in accordance with sound auditing principles byindependent auditors, acceptable to the Bank (para 5.25);

(k) certified copies of its financial statements and audit reportswould be furnished to the Bank not later than four months afterthe end of the fiscal year (para 5.25); and

(1) a detailed document describing the project monitoring program,its staffing requirements, techniques and cost would be preparedby CODEVASF and the external monitoring unit and would bepresented for approval by the Bank by August 31, 1979(para 5.27).

10.03 Conditions of loan effectiveness would be that CODEVASF had:

(a) appointed qualified staff as Chiefs of the Rural Development Unitof its 4th Directorate and its four sections and as ResidentEngineer in the project area (para 5.01);

(b) prepared a UNDP/FAO Technical Assistance Project Document acceptableto the Bank and all parties concerned and recruited an FAO coopera-tives specialists (para 5.05); and

(c) established farmer associations with statutes acceptable to the Bankin settled areas of Propria, Itiuba and Betume (para 5.07).

10.04 Conditions of disbursement would be that CODEVASF had:

(a) acquired all lands under the project in the varzeas of Boacica,Cotinguiba and Pindoba by March 31, 1980 as a condition to disburse-ments after that date (5.02);

(b) acquired all lands under the project in the varzea of BrejoGrande as a condition for Bank disbursements relative to BrejoGrande (para 5.02);

(c) signed with the Camurupim cooperative an agreement defining theconditions of participation of the latter in project activities(para 5.06);

(d) signed detailed agreements with:

(i) the State Road Departments (DER) of Sergipe andAlagoas for the construction and maintenance ofproject roads;

(ii) the local electricity companies for the constructionof the transmission and distribution lines and thepower stations required by the project;

- 491 -

(iii) the National Housing Bank (BNH) for financing housingconstruction;

(iv) the Public Health Services Foundation (FSESP) for theconstruction and operation of health posts;

(v) the Superintendency for Health Campaigns (SUCAM) for theimplementation of a campaign against communicable diseasesin the project area (para 5.04); and

(vi) the State Secretariats of Education, agencies providingadult education, FSESP, and the Federal University ofSergipe or similar institutions, to ensure the adequateimplementation of the education component of the project(para 5.18);

as conditions of disbursement on the respective project components;

(e) completed a water supply pre-investment study, satisfactoryto the Bank as condition of disbursements on the health andsanitation component of the project (para 5.16); and

(f) completed a study of rice storage, milling and transportrequirements, satisfactory to the Bank, as condition ofdisbursement on the corresponding components of the project(para 5.24).

10.05 With the above assurances aLnd conditions, the project is suitablefor a Bank loan of US$28 million for a term of 15 years with a grace periodof three years.

May 21, 1979

- 50 - ANNEX 1

BRAZILSAO FRANCISCO 11 IRRIGATION PROJECT

Implementation Schedule

YEARS

1 2 3 4 5 6 7 8 9

IRRIGATIONW S1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989IRRIGATION WORKS- -J 98

Cotinguiba-Pindloba

SF I Infrastructure 0 t o d

Boacica | Constrction | Installation

SF I Infrattructure

SF 11 Irrigation Works - - 1 7 23, 600 tons/year of paddY

Area Irrigated & Poddy Production

Hrejo Grandeo

SF I Infrastructure

SF I Infrastructure l l | | ~~~~~~~~~~~~~~~~~~~~~~~~~~~11,800 tons/year of paddySF II Irrigation Works | & _ tons/year t lp |dy

Area Irrigated & Paddy Production

ESTABLISHMENT OF LOCAL FARMERASSOCIATIONS

Piridoba 2

Cotinguiba

Boaci- ma=

Brejo Grande -r_ 2l l l 4 i -~~~~~~~~~~~~Farmers Associations- tPrimary Coopeavs

PADDY STORAGE AND PROCESSING

Drying Modules:

Propria

Igreja Nova

Betume Y Propria Q&I M = 3c s

Igreja Nova =K E =2 x

Betum

Mil irg:

Common Equipment

White Mill ng Equipment

Parboiling Equipmentm

World Borik 19735

- 51 - ANNEX 2

BRAZILSAO FRANCISCO 11 IRRIGATION PROJECT

CROPPING PATTERN

IJ J_AlII JAISOINIDiJIFiMIAIM J IJ IA ISOINID J I FIM,A M JI

Seed andTransplant- Harvest

Period Period

RICE IN COTIN-GUI BA/PIN DOBAAND BREJO GRANDE

Platoon Crop

RICE IN PI P

I . L0LII.PL LIIEPlBOACICA

l~~~~~~~~~~0 Cot4n M t Ze0 0" Cotton 0 01+ *

GRAVITY AND 0 1 0

SPRINKLER

IRRIGATION _ Ornuts

|~~~~~~~~~10 m T S Ear 1c11 rn'

DRYFARMING

World Bank - 19592

RAINY SEASON

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT

Table 1: Present Land Use and Crop Production

Yields Cotinguiba/Pindoba Boacica Brejo Grande Totalt/ha Area (ha) Prod (t) Area (ha) Prod (t) Area (ha) Prod (t) Area (ha) Prod (t)

FloodIrrigation (varzea)

Rice 1.6 1,161 1,858 1,830 2,928 1,120 1,792 4,111 6,5781,161 1,830 1,120 4,111 1

Dry Farming >

Cotton .3 70 21 200 60 60 18 330 99 tBeans .4 300 120 730 292 240 96 1,270 508Maize (grain) .7 300 210 750 525 300 210 1,350 945

670 1,680 600 2,950

Pasture 720 960 300 1,980

Unutilized 864 780 315 1,959

TOTAL 3,415 5,250 2,335 11,000

BRAZ IL

SAO FRANCISCO II IRRIGATION PROJECT

Table 2: Proposed Development of Project Area(hectares)

GROSSIRRIGABLE DRY FARMING

VARZEEA STATE NET IRRIGABLE AREA AREA ARE_ A PROJECT AREA

,ur' ro,c' \xTh'T.q~NL.J. '~\NW )J r ______ u.VARZEA COMBRO VARZEA

(Flooding)(Furrouws) (Sprinkler) TOTAL +COMBRO TABULEIROCotinguiba- 1/ 2/

Pindoba Sergpe 1,161 480- 695- 2,336 2,590 717 825 3,053 3,415

Boacica Alagoas 3,933 - 636 4,569 5,250 - - 4,569 5,250

Brejo Grande Sergipe 1,793 80 - 1,873 2,160 150 175 2,023 2,335

TOTAL 6,887 560 1,331 8,778 10,000 867 1,000 9,645 ll OG

1/ :n Pindoba^/ In Cotinguiba

Lo

- 54 - ANNEX 3

BRAZIL Table 3SAO FRANCISCO II IRRIGATION PROJECT

Table 3: Irrigation Efficiencies 1!

(%)

Flooding Furrow Sprinkler

COTIUGCITBA

Field application efficiency 43 70

Conveyance efficiency 80 /95-/

Overall irrigation efficiency 34 67

PINDOBA

Field application efficiency 46 75

Conveyance efficiency 81 95-

OveKall irrigation efficiency 37 71

BOACICA

Field application efficiency 38 - 70

Conveyance efficienc) 70 85

Overall irrigation efficiency 27 60

BRE_O GRAND)E

Field application efficiency 32 75

Conveyance efficiency gs2/ 952

Overall irrigation efficiency 30 71

1/ Field Application Efficiency (Ea) = Irrigation requirement at crop rootFarmgate demand

Conveyance Efficiency (Ec) = Farmgate demandDiversion requirement

Overall Irrigation Efficiency = Ea x Ec = Irrigation requirement at crop rootDiversion requirement

2/ High conveyance efficiency resulting from lined canals.

- 55 .

Si. Fh5CICO 11 IRRICATION MWEC,

I.bls 4: Project Coats

0 2 3 -- 5--ad-o s-s----a-------------- - -- -

A. Pe9duce8ve Ca9ital Oo1rtdlturro 1979/90 1980/8I 1981/82 1982/83 1983/84 1984/85 Coat Corsoosiaola Tslj 70.1 Fpres=

1. Oeusatoooe Natoork

P-d.obs 1,435.6 1.866.6

Coodogulba 2,769.4 1,868.3.

eatles 2,963.7 2 497.5 1,917.3

Breo Oor _d. 1,656.6 1.635.9 1,565.0

1,435.6 7,599.7 6,022.4 3,553.2 1.565.0 20,175.9 4,266.8 24,442.7 7,627.8 32

0. eLiatoleal Netwotk

Cdthsiguba/Plodobo 16.7

Dotoles 47.1

63.8 63.8 4.4 70.1 14.0 20

3. Netoork 0L1H loulpoarI

Cotl,guia/Pldubs67.0 13.7 2.3

Joaties 63.0 68.2 5.5 13.2

Breo raGde-d 63.7 2.5 10.2

63.0 81.9 71.7 15.7 10.1 242.5 24.2 266.7 181.5 68

4. Aooieeloeool h37ehioaer

Tr- oe sard Oheshero 132.3 528.0 163.5

eeks.hepa sod Tools 350.0

482.3 529.0 163.5 1,174.8 117.5 1.292 3 516.9 40

5, Asrlcultural Saroocas

Cot-oguiba/Pfi6dbs 60.7 7.1

ostles z92.5 10.5

Orajo Oraode ___ 37.0 3.1

63.7 99.6 47.5 3.5 214.3 21.5 235.8 70.7 30

6. Paddy 9r7it8 & Storota

Peoptia 791.8 233.2 63.5 153.3

igoaja jots 791.8 196.0 49.2 204.8

9Etuo 827.8 109.0 227.2 314.7

2,411,4 119.0 656.4 112.7 672.8 3,972.9 397.2 4,569.5 3,294.3 75

7. Rote tllOirso 809.8 1,504.8 1,216.4 0,126.7 4,677.7 467.8 5,7145.5 4,521.1 bd

8. T Eses-ot louioooot 228.0 30.0 50.0 75.0 50.0 75.0 508.0 53.8 558.5 537.0 97

9. At-ros lods 220.0 66s.0 884.0 106.8 0,060.8 518.3 30

10. Leelniesl Asaits.aee 270.0 295.0 255.0 160.0 980.0 98.0 1,078.0 1,078.0 100

10. PFsrtars' Oetsoutioron

Othtbds 12.3 08.2

eotxgiuobs/Pidobs 18.2 36.3 18.2

jt 86.3 36.3 36.3

Oc-jo Acard ___ 18.2 18.2

01.3 06.4 72.6 72.7 54.5 248.5 24.6 273.1 112.2 41

02. e-soo-tsa-ioo foe OA,vo-t L.otRR

OotlsoulbalPOodoba 100.6 243.9 96.5

joseles 231.8 220.0 200.8 77.4

frejo Geande _ 97.7 153.2 156.1 52.6

100.6 477.7 416.3 361.0 253.5 52.6 1,641.7 164.2 1,b05.9 - O

Subtot l A 5,626.2 9746.7 9,108.5 6,333.4 3,158.1 810.6 34,783.5 5,155.8 40.599.3 18,172.4 45

S. Reo-rrart E..d.di-tr

05. Aoeleultsiral battles,

CotOoguOls/Pirdoba . 175.3 471.6 568.5 568.5 239.5

jostles 442.2 857.8 904.4 762.8

-rejo Gersd. 175.3 350.0 351.1

175.3 913.8 2,600.6 1,762.9 1,352.4 5,826.0 582,4 6,408.4 641.4 10

14. freot Ad=iooatroliot 113.6 015.6 103.8 013.6 015.6 568.4 57.e 625.0 62.5 10

IS. Foessro' Orgatirotiro

etoreal Coopseratia 60.7 67.7 67.7 67.7 67.7

Co.esiuiba/fitdoba 30.1 90.3 020.4 010.4

rustle. 60.3 120.4 080.6

boeJe Cost/a ________ 30.1 60.3

67.7 97.8 218.3 338.7 429.0 1,151.3 115.1 1,266.6 016.7 10

So/strool 8 356.6 1,135.2 1,933.5 2,235.2 1,895.0 7,545.5 754.5 86300.0 830.6 t0

C. Seteol Otfoastuetires 4 Studies

06. ORutosl

Ns- Hos... 88.3 560.1 488.0 313.1 99.0

lopoorel Oouoea 49.6 315.8 274.0 175.7 55.7

137.9 876.9 762.2 2 88.8 154.9 2,420.7 242.1 2,662.8 798.8 30

17. dutatuo.. 373.6 618.7 40.0 40.0 38.6 0,100.9 111.2 1,222.1 366.6 30

Lo. ssitth .. d Satotute 261.8 638.2 635.5 274.7 1,810.5 181.1 1,991.6 220.7 11

13. rural ltcttitif tostt 432.2 593.8 111.2 1,137.2 227.4 1,364.6 272.9 80

20. Further Studiest 4 Oiououe 250.0 250.0 250.0 750.0 75.D 825.0 495.0 60

Syb-tel C 1,205.5 2,977.6 1,799.2 1,053.5 193.5 7,229.3 836.8 8,066.1 2,055.3 07

basolier Coats 7,188.3 13,849.5 02.k41.2 9,622 1 5,246.6 810.6 49,358.3 7,407.0 56,965.4 21,258.0 37.3

Oat Jiousts 0378 erucers

Pss-it-I eutitiottias 927.9 0,409.0 1,990.8 1,317.3 681.0 81.0 7,407.1

Subtotal 8.116.2 16,258.5 14,832.0 10,939.4 5,927.6 891.7 56,965.4

tries eertuteeiea (155) (230) (31.75) (40.940 (50.83) (61.3i) 7

1,017.4 03539.4 4,701.7 4.474.2 5.000,2 546.6 57,699.5

WTAL 9O-JTCT COSTS 90333.6 22,13.6 20,049.8 10,540.5 10,419.8 0,438.3 74,655.9

Osrotio E-terog. C-op--st 4,600.0 5,903.9 7,131.5 5,814.5 3,314.5 1,168.0 27,930.4

Propeted dotk Floattg 4,300.0 8,000.0 7,40. 0 5,400.0 2,200.0 620.0 28,000.0

0/ I00 airept Ltr f rrigs-toatoorl. sat, roads a-d ursl js -jtrefleasljo (20%) sd Coti3uiba i-rasitot r-toork (252).

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT

Table 5 Foreign Exchange Component of Investment Costs(incl. physical contingencies)

('000 US$)

Foreign % of2 3--Years- Exchange Total1 2 3 4 ~ ~ ~ ~~ 5 6- Component Project

A. Productive Capital Expenditures

Irrigation Network 576.8 2,883.1 2,279.4 1,325.1 563.4 7,627.8 31Electrical Network 14.0 14.0 20Network O&M Equipment 55.5 61.0 57.7 4.7 2.6 181.5 68Agricultural Machinery 212.2 232.8 71.9 516.9 40Agricultural Services 21.0 32.8 15.7 1.2 70.7 30Paddy Drying & Storage 1,835.9 127.3 568.0 124.6 639.0 3,294.8 75Rice Milling 612.9 1,568.3 1,188.2 1,151.8 4,521.2 88Transport Equipment 228.8 33.2 55.0 82.5 55.0 82.5 537.0 97Access Roads 79.6 238.7 318.3 30Technical Assistance 297.0 324.5 280.5 176.0 1,078.0 100Farmers' Organization 6.0 9.0 35.4 35.4 26.4 112.2 41

Subtotal A 3,672.0 3,789,0 4,655.4 3,506.0 1,925.9 724.1 18,272.4 45

B. Recurrent Expenditures

Network O&M 6.5 28.2 48.8 58.5 142.0 6Agricultural Services 19.3 100.6 176.3 196.3 148.9 641.4 10Project Administration 12.5 12.5 12.5 12.5 12.5 62.5 10Farmers' Organization 7.5 10.8 24.0 37.2 47.2 126.7 10

Subtotal B 39.3 130.4 241.0 294.8 267.1 972.6

C. Social Infrastructure & Studies

Housing 45.5 289.4 251.5 161.3 51.1 798.8 30Education 123.3 204.2 13.2 13.2 12.7 366.6 30Health and Sanitation 15.8 85.0 86.5 34.4 221.7 11Rural Electrification 103.7 142.5 26.7 272.9 20Further Studies & Monitoring 165.0 165.0 165.0 495.0 60

Subtotal C 288.3 886.1 542.9 373.9 63.8 2,155.0 b

TOTAL (Baseline and Physical Cont.,) 3,999.6 4,805.5 5,439.3 4,I74 7 2,256.8 724.1 21,400.0 36 Ln Lo

TOTAL (Incl. Price Cont.) 4,600.0 5,910.8 7,163.6 5,882.1 3,403.3 1,168.0 28,127.8

ANNEX 3

-157 - Table 6

BBAZIL

SAO FRANCISCO II IRRIGATION PROJECT

Table 6: Sample Unit Costs

(January 1.978 prices)

Unit US$ Cr$

100-hp track mounted tractor, withoutimplements 21,800 352,100

Four-wheel-drive vehicle 8,200 132,40013.8 KV transmission lines km 6,200 100,000Access roads km 42,100 68Ql000Clearing, up-rooting and cleaning of areas m2 1.4Loading and unloading of earth for embankments,

back-fill and disposal m 3.1Transport of earth for embankments, back.-fill 3

and disposal m x km 7Excavating canals, drains and pits in earth

material of category 1 m3 18Back-fill in pits, pervious or impervious m3 30Compacted fill m3 10Concrete lining, canals (class 2 concrete) mn3 1,500Rip-rap lining, drains m3 200Gravel surfacing, roads m3 45Concrete and form works for reinforced concrete 3

structures with concrete class 1 m 3,500with concrete class 3 __m3 1,078with concrete class 4 m 3 900

Reinforcement bars, steel CA-50 kg 25Water proofing joints, canal concrete linings m 20Placing concrete pipe;

Diameter 400 mm m 640Diameter 600imm m 947Diameter 800 mm m 1,336Diameter 1,000 mm m 1,931

Tractor 210,000Plow 76,000Harrow 38,000Trailer 18,000Thresher (incl. motor) 84,000Rice silo (500 ton unit) 34,000Column dryer (9 tons/hour) 2 28,000Boiler for paddy drying (106.m ) 124,000L-1 health center 16,800Two-class-room school 46,270 747,200House construction material house 25,000House improvement " 14,000Labor

Unskilled labor man-day 2.5 40FAO Consultants man-month 5,000General managers (mill) man-year 60,000Managers (industrial units) man-year 30,000Deputy Managers (industrial units) man-year 15,000

ANNX 3- 58 - Table 7

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT

Table. : Proposed Bank Disbursement Schedul_('000 US$)

----------------------------Years…---------------------------1 2 3 4 5 6 Total

Irrigation Network (excl. pumps & motors) 1,435.6 7,583.9 5,896.1 3,301.4 1,565.0Contingencies, Physical 287.1 1,654.3 1,269.4 660.2 313.0

Electrical Netwozk 63.8Contingencies, Physical 6.4

Agricultural Machinery 482.3 529.0 163.5Contingencies, Physical 48.2 52.9 16.3

Agricultural Services 63.7 99.6 47.5 3.5Contingencies, Physical 6.4 9.9 4.8 .4

Access Roads 221.0 663.0Contingencies, Physical 44.2 132.6

Farmers' Organization 12.3 36.4 72.6 72.7 54.4Contingencies, Physical 1.2 3.6 7.2 7.2 5.4

Education 373.6 618.7 40.0 40.0 38.6Contingencies, Physical 37.4 61.9 4.0 4.0 3.9

Health & Sanitation 261.8 638.2 635.8 274.7Contingencies, Physical 26.2 63.8 63.6 27.5

Rural Electrification 432.2 593.8 111.2Contingencies, Physical 86.8 118.8 22.2

Network O&M Equipment 63.0 81.9 71.7 15.7 10.2Contingencies, Physical 6.3 8.2 7.2 1.5 1.0

Paddy Drying & Storage 2,411.4 119.0 656.4 112.7 672.8Contingencies, Physical 241.2 11.9 65.6 11.2 67.3

Rice Milling 819.8 1,514.8 1,216.4 1,126.7Contingencies, Physical 82.0 151.5 121.6 112.7

Transport Equipment 228.0 30.0 50.0 75.0 50.0 75.0Contingencies, Physical 22.8 3.0 5.0 7.5 5.0

Sub-total 7,164.9 12,911.3 10,698.6 6,792.8 3,102.9 833.8 41,504.3

Sub-total with Price Contingencies 8,239.6 15,880.9 14,090.0 9,575.7 4,679.1 1,344.9 53,810.2

47% B. F. 3,872.6 7,464.0 6,622.3 4,500.8 2,199.2 632.1 25,291.0

Irrigation Network(pumps & motors) 14.1 112.4 224.1Contingencies, Physical 3.6 25.3 44.8

Technical Assistance 270.0 295.0 255.0 160.0Contingencies, Physical 27.0 29.5 25.5 16.0

60% of Further Studies & Monitoring 150.0 150.0 150.0Contingencies, Physical lS--- 15.0 15.0 15.0

Subtotal 297.0 507.2 583.2 609.9 1,997.3Subtotal with Price Contingency = B.F. 341.6 623.8 768.1 859.3 2,592.8

TOTAL BANK FINANCING 4,214.2 8,087.8 7,390.4 5,360.1 2,199.2 632.1 27,883.8

Rounded to 4,300.0 8,100.0 7,400.0 5,400.0 2,200.0 600.0 28,000.0

B.F.= Bank financing

ANNEX 3- 59 - Table 8a

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT

Table 8a: Rent Recovery Indices±'

(Cr.$)

Rice Farmers Combro Farmers

1. Gross value of farm production at farm gate 82,236 54,0572. Dividends from rice milling 26,433 -3. less production (cash) costs 18,309 26,5804. Net cash income 90,360 27,4775. less imputed value of family labor 8,144 10,6846. value of management services-2/ 6,088 3,9947. allowance for risk/uncertainty3/ 13,216 -8. Rent/surplus 62,912 12,7999. Rent as a percentage of net cash income (8-4) 70% 47%10. Water charges 19,450 1,80711. Benefit taxes: purchase of cooperative shares 1,750 1,50012. Benefit taxes: 2.5% tax for FUNRURAL 2,029 1,33113. Total direct charges and taxes (10+11+12) 23,229 4,63814. Rent recovery index (13.8) 36.9% 36.2%15. Farmer income (8+5-13) 47,827 18,84516. Farmer income per capital/4/ 9,565 3,76917. Estimated per capita critical consumption level 1/5/ 12,30018. Estimated national per capita income- 1/ 5/ 28,000

1/ 'At full development in project year 9.2/ Cooperative commission of 7.5% on farm gate value.3/ Half of assumed dividends, as would result from 10% lowersales prices ex-mill.4/ Assuming five members per family.5/ Assuming a 3% per annum growth of national economy inreal terms.

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT-

Table 8b: Cost Recovery Index('000 US$)

C O S T S C H A R G E S

Investment Costs Total Costs Water Charges Total Direct Charges Total Recovery

O&M O&M Discounted 30% Capital Land FUNRUL Discounted Sales Tax DiscountedYear Network Eqglipment Costs Actual at 10% O&M Recovery Sales Taxes Actual at 10% on Rice Actual at 10%

1 1,722.7 70.2 - 1,792.9 1,629.9 - - - 23.7 23.7 21.5 23.7 21.52 9,258.0 69.3 94.0 9,421.3 7,786.2 - - 26.9 47.3 39.1 640.0 687.3 568.03 7,320.2 90.1 405.9 7,816.2 5,872.4 20.4 - - 87.5 251.0 188.6 1,164.7 1,415.7 1,063.64 4,263.8 78.9 799.8 5,142.5 3,512.4 163.5 - - 158.1 453.4 309.7 1,919.6 2,373.0 1,620.85 1,878.0 17.3 932.1 2,827.4 1,755.6 295.3 - - 207.3 693.3 430.5 2,717.7 3,411.0 2,118.06 - 11.2 932.1 943.3 532.4 486.0 - - 244.5 1,178.9 665.4 3,462.2 4,641.1 2,619.77 - - 932.1 932.1 478.3 662.5 - 271.9 247.8 1,381.6 709.0 3,669.9 5,051.5 2,592.28 - - 932.1 932.1 434.8 861.9 - 271.9 247.8 1,506.1 702.6 3,748.4 5,254.5 2,451.29 - - 932.1 932.1 395.3 986.4 1,346.9 271.9 247.8 2,936.6 1,245.4 3,762.2 6,698.8 2,841.0

10 - - 932.1 932.1 359.4 1,070.0 1,346.9 271.9 247.8 2,958.8 1,140.8 3,762.2 6,721.0 2,591.311-25 - - 932.1 932.1 2,733.3 1,092.2 1,346.9 271.9 257.5 2,968.5 8,705.0 3,900.8 6,869.3 20,143.926-30 - - 932.1 932.1 326.1 1,092.2 _ 1,346.9 - 257.5 2,696.6 943.4 3.900.8 6,597.4 2.308.2

25,816.1 15,101.0 40,939.4'58.5%) (158.6%)

0

- 61 - ANNEX 3Table 9

BRAZILSAO FRANCISCO II IRRIGATION PROJECT

Table 9: Distribution of Farms by Model and Land Use

Farm Types Boacica Cotinguiba/Pindoba Brejo Grande TOTAL-------------Farm Units (no) ---------------------

Farm Type l3.5 ha rice - 80% ratoon

cropped (Boacica) 1,124 1,124

Farm Type 23.5 ha rice - 40% second

cropped and 40% ratooncropped (Sergipe varzeas) - 291 504 795

Farm Type 31 ha rice and5 ha dry-farming - 143 30 173

Farm Type 43 ha - irrLgated polyculture 212 392 27 631

TOTAL 1,336 826 561 2,723

Land Use (ha)

Flood Irrigation (varzea) 3,933 1,161 1,793 6,887- Rice 3,933 1,161 1,793 6,887

Gravity/Sprinkler Irrigation 636 1,175 80 1,891(combro)

- Cotton/maize 424 784 54 1,262- Peanuts/watermelon/

earcorn 106 195 13 314- Bananas 106 196 13 315

Dry-Farming - 717 150 867- Cotton -30 90 520- Peanuts 143 30 173- Maize - 144 30 174

TOTAL 4,569 3,053 2,023 9,645

BRAZILSAO FRANCISCO II IRRIGATION PROJECT

Table lO: Summary of Yields; Area Planted and Output

Cropped Area (ha) Yields (ton/ha) Production (tons)

Without With Without WithProject l/Project Increment Present Target Project Project Increment

Flood Irrigation (varzea)Rice 4,111 12,395 8,284 1.6 2/ 6,578 43,095 36,517

Gravity or Sprinkler Irrig. (combro)Cotton - 1,262 1,262 - 2.4 3,029 3,029Maize - 631 631 - 4.0 - 2,524 2,524Maize (earcorn) - 190 190 12.0 - 2,280 2,280Peanuts - 314 314 2.0 - 628 628Watermelon - 125 125 18.0 - 2,250 2,250Bananas - 315 315 30.0 - 9,450 9,450

Dry-Farming pCotton 330 520 190 0.3 1.6 99 832 733Maize 1,350 174 (-1,176) 0.7 2.0 945 348 (-597)Peanuts - 173 173 - 1.5 - 260 260Beans 1,270 - (-1,270) 0.4 - 508 - (-508)Natural Pasture 1,980 - (-1,980) - - - - -

Sub-Total 9,041 16,099

Unutilized 1,959 1,355

TOTAL 11,000 17,454

1/ All dry-farming.

2/ 4 ton/ha crop (7,768 ha) and 2.5 ton/ha ratoon (4,327 ha).

o .@CO rw

BRAZIL

SXo FRANCISCO II IRRIGATION PROJECT

Table 11: Expected Evolution of Paddy Production(Tons of Dry Product)

CROPPING SEASONS 79/80 80/81 81/82 82/83 83/84 84/85 85/86 86/87 87/88

PROJECT VARZEAS

SF II Boacica 2,900 1,5'0 Ah300 9,900 16,400 21,200 23,000 23,600 23,600

SF II Brejo Grande 1,800 1,800 1,200 1,800 3,900 7,400 10,200 11,400 11,8UO

SF II Cotinguiba/Pindoba 1,200 800 3,400 5,900 7,200 7,700 7,700 7,700 7,700 1

SF I Betume 2,500 4,700 8,600 13,600 18,600 18,600 18,600 18,600 18,600

SF I Marituba 1,300 3,200 5,800 8,500 8,500 8,500 8,500

Proprii 3,300 4,500 5,100 5,700 6,400 6,400 6,400 6,400 6,400

Itiuiba. 1,400 2,500 3,800 5,300 5,800 6,400 6,400 6,400 6,400

TOTAL 13,100 15,800 27,700 45,400 64,100 76,200 80,800 82,600 83,000

p3Em

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT

Table 12: Projected Rice Prices

(1978 constant prices)

1978 1979 1980 1981 1982/4 1985/9 1990- to

Substitution Prices (US$/t)

5%/o broken fob B'kok 1/ 308.- 335.7 358.7 366.8 383.3 410.3 425.610% broken ex-Propria Mill 2/ 317.4Equivalent per ton of paddy input- 234.2 255.] 272.0 278.5 290.9 311.3 322.8

(ex-Propria' Mill)

Financial Prices

Retail Recife (Cr$/t, 11,000Sale ex-mill (Cr$/t)-/ 2/ 6,080Equivalent per ton of paddy input- (Cr$/t) 4,487Equivalent per ton of paddy input (US$/t) 277.8 302.6 322.7 330.3 345.1 369.3 382.9

Farmgate price of unprocessed paddy(Cr$/t)0!61 3,400Farmgate price (20% trend adjusted)(Cr$/t) 2,800 3,050 3,250 3,300 3,480 3,720 3,860Farmgate price (US$/t) 173.4 188.8 201.2 204.3 215.5 230.3 239.0

Value of present paddy productio, v 6/ O

(Cr$/t) 2,520 2,745 2,925 2,970 3,132 3,348 3,474(US$/t) 156.0 170.0 181.1 183.9 194.0 207.3 215.1

1/ 10% broken ex-Propria mill (1978) = 5% broken fob Bangkok (1978) - $30 (10% broken) + $38 (CIF Recife) + $5 ( port handling)+ 2% (interest on 2 months average wait) - $10 (transport from Propria to Recife).

2/ Considering specific mix proposed for mill production, 1 ton of 14% dry paddy input has an ex-mill processed valueequivalent to 73.8% of 1 ton of 10% broken white rice.

3/ Retail (Recife) 11,000Trend adjustment (20%) 2,200Adjusted retail Recife 8.800Wholesale margin (20%) 1,760

7,040

Transport from Propria _ 200Wholesale ex-Propria 6,840 dIxTaxes (12.5% ex-sale price) 760 .

Sale ex-mill 6,080

4/ Based on average prices obtained by SF I assisted tarmers for their early 1978 harvest.

5/ Present paddy, of much lower quality, is assumed t0% Delow unit value of future production.

6/ For simplified presentation, farm cash flows have been computed on an average farmgate value of Cr$3,560 for future productionand Cr$3,204 for present production.

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT

Table 13: Border Prices for various Drojeet Inputs and °utputs

(1978 constant prices)

Adjustmentfactor Unit

Maize US no 2 fob Gulf ports US$/t 115.0 131.5 141.7 142.0 144.3 148.9 149.9

ex-Propria - 15$/t 100 116 156 127 129 134 134

Groundnuts ex-Nigeria CIF UK 538.0 462.9 426.0 469.5 435.3 487.8 494.8

shelled CIF Recife - 15$/t 523.0 447.9 411.0 454.5 420.3 472.8 479.8

shelled ex-Propria 65% 340.0 291.1 267.2 295.4 273.2 307.3 311.9

Cotton Mexican CIF N. England ct/lb 71.0 72.3 74.4 76.9 78.1 78.1 77.8 v

ct/kg 156.2 159.1 163.7 169.2 171.8 171.8 171.2 a%

fob Recife -35 c/kg. ct/kg 152.7 155.6 160.2 165.7 168.3 168.3 167.7

lint ex-Propria -2 c/kg. " 150.7 153.6 158.2 163.7 166.3 166.3 165.7

raw ex-Propria' 1/3 of lint " 50.2 51.2 52.7 54.6 55.4 55.4 55.2

Bananas )Watermelon at local market prices

Earcorn )

Urea fob Europe bagged +15SIt usS/t 144.5 149.8 157.2 160.4 162.5 203.2 203.3for cif equiv.

delivered Propri& +10$/t " 169.5 174.8 182.2 185.4 187.5 228.2 228.3

for local transp.

TSP fob US gulf 105 119.7 128.4 133.7 136.0 171.1 171.2

delivered Propria +$20/t 125 139.7 148.4 153.7 156.0 191.1 191.2

Muriate of Potash fob Vancouver " 57 62 65.1 68.5 69.4 75.8 85.6 .

delivered Propria +$30/t " 87 92 95.1 98.5 99.4 105.8 115.6 w

BRAZILSAO FRANCISCO II IRRIGATION PROJECT

Table 14(a): Farm Budget for Farm Type One(Cr$)

------------------------------------------------------ …--------------------------- CALENDAR ------------------------- ______________197B 1979 1>70 1981 1982 1983 1988 1993 1998 2003

(BASE YR)GROS---- V- LUE----0------0--34,390--52,830---7--,27---74,760-- ___74,760___________74_____- ________7_______760______74,7____- ___0_

GROST VALUE 10,013 0 34,390 52,830 71,271 74,760 74,760 74,760 74.760 74,760=TOTAL 'NFLOW 10,013 0 34,390 52,830 71,271 74,760 74,760 74,760 74,760 74,760

- ON-FARM CONSUMPTION 1,521.2 .0 2,246.0 2,246.0 2,246.0 2,246.0 2.246.0 2,246.0 2,246.0 2,246.0

= NET INFLOW 8,491 0 32,144 50,584 69,025 72,514 72,514 72,514 72,514 72,514

DIRECT PRODUCTION COST 4,253 0 10,544 10,869 10,981 11,261 11,261 11,261 11,261 11,261HIRED LABOR COST .0 .0 1,840.0 2,280.0 3,120.0 3,364.0 3,364.0 3,364.0 3,364.0 3,364.0INVESTMENTS 1/ .0 .0 1,750.0 1,750.0 1,750.0 1,750.0 1,750.0 1,750.0 1,750.0 .0OTHER OVERHEAD COST 2/ 849 0 6,132 8,676 11,920 13,669 26,819 26,819 26,819 26,819

- TOTAL CUTFLOW 5,102 0 20,266 23,575 27,771 30,044 43,194 43,194 43,194 41,444

= NET FARM CASH FLOW 3,389 0 11,877 27,010 41,254 42,470 29,320 29,320 29,320 31,070

ON-FARM CONSUMPTION 1,521.2 .0 2,246.0 2,246.0 2,246.0 2,246.0 2,246.0 2,246.0 2,246.0 2,246.0+ NON-PRODUCTION OUTFLOW 1,'21.2 .0 2,246.0 2,246.0 2,246.0 2,246.0 2,246.0 2,246.0 2,246.0 2,246.0 C

- LESS IMPUTED FAMILY LABOR COST 3,542.0 .0 6,168.0 7,016.0 7,464.0 7,472.0 7,472.0 7,472.0 7,472.0 7,472.0

NET FARM BENEFIT 1,368 0 7,955 22,240 36,036 37,244 24,094 24,094 24,094 25.844

1/ Cooperative shares at Cr$ 500 per ha per year during 20 years.

2/ Includes (a) water charges, (b) 7.5% of the value of farm produce salesfor cooperative overheads, and (c) 2.5% of same sales for FUNRURAL.

BRAZILSAO FRANCISCO II IRRIGATION PROJECT

Table 14 (b): Farm Budget for Farm Type Two(Cr$)

…CALENDAR------------------------------------------------------------------------ CALENDAR --------------------------- __________1978 1979 1 980 1991 1982 1983 1988 1993 1998 2003

(BASE YR)…-- - - - - - -- - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --__ _ _ _ _ _ - - - - - - --_ _- - - - - - - - --_-_- - - - - - - - - - - - - - --_-_- - - - - - - - - - --__ _ _ _ _ _ _ _ _ _

GROSS VALUE 17,891 0 37,380 57,814 78,249 82,236 82.236 82,236 82,236 82,236= TOTAL INFLOW 17,891 0 37,380 57,814 78,249 82,236 82.236 82,236 82,236 82,236

- ON-FARM CONSUMPTION 961.2 .0 3,204.0 3,204.0 3,204.0 3,204.0 3,204.0 3,204.0 3,204.0 3.204.0

= NET INFLOW 16,930 0 34,176 54,610 75,045 79,032 79,032 79,032 79,032 79,032

DIRECT PRODUCTION COST 7,479 0 13,579 13,993 14,049 14,441 14,441 14,441 14.441 14,441HIRED LABOR QST 1,690.0 .0 1,944.0 2,608.0 3,672.0 3,868.0 3,86S.0 3,868.0 3,868.0 3,868.0INVESTMENTS fI .0 .0 1,750.0 1,750.0 1,750.0 1,750.0 1,750.0 1,750.0 1,750.0 .0OTHER OVERHEAD COST 2/ 1,692 0 6,431 9,175 12,618 14,417 27,567 27,567 27,567 27,567

- TOTAL OUTFLOW 10,861 0 23,704 27,526 32,09 34476 47,626 47.626 47,626 45,876

- NET FARM CASH FLOW 6,069 0 10.472 27,084 42,956 44,556 31,406 31,406 31,406 33,156

ON-FARM CONSUMPTION 961.2 .0 3,204.0 3,204.0 3,204.0 3,204.0 3,204.0 3,204.0 3,204.0 3.204,0+ NON-PRODUCTION OUTFLOW 961.2 .0 3,204.0 3,204.0 3,204.0 3,204.0 3,204.0 3,204.0 3,204.0 3,204.0 c

- LESS IMPUTED FAMILY LABOR CCST 3,475.2 .0 7, 52.0 8,C88.0 8,424.0 8,144.0 8,144.0 8,144.0 8,144.0 8,144.0

- NET FARM BENEFIT 3,555 0 8,324 22,200 37.736 39,616 26,466 26,466 26,466 28,216

1/ Cooperative shares at Cr$ 500 per ha per year during 20 years.

2/ TnrludeR (a) water charges. (b) 7.5% of the value of farm produce salesfor cooperative overheads, and (c) 2.5% of same sales for FUNRURAL.

BRAZILSAO FRANCISCO II IRRIGATION PROJECT

Table 14(c): Farm Budget for Farm Type Three(Cr$)

---------------------------------------------------------------------------------- CALENDAR ------------ …-----------___-_-1978 1979 j 00 1 981 1982 1983 1988 1993 1998 2003

(BASE YR)------------------------------------------------------------- __--_ _____________-___---

GROSS VALUE 9,822 0 24,124 43,868 61,422 65,132 65.132 65.132 65.132 855132= TOTAL INFLOW 9,822 0 24,124 43,868 61,422 65,132 65.132 65,132 65.132 65,132

- ON-FARM CONSUMPTION 1,521.2 .0 3,599.0 3,599.0 3,599.0 3,599.0 3,599.0 3,599.0 3,599.0 3,599.0

NET INFLOW 8,301 0 20,525 40,269 57,823 61,533 61.533 61,533 61.533 61,533

DIRECT PRODUCTION COST 4,994 0 28,287 29,185 29,876 30,243 30.243 30,243 30,243 30,243HIRED LABOR CQST .0 .0 1,120.0 1,120.0 1,160.0 1,200.0 1,200.0 1,200.0 1,200.0 1,200.0INVESTMENTS 1/ .0 .0 500.0 500.0 500.0 500.0 500.0 500.0 500.0 .0

OTHER OVERHEKD COST 2/ 832 0 3,066 5,241 7,396 8,167 12,447 12,447 12,447 12,447- TOTAL OUTFLOW 5,826 0 32,973 36,046 38.932 40,110 44,390 44,390 44.390 43,890

NET FARM' CASH FLOW 2,475 0 -12,448 4,223 18,891 21,423 17,143 17,143 17,143 17.643

OCi-FARM CONSUMPTION 1,521.2 .0 3,599.0 3,599.0 3,599.0 3,599.0 3,599.0 3,599.0 3,599.0 3,599.0+ NON-PRODUCTION OUTFLOW 1,521.2 .0 3,599.0 3,599.0 3,599.0 3,599.0 3,599.0 3,599.0 3,599.0 3,599.0 1

LESS IMPUTED FAMILY LABOR COST 4,546 0 8.776 9,776 10,856 11,032 11,032 11,032 11,032 11,032 X

= NET FARM BENEFIT -550 0 -17,625 -1,954 11,634 13,990 9,710 9,710 9.710 10,210

1/ Cooperative shares at Cr$ 500 per ha per year during 20 years.

2/ Includes (a) water charges, (b) 7.5% of the value of farm produce salesfor cooperative overheads, and (c) 2.5% of same sales for FUNRURAL.

BRAZILSKO FRANCISCO II IRRIGATION PROJECT

Table 14(d): Farm Budget for Farm Type Four

(Cr$)----------------- …---------------------------------------------------------------- CALENDAR --------------- - -----------------------

1976 1979 1°80 1981 1982 1983 1988 1993 1998 2003(BASE YR)

GROSS VALUE 1,468 0 18,179 37,117 54,666 59,082 54-057 56,067 58,412 59,082

= TOTAL INFLOW 1,468 0 18,179 37,117 54,666 59,082 54,057 56,067 58,412 59,082

- ON-FARM CONSUMPTION 560.0 .0 796.0 796.0 796.0 796.0 796.0 796.0 796.0 796.0

= NET INFLOW 908 0 17,383 36,321 53,870 58,286 53,261 55,271 57.616 58.286

DIRECT PRODU T ON COST 647 0 24,495 23,103 24,026 24,213 26.580 24,213 24.213 24,213INVESTMENTS _ .0 .0 1,500.0 1,500.0 1,500.0 1,500.0 1,500.0 1,500.0 1,500.0 .0OTHER OVERHEAD COST 2/ 91.0 .0 2,349.0 4,393.0 6,448.0 7,189.0 7,133.0 7,338.0 7.572,0 7,639.0

- TOTAL OUTFLOW - 738 0 28,344 28,996 31,974 32,902 35,213 33,051 33,285 31,852

= NET FARM CASH FLOW 170 0 -10,961 7,325 21,896 25,384 18,048 22,220 24,331 26,434

ON-FARM CONSUMPTION 560.0 .0 796.0 796.0 796.0 796.0 796.0 796.0 796.0 796.0* NON-PRODUCTION OUTFLOW 560.0 .0 796.0 796.0 796.0 796.0 796.0 796.0 796.0 796.0

- LESS IMPUTED FAMILY LABOR COST 9SO 0 '776 9,608 10,304 10,664 10,884 10,684 10,684 10,684 o

= NET FARM BENEFIT -230 0 -18,941 -1,487 12,388 15,516 7,960 12,332 14.443 16,546

1/ Cooperative shares at Cr$ 500 per ha per year during 20 years.

2/ Includes (a) water charges, (b) 7.5% of the value of farm produce salesfor cooperative overheads, and (c) 2.5% of same sales for FUNUURAL:

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT

Table 15: Paddy, Drying, Storage & Milling

Financial Analysis ('000 US$)

Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

79/80 80/81 81/82 82/83 83/84 84/85 85/86 86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94

Paddy milled (t) (15,500) (27,000) (44,500) (63,000) (75,000) '79,500) (81,200) (81,500)-

Initial Investments

Drying & Storage 2,652.6 130.9 722.- 123.9 740.1Milling 901.8 1,666.3 1,338.- 1,239.4

250.8 33.- 55- 82.5 55.- 82.53,805.2 733- 1,852.2 2,142.5 1,418.3 822.6

Renewal Costs 168.3 66.2 811.- 214.7 663.5 551.2

Operating Costs 0

Labor 703.8 833.0 1,146.- 1,244.8 1,366.0 1,393.2 1,393.2 1,393.2 'Transport 15.2 25.3 42.4 64.0 76.9 84.0 87.0 87.9 *

Spare parts($1.28/ton) 164.4 286.5 472.1 668.3 795.8 843.5 861.5 864.7Bagging ($9.33/ton) Maintenance 18.6 18.6 18.7 28.2 29.9 30.1 32.3 32.3 -Electric power 1/ 56.2 97.3 182.0 261.0 324.1 346.8 356.0 357.9 _Overhead costs 235.- 359.4 426.8 494.2 561.6 629.0 696.4 696.4 *

1,493.2 1,320.1 2,288.0 2,760.5 3,154.4 3,326.6 3,426.4 3,432-4

Purchase of Paddy 3,166.6 5,818.5 9,589.8 13,576.5 17,272.5 18,308.8 18,700.4 18,769.4 18,769.4 19,478.5 -

TOTAL COSTS 3,805.2 4,692.8 8,990.3 14,020.3 17,755.3 21,249.6 21,803.7 22,193.- 22,201.8 22,201.8 23,791.9 22,980,9 23,195.6 23,644.4 23,532.1

Income from Sales-/ 5,119.6 9,317.7 15,357.- 21,741.3 27,697.5 29.359.4 29.987.2 30,098.- 30,098-- 31,206.4 31.206.4 ~ANNUAL CASH FLOW - 3,805.2 426.8 327.4 1,336.7 3,986.- 6,447.9 7,555.7 7,794.2 7,896.2 7,896.2 7,414.5 8,225.5 8,010.8 7,562,0 7,674.3CODEVASF FINANCING + 3,805.2 1,852.2 2,142.5 1,418.3 822.6PROPOSED REPAYMENT 2,014.8 2,014.8 2,014.8 2,014.8 2,014.8NET CASH FLOW 426.8 2,179.6 3,479.2 2,567.7 5,255.7 5,540.9 5,779.4 5,881.4 5,881.4 7,414.5 8,225.5 8,010.8 7,562.0 7,674.3

1/ Including marketing costs.2/ Sales of rice in bags.

- (A

U,

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT

Table 16* CODEVASF Cash Flow(in n78 constant dollars) (000 US$)

Year 1 2 3 4 5 6 7 8 9 10

Expenditures Onward

Initial investments: 1/2/ 8,022.2 15,946.6 15,438.1 10,857.1 6,027.6 9.6

Project administration 113.6 113.6 w

Network operation 94.0 405.9 799.8 882.1 ---

Agricultural extension 690.8 187.6 23.4

Renewal costs 0.&'M. Eq. 41.2 60.1 49.9 46.5*

8,116.2 16,352.5 15,237.9 11,739.2 6,909.7 2,578.2 1,224.5 1,079.2 1,045.6 1,042.2

Sources of Income

Bank loan 2 3,740.0 6,585.0 5,620.0 3,830.0 1,460.0 370.0

BNH credit 3/ 137.9 876.9 762.2 488.8 154.9

Water charges 4/ 20.4 163.5 295.3 486.0 662.5 861.9 986.4 2,416.9 2,439.1

Governrant allocations 4,238.3 8,870.2 8,692.2 7,125.1 4,808.8 1,545.7 362.6 92.8 -1,371.3 -1,396.9

8,116.2 16,352.5 15,237.9 11,739.2 6,909.7 2,678.2 1,224.5 1,079.2 1,045.6 1,042.2

*Average

1/ Including project financed operating costs during first five years of project implementation.

2/ Excluding price contingencies, since figures are based on constant 1978 prices.

3/ To be repaid by the owners of the houses

4/ O&M costs up to year 8 included; O&M plus 30% investment recovery from year 9 onwards

a,E

ANNEX 3

Table 17

BRAZILSAO FRANCISCO II IRRIGATION PROJECT

Table 17: Loan Amortization Schedule('000 US$)

Government Amortization ScheduleAssumedBank Dis- Capital Interestj/ Commitment',/bursement Repayment on Loan- Charges - Total

March 15, 1980 750.0 _ - 105.0 105.0

September 15, 1980 3,000.0 _ 29.6 102.2 131.8March 15, 1981 4,300.0 _ 148.1 90.9 239.0September 15, 1981 4,350.0 _ 318.0 74.8 392.8March 15, 1982 3,700.0 _ 489.8 58.5 548.3Septemlber 15, 1982 3,700.0 - 636.0 44.6 680.6March 15, 1983 2,700.0 1,165.0 782.1 30.7 1,977.8September 15, 1983 2,700.0 1,165.0 842.7 20.6 2,028.3March 15, 1984 1,100.0 1,165.0 903.4 10.5 2,078.9September 15, 1984 1,100.0 1,165.0 900.8 6.4 2,072.2March 15, 1985 300.0 1,165.0 898.2 2.2 2,065.4September 15, 1985 300.0 1,165.0 864.1 1.1 2,030.2March 15, 1986 - 1,165.0 829.9 - 1,994.9September 15, 1986 - 1,165.0 783.9 - 1,948.9

March 15, 1987 - 1,165.0 737.9 - 1,902.9September 15, 1987 - 1,165.0 691.8 - 1,856.8

March 15, 1988 - 1,165.0 645.8 - 1,810.8September 15, 1988 - 1,165.0 599.8 - 1,764.8

March 15, 1989 - 1,165.0 553.8 - 1,718.8September 15, 1989 - 1,165.0 507.8 - 1,672.8

March 15, 1990 - 1,165.0 461.7 - 1,626.7September 15, 1990 - 1,165.0 415.7 - 1,580.7

March 15, 1991 - 1,165.0 369.7 - 1,534.7September 15, 1991 - 1,165.0 323.7 - 1,488.7

March 15, 1992 - 1,165.0 277.7 - 1,442.7September 15, 1992 - 1,165.0 231.7 - 1,396.7

March 15, 1993 - 1,165.0 185.6 - 1,350.6September 15, 1993 - 1,165.0 139.6 - 1,304.6

March 15, 1994 - 1,165.0 93.6 - 1,258.6September 15, 1994 - 1,205.0 47.6 - 1,252.6

28,000.0 28,000.0 - - -

May 1979

1/ At 7.9% per annum on amount disbursed2/ At 0.75% per annum on amount awaiting disbursement

- 73 -

ANNEX 3Table 18

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT

Table 18: Fiscal Impact of Project(constant 1978 prices) (000 US$)

Project Years 1 2 3 4 5 6 7 8 9 10

Government share inCODEVASF expenditure-' 4,238.3 8,670.2 b,692.2 7,125.1 4,808.8 1,545.7 362.6 92.8

EMATER services 430.6 1,092.2 1,595.4 1,759.6 1,783.0 1,783.0

Renewal EM&TER cars 2/ 3.9 15.5 15.5 .3.9

Repayment of Bank loan- 887.1 1.774.2 1 3774.2 1 5774.2 15774.2 1,774.2 13 774.2

Sub-Total A 4,238.3 8,870.2 8,692.2 8,012.2 7,013.6 4,416.0 3,747.7 3,642.1 3,551.7 3,557.2

Capital Recovery onWater Charges 1,371.3 1,396.9

Government income fromrice sales tax 640.- 1,164.7 1,919.6 2,717.7 3,462.2 3,669.9 3,748.4 3,762.2 3,762.2

Income taxes 200.- 200.- 200.- 200.- 200.-

Repayment of millinginvestment by COBASF- 2,014.8 2,014.8 2,014.8 2,014.8 2,014.8

Tax returns on projectinveStments 264.5 1,378.1 1.176.9 633.5 268.6 2.2

Sub-Total B 264.5 2,018.1 2,341.6 2,553.1 2,986.3 5,679.2 5,884.7 5,963.2 7,323.9 7,323.9

Government Cash-flow -3,973.8 -6,852.1 -6,350.6 -5,459.1 -4,027.3 1,263.2 2,137.0 2,321.1 3,711.2 3,816.7

Project Years (cont'd) 11 12 13 14 15 16 17onward

EMATER services 1,783.0 1,783.0 1,783.0 1,783.0 1,783.0 1,783.0 1,783.0

Renewal EMATER cars 3.9 15.5 15.5 3.9 3.9 15.5

Repaymetnt of Bank loan 1.774.2 1.774.2 1.774.2 1.774.2 1.774.2 887.1

Sub-Total A 3,561.1 3,572.7 3,572.7 3,561.1 3,557.2 2,674.0 1,798.5

Capital Recovery onWater Charges - 1,396.9

Government income fromrice sales tax 3,900.8 -cIncome taxes 200.- -

Sub-Total B 5,497.7 -

Government Cash-flow 1,935.6 1,925.0 1,925.0 1,935.8 1,940.5 2,823.7 3,699.2

1/ As established in table 152/ Excluding price contingencies and interest paid to the Bank since figures are given in constant 1978 prices and the rate of

interest on the Bank loan (around 7.5X) is very close to the expected rate of inflation in dollar terms.

3! COBASF repayments to CODEVASF automatically reduce Government contribution to overall CODEVASF budget.

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT

Tahle 19: Paddy Processing Unit Economic Cash Flow ('000 US$)

Year: 1 2 3 4 5 6 7 8 9 10 11 12 13

Investments & Renewals 3,419.9 25.0 2,069.9 1,520.9 1,269.6 732.1 153.0 60.2 737.3 600.0Working fund 4,623.1 2,466.2 4,720.3 4,442.4 4,065.8 1,202.1 491.4 75. 709.1Operating costs 1,456.5 1,270.8 2,219.8 2,675.5 3,045.3 3,211.1 3,310.9 3,316.9 3,316.9 3,316.9Purchase of paddy 3,166.6 5,813.5 9,589.8 13,576.5 17,272.5 13,308.8 18,700.4 18,769.4 18,769.4 19,478.5T OTAL COSTS 3,419.9 9,271.2 11,625.4 18,050.8 21,963.9 25,115.7 22,875.0 21,562.9 22,161.3 22,086.3 23,577.8 22,795.4 23,395.4

T OTAL BENEFITS 5,119.6 9,317.7 15,357. 21,741.3 27,697.5 29,359.4 29,987.2 30,098.0 30,098.0 31,206.4

Annual Cash Flow 3,419.9 4,151.6 2,307.7 2,693.8 222.6 2,581.8 6,484.4 8,424.3 7,936.7 8,011.7 7,628.6 8,411.0 7,811.0

Table 20: Agricultural Component Economic Cash Flow

('000 US$)Year: 1 2 3 4 5 6 7 8 9 10 11 12 13,

Investments & Renewals 2,051.6 9,114.1 6,903.6 3,936.6 1,592. 22.3 58.2 103.4 75.7 32.6 22.1 213.1 800.0Working fund 768.5 237.6 1,147.5 1,477.6 521.1 244.3Operating costs 768.5 3,631.2 4,152.3 4.396.6 4,471.2 4,471.2 4,471.2 4.471.2 4,471.2TOTAL COSTS 3,588.6 10,347.8 10,204.7 9,045.4 6,265.4 4,663.2 4,604.0 4,574.6 4,546.9 4,503.8 4,493.3 4,706.4 4,693.3

TOTAL BENEFITS -321.0 -42.4 1,164.0 4,038.8 7,067.7 10,029.1 11,057.2 11,558.1 11,627.1 11,627.1 12,332.7

-3,909.6 -10,390.2 -9,040.7 -5,006.6 802.3 5,365.9 6,453.2 6,983.5 7,080.2 7,123.3 7,839.4 7,626.3 7,639.4

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT

Table 21: Economic Cash Flow('000 US$)

Project Years 1 2 3 4 5 6 7 - 9 10 11 12 13onward

7 Econ.Cost Investments and Renewals

807 Irrigation Network 1,405.7 7,554.5 5,973.3 3,483.3 1,532.4Electrical Network 63.2Network O.& M. Equipment 61.0 76.4 68.0 12.8 8.2 39.2 54.6 46.2 12.8 8.2 61.0

05, Agricultural Machinery 424.4 465.5 143.8 116.4

90% Agricultural Services Buildings 59.6 75.2 33.180% Agricultural Services Cars 3.1 12.4 12.4 3.1 3.1 12.4 12.4 3.1 3.1 12.4

Paddy Drying & Storage 2,387.2 117.8 111.5 666.1

Rice Milling 835.1 1,908.1 805.0 1,i14.1 153.- 60.2 737.3

80% Transport Equipment 197.6 25.- 44.- 66.- 44..- 66.-

807O Access Roads 212.2 636.5100% Technical Assistance 297.- 324.5 280.5 176.-

90% Farmer Organization Buildings 9.- 36.- 36.- 27.-807% Farmer Organization Cars 10.8 6.6 26.4 26.4 19.8 10.8 6.6 26.4 26.4 19.8 10.8 6.6

Working Fund 768.5 4,211.5 2,426.1 4,323.0 2,851.7 1,872.3 240.4 9.8 6.-

TOTAL INVESTMENTS & RENEWALS 6,240.3 13,345.6 11,399.6 9,780.5 5,713.3 2,626.5 451.6 162.4 81.7 32.6 759.4 196,4 tO.O

operpatig Costs

O.& M. Network 66.8 288.2 567.9 697.3 728.0 -

90% Agricultural Services 175.3 914.4 602.8 784.3 825.4 825.4 -Project Administration 125.- 125.- 125.- 125.- 125.- 125. -

100% Farmer Organization 74.5 107.6 240.1 372.6 471.9 471.9 -

Transport & Processing 1,456.5 1,270.8 2,219.8 2,675.5 3,045.3 3,211.1 3,310.9 3,316.9

Purchase of Outside Paddy 2,002.1 3,986.7 5,883.1 7,758.- 9,016.2 -*

On-farm Operating Costs 398.7 312.6 897.5 1,781.4 2.032.7 2,246.3 2,320.9 e

TOTAL OPERATING COSTS 768.5 4,985.0 7,411.1 11,734.1 14,585.8 16,458.1 16,698.5 16,798.3 16,804.3 16,804.3 -_

TOTAL EXPENDITURES 7,008.5 18,330.6 18,810.7 21,514.6 20,299.1 19,084.6 17,150.1 16,960.7 16,886.0 16,836.9 17,563.7 17,00).07 17,404.3

Project Production

Rice 891.4 5,119.6 9,317.7 15,357.- 21,741.3 27,697.5 29,359.4 29,987.2 30,098.0 30,098.0 31,206.4 -

Cotton 41.4 136.5 454.8 1,102.5 1,729.6 2,057.6 2,133.4 2,133.4 2,133.4 2,133.4 2,125.8 -

Maize 131.8 59.9 78.2 185.5 296.2 370.1 383.8 383.8

48.3 Earcorn - - 37.3 71.4 95.0 106.9 109.9 109.9 _

Peanuts - 42.2 100.5 172.1 217.5 266.7 272.9 272.9 272.9 272.9 277.-

35.9 Watermelon - - 22.8 47.5 68.2 78.3 80.7 80.7 -

41.5 Bananas - - 122.0 239.0 328.5 379.- 269.7 379.- 379.- _

222.9 Beans 100.5 40.3 2.4

TOTAL PRODUCTION 1,164.8 5,398.5 10,135.7 17,174.9 24,476.3 30,956.1 32,609.8 33,346.9 33,457.7 33,457.7 34,562.6 - R

Without Project Production 1,485,8 -94

Incremental Production (321.0) 3,912.7 8,649.9 15,689.1 22,990.5 29,470.3 31,124.- 31,861.1 31,971.9 31,971.9 33,076.8 -

Net Value Added by Project (7,329.5) (14,417.9) (10,160.8) (5,825.5) 2,691.4 10,385.7 13,973.9 14,900.4 15,085.9 15,135.0 15,513.1 16,076. 1 15,672.5

- 76 - ANNEX 3Table 22

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT

Table 22: Analysis of Unit Investment Costs(at 1978 prices)

Total Per ha Percost Cost Family Cost!'us$x1o6 US$ US$

SF II Project:

Irrigation Network,electric lines andO&M equipment, incl. physical contingencies 24.8 2,8251/ 8,270

Directly Productive Capital Expendituresincl. physical contingencies 3/ 35.5 3,68O4/ 11,860

Total Project Base Cost 3/ 5/incl. physical contingencies 43.7 4,530-/ 14,570

Sample Bank Projects

Irrigation Works 6/ 1,600 to 6,2007/

Total Base Cost at 1978 prices 8/ 2,250 to 4,750 13,500to44,500

1/ 3,000 families including direct, non-agricultural employment

2/ Per irrigated hectare (8,778 ha)

3/ Excluding half of the cost of paddy stores, mill and transport facilities,which do not relate to the SF II area and population.

4/ Per net cultivated hectare (9,645 ha)

5/ Excluding project financed recurrent costs

6/ F. Hotes, Memo on Irrigation Projects Investment Costs,World Bank, 08/21/78

7/ Projects with areas below 30,000 ha

8/ "Settlement of Agricultural Lands. An Issue Paper,"Annex 1, Table 2, World Bank, June 1977.Updated to 1978 prices by mission.

- 77 - ANNEX 4

BRAZIL

SAO FRANCISCO II IRRIGATION PROJECT

Related Documents Available in Prolect Files

A. Supplementary Staff Working Papers

1. Irrigation Network2. Agricultural Development3. Agricultural Extension and Research4. Paddy Storage and Processing5. Project Administration and Farmer Organizations6. Health7. Education

B. Documents Prepared by CODEVASF or Its Consultants

1. Preparation Report by CODEVASFAugust 1978Relat6rio Basico Vol. I (incl. Annexes I & II)Relatorio Basico Vol. IIAnnex II, Vol.IAnnex II, Vol. II

2. Preparation Report by CODEVASFOctober to November 1977

Annexes I-XIV

3. Preparation Report by CODEVASFMay 1978Resumo e ConclusoesFichas Tecnicas

4. Feasibility Report for the Cotinguiba Varzea1977, by Electroconsult do Brasil, Ltda., in 8 volumes

5. Feasibility Report for the Pindoba VarzeaJune 1978, by Geotecnica S.A., in 6 volumes

6. Feasibility Report for the Boacica VarzeaSeptember 1978 Pre-minuta do Relatorio Final, by Seebla,SB Engenharia, Ilaco

7. Feasibility Report for the Brejo Grande VarzeaJanuary 1978, by Geote'cnica S.A., in 5 volumes

- 78 - ANNEX 4(cont'd)

8. Feasibility Study for Rice Storage, Processing and Transport

(a) Preliminary Report, August 1978 by Florencio Engenharia(b) Reformulated Preliminary Report: October 1978

9. COBASF Organization and Operating Manual (CODEVASF)

10. Project Administration and Farmers Organization!/

(a) Functions of Coordinator of Rural Development Activitiesof 4th Directorate

(b) On Farmer Associations and their Members(c) Farmers Organization(d) Organization Chart of 4th Directorate

11. Plans for School Constructions

1/ Documents prepared by CODEVASF reflecting organization principlesagreed to with appraisal mission.

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