Document of

The World Bank

FOR OMCIAL USE ONLY

Report No. 11078

PROJECT COMPLETION REPORT

PORTUGAL

TRAS-OS-MONTES RURAL DEVELOPMENT PROJECT(LOAN 2175-PO)

SEPTEMBER 1, 1992

Agriculture Operations DivisionCountry Department IEurope and Central Asia Region

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.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EOUIVALENTS

Currency Unit Portuguese Escudo (ESc.)

1 conto (c) = 1,000 Esc.

Appraisal Esc. 79 u US$ 1.00

Year (1982) Esc. 1,000 (1 conto) = US$ 12,66

Completion Esc. 157 - US$ 1.00Year (1989) Esc. 1,000 (1 conto) Z US$ 6.37

ABBREVIATIONS

CCAM Caixa de Credito Agricola Mutuo (Agricultural CreditCooperative)

CCRN ComissAo de Coordenacao da Regiao do Norte (Commission of the

Northern Region)DGHEA Direcg&o Geral de Hidraulica e Engenharia Agricola

(General Directorate of Hydraulics and Rural Engineering)

DHEA Divisao de Hidraulica e Engenharia Agricola (Division of

Hydraulics and Rural Engineering)

DRATM Direcg&o Regional de Agricultura de Tras-os-Montes (RegionalDirectorate of Agriculture for Tras-os-Montes)

EEC European Economic CommunityFAO Food and Agricultural Organization of the United Nations

FENACAM Federaqao Nacional das Caixas de Credito Agricola Mutuo(Federation of Agricultural Saving Cooperatives)

GAT Gabinete de Apoio Tecnico (Office of Technical Support)

ICIM Instituto do Credito para Investimentos Municipaes (Credit

Institute for Municipal Investments)

IFADAP Instituto Financeiro de Apoio ao Desenvolvimento da Agricultura

e Pescas (Agriculture and Fisheries Development Fund)

PAU Project Administration UnitPBI Participating Banking Institution

PCR Project Completion ReportPDRITM I & II Projecto de Desenvolvimento Rural Integrado de Tras-os-Montes

(Tras-os-Montes Rural Development Project)

PEU Project Evaluation Unit

UTAD Universidade de Tras-os-Montes e Alto Douro

(Tras-os-Montes and Alto Douro University)

GOVERNMENT OF PORTUGALFISCAL YEAR

January 1 - December 31

FOR OMCIAL USE ONLYTHE WORLD BANK

Washington, D.C. 20433U.S.A.

Office df DitreO-CAenwalOp.atsoM Evakustkmn

September 1, 1992

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report - PortugalTras-Os-Montes Rural Development Project(Loan 2175-po)

Attached, for your information, is a copy of a report

entitled "Project Completion Report on Portugal - Trau-Oa-MontesRural Development Project (Loan. 2175-PO)", prepared by the Europeand Central Asia Regional Office. No audit of this project hasbeen made by the Operations Evaluation Department at this time.

Attachmenth

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

FOR OmCIAL USE ONLY

PROJECT COMPLETION REPORT

PRUGAL

TRAS-OS-MONTES RURAL DEVELOPMENT PROJECT(Loan 2175-PO)

TABLE OF CONTENTS

Page No.

Preface.Evaluation Summary .1...1.1. . . . . . . . . . . . . . . . . . . . . . .

PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE .1

1. Project Identity .12. Background .1.... . . . . .. . . . . . . . .. . . . . . . . . .3. Project Objectives and Description ... . . . . . . . . . . . . . . 24. Project Design and Organization .... . . . . . . . . . . . . . . . 35. Project Implementation .... . . . . . . . . . . . . . . . . . . . 46. Main Project Results. 5

General Agricultural Outcome ... . . . . . . . . . . . . . . . . 5Rehabilitation of Traditional Irrigation Schemes. 6Development of New Irrigation Schemes. 6On-Farm Investments .... . . . . . . . . . . . . . . . . . . . 7Strengthening of Agricultural Services .8Agricultural Research. 8Agricultural Extension .9... . . . . . . . . . . . . . . . . . . 9Studies ...... . .. . .. . .. . .. . .. . .. . .. . . 10Non-Agricultural Components .1.0.. . . . . . . . . . . . . . . . loMonitoring and Evaluation .11Technical Assistance and Training .11Financial and Economic Rate of Return .12

7. Project Sustainability .... . . . . . . . . . . . . . . . . . . . 128. Bank Performance .... . . . . . . . . . . . . . . . . . . . . . . 139. Borrower Performance .... . . . . . . . . . . . . . . . . . . . . 1310. Project Relationship .... . . . . . . . . . . . . . . . . . . . . 1411. Consulting Services .... . . . . . . . . . . . . . . . . . . . . . 1412. Project Documentation and Data .... . . . . . . . . . . . . . . . 15

PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE .16

13. Critical Risks .1614. Some limiting Factors .... . . . . . . . . . . . . . . . . . . . . 1615. Main Results ..................................................... 1716. Lessons Learned ..... . . . . . . . . . . . . . . . . . . . . . . 18

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 (Cont'd)

PART III: STATISTICAL INFORMATION . . . . . . . . . . . . . . . . . . . 19

1. Related Bank Loans ......................... 19

2. Project Timetable ......................... 203. Credit Disbursements . . . . . . . . . . . . . . . . . . . . . . . . 21

4. Project Implementation Ratios . . . . . . . . . . . . . . . . . . . . 23

5. Project Coats and Financing . . . . . . . . . . . . . . . . . . . . . 24

6. Project Results . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

7. Status of Legal Covenants . . . . . . . . . . . . . . . . . . . . . . 31

8. Use of Bank Resources . . . . . . . . . . . . . . . . . . . . . . . . 32

9. Economic and Financial Analysis . . . . . . . . . . . . . . . . . . . 34

Appendix: List of the 17 Reports Prepared by UTAD . . . . . . . . . . . . 43

PROJECT COMPLETION REPORT

PORTUGAL

TRAS-OS-MONTES RURAL DEVELOPMENT PROJECT(Loan 2175-PO)

PREFACE

This is the Project Completion Report (PCR) for the Tras-Os-Montes RuralDevelopment Project in Portugal for which the Loan 2175-PO in the amount ofUS$51.0 million equivalent was approved in June 1982. The loan was closed onDecember 31, 1989, one year behind schedule. A total of US$44.32 million wasdisbursed and US$6.7 million was cancelled at closing.

The PCR (Preface, Evaluation Summary, Parts I and III) was prepared byFAO/World Bank Cooperative Programme (FAO/CP) for Agriculture OperationsDivision of the former Europe, Middle East & North Africa Regional Office.Part II was prepared by the Project Administration Unit (CCRN). The report isbased,inter alia, on findings of the Staff Appraisal Report, the LoanAgreement, World Bank supervision reports and a project completion reportprepared by the CCRN.

- iii -

PROJECT COMPLETION REPORT

PORTAL

TRAS-08-NONTES RURAL DEVELOPMENT PROJECT(Loan 2175-PO)

EVALUATION SUIDARY

Proiect obiectives and description (311

1. The objectives of this rural development project were to: (a) establisha base for technological progress in agriculture in the region, and improveagricultural services in order to stimulate such progress; (b) raise farm familyincomes by rehabilitating traditional irrigation schemes and by supportingchanges in farming systems, particularly an orientation towards livestockproduction, and an expansion of production of quality wines; (c) raise standardsof living and support development in the poorest region of Portugal by improvingphysical and social infrastructure; and (d) encourage decentralization of publicactivities through expansion and strengthening of regional agricultural services,support for municipal infrastructural development programs, and improvement ofplanning, design, and maintenance capabilities of regional institutions.

2. The project had a total of 19 components which fell under the generalheadings of Irrigation Development, On-farm Investments, Rural Infrastructures,Agriculture Service Strengthening, Studies, Research, Technical Assistance andFellowships.

Proiect costs (5.31

3. The estimated project cost at appraisal was Escudos 10.85 billion (US$154.8million), of which US$51 million, representing the foreign exchange component,constituted the total Loan amount. The final project expenditures amounted toEscudos 10.43 billion, but only US$ 67.5 million (due to a considerabledevaluation of the escudo), of which US$44.32 million were disbursed by the Bank;an undisbursed balance of US$6.68 million was cancelled in September 1990. Theactual economic rate of return is about 18%, compared to the appraisal estimateof 16% (6.37). The project was completed, as planned, in 7 years.

1/ Para numbex in main text.

- iv -

Implementation Zxierience and Results

4. The successful project components were: (a) the rehabilitation oftraditional irrigation schemes (6.2); (b) the non-agricultural component,providing water supply and sewage systems, rural roads, village streets andclassrooms for village schools (6.27); (c) the on-farm investment in the DouroValley for vineyard establishment (6.10) and in the High Valley zone forlivestock up-grading (6.1); (d) the strengthening of agricultural services(6.15); (e) the feasibility study for the Chaves irrigation development (6.25);and (f) the project monitoring by the CCRN.

5. The components whose objectives were only partially achieved, and thereasons for limited results, are the following: (a) the on-farm investment in theTerra Quente region, which benefitted only the large farms (6.12); (b) theagricultural extension services, becoming operational only towards the end of theproject (6.20); (c) the agricultural research studies whose results have not beendisseminated to the farmers (6.16); and (d) the training component, which mainlybenefitted CCRN staff of whom two managers left to join the private sector(6.31).

6. The unsuccessful project components were: (a) the on-farm investment in theMountain and Planalto Mirandes zones because of the inadequacy of the proposedtechnical packages (6.13-6.14); (b) the evaluation system which did not providequantified project results (6.33); (c) the new irrigation development, aspresently designed, which is not economically viable because of high investmentcosts (6.7); (d) the Freixo olive grove feasibility study which proposed too highinvestments for the pumping system to justify any development (6.26); and (e) thegroundwater investigations which showed that no significant underground waterresources exist for further irrigation development (6.24);

sustainabilitv

7. Most of the successful project components are likely to maintain anacceptable level of benefit throughout their economic life, in particular therehabilitation of traditional irrigation schemes, on-farm investments aiming toupgrade vineyard and livestock production, as well as rural infrastructures builtfor living conditions' improvement (7.1).

Main Lessons Learned

8. The major lessons learnt and recommendations for other projects of thistype are as follows: (a) although integrated agricultural development has nowbeen questioned, the success of the PDRITM project was mainly due to this typeof approach which was considered to be the best given the prevailing regionalconditions; (b) the complexity of integrated rural development projects requiresa close and permanent coordination between the implementing agencies: (c) due tothe very high cost of the pilot irrigation scheme, the design and economic

viability of future schemes should be thoroughly studied; (d) more effort shouldbe made to monitor applied agricultural research in order to ensure thatpractical recommendations and messages are disseminated to farmers throughextension agents; (e) the early implementation of an effective monitoring andevaluation system is of great support to project activities; and (f) the workprogram of the UTAD evaluation unit should have been more clearly defined. Thereshould have been closer collaboration between CCRN, charged with monitoring theproject, and the UTAD specialists (9.4).

PORTUGAL

TRAS-OS-"MNTES RURAL DEVELOPMENT PROJECT(Loan 2175-PO)

PROJECT COMPLETION REPORT

PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE

1. Proiect Identity

- Project Name: Tras-Os-Montes Rural Development Project- Loan No.: 2175-PO

- RVP Unit: EC1

- Country: Portugal

- Sector: Agriculture

- Sub-sector: Area Development

2. Background

2.1 The Tras-Os-Montes Rural Development Project (PDRITM-I) was the third BankGroup assisted agricultural project in Portugal (Part III, Table 1). It was

identified as an effort to save foreign exchange through an efficient import

substitution program and to get the agricultural sector in shape for Portugal'sentry to the EEC. In 1982, that sector was producing very little more than the

levels of the sixties and therefore its share of GDP was continuously declining.

The agricultural trade balance was substantially negative with imports being morethan three times as great as exports, and the agricultural trade deficit was

about one third of the total trade deficit. The stagnation of agriculturalproduction was partly due to Government policy of price controls, guarantees, andsubsidies. Furthermore, there were marked regional variations within Portugal

in terms of economic development and living standards. In 1970, for example, the

average income per capita for the whole country was twice that of Tras-Os-Montes,the poorest region, while per capita income in the richest region was four timesthat in Tras-Os-Montes.

2.2 The project was identified by a Bank agricultural sector survey mission in

late 1976 and prepared by a national team with important assistance from theFAO/World Bank Cooperative Programme (FAO/CP). An identification report was

prepared in August 1978 and a preparation report two years later (Part III, Table2). Appraisal took place in November 1980. Due to the need to resolveoutstanding issues, negotiations were delayed until April 1982, one month aftera Post-Appraisal mission. The project was then approved by the Board in June1982, signed in March 1983 and became effective in July 1983. It closed at the

end of December 1989, one year behind schedule, and was completed in June19901/.

1 The closing date marks the end of new commitments; the completion date corresponds to the endof payments.

2.3 The Bank's support of Portugal's efforts to increase efficient agriculturalproduction and to reduce the difference between regional economic developmentmatched Government's development strategies. It is still in line with presentstrategy as a second phase of PDRITM-I, the Tras-Os-Montes Regional DevelopmentProject (PDRITM-II) started operations in February 1991. The estimated totalcost of the second phase, also prepared with the assistance of FAO/CP is US$416million to which the World Bank will contribute financing of US$90 million andthe EEC, US$213 million.

3. Prolect Oblectives and Descriotion

3.1 The objectives of the PDRITM-I were to: (a) establish a base fortechnological progress of agriculture in the region, and to improve agriculturalservices to stimulate such progress; (b) raise incomes of farm families byrehabilitating traditional irrigation schemes and supporting changes in farmingsystems, particularly an orientation towards livestock production, and anexpansion of production of quality wines; (c) raise standards of living andsupport development in the poorest region of Portugal by improving physical andsocial infrastructure; and (d) encourage decentralization of public activitiesthrough expansion and strengthening of regional agricultural services, supportfor municipal infrastructural development programs, and the improvement ofplanning, design, and maintenance capabilities of regional institutions.

3.2 At appraisal, the project consisted of the following main components:

Irriaation Development. (a) Rehabilitation of 150 small irrigation schemes in theMountain and High Valley zones, covering about 2,720 farms with 7,500 hairrigated; and (b) Agricultural credit to farmers to support the development ofintensive dairying in the above irrigated areas, beef cattle and sheep productionon rainfed pastures in the Planalto Mirandes zone and the Terra Quente zone, aswell as vineyard establishment in the Douro zone.

Agricultural Services. (a) Construction of 109 cooperative milking parlours, andcredit to cooperatives for storage facilities, and vehicles for transportation;and (b) Investments in buildings, houses, vehicles, and equipment foragricultural research, extension, animal health and breeding, and irrigationservices.

Non-agricultural Comoonents. Construction of about 80 km of new rural roads,improvement of about 120 km of existing roads, and paving of streets in 61villages; (b) Investments in water supply schemes in 56 communities,improvements in small water supply schemes with standpipes in about 160 villages,and construction of sewage schemes in 65 communities; (c) Rehabilitation ofconstruction of about 60 classrooms for primary schools; and (d) Construction andequipping of 2 health centers and 12 health posts, as well as other communitydevelopment works.

Technical Assistance. Studies. (a) Studies covering irrigation, groundwater, andolive development; (b) Irrigation trials, consulting assistance for agricultural

research, livestock husbandry and breeding, the credit system, cooperatives,management training in concelhos, and monitoring/evaluation; and (c) fellowshipsfor training.

3.3 As discussed in chapters 5 and 6 and shown in Table 4, almost all of thecomponents in the project were implemented.

4. Proiect Desian and Orranization

4.1 The lack of applied agricultural and livestock research in the area and therather unfavorable ecological conditions (severe climate, poor and shallow soils,etc.) were the major constraints to agricultural development in Tras-Os-Montes.In addition, living conditions, well below the national standards, requiredconsiderable improvements.

4.2 The project was well designed, having taken into account various conditionsprevailing in the agro-ecological zones of the project area. Particularlyrelevant were:

(a) the priority given to the development of irrigation; in the Mountainand High Valley zones, irrigation facilitated greatly the changefrom a two-year rotation to a four-year rotation including two yearsof temporary pasture;

(b) the proposal to plant or replant 2,200 ha of high quality vineyardin order to maintain in the long run, the quality of port wine;

(c) the importance given to animal production, particularly milkproduction, to balance crop and animal production and providefarmers with regular incomes. On the other hand, technologicalpackages proposed for the drier areas were less elaborate with highrisks to be taken by farmers compared with the expected benefits.Furthermore, the phasing of adoption was optimistic.

4.3 Since project identification, it was recognized that the ambitious projectobjectives could only be realized in the long term and that implementation wouldrequire several phases. In spite of the large requirements in socialinfrastructure (water supply and sewage schemes, rural roads, schools) it wasagreed that the non-agricultural component should not mobilize more than onethird of the total investment.

4.4 The responsibility of project coordination was entrusted to the ProjectAdministration Unit under the existing Coordination Commission for the NorthernRegion (CCRN) based in Porto. The agricultural components of the project wereimplemented by the Regional Directorate of the Ministry of Agriculture (DRATM)in Mirandela. The evaluation, socio-economic studies, and research aspects weresub-contracted to the University of Tras-Os-Montes and Alto-Douro (UTAD).Despite some coordination issues, the project organization can be considered tohave been well designed and having fulfilled its roles.

-4-

5. Proiect Implementation

5.1 Project negotiations took place in April 1982 and the project waspresented to the Board in June 1982. But it was only in July 1983 that it becameeffective. Much of the delay in fulfilling the conditions of effectiveness,mostly related to the credit component, was due to the formation of a newGovernment.

5.2 The project closing date was initially fixed at end December 1988, andfurther extended by one year. Notwithstanding the initial delay in declaringthe loan effective, the project was actually implemented in about 7 years,corresponding more or less to the estimated period at appraisal time. In June1990, all project components were physically completed, but the last payments forthe milking parlours and the Curalha new irrigation scheme, made beyond June1990, have not been financed by the Loan.

5.3 Proiect costs. The estimated project cost at appraisal was about Escudos10.85 billion (US$154.8 million), of which US$51 million, representing theforeign exchange component, constituted the loan amount. The final projectexpenditures amounted to Escudos 10.43 billion (US$ 67.5 million), of whichUS$44.32 million were disbursed by the Bank; the undisbursed balance of US$6.68million was cancelled in September 1990. The loan allocation was modified inAugust 1985 to transfer US$10 million from the agricultural credit component tofinance 40% of the civil works of the non-agricultural component. Actualcomponent costs compared with SAR estimates are shown in Table 5.A.

5.4 The rapid and considerable devaluation of the local currency against theUSS since 1982 (70 Esc. per US$ at appraisal; max 170 Esc. per US$ in 1985;average 1983-90: 154 Eac/US$) explains why the total project cost in US$ is lessthan 50% of the SAR estimates while in Escudos, there is almost no difference.The changes in the exchange rate explains why with a reduced loan the Bankfinanced 65% of the total project costs compared to 32% estimated at SAR (PartIII, Table 5.B).

5.5 Procurement. About 28 contracts financed under the project, representingabout Escudos 1.3 billion (12% of the total cost), were contracted by CCRN andDRATM as follows:

(a) 4 contracts (Esc 140 million) under international competitivebidding (ICB) for the purchase of equipment for the milking parloursand vehicles;

(b) 4 contracts (Eac 25 million) under limited international bidding(LIB) for the groundwater and irrigation studies;

(c) 20 contracts (Esc 910 million) under local competitive bidding (LCB)for the construction of the new irrigation scheme, of variousproject buildings and supply of equipment. In addition, LCBprocedures were used by the municipalities for most of theinfrastructures constituting the non-agricultural component.

5.6 Imolementation variances. The variances between planned and actualimplementation are as follows: (a) rehabilLtation works of the traditionalirrigation schemes were considerably delayed due to organizational issues and theinitial lack of equipment and staff. The 150 schemes were completed by the endof 1989 instead of end of 1987; (b) on-farm investments (credit component) tooktime to be initiated, due to the time-consuming drafting of credit regulationsand guidelines. First loans were disbursed in 1984 (SAR: estimated early 1983).The number of credit requests was much lower than expected (600 instead of 3,050)but this was partly compensated by higher average amounts; (c) equipment andbuildings for agricultural services strengthening were generally procured ontime; some delays are reported for the completion of the second lot of milkingparlours. Surprisingly, some of the extensionists' houses, although completed,remained unoccupied for several months; (d) the non-agricultural component wasimplemented according to schedule (1982 to 1988), despite the increased volumeof construction. The health posts and centers were implemented as scheduled, butthese were not financed from the loan; (e) the agricultural research contractswere considerably delayed (almost 2 years) because of administrative proceduresand disagreement on the themes to be tackled. The dissemination of some researchresults, although not performed during the project period, were to be startedduring second phase; (f) the irrigation and groundwater studies which started 2years later than planned due to lengthy procurement procedures, were completedby the end of 1987; (g) the implementation of the three new irrigation schemeswas delayed by an initial unsuccessful bidding. A separate contract was made forthe Curalha scheme, the construction of which lasted from July 89 to early 91.The two other irrigation schemes are due to be developed during the follow-upproject; (h) the fellowship component concentrated on the training abroad of fiveCCRN executives (66 man.months) of whom only one is still employed by theproject.

5.7 One of the major risks initially identified was that the technicalproposals for agriculture, entirely new for the farmers, would encounterapplication difficulties; therefore a sound and well funded research componentwas designed, including interaction with the extension staff. Unfortunately, theresults of that component were not available during the project period; so theimpact of those packages would be assessed only during the follow-up project.

6. Main Prolect Results

General Agricultural Outcome

6.1 The major agricultural development achievements within the project areawere largely due to changes in the cropping pattern and genetic improvement ofcattle. The project endeavored to convert areas under cereals into productivepermanent sown pastures, to limit nematode infestations in the potato areas andto increase fertilizer applications on traditional pastures. In the Douro area,the main project emphasis was on financing the plantation of new vineyards inselected areas, supported by modern methods of vine husbandry. Project actionsalso encompassed livestock production, which was assuming an increasinglyimportant role in agriculture, cattle and sheep providing a significant

contribution to national milk and meat production. The main project thrust herewas on genetic improvement of animals, better management of pastures, moreefficient fodder harvesting and conservation, and organization of moderntechnologies of milk collection.

Rehabilitation of Traditional Irriaatiou Bch--es

6.2 Out of a potential of 1,500 small irrigation schemes, the projectrehabilitated 150 schemes, totalling 5,860 ha, i.e. 39 ha on average per unit(SAR estimate: 50 ha).

6.3 Rehabilitation works consisted mainly of repair or reconstruction ofdiversion weirs, construction of concrete water tanks and main canals of limitedsize and simple design. The project supplied basic material (cement, iron, wood,etc.), construction equipment, skilled labor and technical assistance, theunskilled labor being provided by the beneficiaries (about 20% of the totalcost). The development of such a collaborative effort has been an importantoutcome of the project. The quality of the works has been generally good.

6.4 Due to initial difficulties (farmer mobilization, lack of technical stafffor design and supervision, lack of equipment and vehicles) the implementationrate was limited to 10 schemes per year in 1983 and 1984, but this increased to30 schemes from 1986 to 1990.

6.5 The considerable success of this component, which fully achieved itsspecific objectives, is demonstrated by the magnitude of the present demand forfurther rehabilitation works: more than 400 requests are on the waiting list.

6.6 The conditions of implementation and qualitative achievements were assessedby the UTAD Evaluation Unit2 /; but the accurate impact of the works onagricultural production remains to be quantified.

Develoiment of Now Irriaation Schemes

6.7 The project envisaged the construction of 3 new irrigation schemes of about150 ha each; the future of irrigation development in Tras-O-Montes, the farmers'response, the administration capacity of implementation and its economicviability was to be assessed.

6.8 The results of this component are disappointing: after lengthy andcomplicated procurement procedures, the Curalha irrigation schemer wasconstructed in 1989/90, to irrigate 100 ha of potatoes, wheat and forages for

1 Ref. UTAD - Helhoria dos Regadios Tradicionais - Dec. 1990.

v One earth dam. 16m high, would store 800,000 m. and deliver water to an irrigation network.comprising a 2,900 m long concrete canal and a mixed 4,600 m long system of PVC pipes andopen concrete watercourses.

-7 -

livestock. The main constraints for further development have been: the lack ofsuitable sites combining favorable conditions for water storage and forirrigation, the extremely high cost of this scheme which was more than US$ 21,000per ha, the difficulty of introducing high value crops which results in the verylow economic rate of return (Part III, Table 6.C) and the administrativedifficulties involved in the management of such scheme. A new approach isrequired for the future. The aim should be the design of low-cost maininfrastructure, the involvement of farmers in the financing of the distributionnetworks and the on-farm works, and looking for innovative means to increaseagricultural production. In order to improve the project economic viability, thepreferred approach should be for multi-purpose development (power, domestic watersupply and irrigation).

On-Farm Investments

6.9 In order to support efforts to increase agricultural production, five farmmodels were designed and for each of them, credit provided from the project wasdue to help farmers to finance the required investments. These investments wereofficially specified for each farm model. Many farmers have not taken advantageof the credit facilities even if they have partially adopted the technicalpackage. Besides, the latter was not always adaptable to the specific conditionsof each farm. However, farmers were requested to adopt the full package. Thisand the fact that smaller farmers would not need to use the credit facility ifthey would be willing to use only part of the package are probably the mainreasons why the number of loans distributed by the project was largely below thetarget (Part III, Table 4). On the other hand, the average areas of farms havingbenefitted from loans were always larger, and in some cases much larger, than theplanned areas. This explains why some targets, in terms of ha, were exceededeven when the planned number of farms were not met.

6.10 Vineyard Establishment. The loan agreement had planned that 1,200 ha ofplantation and 1,000 ha of replantation would be financed by the project. Thetarget has been revised by the Government which has gazetted that 2,500 ha ofVineyard could be planted or replantedY (Portaria No. 685/82). Applicationsfor new vineyards totalled 9,000 ha out of which 2,535 ha were authorized(2,525 ha of plantation and 10 ha only of replantation). Two main reasonsexplain the success of that model: plantation permit and the credit conditions(15 years including four years grace).

6.11 Vales Sub-Montanas. The objective of that model was to better balance thecrop and animal productions by modifying the cropping pattern and investing incows and stables. Farmers have understood the rationale of that model, which wasto secure regular income from milk production. However, the profitability of themodel was marginal, and therefore the number of loans disbursed was 62% lowerthan planned (Part III, Table 4). On the other hand, the average farm size wasmuch larger than estimated and the actual total area largely exceeded the target

Y Plantation of vineyard is strictly controlled in the Douro zone.

- 8 -

by 154%. It should also be noted that many farmerg have totally or partiallyadopted the technical package proposed by the project even if they have notapplied for a credit. As a result, milk production has increased significantly;that increase was also facilitated by the construction and equipment of more thanone hundred milking parlours disseminated within the region (Para 32).

6.12 Terra Ouente. The financial viability of this model remains doubtful andit had limited success: 11% and 60% respectively of the planned number of farmsand total area. Some large farms (from 70 to 700 ha), but no small farmers (6ha on average) who were invited to form groups in order to be eligible for creditparticipated in the project. The limited success can be explained by theuncertain profitability of the recommended investments combined with theobligation to join groups which were not attractive enough to convince smallfarmers to participate in the project.

6.13 Montanha. The lack of success of the Montanha model (10% and 19%respectively of the planned number of farms and total area) was most likely theresult of reservations farmers had vis-a-vis the technical package. In addition,it was only in 1986 that the Ministry of Agriculture removed the ban on importof the breed provided in the project.

6.14 Planalto Mirandes. The technical package proposed by the project, largelybased on meat production, did not convince the farmers who, at that time, wereinterested in increasing their milk production. The latter seems to be the mainreason why, about 5% only of the planned 350 farmers applied for credit.

Strencythening of Agricultural services

6.15 The project was to provide 60 new houses and 157 vehicles for the extensionstaff, two veterinary laboratories, an artificial insemination unit, a seedlaboratory and 109 milking parlours. With the exception of the veterinarylaboratories, artificial insemination unit and seed laboratories which were notbuilt and equipped, the planned targets were met at 90%. The 131 procuredvehicles have been allocated, most of the 54 houses for the extension staff arenow occupied, and the 107 milking parlour. are already being used at 75% of theircapacity. Small farmers were convinced that milking parlours are the bestsolution to reduce labor requirements and to get high quality milk thusbenefitting from better prices. Milking parlours are managed by cooperativeswhich charge 1 Esc. per litre to farmers to cover operating and capital costs.

Agricultural Research

6.16 Research priorities included three categories of research programs: (a)research on the main farming systems in the project area, to identify socio-economic and technical constraints at farm level, to test solutions that addressthese constraints and to initiate research according to farmers' needs; (b)specific research programs to support on-going development activities, such aschestnut, almond and olive tree planting, improvement of water use under

irrigated and rainfed conditions, potato seed production, etc.; and (c) researchprograms to identify new promising crops suitable for the ecological conditionsof the project area such as agroforestry species, aromatic and medicinal plants,legume crops (e.g. chick-peas, groundnuts), etc.

6.17 In 1984, a contract was signed between CCRN and UTAD for the implementationof 17 agricultural research and economic studies!/, (selected by the partiesinvolved and the DRATM); one of the studies was related to the Evaluation Unitof the project (see para 50).

6.18 Each subject was to be monitored by a DRATM specific subject matterspecialist, but due to high staff turn-over, this monitoring left much to bedesired. The progress of the studies was assessed twice a year by 3 researchspecialists of the Regional Agriculture Development Programme which is nowentrusted with field applications of the studies' results.

6.19 The quality of UTAD contribution is considered too academicV as it is noteasy to extract technical messages which could be practically disseminated to thefarmers.

Agricultural Extension

6.20 At Agrarian zone level, the "training and visit" extension system was setup as recommended by the project. Total staffing and level of training of theDRATM extensionists are as follows: 11 extension coordinators, 97 field extensionagents, of whom 5 engineers, 40 technical engineers, and 52 technicians; inaddition, 12 extensionists are employed by the cooperatives.

6.21 Despite early staff mobilization (2/3 of the staff recruited in 1983) thesystem was difficult to establish until the end of 1989. The main constraintsreducing the efficiency of the service included: lack of extensionists training,absence of subject matter specialists and of Documentation and Informationsupport, absence of a comprehensive annual extension program, lack of transport,limited budget allocations, and problems with the Cooperative extension,particularly Cooperative Unions Potato Seed Growers and Lactimontes.

6.22 The situation has now improved for the following reasons: four trainingcourses are now available for the extensionists: fruit crops, vineyard, livestockand horticulture; conditions of service, in particular salaries, have improvedconsiderably since 1990; the DRATM extension program is now in line with thenational program and benefit from elaborated guidelines; 57 liaison vehicles wereprovided in 1990 and 1991.

S 5AR: 25 studies were pIoposed.

E Bach topic was the subject of a University Degree.

- 10 -

Studies

6.23 The project financed hydrogeologic investigations to evaluate thegroundwater potential of the region and two feasibility studies on promisingsites for irrigation development.

6.24 Groundwater Sivestiaations. In 24 representative sub-areas, 322 boreholesand 68 shallow wells were drilled. The overall results were disappointing:specific boreholes discharges did not exceed 5 1/s and the total for the 322boreholes was 350 1/s. All collected data were communicated to themunicipalities, with a view to using the boreholes for domestic water supply.More encouraging results were obtained in the alluvial Chaves Plain, where unitdischarges of up to 40 1/s could be exploited for irrigation. In total, 3.5Mm3

of groundwater could be pumped annually which will be mixed with 13.3Mm3 ofsurface water to be regularized, in order to supply the future 3,800 ha Chavesirrigation perimeter. Geothermical resources, for possible further developmentof urban complexes and greenhouses heating, were also identified during thecampaign.

6.25 Chaves Valley Irrigation DeveloDment. Between mid 1985 and the end of1987, a feasibility study was undertaken by a group of consultants. A priorityarea of about 2,500 ha (out of a potential totalling 3,800 ha), including therehabilitation of the existing 1,000 ha irrigated, would be developed under thesecond phase project; the construction should start early 1992. Water resourceswould be provided by diversion of the Tamega river, storage dams are to beconstructed on tributaries and groundwater pumped in the aquifer. Croppingpattern would give priority to forages (alfalfa, maize) but also corn andvegetables (mainly potatoes and cabbages) would be produced as well as fruittrees. The economic rate of return of the sub-project was estimated to be 18%.

6.26 The Freixo-de-Espada-A-Cinta Olive grove Irrigation Studies. The studyaimed to develop a 950 ha irrigation system to pump the Douro water and todistribute it to an existing olive grove installed on a steep bank of the river.High costs of infrastructure and excessive recurrent operation expenses inducedthe Administration to abandon the project since it was not considered to beeconomically viable. As requested by the 30 owners of the grove, an electricpower line was installed along the river (financed by EEC funds) and individualpumping systems were installed by most of the farmers at their own costs.

Non-Aaricultural Comoonents

6.27 The project assigned 48% of the total expenses to the municipalities forthe construction of general and social infrastructure (para. 5 and table 4).

6.28 It is estimated that 360,000 inhabitants, i.e. 62% of the Tras-Os-Montespopulation, have benefitted from at least one of the 720 schemes implementedunder this component. The whole program was completed by the end of 1988.

- 11 -

6.29 The initial program of construction has been considerably amplified interms of quantities without exceeding significantly the initial cost estimates(see Table 4). This was mainly due to the prevailing economic conditions inPortugal from 1983 to 1986, which induced lower construction costs than expected,thus allowing a significant program expansion.

6.30 Designs of the infrastructure were prepared by the Offices for TechnicalSupport (GAT) installed in each of the 6 agrarian zones. The project contributedto the strengthening of those GAT, by providing equipment and vehicles.

6.31 The operation and maintenance activities will be the responsibility of themunicipalities. The corresponding recurrent expenses for the rural roads, thesewage system and school classrooms are covered by their own budgets; for thewater supply schemes, these expenses are fully recovered by the water chargespaid by the users.

6.32 This non agricultural component had a positive impact on the standards ofliving in the region and allowed this neglected region to move closer to nationalstandards.

Nonitorina and Evaluation

6.33 The project established in January 1983 a Project Administration Unit (PAU)within the CCRN. The PAU which was adequately staffed, prepared semi-annualprogress reports which were sent on time to the Bank; project Accounts werecorrectly kept. These satisfactory results were achieved in spite of a frequentstaff turn-over. However, due to a lack of professionals with a practicalexperience in evaluation, the PAU was unable to guide the Project Evaluation Unit(PEU) established, as recommended by the SAR, within the University of Tras-Os-Montes and Alto Douro. The PEU did not recruit enough researchers and assistantsto staff the Unit and did not receive adequate support from internationallyrecruited specialists in monitoring and evaluation as recommended by the SAR.As a result, the PEU program of work has not included the planned generaleconomic survey, but gave priority to qualitative studies on sociological issues.The lack of basic economic data of the Tras-Os-Montes region has not helpedproject management in its decision-making process.

Technical Assistance and Training

1. Technical Assistance

6.34 The bulk of the technical assistance (TA) has been provided by localconsulting firms for the above described studies (para 40). Several specificagronomic, economic and social studies were carried out by UTAD upon CCRN andDRATM requests, in addition to agricultural research studies (para 37). Somelimited TA was provided by DGEAH to start the irrigation rehabilitationcomponent. The project did not make full use of the TA expertise foreseen atappraisal, namely for animal health, artificial insemination, monitoring and

- 12 -

evaluation, local staff training, for which international consultants should havebeen recruited.

2. Trainin

6.35 The training component focused on fellowships in British and FrenchUniversities for 5 CCRN executives of whom only one is still employed by theproject. Two Deputy Directors left the administration a few months afterrejoining the project, one obtained a continuing fellowship under other fundingarrangements. As a result, the 66 man-months used by CCRN, or 86% of thetraining expenses, have had little impact on the project. The remaining 14% wasallocated to local training of DRATM and FENACAM staff.

Financial and Economic Rates of Return

6.36 Although project impact data were not collected by the PEU, the mission,working with DRATM and CCRN specialists, was able to make reasonable estimatesallowing for a without and with project comparison of some models. Two farmmodels, (Montanha and Planalto Mirandes) have not been included in thecalculation, the number of participating farmers having been considered too low.The Financial Rates of Return (FRR) on the farm investment were estimated in theSAR to vary from 19% to 37%. They are presently calculated to vary from 1 to 16%(Part III, Table 6B). The Douro model has the highest FRR and the Terra Quentemodel the lowest. The FRR of the Vales Sub-Montanes model (9%) is marginal. Inaddition to these models designed during preparation, a fourth model forIrrigation Rehabilitation has been included in the analysis to take into accountthe large areas which were rehabilitated by the project and whose beneficiarieshave not been included in the other models. The FRR of the fourth model is veryhigh (more than 89%) because farmers were only asked to finance 20% of therehabilitation cost.

6.37 The estimated actual Economic Rate of Return (ERR) is slightly higher thananticipated at appraisal (18% instead of 16%) in spite of a lower than plannedrate of farmer participation and a low ERR of two of the models (Part III, Table6C). This results from the fact that the high ERRs of the IrrigationRehabilitation and the Douro models have more than compensated for the lowprofitability of the other two models mentioned above.

7. Proiect Sustainability

7.1 Most of the project components are likely to maintain an acceptable levelof benefits throughout their economic life:

(a) the rehabilitated traditional irrigation schemes are expected to becorrectly maintained because farmers appreciate the value of waterand they have agreed to contribute to the rehabilitation works. Theexpected benefit resulting from the use of increased quantities of

- 13 -

water and from a more practical management (night irrigation is nolonger necessary) were sufficiently attractive to convince farmersof contributing to the rehabilitation work and this should be aguarantee that maintenance will be properly carried out;

(b) farmers who have adopted new technical packages namely for milk andhigh quality grapes production, are likely to continue following theadvice of the Agriculture Service, if farm-gate prices aremaintained. It is even probable that due to the strengthening ofthe extension services, new technical packages developed by theapplied research will be disseminated within the project area;

(c) the milking parlours constructed and equipped by the project arealready or are in the process of being managed by cooperatives.Until now, the experience has shown that cooperatives run themilking parlours efficiently and that operating and capital costsare adequately covered by the charge paid by the farmers.

(d) the infrastructures built under the non-agricultural componentshould remain operational for several decades, provided sufficientfunds are put at the disposal of the municipalities for their propermaintenance.

8. Bank Performance

8.1 Bank performance during preparation and appraisal was satisfactory, takinginto account the political situation in Portugal and the complexity of theproject. Generally, Bank supervision missions identified key problems and wereable to propose actions to remedy them. There was, nevertheless, discontinuityin supervision staffing during part of the project (three Task Managers in sevenyears) and some specializations were not often or never represented (Economist,Monitoring and Evaluation specialist, in particular).

9. Borrower Performance

9.1 The project benefitted from very competent staff, most of them fullyinvolved from the beginning of preparation and during the whole implementationperiod. It is worth mentioning the exceptional performance of the DRATM Directorof Agricultural Planning, to whom the project successes should mainly beattributed.

9.2 The Borrower's main strengths were: the full involvement in projectpreparation of the local team responsible for its implementation which was veryuseful in determining project objectives. Also, the project benefitted fromstrong management, particularly at the regional level; the difficult tasks tooptimize the use of the various financing agencies was quite successfullyperformed. Finally, the active participation of the implementing agencies, inparticular those involved in the agricultural credit and the vineyarddevelopment; the dynamism of municipalities in implementing the social

- 14 -

infrastructure; and the generally favorable response of the farmers to theproject activities are worthy of note.

9.3 The main weaknesses of the Borrower relate to: reluctance to mobilize TA,in particular to recruit international consultants; the limited assistanceprovided by DGEAH for the development of new irrigation schemes; the incompleteproject evaluation by UTAD which was reluctant to provide quantified results; thedifficulties to extract from the agricultural research studies practicaltechnical messages which could be disseminated to the farmers through theextension services and the difficulties in organizing the extension services.

Lessons Learned

9.4 The main lessons learned and recommendations for projects of this type are:(a) although integrated agricultural development has now been questioned, thesuccess of the PDRITM project was mainly due to this approach which wasconsidered to be the best given the prevailing regional conditions; projectmanagers sought integration within project components and consistency with theregional policies; (b) the complexity of such integrated rural developmentprojects requires a close and permanent coordination between the executiveagencies; (c) due to the very high cost of the pilot irrigation scheme, thedesign and economic viability of future schemes should be thoroughly studied; (d)more effort should be made to monitor applied agricultural research in order toensure that practical recommendations and messages are disseminated to farmersthrough extension agents; (a) the early establishment of a monitoring andevaluation system is of great importance for effective project implementation;(f) the work program of the UTAD evaluation unit should have been more clearlydefined. There should have been closer collaboration between CCRN, charged withmonitoring the project, and the UTAD specialists; interim reports should havebeen discussed by all parties involved and short-term action programs should haveguided the work of the evaluation unit. For the second phase project, CCRN andUTAD responsibilities, as far as monitoring and evaluation is concerned, shouldbe redefined and a detailed program of work for the evaluation unit should bedrafted as soon as possible.

10. Proiect Relationshio

10. 1 The relationship between the Bank and the Borrower was excellent during thewhole project implementation period. The recommendations made by the numeroussupervision missions were considered useful and were generally followed byconcrete action. and when necessary, corrective measures.

11. Consulting Service.

11.1 The groundwater investigations and the two irrigation feasibility studieswere satisfactorily carried out by local consulting firms, associated withforeign consultants. The total cost of two consultant services was almost twice

- 15 -

the SAR estimate, due to the increase volume of work for the reconnaissancedrillings. While one of the main tasks of these consultants was supposed to bethe training of local staff, the latter did not appear to benefit from anysignificant transfer of knowledge.

11.2 Out of the 20 man-months of internationally recruited consultants providedunder the project, to help implement the Monitoring and Evaluation component, 20man weeks only have been utilized. As a result, the project manager has not beensupported as foreseen.

12. Proiect Documentation and Data

12.1 Both the Loan Agreement with the Republic of Portugal and the ProjectAgreement with IFADAP (for the Credit Component) were quite adequate andappropriate for achieving project objectives in the key organizational andfinancial aspects. The SAR provided a useful guide to the project managementduring implementation and to the PCR mission. Nevertheless, the Bank did notpoint out that it was to be used only as a "guide" and that changes may berequired.

12.2 From 1983 to 1990, the CCRN Project Administration Unit (PAU) prepared 11semestrial progress reports following a standard presentation agreed to by theBank. Early in 1991, the PAU drafted a final progress report summarizing thewhole project implementation. Some information was extracted from that reportfor the PCR, but the content of the PAU report does not respond clearly to thequeries listed in the World Bank guidelines for preparing PCRs. Perhaps, anadditional effort should have been made by the last supervision mission todescribe the type of information required for the final progress report.

- 16 -

PART II: PROJNCT REVIEW FROM BORROWNR'S PZRSPECTIVE'

13. Critical Risks

13.1 The progressive and selective process that commanded the preparation of theproject identified a set of implementation risks, mainly related with thefollowing areas:

(a) irrigation - related with the capability for planning andconstruction of new irrigation schemes; and

(b) agricultural credit - inherent to the relative adequacy of theinvestment models to be proposed to the farmers, and to theiradoption of new practices and cultural systems.

13.2 In what concerns to the construction of new irrigation schemes, and withthe purpose of minimizing the risk identified, we have limited this action to theconstruction of three schemes, which was an attainable goal, considering theimplementation capability of the institutions involved. By the end of theproject implementation period only two of such schemes had been built, one ofthem not yet completed as its irrigation network was still under construction.

13.3 In what refers to the technical packages to be presented to the farmers,although partly developed and dominated on experimental stations, they had notbeen exhaustively tested in the region. As a result, it was assumed theyeventually might not fully address the local expectations, thus calling for aneed of further adjustments. In order to minimize such risk, a large programmeof applied agricultural research was implemented, together with the strengtheningof the DRATH's extension services and the establishment of credit lines inparticularly favourable conditions. In practice, however, some of the investmentmodels, namely in " Montanha" and "Planalto" experienced very low rates of globaladoption, by the farmers who, nevertheless, have adopted an important part of thetechnical recommendations for agricultural restructuring proposed under theproject.

14. Some Li-itina Factors

14.1 The project has experienced some external factors which limited the fullachievement of its fundamental objectives, with more serious consequences inareas related with the agricultural component. As major external causes for thatsituation it may be referred:

(a) a 9-month delay in the signature of the Loan Agreement, followed byanother period of 4 months that became necessary for the PortugueseGovernment to fulfill its conditions of effectiveness;

V This section was prepared by the Commission of the Northern Region (CCRN), the project'sadministration unit.

- 17 -

(b) the late definition and operationalization of the agriculturalcredit lines, which did not permit any investment project to befinanced under the Loan before the end semester of 1984;

(c) institutional difficulties that restricted both the recruitment ofstaff and the definition and timely availability of budgetary funds,which resulted in a serious barrier to the implementation andfollow-up of the project; and

(d) the progressive do-valuation of the national currency against the USDollar, which limited the actual disbursements schedule,comparatively to the SAR estimates.

15. Kain Results

15. 1 As a first and general conclusion, we can point out that the project's mostimportant objective - "the improvement of the living standards of the population"- was satisfactorily achieved, particularly in what the non-agriculturalcomponent was concerned, whereby an important part of TOM population benefittedfrom the infrastructure programme carried out by the municipalities under theproject.

15.2 On the contrary, the improvement of the living standards linked toincreases of the farmers, revenue had only a significant expression through theinvestment models of "Douro" and "Vales Sub-Montanos". It must also underlinethe strong impact that the "Rehabilitation of Traditional Irrigation Schemes" hadon the improvement of the social and economical levels of inhabitants of theareas affected by that component.

15.3 In what concerns to be the strengthening of the Public Administrationstructure in the region, the project supplied the participating institutions anddepartments with material conditions (premises, equipment, etc.) at a levelconsidered acceptable. However, it was never possible to overcome thedifficulties in keeping the staff at the levels identified as necessary, eitherbecause of the non-flexible recruitment policies imposed, or due to the lack ofspecific benefits that could be made available to that staff, in order toencourage their attraction to less developed areas, as the TOM region.

15.4 Likewise, the efforts made in order to increase the dynamics and thestrengthening of cooperatives and agricultural organization were not consideredas satisfactory.

15.5 Despite the above-mentioned limiting factors, it must be acknowledged thatthe project was a general success and even exceeded some of the targets initiallyset. Much of this performance was only possible due to the well-coordinatedintervention of the different institutions and departments participating in theproject coordination, management and implementation, at the regional level,namely CCRN/GATs, DRATM, Local Authorities, IFADAP and FENACAM/CCAMs. It caneven be stated that one of the positive results of the project was, indeed, theadoption, by the regional Public Administration of new standards of inter-

- 18 -

institutional relationship, which allowed - and still allow - the problems ofregional development to be approached on a consensual basis.

15.6 It was further acknowledged that the organizational structure establishedunder the project, namely the Administration and the Evaluation Units, stronglycontributed to the timeliness and effectiveness of the decisions taken by theproject coordination.

16. Lessons Learned

16.1 The main lessons of experience that can be drawn from the projectimplementation include:

(a) the need to ensure an effective and permanent institutional support;

(b) the importance of guaranteeing, since early stages, an effectivemonitoring and evaluation system working closely with the projectcoordination and the departments involved on its implementation;

(c) the need for a flexible management process, to ensure that timelymeasures are taken to adapt proposals and schedules to the realevolution of project implementation; and

(d) the decisive role played by the World Bank Supervision Missions, inrecommending and defining proposals which are vital to an adequateimplementation of this kind of project. In particular, a specialemphasis is needed in establishing the frequency and composition ofthose Missions, so that projects can take the best out of them.

- 1Q -Table I

PART III: STATISTICAL INFORMATION

1. Related Bank Loans

Loan Number Year of Purpose Loan Amount StatusApproval (USS Millions)

L-1603 1978 Agricultural Credit 70 Closed June 1984

L-1853 1980 Forestry so Closed September 1989

L-2175 1982 TOM Rural Development 51 Closed December 1989

L-24S7 1984 TA Agriculture 7.4 Closed June 1989

L-3035 1989 TOM Regional Development 90 Under Implementation

-20- Table 2

2. Project Timetable

Item Planned Date | Revised Date | Actual Date

Reconnaissance - - XI 1977

Identification IV 1978 VII 1978 IX 1978

Pre-preparation IX 1979 - IX 1979

Preparation III 1980 - VIII 1980

Appraisal - - XI 1980

Post-appraisal - - III 1982

Negotiations VII 1981 - IV 1982

Board Approval X 1981 - VI 1982

Loan Signature - III 1983

Loan Effectiveness - - VII 1983

Loan Closing XII 1988 - XII 1989

Loan Completion VI 1989 - VI 1990

- 21 - Table 3Page 1 of 2

3. Credit Disbursements

A. Cumulative Estimated and Actual Disbursements

SAR Es-imates AcauajWB Semester I Ac tuaa %

Yerr Ending |CumlatDisbursement I Cuuativ Disbusemen d t sYear Dis~~~~~~~~~~~~~~~fbursed

l_____................... USMillion..................._

1983 XII 1982 0.8 0.8

VI 1983 0.9 1.7 -

1984 XII 1983 2.4 4.1 0.0 0.0 0 0

VI 1984 4.0 6.4 0.3 0.3 0 S

1985 XII 1984 4.3 10.7 0.3 0.6 1 6

VI 1985 4.2 14.9 1.7 2.3 5 iS

1986 XII 1985 5.8 20.7 8.7 11.0 25 53

VI 1986 5.4 26.1 7.5 18.5 42 71

1987 XII 1986 6.3 32.4 4.3 22.8 51 70

VI 1987 5.8 38.2 3.0 25.8 58 68

1988 XII 1987 4.5 42.7 2.9 28.7 65 67

VI 1988 3.8 46.5 6.2 34.9 79 75

1989 XII 1988 4.5 51.0 2.5 37.4 84 73

VI 1989 - - 6.2 43.6 98 85

1990 Xll 1989 - 0.7 44.3 100 87

VI 1990 ' 4431t 100 87

US$6.7 million were cancelled at closing date.

B. Disbursements by category

e te1/ n~ n nT n n n nT I T IrT u Actu l

I I I I I I 9 I (revised) Estimte

............. .UsS'000 .

1. AgriculturaL credita. by IFADAP . - - - - 2.000 0b. distributed by Pls -U 4,231 3,096 4,176 3,087 1,137 15,817 19,000 83

2. a. C utruction mterials 96 32 177 170 931 328 432 2,168 2,000 108for irrigationrehabiitatian works

b. Equipgnt, vehicles wnd 114 542 530 320 620 225 60 2,411 4,000 60materials foragricultural services

3. Civil works for - 664 366 318 558 411 309 2,626 3,200 82agricultursl services

4. Research, studies, pilot 42 416 903 1,337 1,864 2,174 1,768 6,50 6,000 106projects wid trainirg

S. Civil morks for - - 7,306 2,077 914 2,421 67 12,M 10,000 128nmicipalities

6. untilocated - . - 2,800 0

TOTAL U,311 51,600 87

w a'

FtU

Accadng LA scheAd* 1.

-23- Table 4

4. Project Implementation Ratios

(Key Indicators)

I ~~Planned SARRaoCoUpoocat Unit (or sevisd) Atuall actua/planned

A. Irritio Rebilitation- Number of schemes U 150 1WO 100- Are rehabilitated ba 7,50 5,860 78

a O0-arm investments1. Farm models ('P Loans /Ha) Revised

- Vales Sub-Montanos N° 150 93 62ha 900 1,389 154

- Montanha N' 200 19 10ha 1,200 223 19

- Planalto Mirandes N' 350 18 5ha 7,000 524 7

- Terra Quente N' 150 17 11ha 4,500 2,680 60

- Douro N' 2,200 455 21ha 2,200 2,535 115

2. Procurement (main items)- Heifers U 6,100 900 IS- Lambs U 7,500 3,580 48- Construction (shelters) m2n 27,000- Permanent pasture ha 7,900 2,315 - 29- Tractors U 180 73 41- Seed drills U 30 2 1- Mowers U 180 26 33- Pick-up balers U 30 1

C Agricultural Services- Houses for extension staff U 60 54 90- Vet. LAboratories +

Insemination Unit U 3 - -

- Milking pariour U 109 107 98- 4-WD vehicles U 25 14 56- Cars U 132 117 89

D. Noo-Agricultural Inhastructure- Construction of rural roads km 80 140 175- Improvement of rural roads km 120 256 213- Paving of strect '000 rr2 343 595 173- Water Supply Schemes N' 220 242 110- Sewage systems N' 65 154 236- Construction & rehabilitation of

dassrooms N' 60 157 262- Health posts'l/ U 2 2 100- Health centres 1 / U 12 7 58

a Aicltural R--earch (see AppendiL 1)- Research contracts U 2S 17 68

P. Iriation Trias- Nce irrigation schemes ha 3 x 145 1 x 100 23

(Curalha)GL FeP_iy Studies

- Groundwater investigations U 1 1 100(incl. exploratory wells)

- Expanson of the Chaves irriptionschemes U I 1 100

- Olive development study (Freixo) U 1 1 100IL Feloashp.

CCRN m.m. 36 66 183

1, not financed by the project.

S. Project Costs and Fi.a*cmdg

A. PDRITM - Breakdown of project costs by Loan Categories (in 1,000 C = 106 Esc.)

at 30.06.1990

Cateorles (-eeefagn sdhedute I 19e 1954 19d 19eo 197 19U 19w 19WO Total SA5RI/of the Lomn Agre _nt) I I

1 - Credit (On-form Investment) - 368 668 407 545 374 - 2,362 3,095

2 - Irrigation Red*ablitation 2 16 24 37 80 105 140 57 461 622(eonstr. Naterists)

2b Agricultural Organization - 49 150 62 32 33 22 19 367 422Equipment * Vehicles

3 Agricultural Orgenization - 14 203 92 101 57 89 54 610 630Civit Works

4 - Research, fellow ship 5 61 190 324 215 343 258 212 1,608 716Consultents, pilot projectsand technical assistance

5 mon-agriculturat Component - - 2.726 956 427 665 250 5,024 5,164(municipalities Works)

TOTAL 7 140 3,661 2,139 1,262 1,748 1,133 342 10,432 10,U49

s.,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ I-'

0' k' uchzing physical and p.1ce contingencies.

Total project coats are US$7.5 eqiivatant.

- 25 -

Table 5Page 2 of 2

B. Financing (US$ million)

Planned Actual asSource (Loan Actual % of

Agreement) PlannedIBRD 51.0 44.31 87Government 29.2 8.58 29Credit Institutions 48.0 7.77 16Sub-borrower 6.8 0.62 9Municipalities 14.7 6.22 42TOTAL 154.8 67.50 44

- 26 - Table 6Page 1 of 5

6. Project Results

A. Direct Benefits

Indiloes 1 ttt tcAppeakl IDimtm a E md atEmtc ~Caxg Date FM

-pindom Dewapmemat

- Irription rehabilitation (ha) 7,500 S,860 5,860

- Number of beneficiaries 550 430 430

- Number of bencficiaries 2.200 450 450

- Production (tons of grspCs9 13,00 3,400 11,100

Otber Pat Modes

- Number of benrficiaries 850 147 147

- Production of potItoesl NA NA 14,600

- Production of fodder1 1 NA NA 42,600

- Producion of milklp 24,700 NA 41,500

- Number of parlours 109 60 107

- Milk collecded (tons) NA 7,200 23,400

Nom-picultural lanrasiructures

* Water supply schemes (1,000 inhabitants) 188 I88- Sewage schemes (1,000 inhabitants) I 117 121 121

* Vi0tage streets (number villages) 61 101 101(83,0O0 inh.) (83,000 nh.)

- Rural roads (number villaps) 55 234 234(102,000 inh.) (102,000 inh.)

- Schools (1,000 inhabitants) NA 92 92

1/ Incremental production in tons or '000 fodder units.

- 27 - Table 6PaRe 2 of 5

B. Financial Impact

Financial Rate of Return SAR Estimates PCR Estimates

I ~~~% .... ......

New Irrigation n.a. - I

Irrigation Rehabilitation n.a. 89

Douro Zones 20 16

Vales Sub-Montanes 37 9

Terra Quente 37 1

Montanha 19 n.a.

Planalto Mirandes 23 n.a.

The main assumptions forming the basis for the calculation of the financial rateof return are summarized hereunder:

(a) Staff Appraisal Report

- Without the project, yields of grapes from vines to be replaced areprojected to fall to zero over ten years, which implies that productionon existing farms would level off at about 26% below currentproduction.

- Full project effect of crops are assumed to be reached by the 12thyear after project commencement whereas livestock effects wouldcontinue to increase up to the 20th year.

(b) Project Completion Report

- In the without project situation, no account has been taken of anyproduction decrease in spite of the past trend.

- In the absence of a second phase, it is assumed that the AgriculturalService would simply assure a technical follow-up and that, therefore,no further production increase would be obtained.

N No rate of return as farmers do not participate at the financing of the investment costs.

28 -Table 6-28- Page 3 of 5

C. Economic Impact

Economic Rate of SAR Estimate PCR EstimateReturn

I ~% ..... I

Project 16 18

Farm Models

- New Irrigation n.a. 2

- Irrigation n.a. 28Rehabilitation

- Douro Zone n.a. 22

- Vales Sub-Montanes n.a. 2

- Terra Quente n.a. 7

The main assumptions underlying the calculation of the project economic rateof return are summarized hereunder:

(a) Staff Appraisal Report:

- Econornic benefits and costs, have been valued at economic prices;;costs include production, investment and operating costs.

- Without the project, yield of grape vines to be replaced are projectedto fall to zero over ten years which implies that production onexisting farms would level off at about 26% below currentproduction.

- Full project effects of crops are assumed to be reached by the 12thyear after project commencement whereas livestock effect wouldcontinue to increase up to the 20th year.

- The investment and operating costs related to roads and socialinfrastructure are omitted from the calculation, implying that theirunquantified benefits are at least equal to their cost.

- The project life in 35 years and project costs include physicalcontingencies allowances.

- The official rate of exchange is considered to be a correct estimateof the shadow exchange rate.

- 29 - Table 6Page 4 of 5

- Agricultural labour is priced at the current daily wage for malelabourers.

(b) Project Completion Report

* In the without project situation, no account has been taken of anyproduction decrease in spite of the present trend.

- In the absence of a second phase, it is assumed that the AgriculturalServices would simply assure a technical follow-up and that thereforeno further production increase would be obtained.

- Economic benefits and costs have been valued at economic prices(Table 9.A). Costs include investments, operating and productioncosts. Investment and operating costs related to components whosebenefits have not been estimated have been omitted from thecalculation.

* The project's life is 30 years.

* The official rate of exchange is considered to be a correct estimateof the shadow rate of exchange.

- The opportunity cost of labour is estimated to amount to 75% of thecurrent daily wage.

-30 - Table 6Page 5 of 5

D. STUDIES

Studies Purpose status Impa

1. Groundwater study Identification of source of Drilled: Favourable conditions in the(general investiption) Irripgtion water in 24 - 322 bormholes Chaves Plain; elsewhere,

representative sub-aras - 68 shallow wells disappointing results; totalpotential discharge: 350 lls

Completedin Dec. 1987 Pousible use for local drinking

water supply schemes

2 Master plan for water Expansion of irrigation from Completed Sound management of wateruse in the Chaves Plain 900 to 6,000 ha in 1986 resources

Feasibility study for the Rehabilitation of the existing Completed Detailed designs of a first sliceexpansion of the perimeter (900 ha) and in Dec. 1987 project now under preparationChaves perimeter preliminary design of new (TOM 11)

irrigable areas

3. Olive development Dcvelopment of irription Completed Due to high infrastructurestudy (Freixo) infrastructure for an olive in April 1987 costs, GOP financed only a

plantation (952 ha) crossing power line; individualpumps were installed by thefarmers

4. Agricultural research studies Set-up a plan for applied 17 studies eompleted Prctical rcommendationsresearch to supply should be disseminated toinformation for crop See App. I farmers through extensionproduction incrase agentsA

- 31 - Table 7

7. Status of Legal Covenants

Apeement Section Sbort Descriptioa of Cotmts C|mplianLoan 3.02 ICIM to provide credit to municipalities Full

3.04 Staff adequately GATs CCRN Full

3.05 PAU adequately staffed Too frequent turn-over

3.06(a) Establish research team under project coordinator Full

3.06(b) GOP to strengthen extension service Acted upon under new TOM U project

3.06(c) Establish Monitoring Unit Full. but IaMJy

3.06(e) Establish Evaluation Unit Unit established at UTAD

3.08(a) Submit training programme for CCAMs and DoneFENACAM

3.08(b) GOP to carry out Agricultural Credit Services Done

3.09(a) Prepare animal health programmes Due to opposition of Association ofVets, programme never prepared

3.09(b) Cost recovery for use of facilities constructed Theoretically recovered

3.09(c) Equity contribution (20%) of irrigation beneficiaries Full

3.10(a) On-lending rate 14.5% Due to decrease in innation a new ratewas set (3/87) equal to Bank rate plus2.5% spread

3.12 Progress reports Submitted regularly

4.03 Participating institutions to have independent audit Fullreports

Schedule 5 Municipalities to agree to administer infrastructure Fullinvestment programme

Project 2.02 Refinancing and acceptance of PBls after Bank Fullapproval

2.03 IFADAP to provide at least 10% of subloan amount Fulland submit first 10 subloans for Bank approval

2.04(a) IFADAP loan not to exceed 85% of project cost Full

2.10 IFADAP to establish branch ofrice in Chaves Never done as considered not necessary

2.11 IFADAP to prepare training programme for DoneDRATM and PBls staff

4.01(b) IFADAP and PBIs to maintain separate accounts Done

Schedule IA Traditional banking procedures to be applied in Donelending

2(c)(d) Subborrowers to provide collaterals and ensure Doneinvestment financed by loan

2(e) Grace and maturity periods to be determined on Donebasis of cash nlow

S. Use of Bank Resources

A. Staff Inputs (Staff Weeks)

Tmsk IoFn 9SI IugS? FY 193 FY 194 FY 5 | 19U |nT19tl FYi8 119h9 |n1990 O1991 | OTAL

Preparation 149.0 - 149.0

Appraisal 66.5 6.3 - - - - - - - - 72.8

Negotiations 20.6 - - - - 20.6

Loan Operation 4.1 . 7.4 - - - - - - 11.5ond Pltming

Sau-total 219.6 34.3 - - - - 253.9

Supervision - - 15.7 23.5 22.9 18.2 8.4 46.5" 6.0 14.4 4 .2P 159.

Project - - .4 1.2 1.3 .3 1.3 - - 4.5Adminsitration

Anmatl - .3 1.1 - - - 1.4lopl_nmtoticn Review

SL-total t - 16.1 24.7 24.2 18.8 10.8 6.S 6.0 14.4 4.2 165.7

TOTAL 219.6 34.3 16.1 24.7 24.2 13.8 10.8 4.5 6.0 14.4 4.2 419.6

0 c*.:~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-

0

1/ include tim spent In preparing the Tras-os-Nntes legional Development Project ihich followed.2/ To be added: 11 mn.weeks allocated to the Completion Mission.

-33 - Table 8Page 2 of 2

B. Mission Data

star cc Year Numtber of Period in fild Spedaltio| Perfonmance Tnd Type ofpnjcyde pellns (day) zpc Dted rating _ 3 pblem

Preprantion III 1980 3 6 n.a.

Appaisal )a 1980 7 28 n.a.

Post-appraisal 1 1982 2 15 n.a.

Supervision 1 VII 1983 4 11 2A, 2E 1 - F

2 XII 1983 2 13 A E 2 2 F

3 Vll 19S4 3 7 2A, E 2 2 M

4 111985 4 7 2A, E, F 2 2 M. P

5 Vll 19S5 2 6 A, E 2 1 M, P

6 1119S6 2 9 A, L 2 1 M, P

7 VI 19S6 1 2 A n.s. n.a. n.a.

8 TV 1986 1 11 L 2 n.a. n.s.

9 X 19S7 2 10 F, C 2 n.a. n.a.

10 VII 1989 4 13 F, 1, T 1 n.a. n.s.

11 in 1990 4 18 F,l,A,C -

Completion VI 1991 2 13 C,E -

1/ A. Agronomist; E: Economist; F: Fmancial Analyst; L: Livestock Specialist; C: Civil Engineer, 1:Agroindustrial Specialist; T: Extension Specialist.

2/ 1: Problem free or minor problems; 2: Moderate problems; 3: Major problems.3/ 1: Improving, 2. Stationary, 3: Deteriorating.4/ F: Fnancial; M: Managerial; T: Technical; P: Political; 0: Other.

Table 9Page 1 of 9

9. Economic and Financial Analysis

A. List of Financial and Economic Prices at Farm gate (Page 1)

Unit inanlPrio c I E PmocicPrice

oUrms .. .... Wheat kg 49.7 40

Rye kg 45.7 31

Potatoes kg 35 35

French Bean kg 75 75

Italian Cabbage kg 65 65

Grapes for Porto Wine kg 200 200

Grapes for Table Wine kg 70 70

,Fodder Unit

- Cattle Production FU 30 26

- Sheep Production FU 20 20

- Wheat kg 50 38

-Rye kg 46 35

- Vets kg 120 90

- Lolium Italicum kg 300 225

- Qover kg 550 413

, Potatoes kg 85 64

- French Beans kg 450 338

- Italian Cabbage plant 20 15

Fertilizes

- Anonium Nitrate kg 29 22

- Superphosphate kg 24 18

- Compound 7,14,14 kg 39.7 30

- - 10,10,10 kg 36 27

15,15,10 kg 51 38

Insecticide kg 600 450

Foagicde kg 1,320 990

Animl Feed (Milking Cow) kg 42 32

Table 9Page 2 of 9

A. List of Financial and Economic Prices at Farm gate (Page 2)

U-it a *u1 Pdal pEcoomic Puce

Mechankatio :

- Tractor hour 2,200 1,650

- Combine hour 13,000 9,750

- Mower hour 1,000 750

Labour Unsilled day 1,500 1,125

Labour Un ekiled (Peak Sesonl ) day 2,C00 1,500

EQU1PMNT, BULDINGS, IRRIGATION -

Hcifer head 270,000 202500

Ewe head 13,000 9,750

Ram head 20,000 15,000

Cowshed m2 15,000 12,000

Pen m2 7,500 6,000

Temporary Pasture ha 65,000 48,750

Fence m 50 38

Vineyad ha 1,900,000 1,425.000

; rintign

- New scheme ha 4,082,000 2,932,000

- Rehabilitation ha 184,000 147,000

Source: DRATM, DHEA, TOM Regional Development Project SAR and Mission estimate.

1/ Douro Zone only.

-36- Table 9Page 3 of 9

B. Farm Model 1 - New Irrigation (1 ha) -

Cash Flow

1-2 3-4 5 6 7 8-19 20-30

A. Without project situatfon

Gross value of production 66.1 66.1 66.1 66.1 66.1 66.1 66.1

Production costs

Mechanization 10.1 10.1 10.1 10.1 10.1 10.1 10.1inputs 20.3 20.3 20.3 20.3 20.3 20.3 20.3Labour 8.6 8.6 8.6 8.6 8.6 8.6 8.6

Sub-total 39.0 39.0 39.0 39.0 39.0 .39.0 39.0

Balance without project situation 27.1 27.1 27.1 27.1 27.1 27.1 27.1

S. With project situation... ..................

Investment costs

Production costs.... .... ....

Mechanization 10.1 7.6 35.8 44.8 44.8 44.8 44.8Inputs 20.3 15.2 62.6 78.2 78.2 78.2 78.2Labour 8.6 6.5 57.2 71.5 71.5 71.5 71.5water charges /a - - 51.0 -

Sub-total 39.0 29.3 155.6 194.5 194.5 245.5 194.5

Total costs 39.0 29.3 155.6 194.5 194.5 245.5 194.5

Gross value of production 66.1 49.6 251.0 334.7 376.6 418.4 418.4

Balance with project situation 27.1 20.3 95.4 140.2 182.1 172.9 223.9

C. Incremental

Increfmental costs - -9.7 116.6 155.5 155.5 206.5 155.5Incremental benefits - -16.5 184.9 268.6 310.5 352.3 352.3

Incremental net benefits - -6.8 68.3 113.1 155.0 145.8 196.8

s=== ==== = = :=== = ……== ====

Source: DRATM, OHEA and Mission Estimates..........................................

,............................................................................ ....

/a Cost recovery calculated on the base of the present policy:1SX of total Investment Costs to be reimbursed in 15 years

including three years grace period, starting year 5...............................................................................

C. - Fam Model 2 Irrigation Rehabilitation (I ha)

financial Rate of Return

............. ....................... .,,,,.............. ,,,, ,.......................................................... ..................... :.................................................... ...........

1 2 3 4 S 6 7 8 9 10 11 12 13-30

A. Without project situation........ ............. .. .

Gross value of production 239.3 239.3 239.3 239.3 239.3 239.3 239.3 239.3 239.3 239.3 239.3 239.3 239.3

Productoln costs 14.0 69.0 181.0 291.0 407.0 548.0 738.0 1060.0 1316.0 1437.0 1SSS.0 1569.0 1587.0

Mechanization 92.7 92.7 92.7 92.7 92.7 92.7 92.7 92.7 92.7 92.7 92.7 92.7 92.7EmJtC 29.4 29.4 29.4 29.4 29.4 29.4 29.4 29.4 29.4 29.4 29.4 29.4 29.4Waeour 31.9 31.9 31.9 31.9 31.9 31.9 31.9 31.9 31.9 31.9 31.9 31.9 31.9

Sub-totat 154.0 154.0 154.0 154.0 154.0 154.0 154.0 154.0 154.0 154.0 154.0 154.0 154.0

laltnce without project situation 85.3 85.3 85.3 85.3 85.3 85.3 85.3 85.3 85.3 85.3 85.3 85.3 85.3

B. With project situation..........................

investoment cots /a 36.8

Production costs................ w

Mechaniation 69.5 35.8 44.8 44.8 44.8 44.8 44.8 44.8 44.8 44.8 44.8 44.8 44.822.1 62.6 78.2 78.2 78.2 78.2 78.2 78.2 78.2 78.2 78.2 78.2 78.2

Labour 23.9 57.2 71.5 71.5 71.5 71.5 71.5 71.5 71.5 71.5 71.5 71.5 71.5water charges /b . - . . . .

Sub-total 115.5 155.6 194.5 194.5 194.5 194.5 194.5 194.5 194.5 194.5 194.5 194.5 194.5

Total costs 152.3 155.6 194.5 194.5 194.5 194.5 194.5 194.5 194.5 194.5 194.5 194.5 194.5

Gross value of production /c 179.5 251.0 334.7 376.6 418.4 418.4 418.4 418.4 418.4 418.4 418.4 418.4 418.4

Balance vith project situation 27.2 95.4 140.2 152.1 223.9 223.9 223.9 223.9 223.9 223.9 223.9 223.9 223.9

C. Incremental

Incremental costs -1.7 1.6 40.5 40.5 40.5 40.5 40.5 40.5 40.5 40.5 40.5 40.5 40.5Incremental gross benefits -59.8 11.7 95.4 137.3 179.1 179.1 119.1 179.1 179.1 179.1 179.1 179.1 179.1

Incremental net benefits -58.1 10.1 54.9 96.8 138.6 138.6 138.6 138.6 138.6 138.6 138.6 138.6 138.6=.== ====*======= === ======== === ======== ==== X-==== *====== P F

...... . ..... 2.... ..... .... -.. --= =* . =Q

Source: DRAltt OHEA wid Mission estimates. .D__________---.---------- .--- O x--D------ ~0/a 20X of rehabilitation costs provided by the farmers.lb No vater charges because farmersparticipated at the rehabilitation./c Assusing that in year 1 only75X of the larI is cultivated

due to the rehabilitation of the Irrigation scheme.

Net Present Value at OCC 11X = 834.8Internal Pate of Ret Jrn = 89.1I

D. - Farm MQdel 3 - Douro Zoes (1 ha) -

Financial Rate of Return

1 2 3 4 5 6 7 8 9 10 11 12 13-21 22-30._. _.....___. ... ... __.... ..... . . . . . .. . . . . . . . . .. . . .. . . . . . . . .. .. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A. Without project situation /a

Gross value of proauction 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0

Production costs - - - - -

galance without project situation 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0

S. With project situation

Infestment costs 23.0 232.0 1481.0 1436.0 934.0 1029.0 792.0 719.0 247.0 145.0 32.0 16.0

mechanization 1050.0 7.5 25.0 51.5 51.5 - - - - -Inuts 552.5 296.5 37.0 49.5 49.5 - - - - - -Labour 127.5 171.0 133.0 169.0 169.0 - * - - - -

Sub-total 1230.0 475.0 195.0 270.0 270.0 - - -

Production costs 14.0 69.0 181.0 291.0 407.0 548.0 738.0 1060.0 1316.0 1437.0 1555.0 1569.0 1587.0 1587.0

mechanization - - - - - 51.5 51.5 51.5 51.5 51.5 51.5 51.5 51.5 51.5Inputs 49.5 49.5 49.5 49.5 49.5 49.5 49.5 49.5 49.5Labour - - - - - 169.0 169.0 169.0 169.0 169.0 169.0 169.0 169.0 169.0

sub-totat - - - - - 270.0 270.0 270.0 270.0 270.0 270.0 270.0 270.0 270.0

Total costs 1230.0 475.0 195.0 270.0 270.0 270.0 270.0 270.0 270.0 270.0 270.0 270.0 270.0 270.0

Gross value of production - - 60.0 168.0 879.5 893.5 907.5 907.5 907.5 907.5 907.5 907.5 872.5

Balance with project situation -1230.0 -475.0 -195.0 -210.0 -102.0 609.5 623.5 637.5 637.5 637.5 63?.5 637.5 637.5 602.5

C. Incremental

incremental costs 1230.0 475.0 195.0 270.0 270.0 270.0 270.0 270.0 270.0 270.0 270.0 270.0 270.0 270.0Incremental gross benefits -10.0 -10.0 -10.0 50.0 158.0 869.5 883.5 897.5 897.5 897.5 897.5 897.5 897.5 862.5Incremental net benefits -1240.0 -485.0 -205.0 -220.0 -112.0 599.5 613.5 627.5 627.5 627.5 627.5 627.5 627.5 592.5

Source: DRATM, CEVD and Mission estimates.

kn____.........___._:.................._..___...__.....

/a Agsuming ast of newvinwards have been 0established on HORtORIOS left fallow.

Met Present Value at OCC 11i i1220.8Internal Rate of Return * 16.5XCoupon Equivalent Rate of Return * 15.6X

- 39 - Table 9Page 6 of 9

E. - Farm Model 4 - Vales Sub-montanes (12 ha) -

Financial Rate of Return

1 2 3 4-30

A. Without project situation

Gross value of production 2563.7 2563.7 2563.7 2563.7

Production costs

Mechanization 342.3 342.3 342.3 342.3Inputs 797.0 797.0 797.0 797.0Labour 336.9 336.9 336.9 336.9

Sub-totaL 1476.2 1476.2 1476.2 1476.2

Total costs 3453.0 1100.0 1150.0 1154.5

B. With project situation

Investment costs /a 2403.0

Production costs

Mechanization 251.0 263.0 274.0 275.7Inputs 526.0 551.0 577. 0 578.9Labur 273.0 286.0 299.0 299.9Water charges /b -

Sub-total /c 1050.0 1100.0 1150.0 1154.5. .. . . . . . . ... .... .

Total costs 3453.0 1100.0 1150.0 1154.5

Gross value of production 2050.0 2300.0 2450.0 2506.5

Salance with project situation -1403.0 1200.0 1300.0 1352.0

C. Incremental

Incremental costs 1976.8 -376.2 -326.2 -321.7Incremental benefits -513.7 -263.7 -113.7 -57.2

Incremental net benefits -2490.5 112.5 212.5 264.5

Source: DRATM, DHEA and Mission estimates.

.. .. ..... .... ... .... ... . . . . . . . . . . . . . . . . . . . . . . . . . .

/a Including 4 cows, 68 m2 of stable,2 ha of temporary pastureand 2.4 ha of Irrigation Rehabilitation.

/b No water charges because farmers participatedat the rehabilitation.

/C Gross vaLue of production is slightly lowerin the with project situation than in the without project situationbecause the new cropping pattern increases drastically the fodderproduction in spite of a fodder unit price which is Low.Indeed due to low costs of production, the fodder profitability is betterthan the cereal one.

. ......... .................. ...................................................................... ... ..... ..

Net Present Value at OCC 11X - -343.9Internal Rate of Return a 9.1XCoupon Equivalent Rate of Return * 18.9X

40- Table 9Page 7 of 9

F. - Farm Model 5 - Terra Quente (100 ha) -

Financial Rate of Return

... .. ... .. .. ... .. .. ... .. .. ... .. .. . _. ._.. .. . ........ ....

1 2 3 4 5-30

A. Without project situation

Gross value of production 1330.3 1330.3 1330.3 1330.3 1330.3

Production costs

Mechanization 350.2 350.2 350.2 350.2 350.2Inputs 331.8 331.8 331.8 331.8 331.8Labour 255.0 255.0 255.0 255.0 255.0

Sub-total 937.0 937.0 937.0 937.0 937.0

Balance without project situation 393.3 393.3 393.3 393.3 393.3

B. With project situation

Investment costs /a 9225.0

Product ion costs

Mechanization 350.0 470.0 490.0 510.1 510.1Inputs 630.0 860.0 910.0 939.0 939.0Labour 270.0 370.0 400.0 408.9 408.9

Sub-total 1250.0 1700.0 1800.0 1858.0 1858.0.. ..... ........ . .. _....... ....... .............

Total costs 10475.0 1700.0 1800.0 1858.0 1858.0

Gross value of production 1500.0 2000.0 2300.0 2500.0 2635.8

BaLance with project situation -8975.0 300.0 500.0 642.0 777.8

C. IncrementaL

Incremental costs 9538.0 763.0 863.0 921.0 921.0

IncrementaL benefits 169.7 669.7 969.7 1169.7 1305.5

Incremental net benefits -9368.3 -93.3 106.7 248.7 384.5

Source: DRATM and Mission estimates.

................... ....__...................................... ................

/a Including 350 mZ. of pen. 20000 m. of fencing,theestablishment of 50 ha of temporary pasture andthe purchase of 170 ewes and 7 rams.

Net Present Value at OCC 11% * -6,123.9Internal Rate of Return a 0.6%Coupon Equivalent Rate of Return * 6.3X

- 41 - Table 9Page 8 of 9

G. Phasing of Farm Models

Farm Modell| Unit| 1 2 3 4 | S 6 7 8 | Total

1983 1984 1985 19861 1987 19881 19891 19901

2. Irrigation Ha 162 456 387 443 833 896 1,300 1,160 5,637Rehabilitation2 1

3. Douro Zones3 / Ha - - 606 758 431 583 70 87 2,535

4. Vales Sub-Montanesel No 8 49 32 2 2 - - 93

5. Terra Quente5 No - - 7 6 1 3 - 17

1/ Farm model 1 'New irrigation' has been designed to estimate the financial and economic viability ofa pilot scheme and therefore has not been included in the economic analysis of the project.

2/ Farm model 2 'Irrigation Rehabilitation' whose area is 1 ha has been designed to take into accountbenefits and costs resulting from the largest part of the area rehabilitated (5,637 ha out of 5,861 ha).The balance (224 ha) is already accounted for in the Farm model 4 - "Vales Sub-Montanes".

31 Farm model 3 'Douro Zones" has an area of 1 ha.4/ Farm model 4 "Vales Sub-Montanes" has a total area of 12 ha out of which 2.4 ha of irrigation i.e. twice

the area of the model designed in the SAR.5/ Farm model 5 "Terra Quente" has a total area of 100 ha i.e. more than three times the area of the

model designed in the SAR (30 ha).

M. Cash-flow for Ec kmic Rate 01 Retrn/in I9I content Million Ec.

... ........................................................... ................................................................................................. .. ............................... ..................................... ............ ...... ...................

2963 1964 21965 986 1967 1966 1969 199 1991 1992 993 2994 299S 199 2997 2996 t99 2000 2001 2002 2003 -2012............................................ ............................................................................. ..... ...... .................... . ............... ..................... ... .. .... .... .... .......... -....... ............ .... ...... ......

Vith project situation

cross value at prodictimn 20 131 343 370 827 1142 1636 2576 3448 406 43551 4676 4747 4*no 4751 473 470 466 4 18 4S66 662

Investmnt Costs 23 232 1461 1436 934 1029 792 719 247 243 32 18

Production Costs 14 69 218 291 407 548 738 1060 1316 1437 1555 1569 1567 1567 1587 1587 258? 1587 1587 1587 1587

iecre ntat Operating Costs - - - - 200 100 100 100 200 200 2 00 2 00 006 200 100 100~~~~~....... ....... .. ... . ... .... . . . ....... ....... :..... .... . ... .. . .. ...... ........ ....... ....... ....... ........ ....... ........ ....... ........ ....... ..... ........... ...

Total ecm ic costs 37 302 1662 In7? 2341. IS77 1530 179 2663 26u2 167 1687 1687 2667 2687 1687 1607 2687 2687 1607 2667

met Benefits 9 -170 -2319 -2157 -524 -435 106 799 1785 2336 2871 2989 3060 3063 36 3043 3016 3002 2982 2978 2972

Vlthout project situation... .. .......... .......

eg,ftas 29 so 194 294 396 507 657 7 790 790 790 790 790 790 790 790 790 790 790 790 790 i

Incrsntat..... .....

.Kr._ntat ne b.wfits 2O -2.8 -151. -. 4.I -920 .92 -5.9 9 9s 1546 2001 21W 2270 22n 227. 225 2226 2211 219. 2.m 21.5

Suet: DtEATH wrd Nissiln estimtes.............. .................. ................. .

Internal Rates of Return of Met Streamse ............. was ....... 0UBIEC 17.931

- 43 - AppendixPage 1 of 2

Appendix

Agricultural ResearchList of the 17 Reports Prepared by UTAD

Projecto No. 1 - Estudos de Adaptacao de Algumas Cultivares de Trigo, Centeio eTriticale e a Obtencao de Novas Variedades Melhoradas(Responsavel: Prof. Henrique de Pinho Guedes Pinto) Universidadede Tras-os-Montes e Alto Douro, Vila Real, Faneiro de 1990.

Projecto No. 2 - Melhoramento de Castas da Regiao do Douro - Estudos Sobre a SuaFertilidade e Produtividade (Responsavel: Prof Nuno Pizarro deCampos Magalhaes) Universidade de Tras-os-Montes e Alto Douro,Vila Real, Janeiro de 1990.

Projecto No. 3 - Producao e utilizacao de forragens em Prodes de Regadio eLameiros. Prof. A.M. Pereira.

Projecto No. 4 - Producao de Forragens e Pastagens nas Areas de SequeiroMediterranico de Tras-os-Montes (Responsavel: Prof Nuno ManuelVasconcelos Moreira) Universidade de Tras-os-Montes e AltoDouro, Vila Real, Janeiro de 1990.

Projecto No. 5 - Nematodos da Batateira - Macrozonagem do Nematodo Dourado daBatateira e Estudo de Tecnicas de Controlo (Responsavel: Eng.Fernando Franco Martins) Universidade de Tras-os-Montes e AltoDouro, Vila Real, Janeiro de 1990.

Projecto No. 6 - Fertilizacao em Triticale, Centeio e Trigo. Prof. C. Mendes.

Projecto No. 7 - Definicao de um Modelo Agricola para Implementar a Producao deLeite nas Terras Altas de Tras-os-Montes (Responsavel: Prof. CarlosAlberto Sequeira) Universidade de Tras-os-Montes e Alto Douro,Vila Real, Janeiro de 1990.

Projecto No. 8 - Melhoramento da Producao Ovina (Responsavel: Eng. Jorge Teixeirade Azevedo) Universidade de Tras-os-Montes e Alto Douro, VilaReal, Janeiro de 1990.

Projecto No. 9 - Desenvolvimento de Recomendacoes Alimentares para Ruminantes(Responsavel: Pro. Arnaldo Dias da Silva) Universidade de Tras-os-Montes e Alto Douro, Vila Real, Janeiro de 1990.

Projecto No. 10 - Unidade de Avaliacao. Prof. J. Portela.

Appendix- 44 - Page 2 of 2

Projecto No. 11 - A Produtividade e a Rentabilidade dos Bovinos Locais (Responsavel:Eng. Virgilio Cardos Alves) Universidade de Tras-os-Montes e AltoDouro, Vila Real, Janeiro de 1990.

Projecto No. 12 - Cartografia de Solos do Nordeste de Portugal (1/100.000).

Projecto No. 13 - Metodos de Rega

Sub-projecto 13.1 - Avaliacao e Melhoramento dos MetodosTradicionais de Rega (Responsavel: Prof. Dr. Zozimo de CastroRego).Sub-projecto 13.2 - Determinacao do Balanco Hidrico das Cultura(Responsavel: Prof Dr. Luis Santos Pereira).Universidade de Tras-os-Montes e Alto Douro, Vila Real, Janeiro de1990.

Projecto No. 14 - Estudo do Impacto Economico da componente de InvestigacaoAgricola Aplicada do PDRITM (Responsavel: Prof. AntonioCipriano Pinheiro) Universidade de Tras-os-Montes e Alto Douro,Vila Real, Janeiro de 1990.

Projecto No. 15 - Mecanizacao das Vinhas de Encosta na Regiao Demarcada doDouro (Responsavel: Prof. Fernando Bianchi de Aguiar)Universidade de Tras-os-Montes e Alto Douro, Vila Real, Janeiro de1990.

Projecto No. 16 - Projecto altemativo para a armazenagem do batata.

Projecto No. 17 - Avaliacao e melhoramento dos metodos de irrigacao.