Document ofThe World Bank

FOR OFFICIAL USE ONLY

ReportNo. 19504

IMPLEMENTATION COMPLETION REPORT

CHINA

HENAN AGRICULTURAL DEVELOPMENT PROJECT(CREDIT 2242-CHA)

June 30, 1999

Rural Development and Natural Resources Sector UnitEast Asia and Pacific Regional Office

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit = Yuan (Y)

At Appraisal (1990): $1.00 = Y 4.72Completion Year (December 31, 1998): = $1.00 = Y 8.3

FISCAL YEAR

January 1 - December 31

WEIGHTS AND MEASURES

Metric System

ABBREVIATIONS AND ACRONYMS

BoF Bureau of FinanceDAP Diammonium PhosphateERR Economic Rate of ReturnFAO/CP FAO/World Bank Cooperative ProgrammeFRR Financial Rate of ReturnGWDS Ground Water Development SchemeICB International Competitive BiddingICR Implementation Completion ReportIDA International Development AssociationI&D Irrigation and Drainage ComponentM&E Monitoring and EvaluationMTR Mid-Term ReviewNCB National Competitive BiddingO&M Operation and MaintenancePMO Project Management OfficePPMO Provincial Project Management OfficePLG Project Leading GroupRMB Renminbi (Chinese Currency)SAR Staff Appraisal ReportSDR Special Drawing RightsTSP Triple SuperphosphateWCD Water Conservancy DepartmentYRDS Yellow River Diversion Scheme

Vice President: Jean-Michel Severino, EAPVPCountry Director: Yukon Huang, EACCFSector Manager: Geoffrey B. Fox, EASRD

Task Managers: Zhong Tong and Rapeepun Jaisaard, EASRD

CONTENTS FOR OFFICIAL USE ONLY

PREPACE ..................................................... i

EVALUATION SUMMARY ..................................................... ii

PART I: IMPLEMENTATION ASSESSMENT ..................................................... 1A. Project Objectives and Description ..................................................... 1B. Achievement of Project Objectives ..................................................... 2C. Implementation Experience ..................................................... 3D. Project Impact .................................................... 8E. Major Factors Affecting the Project .............................. ....................... 9F. Project Sustainability .................................................... 10G. IDA Performance ..................................................... 11H. Borrower Performance .............................. 12I. Assessment of Outcome .............................. 13J. Future Operations .............................. 13K. Key Lessons Leamed .............................. 14

PART II. STATISTICAL TABLES .............................. 16Table 1: Summary of Assessment .............................. 16Table 2: Related Bank Loans/Credits .............................. 17Table 3: Project Timetable .............................. 17Table 4: Credit Disbursements: Cumulative Estimated and Actual ...................... 18Table 5: Key Indicators for Project Implementation .............................................. 18Table 6: Key Indicators for Project Operation ................................................... 22Table 7: Studies Included in Project ................................................... 24Table 8A: Project Costs .................................................... 26Table 8B: Project Financing ................................................... 26Table 9: Economic Costs and Benefits .......................... .......................... 27Table 10: Status of Legal Covenants ................................................... 28Table 11: Compliance with Operational Manual Statements ................................. 29Table 12: Bank Resources: Staff Inputs ................................................... 29Table 13: Bank Resources: Missions ......................... ........................... 30

ANNEX A: ICR MISSION'S AIDE MEMOIRE .................................................... 32

ANNEX B: BORROWER'S CONTRIBUTION TO THE ICR ............................... 42

ANNEX C: DOCUMENTS IN PROJECT FILE ................................................... 49

ANNEX D: PHOTOGRAPHS OF PROJECT AREAS ............................................ 50

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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IMPLEMETATION COMPLETION REPORT

CHINA

HENAN AGRICULTURAL DEVELOPMENT PROJECT

(CREDIT 2242-CHA)

PREFACE

This is the Implementation Completion Report (ICR) for the Henan AgriculturalDevelopment Project in China for which Credit 2242-CHA in the amount of SDR 81.4million (US$110 million equivalent) was signed on April 14, 1991, and made effectiveon August 23, 1991.

The original financing plan was extended by a year to December 31, 1998. Finaldisbursement occurred on March 18, 1999, when the credit was disbursed 99.86%.

This ICR draft was prepared by a joint World Bank and FAO/World BankCooperative Program (FAO/CP) mission,' which visited China on April 19-30, 1999.The Henan Agricultural Development Project Management Office has prepared a draftICR including a general report and specific reports for each component. These reportsincluded data on actual investment costs, physical implementation completion, and basicanalysis required for project evaluation. The mission undertook field visits to inspect on-site physical accomplishments and intensive discussions were carried out between themission and the project management offices, government offices, and technical bureaus.

l Z. Tong (the World Bank Mission Leader, Agricultural Economist); D. Gue (Agro-Industry Specialist,Consultant); M. Sandoz (FAO/CP, Irrigation Engineer); and A. Bueno (FAO/CP, Agriculturist).

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HENAN AGRICULTURAL DEVELOPMENT PROJECT

(CREDIT 2242-CHA)

CHINA

EVALUATION SUMMARY

Project Objectives

1. The project was designed to help finance an integrated agricultural developmentproject in areas along Yellow River in Henan Province. The main objective of the projectwas to accelerate and diversify agricultural development in order to alleviate poverty,raise farmer incomes and increase rural employment. Specific project objectives were to:

(a) provide additional irrigation water and alleviation of soil salinity andwaterlogging through the construction of four Yellow River diversionschemes (YRDS), a ground water development scheme (GWDS), theYuxiayong drainage and well irrigation scheme, the Dongshahe regulationscheme, and the Quncun pilot recharge/storage scheme;

(b) increase the productivity of existing low-yield farms by crop intensificationand diversification, and development of waste land for crops and orchards;

(c) expand livestock production through the effective use of crop residues;(d) develop low-lying areas for fish production;(e) invest in agro-processing and agro-industry;(f) improve in the province's ability to manage water resources effectively; and(g) strengthen research, extension and environmental protection programs.

2. Project objectives were clear, well-formulated and based on considerablepreparation work by the Bank and the Borrower. These objectives were consistent withthe strategic emphasis on agricultural development by the Henan Provincial Governmentand also supported the Bank's Group's country assistance strategy in the agriculturalsector. In general, the design for the project components made realistic assumptionsregarding availability of improved technologies for water resource use, agriculture andlivestock production. Selection criteria for agro-processing factories ensured technicaland financial viability.

Implementation Results and Experience

3. The project has successfully reached full targets for all components as presented inthe SAR (or revised by the mid-term review). The irrigation and drainage componentcompleted construction, with total area benefited reported at about 274,000 ha, 97% ofthe target. Overall, the project's irrigation objective was substantially achieved. Theagriculture component completed targeted procurement of fertilizer. Construction oftunnel greenhouses exceeded targets by 18%. Improvements at agricultural extensionstations at county and township level were fully realized. Planting of windbreaks,wickers, orchard development for apple, pomegranate, plum, apricot, grape, rehabilitation

of Chinese dates, and mulberry plantation all reached 100% of the corresponding SARtarget. The livestock component surpassed SAR targets with solid results of 153% and279% respectively, for goat and sheep households. Fish ponds completed 101% of themid-term revised target. The construction of 11 agro-industrial or agro-processing plantsand 16 seed processing centers were completed. All agro-processing plants and 11 of theseed processing plants are in commercial operation. The remaining five seed processingplants have just completed commissioning. All scientific research projects under eachcomponent were completed. Some research projects received provincial awards andsome results have been extended to production areas. Training for technicians, farmersand PMO staff achieved SAR targets. Financial analysis shows that all components havereached a higher financial rate of return than estimated in the SAR. The overalleconomic rate of return is estimated at 40% compared to the SAR estimate, 35.8%.

4. Implementation began smoothly, and over the first two years, the credit disbursedfaster than planned. At mid-term review in 1994, some technical and financial changeswere required. The project also experienced some delays due to: (a) lack of timelyallocation of counterpart funds; (b) lack of working capital for agro-processing factories;(c) delayed delivery of equipment for agro-processing factories. The project wasextended twice and was finally completed on December 31, 1998. The total expenditureby loan closing was $245.6 million, of which IDA financed $116.5 million equivalent toSDR 81.3 million.

5. IDA's performance in project preparation, appraisal, and implementation washighly satisfactorily as rated by the PPMO. IDA helped the government design theproject and provided technical assistance for implementation problems which occurredfrom time to time and provided sound advice for the operation. Borrower performancewas satisfactory. The PPMO, concerned provincial technical bureaus, and the "HenanTechnical Advisory Group" set up implementation regulations and coordinated well. Theproject was well managed. About 56,000 farm households directly benefited from theproject and the borrower complied promptly and completely with the covenantsprescribed in the legal agreement.

Summary of Findings, Plans for Future Operations, and Key Lessons Learned

6. Overall Findings. Establishment of an integrated system linking production,processing, and marketing is the cornerstone of the project's success. Irrigation anddrainage schemes provided infrastructure to farmers in crop production, while planting ofwindbreaks reduced natural disasters (sandstorm, flood and drought) and improved soilfertility and the agro-ecological environment. The participating companies areundergoing reform of their ownership structures and forming joint ventures withcommercial companies to expand their marketing networks. The model of linkingcompanies to farm households benefited both parties and reduced market risk. Theadvanced technology introduced to the project enabled the products to compete in themarket place. However, irrigation and drainage schemes need further improvement tosome structures and the gate system. Also, water charges do not cover the full O&Mcosts and some enterprises need to improve financial and commercial management.Lastly, a lack of working capital still exists for some agro-processing factories.

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7. Project Impact. In general, the project was successful in increasing farmers'income, creating employment opportunities and generating local tax revenue. Itpromoted local economic development along the Yellow River and achieved theobjective of poverty alleviation. In the project areas over the past six years, farmer netper capita income increased from Y550 to Y2,179 on average, at an annual growth rate of25.8%, while in the same period, the provincial average was 21.5%. A total of 26research projects have been completed under the project, some of them receivingprovincial awards. The results of this research have been applied or adopted into practiceand have had a positive impact on yields and income. The project has also haddemonstration effects in non-project areas. Many non-project farmers have adoptedproject technology: for example, tunnel greenhouses have spread over large areas. Theagro-processing factories also developed production bases involving large numbers offarmners. The integrated approach linking production to processing has indicated aninteresting future direction for rural development in this region. The project had apositive enviromnmental impact.

8. Sustainability. The project is potentially sustainable. Implementation of the projecthas provided excellent facilities for production, processing and marketing of agricultural,livestock and aquaculture products. Agro-processing factories are in commercialoperation. The irrigation and drainage systems are in place, operating well and benefitingcrop production; farmers' incomes have increased through their livestock, orchard, andaquaculture production. Governiment policies promoting agricultural developmentprovide strong incentives for commercialized development under the project. Thusstakeholders have good reason to maintain facilities and continue operations developedunder the project. However, long-run sustainability will depend on future operationplans. Government support remains important. In response to market variations, thestructure and variety of products need to be continually re-assessed and adjusted.However, poor management of some enterprises still exists and successful managementexperiences still need to be further disseminated. Assurance of working capital willcontinue to be necessary for agro-processing factories and subloan repayment schedulesstill need to be enforced.

9. Future Operations. The model of company links to farm households should beextended to other areas. However, to maintain and increase project impact, the projectwould still need support from the provincial goverrnment in carrying out policies,providing technical assistance, and securing funding for future operations. In particular,adequate funding needs to be provided for agricultural support services. Those countyrevolving funds that have been successfully implemented will continue to be used forproject participants to support expansion to more farm households in surroundin g areas.Further gradual increases of the water charge from 0.04 yuan/in3 to 0.08 yuan/in by theyear 2001 is under consideration and should be implemented. The YRDS water balancestudy should continue to be used to formulate sound water resources management plansfor the region. The O&M plan, especially thorough maintenance, needs to beimplemented. Research on efficient water saving techniques should be completed andthe results applied. Successful project experiences in enterprise management should beintroduced throughout the province. Each of the processing plants has provided ampleevidence of the advantages of the linkage approach to plant operation and commercialactivities.

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10. Lessons Learned. The key lessons learned from the project include: (a) acomprehensive design approach establishing an integrated system to link production,processing and marketing is highly beneficial and conducive to foreign capital investmentin agricultural projects; (b) stable project management at all levels and good coordinationamong the project management offices and involved technical bureaus, is essential tosuccess; (c) good plant design and excellent equipment are key factors in attractingprivate sector partners to processing plants. Also, adequate and timely availability ofworking capital has to be ensured for processing plants; (d) management of revolvingfunds needs to be ensured; (e) decentralization of responsibility for implementation ofirrigation and drainage works, and subsequent O&M, requires substantial support fromprovincial authorities in order to develop local capabilities for water resourcemanagement; (f) the incorporation of windbreaks in irrigated areas in Henan offers soundenvironmental protection; and (g) adequate and timely allocation of counterpart funds is aprerequisite to smooth implementation.

CHINA

HENAN AGRICULTURAL DEVELOPMENT PROJECT

(CREDIT 2242-CHA)

PART 1: PROJECT IMPLEMENTATION ASSESSMENT

A. PROJECT OJECTIVES AND DESCRIPTION

1. The Henan Agricultural Development Project was designed to provide assistance tofinance an integrated agricultural development project covering 20 counties in Jiaozuo,Xinxing, Puyang, Kaifeng, and Shangqiu Municipalities of Henan Province. The mainobjective of the project was to assist the government in accelerating and diversifyingagricultural development in order to alleviate poverty, raise farmer incomes and increaserural employment. Specific project objectives were to:

(a) provide additional irrigation water and alleviate soil salinity andwaterlogging problems. The project developed four Yellow River diversionschemes (YRDS); a ground water development scheme (GWDS); the Yu-Xia-Yong drainage and well irrigation scheme, the Dongshahe regulationscheme for protection against river floods and the Qucun pilotrecharge/storage and irrigation scheme.

(b) increase the productivity of existing low-yieldfarms by crop intensificationand diversification and development of waste land for crops and orchards.A major effort was placed on converting all rainfed land into fully irrigatedfarms and 'providing them with improved packages of support services. Theproject also supported seed production and processing activities,diversification of crop production, construction of greenhouses, anddevelopment of wastelands for fruit production.

(c) expand livestock production through the effective use of crop residues. Theproject supported planting of alfalfa on wasteland to provide feed for cattleand small ruminants, promoted the raising of small ruminants, introducedsuperior breeding stock and improved feed, financed broiler meat processingand strengthened animal disease control and veterinary services throughprovision of medicines, modem production equipment and training.

(d) develop low-lying areas for fish production. The project financedconstruction of fish ponds and associated water supply, water discharge andelectrical facilities; constructed and equipped hatcheries and feed mills; andsupported research and training programs.

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(e) invest in agro-processing and agro-industry. Agro-processing and agro-industries were included in the project to provide linkages from farmproduction, through processing and storage to marketing operations and toprovide locally-produced agricultural inputs (seeds, plant growth hormonesand veterinary antibiotics).

(f) improve the province's ability to manage water resources effectively. Theproject strengthened skills in water resources monitoring, planning andmanagement.

(g) strengthen research, extension and environmental protection programs byproviding equipment, technical assistance and training.

2. These objectives were clear and well-formulated, based on considerable preparationwork by the Bank and the Borrower. The objectives were consistent with the strategiesemphasized by Henan province during the eighth and ninth national "Five-year Plans" tomore rapidly increase farm incomes, address poverty, and guarantee a sustained increasein the production of basic agricultural products. The emphasis on the integration ofproduction, processing and marketing is regarded as the project's distinguishingcharacteristic, and this emphasis is being replicated in subsequent (non-World Bank)projects in the province. The project objectives also supported the Bank Group's countryassistance strategy in the agricultural sector, with emphasis on increasing anddiversifying agricultural production through more efficient use of land, labor and capitalresources and through the improvement of support services such as credit, research, andagricultural education.

3. In general, the project component designs made realistic assumptions regardingavailability of improved technologies for water resource use, agriculture, horticulture,aquaculture and livestock production. Concerning the agro-industries components, choiceof investment components was based on selection criteria developed to ensureconsistency with project objectives as well as sufficient FRR to service debts and providedividends to local investors and capital growth for the companies.

B. ACHIEVEMENT OF PROJECT OBJECTIVES

4. The project has successfully met full SAR (or mid-term review revised) targets forall components. The irrigation and drainage component completed construction, with thetotal area benefited reported at about 274,000 ha, 97% of the SAR target. Overall, theproject's irrigation objective was substantially achieved. The agriculture componentprovided 21,500 t of DAP and TSP fertilizer (108%) to farmers. Construction of tunnelgreenhouses completed its target by 118%. Improvement in agricultural extensionstations at county and township levels was fully realized. Planting of windbreaks andwickers, and orchard development for apples, pomegranates, plums, apricots and grapesand rehabilitation of Chinese date orchards and mulberry plantations all reached 100% ofthe corresponding SAR target. The livestock component surpassed the SAR targets, withsolid results of 153% and 279% for the goat and sheep sub-components. Fish pondscompleted 101% of the mid-term-revised target. The construction of 11 agro-industrial

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or agro-processing plants and 16 seed processing centers financed by the project wascompleted. All agro-processing plants and 11 of the seed processing plants are incommercial operation. The remaining five seed processing plants have just completedcommissioning. All scientific research under each component was completed. Someresearch projects received provincial awards and some results have been extended toother for production practices. Training for technicians, farmers and PMO staffconducted under the project reached their SAR targets.

C. IMPLEMENTATION EXPERIENCE

5. The Credit became effective on August 23, 1991 and project implementation wascompleted on December 31, 1998 (with a one-year extension). In general, projectimplementation in its early stages closely followed planned schedules. The ProvincialProject Management Office (PPMO) promptly established after project effectivenessimplementation regulations for management and inspection, organized training onprocurement and prepared procurement documents. The technical bureaus concernedclosely collaborated with PMOs and provided technical support during implementation.

6. A mid-term review in 1994 made some adjustments in component composition andsize, responding to the market changes and other factors. The major adjustments werethe following: (a) exchange rates had changed such that the SDR depreciated relative tothe US$ and the US$ appreciated with respect to the RMB; (b) a reduction of ICB andNCB costs for equipment, materials and civil works and cancellation of well pumps,diesel generators and pesticides. These reductions provided additional funds for theproject and allowed significant, desirable adjustments.

7. Irrigation and Drainage (I&D). The I&D component took six years to completeconstruction (a half-year longer than planned). Project irrigation and drainage workswithin the four YRDS covered establishment of new and improved main canals, headreach desilting basins, main and branch systems (canals, drains and structures), andlateral and sublateral and on-farm irrigation systems including wells and pumps. Areasserved by the works totaled 138,000 ha at 94% of the target value. These levels ofachievement are similar for all four of the individual YRDS, but there were significantdeviations from target values in the case of canal linings and wells. For canal linings,only minimal provisions were made in the SAR for one scheme (Shitouzhuang).However, substantial lining works were executed under the project for two furtherschemes (Xiangfuzhu and Qucun), primarily as leakage reduction measures for canalsections in fill. For shallow conjunctive-use wells, there were provisions for these to becreated or rehabilitated in all of the scheme areas, but only about 50% was achieved ofthe larger well-number targets set for two of the schemes (Zhaokou West and Qucun).The system concepts and designs are generally adequate and appropriate to localconditions, and the quality of works is generally acceptable, although furtherimprovement is needed in some structures and gate systems. The basic routine canalcleaning and light maintenance activities have been undertaken very satisfactorily, butnon-routine heavy maintenance and repair needs are not as well attended. Somesignificant water saving successes have been obtained with experimental lateral andsublateral systems.

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8. Ground Water Development Scheme (GWDS) works included installation oftubewells and pumps together with corresponding electric power transformation,distribution and control systems. Areas served by the works totalled 84,000 ha, 100% ofthe target value. In general, the numbers of submersible pump sets provided alsosignificantly exceeded target values, but centrifugal pumps provided generallyrepresented only a small fraction of the corresponding targets. This was because farmerspreferred to obtain or retain their own pumps rather than become dependent oncommunal pumps.

9. Qucun Pilot Recharge/Storage and Irrigation Scheme. Areas served by theworks totalled 5,500 ha, 82% of the planned value. Reported results include reducedground water pumping, and stabilized or rising ground water table levels, as was intendedby the project. From a site visit at completion, it was evident that the pilot lateral andsublateral irrigation network is working as an orderly communal system, contrastingnotably with the somewhat inefficient individualistic mobile-pump irrigation practices inadjacent areas.

10. Drainage and Flood Protection. The objective of this subcomponent has beensubstantially achieved. Some of the project's drainage and flood protection interventionsoccurred within the YRDS sub-components. All of these works have also been reportedas complete and operational. Physical works targets were well achieved, as were thephysical impact objectives. The Dongshahe scheme works comprised dredging andembanking along the river, and provision of bridges, all for river control and regulation.The length of river attended to was about 91 km, and the area of benefit is 11,500 ha,both values being equal to the planned values.

11. The institutional development objectives linked to the I&D component were onlypartially achieved, as there was only a moderate improvement in provincial waterresources management capabilities. Specific areas identified for project activitiesincluded water resources planning, water resources research and O&M preparations.Provision was made for corresponding technical assistance and training, but the trainingand technical assistance did not raise management capabilities as much as anticipated.

12. Work was carried out on a total of six I&D component studies, or groups of studies,addressing to some degree most of the topics identified in the SAR. A particularlynoteworthy completed study activity led to the production of comprehensive O&Mguides for each project scheme or scheme type, as was called for at appraisal. It wasconcluded from a rapid sample review that these are sensible and practical documentsthat should be put to use. Training activities relating directly to the I&D componentincluded seminars on the design of well irrigation and on-farm works, O&M of projectworks, and water resources management in the Yellow River basin. Two study tours toview irrigation projects in the USA were also conducted; the opportunity to view waterresource developments outside of China was noted to have been very valuable.

13. Agriculture. Estimates at appraisal called for the construction of 20 seed centersto produce, process and market good quality seed of wheat, rice, maize and soybean. Theseed processing sub-component was not well identified as, in the early years of the

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project, the county seed companies could see no advantage to processing seeds whilethere was no competition for their products in the market place. Four of the seedcompanies withdrew from the project. Sixteen centers were completed, but only 11entered commercial production. Five centers have just completed equipment installationand commissioning.

14. The project procured 21,500 tons of DAP, 1,575 tons of TSP, and 136 tons of agro-chemicals to improve soil in the project areas and pesticides for use in major grain cropsand fruit trees. During the mid-term review, the PPMO cancelled the remaining pesticideprocurement of 344 tons due to the high price of imported products.

15. Plans at appraisal called for the construction of 1,125 improved tunnel greenhousesto allow cultivation of vegetables all year around. The number of greenhouses actuallyconstructed was 1,325 (118% of SAR). During mid-term review, the PMO proposed toadd 10,000 greenhouses since farmers showed high interest in them, however this wasnot possible due to other competing use of funds. Later many farmers invested their ownfunds in simpler, less-costly plastic greenhouses of a modified design.

16. Windbreak and Orchard Development. Targets set at appraisal aimed at plantingfast growing poplar trees as windbreaks for protection of 5,600 ha of cropland. Thistarget has been reached with beneficial effects on improvement of soil conditions andcrop yields. The triangular plant disposition of the windbreak introduced by the projecthas been found to be more effective than traditional one-row planting of trees aroundcanals and roadways. The project rehabilitated 2,000 ha of low-yielding Chinese datesand established 7,200 ha of various fruit orchards in wastelands (100% of SAR target).The project supported the use of improved technologies developed by the Bureau ofForestry, including improved apple, apricot and plum varieties; closer spacing to promotehigher plant density and yield; improved pruning techniques; optimum use of organic andchemical fertilizers; and improved irrigation. These interventions were successful, butthe yields were lower than the levels estimated at appraisal, except for grapes thatsurpassed appraisal estimates by about 4 t/ha. Apple orchards established under theproject are well managed, show healthy and vigorous plants, are well pruned, have goodflower setting and should produce a high yield of good-quality apples. Farmers seem tobe knowledgeable about most aspects of orchard management. Support services are inplace and accessible to farmers.

17. The project strengthened agricultural extension centers in 20 counties and 80townships. Funds were also provided for conducting eight research studies and technicalworkshops on annual crops, and two studies on agro-forestry to strengthen linkagesbetween research and extension services. Funds were provided for an extensive trainingprogram for technical staff, and for farmers to upgrade their skills in crop production. Allnecessary extension equipment has been acquired, and eight research studies on cropsand two on agro-forestry have been completed. In total more than 95,000 persons(approximately 98% of the farmers in the project area) have been trained in improvedtechnologies for crop production. Additionally, training in orchard management, diseasecontrol, silkworm raising and other forestry related subjects were provided to 23,739farmers, 45% of whom were women. Most research completed has been published, somein English. Research results, especially with regard to improved varieties and hybrids,

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cropping and fertilization practices and pest control, seem to have been effectivelytransferred to farmer's fields.

18. Livestock. The project planned to support the planting of 10,500 ha of alfalfa inwastelands by 1,200 households to provide improved feed for cattle and small ruminants.At the time of the mid-term review, only 384 households had planted about 1,920 ha.Alfalfa production was then cancelled because of heavy floods in the production area,low net profit and lack of interest by participating farrners. The cancellation did notaffect livestock production since farmers used crop by-products and ammoniated straw asfeed.

19. Specialized households for raising cattle, goats, sheep, pigs and broilers weresupported under the project. Targets set for establishment of specialized cattlehouseholds have been met. The 3,000 specialized households (100% of SAR estimate)have an actual inventory of 39,000 heads of cattle (173% of SAR). The project supportedthe establishment of 5,700 specialized goat households (114% of SAR) and 3,000 sheephouseholds (100% of SAR). These households marketed, in 1998, 216,600 head of goats(153% of SAR) and 138,000 head of sheep (279% of SAR). All targets set at appraisalfor pig production have been reached or exceeded. In 1998, specialized householdsmarketed 272,000 lean pigs (fifteen-fold above the SAR estimate) and commercial farms50,000 pigs (131% of SAR). Two breeding farms provided 48,000 weaned pigs tospecialized households. Targets set for broiler production during SAR were theconstruction of seven processing plants and participation of 1,800 specialized households,but during mid-term review these targets were revised to three processing plants, theinvolvement of 2,400 households and the addition of one breeding farrn. All modifiedtargets have been reached. Specialized households produced 5.85 million birds (111% ofSAR) for the market, and the breeding farm was able to deliver 4 million one-day oldchicks to specialized households in 1998.

20. Five research studies under the livestock component were completed (with fourplanned at appraisal), 1,343 technical staff were trained (112% of SAR) and more than31,300 farmers (261% of SAR) participated in various types of livestock trainingactivities.

21. Aquaculture. This was a new type of production for farmers. The ProvincialAquaculture Bureau provided technical assistance and sent technicians to the villages tosupervise farmers and help to solve problems. The accomplishments reported were theconstruction of 1,426 ha of production ponds (including 446.7 ha added during the mid-term review), 78 ha of nursery ponds (some built in conjunction with fish ponds) and 4feed mills that produced a total of 18,300 tons of fish feed (106% of SAR). Thefishponds are well constructed and maintained and productivity is good, except for silvercarp, which is not profitable due mainly to low market prices. Although construction ofnursery ponds fell below appraisal estimates, the current production of fingerlings isenough to stock all production ponds. Among several research studies on aquaculturefunded by the project, one received an award for excellence from the Provincial WaterConservancy Department. Research results indicate the potential to increase yields from10 tlha to 15 t/ha/year. A total of 3,643 persons, including farmers and technicians, havebeen trained under the aquaculture component.

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22. The agro-processing plants were well selected and in retrospect no changes wouldhave been made to the selection criteria. During appraisal, seven plants were selected andat mid-term review four additional plants were approved. Implementation of the elevenagro-processing plants has been excellent and the processing plants have beenconstructed to a high standard and are in profitable commercial operation. The factoriesare closely linked to the production activities of the project and create a demand (or amarket) for the agriculture and livestock components, and thereby address the mainproject objectives of increasing rural incomes and employment opportunities. Onecompany has been less commercially successful due to over-investment. WuzhiSheepskin Plant decided to expand its construction scale without reference to the Bank, toinclude tanning 240,000 cattle hides per year. This increased its borrowing to more than90% of investment cost. The plant is in commercial operation but has to pay most of itsprofits to the local banks for debt servicing.

23. Procurement. Before project effectiveness, the PPMO organized procurementtraining for staff responsible, covering procurement procedures for goods, civil works, andconsultants and preparation of bidding documents. This speeded up the procurementprocess, which is a common source of delays in overall project progress. The ICB tenderingcompany was Chinese National Machinery Import and Export Corporation(MACHIMPEX), which organized in coordination with the PPMO the bidding, evaluationand contract awards for goods. NCB procurement for goods was conducted by the HenanProvincial Machinery and Equipment Bureau. Other goods procurement was handled by theproject participants themselves. NCB for works was conducted by the project participantsthemselves under the PPMO's supervision. There were 99 ICB contracts includingequipment, vehicles and materials valued at Y279.3 million. The remaining goods wereprocured through 83 NCB contacts valued at Y138.2 million. Civil works was procuredthrough 36 NCB contracts valued at Y294.1 million, and the remainder was procured bydirect shopping or carried out under force account. In general, equipment procured met thetechnical standards. Ex-post procurement review of local procurement was done duringBank's supervision missions. They are found acceptable.

24. Disbursement. In the first two years, the project began disbursement more rapidlythan expected (167% and 109% respectively), and slowed down in the following two years,basically returning to the planned schedule. The last IDA credit disbursement was on March19, 1999, following by credit closure on December 31, 1998. The total amount disbursedwas $116.5 million, higher than the original credit amount of $110 million equivalent due tothe depreciation of the dollar against SDR. SDR 81.3 million was disbursed with acancellation of SDR 114,625.

25. Project Costs. Due to dual exchange rates, which changed during theimplementation period, the investment costs actually expended totalled Y1.81 billion,equivalent to $245.6 million, of which the IDA financed SDR 81.3 million, or $116.5million equivalent. Compared to the SAR estimates of project investment costs and IDAcredit, the former totalled 112 percent of estimates in terms of US dollars, but 156percent in terms of local currency (RMB), due to appreciation of the US dollar relative tothe RMB; and for the IDA credit, 99.9 percent in SDRs and 103.8 percent in US dollarterms.

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D. PROJECT IMPACT

26. Increasing Income and Employment. The objective of the project was toalleviate poverty in several of the poorest counties by increasing crop, livestock and fishproduction and agro-processing. The significant expansion and improvement of allirrigation schemes resulted in increases in cropping intensity from 167% to more than192% in most areas; and in better irrigation. The availability of and accessibility toimproved seeds, fertilizer and pesticides resulted in a yield increase in major crops andfarmers' incomes. There were about 56,000 farm households involved in livestock,orchard development, and fish pond production. Farmers earned on average Y7,000-10,000/household/year additional income from raising animals and poultry. Thedevelopment of greenhouses has substantially increased income to farmers by an averageof Y 4,000/household/year. The income generated from livestock, vegetables and fruit isin addition to that from grain production, and is therefore a second major source ofincome. The agro-processing factories provide 6,780 full-time jobs, of which 56% wentto women, and seasonal jobs for 230,400 people, of which 60% went to women.

27. Poverty Reduction. Most of the project areas are located in poor counties. Theproject activities have promoted local economic development by changing the economicand agricultural production structures, which have increased the proportion of high-valued crops, livestock, and aquaculture. The agro-processing factories in some countiesare the first industrial factories, which created non-farming employment opportunities.The farmers' net per capita income on average in the project area increased from Y550before the project (1991) to Y2,179 (1998); annual growth rate of incomes reached to26%, while it was 21.5% for provincial average during same period.

28. Integration of production, processing, and marketing. The project wasdesigned to establish an integrated system linking production, processing and marketing,in which the processing plant is the core of the system and contracts with farmers for rawmaterial supply and establishes a market network to ensure sales of processed products.A similar model was applied to livestock production, in that breeding farms contractedwith farmers to provide either sows or piglets and took responsibility for selling fattenedpigs with a (similar approach for chicken breeding farms). The breeding farms providedcredit and technical assistance to the farmers. The Bank encouraged all processingenterprises to find commercial partners to take equity positions in their processing plants,and also to form commercial companies that could take better advantage of marketopportunities.

29. Dissemination of Research Results. The project has completed 26 scientificresearch projects covering water resource conservancy, agriculture, forestry, aquaculture,and livestock. More than one third of the research received awards. Some of the resultshave been applied in production practice, helping producers to increase yield andbenefits.

30. Demonstration Impact. The project activities have shown great impact onsurrounding areas. Non-project farmers learned from the project. For example, tunnel

9

greenhouses provided an additional opportunity to expand production and incomesources, and a lot of farmers expressed their interest, so during mid-term review, anadditional 10,000 units were proposed. Some 83,200 farm households have built theirown greenhouses. The integrated system established under the project has exhibited itsvitality. This kind of integrated approach will be the basis for future development of therural economy.

31. Environmental Impact. The irrigation and drainage system is functioning inproviding sufficient water for crop production, and an improved local agro-ecologicalenvironment through reduced natural disasters and improved soil fertility. Windbreaksand orchard development, and manure from livestock production also largely improvedsoil fertility. The design for the environmental pollution control system for agro-processing plants has been approved by the PEPB, and treatment effectiveness has beenestablished during plant trials. All tests have passed the provincial environmentalinspection. The plants have been issued with the relevant certification.

E. MAJOR FACTORS AFFECTING THE PROJECT

32. Factors Not Generally Subject to Government Control. Natural floods resultedin low alfalfa yields and alfalfa production was subsequently withdrawn from the projectdue to a lack of interest by participating farmers. Two equipment suppliers to the projectdelayed the delivery of equipment, causing a cost increase to the factories as a result ofconstruction delays.

33. Factors Generally Subject to Government Control. Local governments at alllevels paid a great deal of attention and provided strong support to the project, whichplayed a key role in its success. However, implementation of the seven agro-processingplants was delayed due to difficulties in raising counterpart funding and working capitalat the county level. The absence of these funds substantially delayed the awarding ofNCB civil works and equipment contracts. ICB bidding was also slower than anticipatingdue to complex clearance procedures for internal processing. Indecisive directives inrevolving fund management by the provincial BOF affected the effectiveness of theserevolving funds. During implementation, revolving funds for livestock raising, and wellconstruction and rehabilitation were established but not well managed by the countyBOFs. This contributed to limited re-lending of the proceeds from the revolving funds,as designed by the project. Water charges providing for O&M of I&D works wereincreased during the period of the project, as foreseen at appraisal. However, there wereindications at completion that water charges still did not cover all O&M costs, inparticular those for heavier non-routine repairs as opposed to routine maintenanceactivities.

34. Factors Generally Subject to Implementing Agency Control. The establishmentof implementation administrations at the PMOs ensured a clear responsibility chain forstaff as well as procedures for implementation and acceptance during the implementationperiod. Pre-prepared procurement documents accelerated implementation and avoidedsome delays. In general, implementation was well managed by the PPMO and PMOs atall levels and most facilities set up under the project are working well. With one

10

exception, all processing plants are well managed and their managers have autonomy ascommercial enterprises. The processing sub-components are well selected and formclose linkages between agricultural and livestock production under the project, and themarket place. The processing plant designs are all based on good quality internationalstandards equipment, that would provide processing efficiencies equivalent to those indeveloped countries, and products that can compete in quality and price with theequivalent imports. The technology level at each processing plant is of a very highstandard, and project personnel are trained, mainly by the process engineeringcontractors, to operate and maintain all of the processes and equipment.

F. PROJECT SUSTAINABILITY

35. The project is potentially sustainable. Implementation of the project has providedexcellent facilities for production, processing and marketing of agricultural, livestock andaquaculture products, but sustainability depends on measures taken to ensure futureoperation. First, the government agricultural development policy will continue to supportthe project through promotion of the household responsibility system, support to thesocial service system, and development of the rural market economy. Second, theproduction facilities developed under the project have begun full-scale operation, theirrigation and drainage system is in place and operating well and of benefit to cropproduction, farm household incomes have increased through their livestock raisingactivities, and agro-processing factories are in commercial operation and making profits.Thus, stakeholders have every reason to maintain facilities and continue operationsdeveloped by the project. Third, the project has improved the local ecological system,including flood and drought control, soil fertility and reduction of wind erosion. TheHenan Provincial Government has demonstrated an adequate capacity to handle theproject. Several IDA missions have discussed with the PMOs the project's futureoperation and their recommendations were well-received.

36. Although the project has laid down a good foundation, Government support is stillessential. Specifically, the following recommendations are made for a continuedgovernment role: (a) technical inputs need to be provided from the relevant technicalbureaus on a regular basis; (b) training of personnel on production techniques, enterprisemanagement and product marketing should be organized and continued on a regularbasis; (c) key personnel of the PMO should continue to be available for this importantcoordination role in the future; (d) the successful management experience of projectenterprises should be disseminated to the entire project; (e) adequate funding for supportservices for O&M should be provided; (f) loan repayment schedules for loan recipientsneed to be kept and enforced; and (g) an appropriate water charge system, which cancover maintenance costs for I&D system, needs to be adopted.

37. The processing factories have each been given support at provincial level infinancing, manpower and material resources, and this has been followed through atcounty level. Official support for sustainable commercial operation is, therefore, fairlysecure, and favorable tax benefits are available to the plants. In order to benefit fullyfrom the commercial potential of the factories, all of the enterprises have restructured intolimited liability companies, and have been seeking partners or shareholders to inject

11

equity and working capital. Injection of equity should reduce debt burdens and bring thefactories into higher profitability early in their operating life. At the present level ofcommercial operation, the sustainability of the factories is fairly well assured.

38. Overall sustainability of the I&D component is considered likely, for severalreasons: (a) the project works are of simple and adequate design and construction, andare therefore amenable to easy repair and maintenance; (b) irrigation in the region is asporadic event, so that the irrigation works will probably have low usage levels andtherefore extended useful lives; (c) the long off-season periods provide sufficient timeand opportunity to undertake needed repairs and maintenance tasks without interferingwith irrigation operations; (d) there is considerable local commitment to routine upkeepand maintenance, generated in part by the realization of significant financial benefits as aresult of the project; and there is visual evidence that completed works are being welllooked after to this extent; and, finally, (e) local WCB O&M institutional facilities,structures and commitments are in place, as is the appreciation at provincial level of theoutstanding requirements for achieving satisfactory long-term performance of the I&Dsystems and the benefits to be gained from them.

39. Major yield increases have been achieved in the production of annual crops, fruittrees, livestock and fish, which have resulted in higher net farm income. This has beenpossible through the correct and large-scale use of improved technologies, supported bystrong research/extension programs and the timely delivery of other important supportservices such as chemical inputs, irrigation, credit, training and marketing. Thesustainability of these requires that the concerned line bureaus maintain similar or higherlevels of support to agricultural development in the project areas. Most infrastructure isin place, personnel is well trained, initial momentum has been gained, but constantattention should be given to field implementation of production practices.

40. The adoption rate of improved technologies, including improved crop varieties,high quality seeds, correct use of chemical inputs, better designed tunnel greenhouses,construction of fishponds and livestock raising facilities, has been substantial within andoutside project areas. However, a number of these activities may require initial capitalnot available to many poor families. An adequate credit scheme, using revolving fundscreated under the project or other schemes, must remain in place for the continuedapplication and further expansion of these profitable practices.

G. IDA PERFORMANCE

41. Project Design and Appraisal. The IDA performance has been assessed by theProvincial Project Management Office as 'highly satisfactory'. The PPMO ICR reportdetails the Bank's inputs in providing technical advice and guidance at many key periodsin project preparation, appraisal and implementation, particularly concerning processplant design, equipment specification, and procurement. A number of detaileddiscussions on project design for each component and evaluation of the project'stechnical and financial viability and impact were carried out by IDA missions and theborrower. The success at project completion has strongly proven its design to be sound.

12

42. Supervision. IDA had scheduled eight supervision missions to the project. Thesupervision missions, comprised of technical specialists and economists, have providedassistance to PPMO to solve technical problems and conducted a dialogue with seniorgovernment officials to motivate counterpart funding and settlement of other issues.Assistance with procurement procedures was provided by IDA Headquarters. IDA hasalso provided commercial and operational guidance in getting the project supportedfactories into profitable production. Bank recommendations to commercialize thesecompanies, and assistance in finding partners to take equity in the plants and providefinancial and commercial strength to the enterprises, has been effective, and iscontinuing. The project task team and the project management staff have established aclose and harmonious collaborative working relationship.

H. BORROWER PERFORMANCE

43. The borrower's performance throughout the project has been rated as 'highlysatisfactory'. The PMOs at various levels have performed well throughout the project,providing an essential link between the implementing agencies and the governmentdepartments and line bureaus with which they have needed to interact. The ProvincialGovernment has paid great attention to the project and formed a Project Leading Group(PLG) to instruct, supervise, and coordinate project preparation and implementation. ThePPMO and involved technical departments have worked closely with IDA preparationmissions to design, prepare, and evaluate every component. The "Henan ProvincialTechnical Advisor Group", comprising technical experts has provided technicalassistance to the project during preparation and implementation. The PPMO has beenparticularly active in the implementation and follow-up of procurement and training, andin providing IDA with clear data and reports during supervision missions. The qualityand performance of their work has been good, and an important aspect has been thestability of the counterpart team. The agro-industries team has been with the project sinceits onset, and has carried out their tasks with considerable expertise. The PPMO andtechnical department have prepared an excellent ICR and supporting data, which werevery helpful to IDA's ICR mission. The Bank ICR mission has congratulated them onthe excellent outcome of their work.

44. Particular mention is merited on the good work done and expertise provided byCITICAD (Beijing) during project appraisal, and also on the international processingexperts that were employed by Henan PPMO to assist with preparation of the technicalspecifications and process plant designs. The Finance Bureaus have also played a keyrole in successful implementation of the agro-industries component.

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I. ASSESSMENT OF OUTCOME

45. The project's physical construction targets were successfully achieved. The projecthas demonstrated its economic, social, and environmental impacts in. the project as wellas surrounding areas. Agro-industrial factories have been in commercial operation andgenerating significant cash flows. The Province, the Prefecture and the Countyadministration, the farmers and the workers in the processing plants, are satisfied with thesuccess of this project.

46. The integrated system which links processing backward to production (the farmhouseholds) and forward to marketing has demonstrated its viability and has set anexample for rural development. Female participation in project production activities andtraining has reached over 45%. The farm households engaged in livestock, orchards, andaquaculture activities have benefited from the project, not only through increases inincome averaging over Y 10,000 (US$ 1,205) per annum, but also through assimilation ofadvanced production techniques. The poverty status of the project areas has thussignificantly improved. The results of scientific research under the project have beenapplied to production practices, and the training of farmers and project management staffhas promoted human resource development. The overall economic rate of return of theproject is estimated at 40%, compared to 35.8% as estimated at appraisal. Overall, theproject achievement is rated satisfactory, with highly satisfactory ratings for thelivestock, aquaculture and agro-processing components.

J. FUTURE OPERATIONS

47. In order to maintain and increase project impact, the project would still needsupport from the provincial government in carrying out policies, providing technicalassistance, and securing funding for future operations. In particular, adequate fundingneeds to be provided for agricultural support services. County-based revolving funds thathave been successfully implemented will continue to be used for project participants tosupport expansion to more farm households in surrounding areas. A further gradualincrease of the water charge from 0.04 yuan/m3 to 0.08 yuan/m3 by the year 2001 is underconsideration and should be implemented. The YRDS water balance study shouldcontinue to be used to formulate sound water resources management plans for the region.The O&M plan, especially thorough maintenance, needs to be implemented. Research onefficient water saving techniques should be completed and the results applied. Successfulproject experiences in enterprise management should be introduced throughout theprovince. Each of the processing plants has provided ample evidence of the advantagesof the linkage approach to plant operation and commercial activities.

48. In response to market variation, the production structure and variety of productsneeds to be continuously reassessed and adjusted. Current demand for fish and meat(including chicken and pork) is declining, which has driven market prices down. ThePMO's and technical bureaus should provide market information to the project areas andassist enterprises and farmers to react to market changes with adjustment in theirproduction and product ranges. Establishment of a market information network would beof great value to enterprises and farm households.

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K. KEY LESSONS LEARNED

49. To stimulate foreign capital investment in agricultural projects, a comprehensiveapproach to design is essential. The establishment of an integrated system that linksproduction, processing and marketing is necessary for the optimum utilization of resourcesand maximum benefit. This should be the preferred direction for future development for theagricultural sector. Contractual relationships establishing forward and backward linkagesbetween companies and farm households, companies, production bases and farmhouseholds, can mutually benefit all parties and reduce market risk, thereby addressing themain project objectives of increasing rural income and employment.

50. Throughout project implementation, leadership, management and technical supporthas been stable at each component, with very few changes in senior staff. This stability inthe organization has undoubtedly been a significant favorable influence on the outcomeof the project. The establishment of comprehensive and detailed implementation procedureshas also helped to assure a successful project. These procedures include the specification ofstaff responsibilities, inspection requirements, and procedures for project planning,procurement, civil works construction, finance, monitoring and evaluation (M&E) andtraining.

51. The selection of superior plant design and excellent equipment has been a keyfactor in attracting private sector partners to invest in the processing plants. The provisionof initial working capital for agro-processing has also been essential to assist factories tostart operations after the installation and commissioning of equipment. Initial workingcapital can be arranged either from the project or from commercial banks. The projectoverestimated the availability of working capital for factories, which caused some factoriesto operate under capacity. Ownership reform for agro-industrial companies, either throughthe formation of limited liability companies or shareholding companies, has helped them tofocus on commercial operations, expand their marketing networks, and resolve shortages ofequity and working capital.

52. The management of revolving funds needs to be improved. The project set uprevolving funds for well construction and livestock raising. Because of lack ofunderstanding by key players in the provincial Bureau of Finance, and in some counties ofthe purpose of the revolving funds, many of the county funds were not allowed to revolveand therefore did not make the projected contributions they were supposed to make. Despiteclose supervision, the situation did not improve as much as it should have. While therevolving fund concept remains viable in China, as demonstrated in other projects, thisproject has shown that, unless strong support is given by bureau of finance officials, thefunds are unlikely to be fully effective.

53. The decentralization of responsibility for implementation of irrigation and drainageworks, and subsequent O&M, requires substantial support from the province to developthe necessary local technical, managerial and financial capabilities. Project supportshould extend beyond the preparation of water resources management, and O&M plans tocover technical and institutional implementation. For the technically efficient and cost

15

effective piloting of new irrigation technology, use should be made of the best availableinternational expertise.

54. Environmental improvement under the project was based on the combination ofirrigation and windbreaks. This successful combination should be implemented in otherareas prone to wind erosion.

55. Adequate and timely allocation of counterpart funds is a prerequisite to smoothimplementation on schedule; lack of counterpart funds inevitably leads to implementationdelay and increases in project cost.

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PART II. STATISTICAL TABLES

TABLE 1: SUMMARY OF ASSESSMENTS

A. Achievement of Objectives Substantial Partial Negligible Not Applicable

Macroeconomic policies XSector policies XFinancial objectives XInstitutional development XPhysical objectives XPoverty reduction XGender issues XOther social objectives XEnvironmental objectives XPublic sector management XPrivate sector development X

B. Project Sustainability Likely Unlikely Uncertainx

C. IDA Performance Highly Satisfactory DeficientSatisfactory

Identification XPreparation assistance XAppraisal XSupervision X

D. Borrower Performance Highly Satisfactory DeficientSatisfactory

Preparation XImplementation XCovenant compliance XOperation (if applicable) X

E. Assessment of Outcome Highly Satisfactory Unsatisfactory HighlySatisfactory Unsatisfactory

x

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TABLE 2: RELATED BANK LOANS/CREDITS

Loan/Credit Title Purpose Year of StatusApproval

Preceding Operations

1. North China Plain Agriculture Irrigation Development FY82 Complete(Cr.1261-CHA) & Land Improvement d

2. Gansu Provincial Development Irrigation & Agriculture FY85 Complete(Cr.1793-CHA/Ln.2812-CHA) Development d

3. Shaaxi Agricultural Development Irrigation & Agriculture FY89 Complete(Cr.1997-CHA) Development d

4. Hebei Agricultural Development Irrigation & Agriculture FY91 Complete(Cr.2159-CHA) Development d

Following Operations

1. Sichuan Agriculture Development Irrigation & Agricultural FY92 To be(Cr. 241 1-CHA) Development completed

in 12/992. Anning Agricultural Development Irrigation & Agricultural FY99 Active

(Cr. 3165-CHA/Ln. 4436-CHA) Development

TABLE 3: PROJECT TIMETABLE

Steps in Project Cycle Date Planned Date Actual

Identification May 7, 1989 May 15, 1989

Pre-appraisal May 19, 1990 May-June, 1990

Appraisal October 12, 1990 Oct.-Nov., 1990

Negotiations March 18, 1990 April 1-14, 1991

Board Presentation May 23, 1991 May 14, 1991

Signing June 20, 1991 June 20,1991

Effectiveness August 23, 1991 August 23, 1991

Mid-Term Review October 31, 1993 July 1994

Project Completion December 31, 1996 December 31, 1998

Credit Closing December 31,1997 December 31, 1998

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TABLE 4: CREDIT DISBURSEMENT: CUMULATIVE ESTIMATED AND ACTUAL(US$'000)

FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99

Appraisal estimate 10,000 26,000 50,000 77,000 94,000 105,000 110,000Actual 15,829 28,327 46,013 69,728 99,948 110,227 115,968 116,547Actual as% ofadjusted 158 109 92 91 106 105 105 106estimateDate of final disbursement 3/18/99

TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION

Project Key Implementation Indicators Unit SAR MTR ActualComponent in SAR/President's Report Estimated Adjusted

IRRIGATION, DRAINAGE & WELLS

1. YRDS, Drainage & River Regulation Schemes

A. Development Areas ha 146,500 146,500 138,093

B. Earth Works Desilting Basins No. 10 3 3Main Canal Linings '00OM3 25,143 25,143 20,643Gates & Buildings No. 2,635 2,535 2,956Branch Canals '00OM3 23,245 23,245 20,127Gates & Buildings No. 46,905 46,905 37,574

C. New Structures Regulators/offtakes No. 984 984 1,280Bridges No. 1,640 1,640 2,137Lateral/sublateral/on-farm No. 45,600 43,341 45,440

D. Installation of EquipmentPumps/motors Sets 4,300 Canceled

E. Well IrrigationShallow Wells No. 4,900 4,900 3,104

2. Groundwatei Well Irrigation

A. Development Area ha 84,000 84,000 83,700

B. Well ConstructionShallow Wells - New No. 8,932 8,932 9,557Shallow Wells - Rehab. No. 3,617 3,617 4,021

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C. New Pump SetsSubmersible No. 8,366 8,366 6,689Centrifugal/electric No. 4,058 4,058 1,185

3. Yu-Xia-Yong Drainage and Well Irrigation Scheme

A. Development Area ha 40,200 40,200 40,200

B. Surface Drainage/canalsImproved Main/canal km 160 160 160New Lateral/sublateral/on-farm km 800 800 682

C. New StructureBridges/culverts No. 122 122 126Lateral/sublateral/on-farm No. 2,160 2,160 2,598

D. Well ConstructionShallow Wells - New No. 1,280 1,280 1,300Shallow Wells - Rehab. No. 1,672 1,672 1,703

4. Dongshahe Regulation Scheme

A. Development Area ha 11,500 11,500 11,500

B. ConstructionRiver Control/regulation km 91.4 91.4 91.4Dredging/embanking mil.M3 4.5 4.5 4.5Bridges No. 74 74 79

5. Qucun Pilot Recharge/Storage and Irrigation Scheme

A. Scheme Area ha 6,700 6,700 5,500

B. New Canal/drainsNew Lining krn 35 35 20Main/branch km 100 100 100Lateral/sublateral/on-farm No. 217 217 173

C. New StructureMainlbranch No. 48 48 98Lateral/sublateral/on-farm No. 718 718 3,877

AGRICULTURE:

1. Inputs ProcurementDAP Imports Tons 21,500 21,500 21,500TSP Imports Tons 100 100 100Urea Tons 1,575 1,575 1,575Pesticide Imports Tons 480 135.8 135.8

2. Construction & RehabilitationSeed Processing Centers No. 20 16 16Greenhouses No. 1,125 11,125 1,325

3. Agricultural Support Services

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Township Extension Station No. 80 80 80County Plant Protection Station No. 20 20 20County Extension Station No. 20 20 20

FRUIT & TREE DEVELOPMENT

1. OrchardsApple ha 6,354 6,868 6,687Apricot ha 800 800 800Grape ha 200 200 200Plum ha 400 400 400Pomegranate ha 800 466 466Dates Rehabilitation ha 2,000 2,000 2,000MulberrY`a ha - 2,667 2,667

2. Windbreak ha 5,600 5,600 5,6013. Wickers ha 1,500 1,500 1,5004. Mulberry Plantation/a ha - 2,667 2,667

LIVESTOCKBeef Cattle HH 3,000 3,000 3,300Sheep HH 1,500 3,000 3,540Hide Goat HH 4,000 5,500 5,700Alfalfa Production HH 1,200 384 384Boiler Production HH 2,100 300 2,400Pig Raising HH 300 3,400 3,800Commercial Pig Farm No. 6 8 6Pig Breeding Farm/a No. - 2 2Chicken Breeding Farm/a No. - I IChicken Slaughter Line No. 7 3 3Chicken Slaughter Line No. 7 3 3

ACQUACULTUREFish Ponds ha 1,014 1,481 1,493Hatchery ha 63.5 63.5 77.6Feed Mill No. 4 7 4Fish Meal Procurement/a Tons - 1,893 1,893

AGRO-INDUSTRYChangyuan Paper Mill ton/year 11,000 15,000 13,500Wuzhi Paper Mill ton/year 30,900 25,000 5,200Wenxian Cornstarch ton/year 15,000 17,000 10,600Puyang Bio-products ton/year 110 3,000 15,000Wuzhi Cold Store ton/year 1,500 1,500 1,000Tongxu Cold Store ton/year 1,500 1,500 1,000Yuanyang Cold Store ton/year 1,500 1,500 1,000Kafeng Board Mill/a ton/year - 30,000 38,000Jiyuan IQF Plant' ton/year - 5,000 24,000Puyang Silk Mill" ton/year - 100 80Wuzhi Sheepskin milla '000piece/year - 510 24016 Seed Processing plants ton/year 78,900 78,900 50,836

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TECHNICAL ASSISTANCE & TRAINING

1. Domestic TrainingAgriculture County Technicians Person-day 632 632 816

Township Technicians Person-day 1,280 1,280 1,285Farmers Person-day 109,161 109,161 102,995

Forestry County Technicians Person-day 540 540 818Township Technicians Person-day 11,300 11,300 16,974Farmers Person-day 3,900 3,900 5,947

Livestock County Technicians Person-day 931 931 980Township Technicians Person-day 156 156 350Farmers Person-day 24,513 24,513 30,000

Aquaculture Technicians & farmers Person-day 3,600 3,600 3,643

Water ConservancyTechnicians Person-day 50 50 50

Agro-industrial PlantsChangyuan Paper Mill Man-year 500 500 680Wuzhi Paper Mill Man-mon 500 500 170Wenxian Comstarch Man-mon 156.4 156.4 300Puyang Bio-products Man-mon 700 700 258Wuzhi Cold Store Man-mon 5 5 3Tongxu Cold Store Man-mon 8.9 8.9 4.5Yuanyang Cold Store Man-mon 8 8 4Wuzhi Sheepskin Mill"' Man-mon 100 100 0Kaifeng Board Mill" Man-mon - 3,024 166Jiyuan IQF Planta Man-mon - 150 977Puyang Silk Mill/ Man-mon - 200 480

2. Overseas TrainingStudy Tours No. 6 6 6Participants No. 34 34 34

3. International Consultants Man-time 12 12 14

4. Project ManagementProcurement Person-day 250 250 260Launch Workshop Person-day 720 720 720Engineering Management Person-day 1,340 1,340 1,345Application of Computer Person-day 1,400 1,400 405Project management Person-day 1,400 1,400 1,440

/a Added at mid-term review./b Training was provided by the equipment supplier.

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TABLE 6: KEY INDICATORS FOR PROJECT OPERATION

Item Description SAR Estimated Actual for Year 1998Incr. Area Yield Incr. Incr. Area Yield Incr.('OOOha) (ton/ha) Production ('OOOha) (ton/ha) Production

('000 ton) ('OOOton)

A. Crop(1) Zhaokou West YRDS

1. Wheat 50 4 65 55 5.69 114.42. Corn 15 4.5 30 15.3 7.2 41.53. Sweet Potato 2 4 1.6 4.3 6.8 10.324. Cotton 19 1 5.7 21.1 1.05 6.335. Peanuts 18 2.5 18 19.4 3.44 30.16. Soybean 4.5 1.6 1.35 3.4 3 4.767. Rapeseed 3.3 1.7 1.65 0.47 1.88 0.538. Watermelon 2.5 30 12.5 2.1 31.6 44.69. Vegetables 1.9 30 11.4 1.9 44.3 65.2

(2) Xiangfuzhu YRRD1. Wheat 17 4 22.1 20.9 6.17 47.42. Com 5.6 4.5 11.2 6.95 6.69 13.13. Paddy 6 4.5 9 6.17 7.51 12.34. Sweet Potato 0.2 4 0.16 1.02 6.54 25. Cotton 4.2 1 1.26 4.07 0.93 0.326. Peanuts 3 2.5 3 2.6 4.35 6.57. Soybean 1.6 1.6 0.48 1.21 1.9 18. Rapeseed 2 1.7 1 0.43 1.5 1.49. Water melon 0.21 29.1 1.810. Vegetables 0.9 30 5.4 1.46 39.26 22.86

(3) Shitouzhuang YRDS1. Wheat 12 4 15.6 15.4 5.86 36.32. Corn 4 4.5 6.8 7.18 5.43 5.963. Sweet Potato 0.2 4 0.16 0.73 6.8 0.374. Cotton 3 1 0.9 2.13 0.8 3.625. Peanuts 1.7 2.2 1.19 1.45 3.74 0.836. Soybean 0.7 1.6 0.21 0.92 1.8 0.377. Rapeseed 1.4 1.7 0.7 0.34 1.6 0.148. Water melon 0.13 30.8 1.089. Vegetables 0.8 30 4.8 1.24 36.4 20.3

(4) Shangqiu D& Well1. Wheat 18.0 4 23.4 37.8 4.92 55.942. Corn 10 4.5 17 24.9 5.65 39.343. Sweet Potato 0.9 4 7.2 2.7 4.2 2.64. Cotton 6.8 0.9 1.36 4 0.82 0.85. Peanuts 1 2.5 1 1.35 2.9 0.616. Soybean 1.2 1.6 0.48 2.21 1.95 1.17. Rapeseed 1.4 1.7 0.78. Water melon 1.15 21 4.69. Vegetables 1 30 7 4.9 31.6 38.22

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Item Description SAR Estimated Actual for Year 1998Incr. Area Yield Incr. Incr. Area Yield Incr.('OOOha) (ton/ha) Production ('OOOha) (ton/ha) Production

('000 ton) ('OOOton)

B. Forestry(1) Apple Orchard 6,687 22.5 150.5 6,687 22 147(2) Apricot Orchard 800 15 12 800 9.75/a 7.8(3) Plum Orchard 400 15 6 2,000 12.8/a 5.1(4) Grape Orchard 200 22.5 4.5 200 45 9(5) Pomegranate 466 15 7 466 6.4 3(6) Date Rehab. 2,000 1.9 3.8 2,000 1.65 3.3

C. Aquaculture(1) Fish Pond 1,049 10 10.5 1,493 15 22.4(2) Fish Feedmill 4 2,500 8.5 4 2,500 8

Item Description SAR Estimated Actual for Year 1998No. of Animal/ Total No. of Animal! TotalHouse- House- Production House- House-hold Productionholds hold holds

D. Livestock(1) Sheep 1,500 10 15,000 3,540 12 42,480(2) Goat 4,000 10 40,000 5,700 12 68,400(3) Cattle 3,000 10 30,000 3,300 10 33,000(4) Broiler 2,100 2,500 5,250,000 2,400 2,438 5,850,000(5) Pig 300 60 18,000 3,400 36 122,400(6) Pig Breeding Farm 2 2,000 4,000 2 2,000 4,000(7) Chicken Breeding 1 40,000 parent chicken,

Farm 4 million checks

/a Yields at various stages of fruit trees which are not in full production.

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TABLE 7: STUDIES INCLUDED IN PROJECT

Study Purpose as Defined Status Impact of Studyat Appraisal/Redefined

1. Approaches for Increasing Increase farmers' Completed Applied to farmers' practice andFarmers' Income. income Awarded provided policy accordance.

2 nd Place

2. Improvement of Fertility of As title Completed Adopted the result in 0.6 million ha,Sandy Soil and Increase Crop increased 37,270 tons of wheat, andYield. 22,626 tons of peanuts.

3. Technique for Utilization of As title Completed Adopted the result in 0.66 millionFertilizer for Wheat and ha, grain yield increased byMaize Rotation. 560kg/ha. Fertilizer utilization

efficiency increased by 10%.

4. Identifying Variety and As title Completed Adopted new varieties in 20,950 ha,Cultivated Technique of increased production of 82,950 tons.Water Melon.

5. Breeding and Adoption of As title Completed Adopted new variety in 0.133New Variety of Hybrid Maize million ha. Increased production ofand Cultivated Technique for 112,000 tons.Plating Seed.

6. Identification and Adoption of As title Completed Adopted new varieties to 7,200 ha,New Varieties of Peanuts and increased yield by 10-15%.Soybean.

7. Disease and Pest Prevention As title Completed Adopted and demonstrated in 3,500for Wheat, Cotton, and Rice. 1 't Place ha, reduced cotton production cost.

8. Study on Pig and Chicken As title Completed Adopted the technique to farmFeed Formulation and households.Feeding Technique.

9. Raising Technique of Cross- As title Completed Introduced to farm householdbreed Beef Cattle and 2nd Place practice.Demonstration.

10. Experiment of Feeding Cattle As title Completed Applied at farm households.with Ammoniated Straw atHousehold Level.

11. Development Livestock As title Completed Provided information to policyResources and Market 3rd Place makers.Projection for LivestockProducts.

12. Raising Technique As title Completed Introduced to farm households.Improvement andDemonstration for Goat andSheep.

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Study Purpose as Defmed Status Impact of Studyat Appraisal/Redefined

13. High-nutritional Apple As title Completed Applied in production practice.Characteristics and Cultivated 2nd PlaceTechnique Demonstration andAdoption.

14. High-yield Cultivated As title Completed Applied in production practice.Technique for Multi-fruitProduction.

15. Study and Application of As title Completed Applied in fish pond production,Comprehensive High-yield ISt Place increased yield and prevent disease.Technique for Fish Pond.

16. Qucun Recharge/Storage As title Completed Applied in production practice.Irrigation Experiment. 3rd Place

17. Water-saving Irrigation As title Completed Applied in production practice.Technique. Progress

Award

18. Program of Operation and As title Completed Implemented in the YRDS.Maintenance of Irrigation ProgressSystem. Award

19. Water Resource Management As title Completed Provide information for policyPlan. Progress makers.

Award

20. Pilot Experiment for Water As title Completed Applied in YRDS areas.Resource Management inQucun YRDS.

21. Equilibrium of Water As title Completed Provided information to policyDemand and Supply of makers.Yellow River ComprehensiveDevelopment.

22. Comprehensive Research for As title Completed Being disseminated.Agricultural Technique. 2nd Place

26

TABLE 8A: PROJECT COSTS($ million)

Item Appraisal Estimate Mid-term Review Adjustment Actual/Latest EstimateLocal Foreign Total Local Foreign Total Local Foreign Totalcosts costs costs costs costs costs

A. Irrigation & Drainage 55.82 32.20 88.02 48.15 29.77 77.92 58.83 23.54 82.37B. Agriculture & Forestry 8.09 11.38 19.47 8.11 15.80 23.87 7.39 12.57 19.96C. Livestock Development 11.98 8.11 20.09 17.64 18.46 35.91 16.06 16.59 32.65D. Aquaculture Development 5.77 3.90 9.67 8.91 8.78 17.69 10.93 7.15 18.08E. Agroindustry 14.34 20.13 34.47 27.31 43.94 71.25 35.86 55.72 91.58F. Project management 0.64 0.95 1.59 0.45 1.19 1.64 0.98 0.98Base Costs 96.64 76.67 173.31 110.57 117.94 228.51 129.07 116.55 245.62Physical Contingencies 5.53 6.14 11.67Price Contingencies 2.69 8.36 11.05

Total 104.86 91.17 196.03 110.57 117.94 228.51 129.07 116.55 245.62

TABLE 8B: PROJECT FINANCING($ million)

Appraisal Estimate Actual/Latest EstimateSource Local costs Foreign costs Total Local costs Foreign costs Total

IDA/a - 117.9 117.9 - 116.5 116.5Provincial 31.5 - 31.5 22.4 - 22.4GovernmentPrefecture 7.8 - 7.8 9.3 - 9.3GovernmentCounty 16.2 - 16.2 8.2 - 8.2GovernmentCommercial Banks 9.1 - 9.1 19.1 - 19.1Beneficiaries 46.0 - 46.0 70.0 - 70

Total 110.6 117.9 228.5 129.1 116.5 245.6

/a It was $ 110 million at appraisal and becamne $117.9 at mid-term review due to depreciation of SDR to US$.

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TABLE 9: ECoNOmiC COSTS AND BENEFITS

Economic Rate of Return Net Present Value @12% at ICRAt ICR At SAR At ICR At SAR

(%/6) (%) (Y'000) (Y'000)

1. Crops- Zhaokou YRDS Area 45.1 34.6 502,720 474,735- Qucun YRDS Area 36.6 36.7 95,500 190,362- Xiangfuzhu YRDS Area 43.2 37.0 90,800 143,979- Shitouzhuang YRDS Area 45.1 42.4 152,090 116,158- Ground Water Area 57.8 49.7 197,660 425,733- Yuxiayong Drainage Area 30.8 26.9 234,300 41,056- Dongshahe Area 35.2 29.8 109,350 66,518Total Crop Component 50 38.4 1,539,764 1,467,279

2. Fruit and Tree Crops 47.6 36.7 465,894 266,249

3. Livestock Component- Beef cattle 35.0 27.8 34,267 29,013- Sheep 31.8 29.3 3,692 5,523

- Broiler 57.2 49.3 19,122 17,771- Goat 35.5 34.0 19,948 8,167- Pig farm 32.6 39.0 21,003 42,095- Pig Households 29.8 39.9 28,113 2,545Total Livestock Component 35.2 28.6 239,040 91,761

4. Aquaculture- Xinxiang Municipality 39.6 26.0 17,660 13,568- Jiaozuo Municipality 22.0 20.6 3,028 7,833- Shangqiu Municipality 49.8 30.8 13,240 11,513- Puyang Municipality 37.0 27.4 4,208 5,670- Jiyuan City 22.7 5,111- Kaifeng Municipality 43.6 4,442Total Aquaculture 34.7 25.6 41,313 38,764

5.Agro-industry 25.6 31.2 401,053 246,858

Total Project 40.0 35.8 2,348,781 2,063,473

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TABLE 10: STATUS OF LEGAL COVENANTS

Agreement Section Covenant Present Original Revised Description of Covenanttype status fulfillment fulfillment

date dateCredit Article 11 2.02(b) 01 C Government to open and maintain

special account.Project Article II 2.02(b) 01 C Establish and maintain four revolving

funds at ABC.Schedule 2-4(a) 06 C Agro-chemicals to be approved by

IDA.Schedule 24(b) 06 C All project activities comply with

environmental standards acceptable byIDA.

Schedule 2-4(c) 06 C Henan EPB's approval of the finaldesigns of effluent treatment fromagro-industries.

Schedule 24(d) 06 C Agro-industries maintain a system inaccordance with the designs approvedby HEPB.

Schedule 2-5(a) 09 C Submit semi-annual progress reportsby January 31 and July 31 of eachyear.

Schedule 2-5(b) 09 C 10/31/1993 07/20/1994 Conduct a mid-term review no laterthan October 31, 1993

Schedule 2-5(c) 09 C 12/31/1993 09/30/1994 Submit progress of the mid-termreview no later than December 31,1993.

Schedule 2-6(a) 13 C Resale prices of imported fertilizerand pesticides are determined usingmethodology accepted to IDA.

Schedule 2-6(b) 13 C The exercise in 6(a) to be doneannually.

Schedule 2-7(a) 10 C 12/31/1992 06/30/1993 Submit water resources managementplan for review by December 31,1992.

Schedule 2-7(b) 10 C 12/31/1992 Submit operation and maintenanceplan by December 31, 1992.

Schedule 2-7(d) 10 C 11/01/1996 06/01/1997 Provide revised water charges rate tocover all operating and maintenancecosts by Nov. 1, 1996.

Schedule 2-8(a) 10 C Provide draft operational guidelines ofagro-industries for review.

Schedule 2-9(a) 05 C All overseas training and study toursto be approved by IDA.

Schedule 2-10(a) 03 C Submit a statement of proposedbudgetary allocation by January 31and if approved budget by April 30.

Covenant Class: Status:I = Accounts/audits 8 = Indigenous people C = complied with2 = Financial performance/revenue generation 9 = Monitoring, review, and reporting

from beneficiaries 10 = Project implementation not covered by3 = Flow and utilization of project funds categories 1-94 = Counterpart funding 11 = Sectoral or cross-sectoral budgetary or5 = Management aspects of the project or executing agency other resources allocation6 = Environmental covenants 12 = Sectoral or cross-sectoral policy/regulatory/7 = Involuntary resettement institutional action

13 = Other

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TABLE 11: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS

The project is in compliance with the applicable Bank Operational Manual Statements

TABLE 12: BANK RESOURCES: STAFF INPUTS

Planned ActualStage of project cycle Weeks $ Weeks $

Preparation to appraisal n.a. n.a. 184.2 550.7*Appraisal n.a. n.a. 49.6 149.4Negotiations through Board approval n.a. n.a. 9.1 28.5Supervision n.a. n.a. 152.3 472.9Completion 16 40.2 19.8 64.7

Total 415.0 1,266.2

* This amount includes FAO estimated average of $3,050/week as actual figures were not available for FY89 and FY90.

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TABLE 13: BANK RESOURCES: MIssioNs

Performance rating

Number Specialized Develop-Stage of Month/ of Days in Staff skills Implement- ment Type ofProject cycle Year Person Field represented ation Status Objectives ProblemsIdentification May 1989 3 6 Irrigation Engineer

AgronomistAgronomist

Preparation Nov. 1989 10 25 Agric. EconomistEconomistIrrigation EngineerAgronomistEconomist/ProjectAnalystLivestock & AquacultureSpec.Meat Processing Spec.Agro-processing Spec.National WaterResources ConsultantOperationsAgriculture Spec.

Pre-appraisal May 1990 7 30 Agric. EconomistIrrigation EngineerAgronomistLivestock SpecialistAgro-Industries Spec.Environmental EngineerAquaculture Specialist

Appraisal Oct. 1990 8 22 Irrigation EngineerAgronomistLivestock SpecialistAgro-Industries Spec.Aquaculture Spec.Agro-EnvironmentalProtectionistBiologist, Env.ConsultantAgric. EconomistDivision Chief

Supervision July 1991 5 6 Agric. Economist S SIrrigation EngineerAgro-Industries Spec.Aquaculture SpecialistMeat Processing Spec.

May 1992 3 11 Livestock Specialist S S Irrigation andSr. Agric. Economist drainage component -Irrigation Engineer water not reaching

farmers' fieldsOctober 1992 2 7 Agro-Industries Spec. S S Slow progress under

Aquaculture Specialist aquaculture_ _ ~~~~~~~~~~~component_ .

July 1993 6 8 Aquaculture Specialist, S S Delay in theLivestock Specialist implementation ofAgro-Industries Spec. agro-industriesProcurement Analyst componentSr. Agric. EconomistIrrigation Engineer

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Performance ratiiig

Number Specialized Develop-Stage of Month/ of Days in Staff skills Implement- Ment Type ofProject cycle year person Field represented ation status Objectives problems

July 1994 5 10 Agro-qndustries Spec. S S Delay in procurementAquaculture Specialist of materials andSr. Agric. Economist equipment underLivestock Specialist agro-processingIrTigation Engineer component

June 1995 5 10 Aquaculture Specialist S HS Slow disbursement onLivestock Specialist agro-processing andAgro-Industries Spec. irrigation andIrrigation Engineer drainage componentsWater Resources Spec.

June 1996 5 12 Aquaculture Specialist S S Lack of counterpartLivestock Specialist funds on additionalAgro-Industries Spec. components.Water Resources Spec.Irrigation Engineering

May 1997 7 12 Irrigation Engineer S S Delay in theAgricultural Economist construction andAgro-Industries Spec. equipment installationAquaculture Specialist of two agro-Agricultural Economist processing plants.Livestock SpecialistProcurement Assistant

March 1998 3 7 Sr. Agric. Economist HS HS NoneAgro-Industries Spec.Agricultural Economist

ICR April 1999 4 12 Ag. Economist S SIrrigation EngineerAgronomistAgro-Industries Spec.

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ANNEX A

CHINAHENAN AGRICULTURAL DEVELOPMENT PROJECT

ICR Mission (April 19-30, 1999)Aide-Memoire

A. Introduction

1. A joint World Bank (IDA) and FAO/World Bank Co-operative Program (FAO/CP)mission consisting of Mme. Zhong Tong (agricultural economist, IDA, mission leader),Messrs. Michael Sandoz (irrigation specialist, FAO/CP), Alvaro Bueno (agriculturist,FAOICP), and David Gue (agro-industry specialist, consultant) visited Henan province,China duringApril 19-30 to prepare the Implementation Completion Report (ICR) for the HenanAgricultural Development Project. The mission visited Kaifeng, Puyang, Wuzhi andJiyuan with selected sites covering irrigation, agriculture, forestry, livestock, aquaculture,and agro-industry. The field visits provided the mission with an opportunity to observethe effects of project implementation and operation. The mission also held intensivediscussions with the PPMO, provincial BoF, and related technical bureaus. The projectmanagement offices prepared an overall ICR report and individual ICRs for eachcomponent, with supporting data. These were very helpful for the mission to prepare theBank's ICR. The wrap-up meeting was held in Zhengzhou on April 30, 1999.

2. The draft of Aide Memoire summarizing findings, primary conclusions, andrecommendations from the ICR mission has been given to the PPMO after wrap-upmeeting. The finalized Aide Memoire will be sent from IDA headquarters and will beattached to the ICR.

3. The mission would like to express its sincere thanks to PMO's at all levels,provincial DoF, and all technical bureaus and governments of Kaifeng, Puyang, Wuzhiand Jiyuan for their support, cooperation, and hospitality.

B. Background

4. Project Origin. The Government of China requested IDA to finance an integratedagricultural development project in the Province of Henan. The Province formed theProject Leading Group (PLG) and project management offices at all levels fromprovincial to prefecture and county to take responsibility for project preparation andimplementation. The project was identified in May 1989 and prepared inNovember/December 1989 by the Henan Provincial Government with assistance fromFAO/CP. A pre-appraisal mission visited the project area in May/June 1990, andappraisal took place in October/November 1990.

5. Project Objectives. The main objectives of the project were to assist thegovernment of Henan in accelerating and diversifying agricultural development in orderto alleviate poverty, raise farmer incomes and increase rural employment. The projectspecifically was to: (a) provide additional irrigation water by completing construction of

33

four Yellow River Division Schemes (YRDS) and sinking wells; (b) alleviate soil salinityand water-logging problems by investing in drainage and flood protection schemes; (c)increase the productivity of existing low-yield farms by crop intensification anddiversification; (d) develop wastelands for crops, alfalfa and orchards; (e) expandlivestock production through effective use of crop residues; (f) develop low-lying areasfor fish production; (g) invest in agro-processing and agro-industry; (h) improve theprovince's ability to manage water resources effectively; and (i) strengthen research,extension and environmental protection programs.

6. Covenants were limited and well-focused on: (a) establishment of a specialaccount at the provincial DoF and four revolving funds (for ground water development,farm inputs, orchard development, and livestock development) at county BoF; (b) waterresource management plan for new and rehabilitated wells; (c) operational guidelines forthe agro-processing and agro-industrial enterprises; (d) environmental aspects (effluentcontrol for agro-industries and approval of agro-chemicals by environmental authority);and (e) reporting on water charges and their revision for surface irrigation schemes,annual project progress, and resale prices for imported fertilizer and pesticides.

7. Project Organization. The government of Henan was responsible for overallproject implementation. Senior officials from concerned provincial agencies served inthe Provincial Project Leading Group (PPLG) which set policy for the project and guidedthe Provincial Project Management Office (PPMO), the project executing body in policymatters. Similar PLGs and PMOs were established at municipal/prefecture and countylevels to carry out project policies and activities respectively at these levels. Also fiveEngineering Headquarters (EHs) were established for each of the four YRDS and theDongshahe River Regulation Scheme to direct the technical aspects of the irrigation earthworks and civil works, including construction supervision and quality control. Scientificand Technical Committees (STCs) were established to make recommendations ontechnical aspects to PLGs and PMOs.

8. Project Implementation. The project became effective on August 23, 1991 butimplementation of irrigation and drainage, aquaculture, and livestock components beganafter appraisal using retroactive-financed funds totaling US$4.45 mission. A mid-termreview in 1994 made some adjustments in component composition and size in responseto the market changes and other factors. The major factors were: (i) the exchange ratechanged such that SDR depreciated relative to USD and USD appreciated with respect toRMB; (ii) reduction of ICB and NCB costs for equipment, materials and civil works, andcancellation of well pumps, diesel generators, and pesticides. These made more projectfunds available and entailed a quite substantial adjustment: besides the cancellation of theprocurement mentioned above and elimination of the sub-component of alfalfaproduction households, the number of livestock specialized households for raising pigs,chicken, goat, and sheep was increased and five agro-processing factories, four fish feedmills, four chicken breeding farms, and two pig breeding farms were added to the project.Later on, with the Bank's approval, the project made further adjustment by canceling fourchicken slaughtering/processing operations, three chicken breeding farms, four fish feedmills (constructed using own funds) and two agro-processing factories (Mengxian DDGSand Yongcheng reeling mill). These timely adjustments enable the project to avoidunnecessary delay and costs. The PMOs established implementation regulations for

34

management and inspection. The concerned technical bureaus closely collaborated withPMOs and provided technical support during the implementation. The project alsoexperienced some difficulties from changes outside its control, for example, in thegovernment policy on import duties (removed the exemption for Bank-financed projects),domestic approval procedure for procurement documents, and working capitalavailability. However, the PMOs tried with considerable effort to overcome theseproblems to get the project going. IDA also provided technical advice and assistance.The project was successfully implemented and completed.

C. Mission Findings

9. Irrigation and Drainage. Irrigation and drainage infrastructure provided underthe project has been generally suitable and effective in terms of concept and adequate interms of design and construction quality. Also commendable have been the joint effortsof the responsible local bureaus and beneficiary farmers in ensuring the satisfactoryexecution of vital basic maintenance activities on the completed works.

10. Zhaokou West YRDS. System concepts and designs appear to have beenadequate and appropriate to the local conditions. Earthworks do not appear to be verycompacted in some embankment fill areas but are otherwise of good quality; in any casecanal sections are primarily in cut, requiring that irrigation be effected by pumping fromthe canals. The quality of structures is considered acceptable but somewhat rough. Basicroutine maintenance within earth channel sections (weeding, desilting and somerestoration of slopes) and at structures (painting and lubricating) generally seems to becarried out in a good and timely manner, which is commendable. On the other hand, it isnot apparent that such attention is given to some heavier maintenance/repair needs(structure and gate system repairs, and road grading). The contrast in performancebetween relatively easy routine maintenance and somewhat more demanding non-routinemaintenance and repairs is noticeable here and elsewhere, and should be addressed. To alarge but not exclusive extent this reflects the division of responsibilities for maintenancebetween farmers and local WCB operation and maintenance (O&M) offices; budgetlimitations will also be a factor, since water charges may not cover much more than WCBstaff salaries and operational expenses. There is farmer satisfaction with the improvedirrigation facilities.

11. Qucun YRDS. A total of three desilting basins along the upper reaches of themain canal was prepared under the project in 1993, 1996 and 1998 respectively. As withprevious desilting basins, the project basins once filled with silt will be restored toagricultural production, and the process will continue at new sites. The linings viewedwere generally sound and intact, but that was not the case in at least one location. Since asmall failure can lead rapidly to a major one, proper repairs to embankments and liningsshould be undertaken at such locations without delay. Unlined earth channel sections arewell maintained. The same cannot be said about a main drain discharge control structurebuilt under the project in 1993, where the gates are not in a good state of repair. At thelateral, sublateral and on-farm levels of the system, two distinct experimental water-saving systems were built in 1997 under the project, as trial alternatives to the traditionalunstructured and individualistic mobile-pump approach to farm-level irrigation. It issuggested that some alternative low-cost physical and organizational measures, to

35

improve directly the efficiency of the currently dominant farm-level irrigation methods,could be explored. Positive project impacts were observed at the site of a project thatexcavated drains in 1995 for relief of waterlogging.

12. Qucun Pilot Recharge/Storage and Irrigation Scheme. Indications are that thepilot scheme has achieved success; results reportedly show that (i) ground water pumpingin the project area has markedly reduced, (ii) water table depths below ground level in theproject area have stabilized at 15-20 m, (iii) the water table in areas downstream from theproject area has risen by 3 m, and (iv) the water table in other adjacent areas, which areunaffected by the project, is dropping by 0.7 m per year. The lateral/sublateral levelsystem, which is similar in many respects to the first Qucun YRDS experimental systemreferred to above, seems well conceived.

13. Wuzhi GWDS. The project interventions occurred in 1992-1993. They wereplanned to be financed by loans to farmers via a project revolving fund arrangement, butas noted above this was not achieved; farmer contributions to investment costs werenormally limited to provision of labor. The pump and/or electrical connections andcontrols at most locations are removed by the wellmaster for safekeeping when not inuse, leaving exposed wiring; this and other electrical system features may constitutesafety hazards and should be reviewed. It was noticed that basic care and maintenanceactivities within the capacity of the wellmaster are generally performed as needed, butthat more major tasks (such as repair of a broken wellhead plinth) are not. This mirrorsthe pattern of repair and maintenance deficiencies noted above. Problems noted withsome of these systems include (i) some lack of acceptance by farmers of the communalsystem when it cannot accommodate irrigation needs outside of the normal pattern, and(ii) little attention given to detail, quality, and appropriate assembly and use, in the caseof a locally initiated, installed and operated sprinkler system. For most areas it isconsidered that the original basic well irrigation arrangement, preferably with buriedelectricity cables and not necessarily including pump houses, together with earth channeldistribution systems, is suitably simple, practical and appropriate for the local conditions.Villagers met with at two of the locations indicated that there was much satisfaction withthe impact of the original project installations.

14. Agriculture component includes seed centers, greenhouses, and inputs. Seedcenters supported by the project are fulfilling their responsibility to provide farners withimproved seeds of the most important crops. The high quality of the seed is,undoubtedly, one of the major factors responsible for the steady increase in yield.

15. There is measurable evidence that the improved design of tunnel greenhouses iscontributing to diversification of production, increased crop output and total householdincome. But, it is important that an adequate credit scheme, using revolving fundsestablished under the project, be in place for this technology to reach a larger number offarmers.

16. The emphasis given to fariner's training will contribute significantly forimprovement of technical capability and social conditions in rural communities supportedby the Project.

36

17. Forestry/Horticulture. The plant disposition of the improved windbreak is betterthan traditional one-row planting of trees around canals and roadways and can serve asdemonstration site for training of other farmers. The windbreak will have a long lastingbeneficial effect on improvement of soil conditions and fertility, fundamental factors forsustainablility of farming in small landholding. Orchards visited are well managed andcan be used as demonstration sites for training and extension purposes. The package ofassistance provided by the project has a high degree of replicability in other similar agro-ecological and market conditions.

18. Livestock. Raising cattle, goats, and sheep is a good opportunity to use morerationally crop residues available in the farm, especially leaves of peanut and sweetpotato that have good nutritional value. The manure produced is an excellent organicfertilizer, especially for vegetable production. The net profit generated will contributesignificantly to raise farm household income.

19. The pig operation in Jiyuan represents an well-organized integrated system ofproduction. It is a profitable business and helps farmers to diversify production, makebetter use of resources, add value to farm products and increase household income. Theintegrated scheme of broiler production observed in Wuzhi is very successful. Thissystem should be tested also for other livestock species, especially lean pig production.

20. Aquaculture. Fish ponds visited by the mission are well constructed and havegood productivity, but the investment necessary to built similar ponds is quite high andmost poor families can not afford it without some form of assistance. Operating costs arerelatively high, especially feed, therefore, studies on alternative feeding procedures arewarranted.

21. Agro-processing. Implementation of the eleven processing plants has been excellentand all processing plants have been constructed to a high standard and are in profitablecommercial operation. These units are a good example of Bank investments in small andmedium size industries, providing close linkages to the production activities of the project.The seed processing and poultry processing plants have been less successful inimplementation and in commercial operation. About 70% of the seed centers are now incommercial operation after a number of quality problems with equipment, and although thepoultry processing plants have been well constructed with good equipment, commercialoperation is a major problem. These units are looldng for commercial partners to take overthe operations.

22. Cold Stores for Meat, Fruit and Vegetables. The three plants are well managed andare in profitable commercial production. These units are an excellent example of small scaleenterprises: All three plants are making a substantial profit storing and selling meat, fruit andvegetables, and are performing better than expected. All three plants have expanded (at theirown cost) into small-scale slaughterhouses, and one plant has applied for registration as theofficial city slaughterhouse. The units are making an average 22% FIRR after tax, withaverage post tax 1988 income of Y1.08 million at each plant. These are excellent results ifthey can be maintained.

37

23. Jiyuan IQF Vegetable Factory. This plant was completed in 1996, and is a modelof excellent design and construction. The plant was equipped through ICB procurement withtwo vegetable preparation lines and two Instant Quick Freeze (IQF) fluidized bed vegetablefreezing units. The company has expanded with a vegetable production base of 5,000 muand vegetable fazmers under contract, and provides seeds, fertilizers and advisory inputs,and buys the produce at contracted prices. The company has installed one additionalprocessing line and a vegetable preparation area (at their own cost). The commercialoperation of this company is very well managed -- a good example for other agro-industriesto emulate. The FIRR is 14% after tax and the company made YO.762 million post-taxprofit in 1998.

24. Wenxian 12,000 t/y Starch Mill. The corn starch plant has been in commercialoperation since October 1994 and in 1997 produced 9,600t of starch powder and 5,000tglucose. The plant has won several awards for product quality, energy efficiency, goodprocess design, and commercial management. Production costs are among the lowest unitcosts in China, and the unit has full effluent treatment facilities to meet NEPB standards.Both implementation and commercial operation are highly satisfactory, but there areunderlying financial problems: (a) the plant received virtually no counterpart funding fromlocal authorities, and has raised funds through its own resources at high interest rates. Thefactory is, in effect, working at very high production levels only to cover the debts; and (b)to increase output the plant needs an additional working capital of Y 6.5 million, but there isa shortage of working capital (and the necessary collateral for more loans) that constrainsthe production.

25. Changyuan 15,000t/y Paper Mill. This mill has been in operation since October1996, and produced 13,500 tons of writing paper in 1998, which reached 90% of itscapacity. It has upgraded the process to double sided coated writing paper. Shortages inworking capital constrain the commercial operation, which passed the break-even point in1997, and made Y14 million post tax profits in 1998. The civil works are well constructed,the equipment is of good quality, and the mill is well managed. The market for paper is goodbut competitive at present, and sales prices have dropped substantially in the past threeyears. The company has a strong order book. The effluent treatment plant is comprehensiveand functioning well. The power station smoke precipitator is so effective that there is novisible discharge from the smoke stack. The plant has been awarded PEPB approval and metall design effluent and emission targets.

26. Wuzhi Dogbane 25,000 tfy Paper Mill (visited). This plant was commissioned in1998 and is one of the first paper mills in China to use the Alkali Recovery System (ARS)and continuous pulp digesters, and is specifically designed to be environmentally friendly byproducing very litfle effluent. The civil works are of a very high standard, the equipment isof good quality, and the management is well experienced. The plant started commercialoperation in February 1999, and is operating under contract to a Beijing printing company.Discussions on a joint venture operation with this company are in progress. The plant hasthe potential to generate 15% FIRR after tax with Y57 million per year post tax profits.

38

27. Kaifeng Particle Board Mill. This plant is the largest single investment in phase twoof the project, and has been completed and put into commercial operation during 1998. Thecivil works and equipment are of a high standard and the processing lines were procured byICB from Bison/Kvaemer of Germany. The overall quality of the plant is excellent, and thequality of management is very good. The plant has commenced commercial operation andhas contracts with five major clients that purchase the full production output. Productquality is to international standards, and clients currently pay in advance for their orders,obviating the need for most working capital. Production from start-up in July 1998 to end ofMarch 1999 was 22,000 m3 and peak production achieved was 136 m3/day against thedesigned rated capacity of 110 m3/day.

28. Puyang Giberellin Mill. This plant was designed to produce crystallized and liquidplant growth hormones from corn starch and glucose, but can produce any bio products thatrequire sterilization, fermentation, concentration and drying processes. The quality ofconstruction and equipment was good. The products achieved the designed NationalStandard GB15955-1995. The sponsors have since formed a shareholding company inwhich shares are held by the Giberellin Plant (10%), Beijing Hong Tian PharmaceuticalCo. (80%) and Beijing Bio-Pharma Research Institute (10%). The company has thenecessary permits for bio-products production and has invested an additional Y8 millionin additional processing and packing equipment. The plant is currently in commercialproduction of veterinary antibiotic feed additives for poultry.

29. Puyang 100t/y silk reeling mill. The civil construction work is good. Theequipment was commissioned in 1997 and achieved 22% capacity in the first ninemonths of production, and in 1998 increased output to 80% of capacity. Silk grades haveincreased from 3A in 1997 to 80% 4A in 1998, and the market is currently buoyant forthe higher quality 4A silk. The company owns 1500 mu mulberry and cocoon productionand buys the remainder of raw materials from contracted farmers, where the companyprovides all inputs to the farmers including eggs, frames, and technical support. Thecocoon farmers in the project area have converted to modem sericulture techniques thatproduce significantly better cocoons with better results in the semi-automatic reelers.The plant is generating a post tax profit in 1998 of Y2.7 million and should achieve anFIRR of 16% at full capacity.

30. Wuzhi Sheepskin Plant. The tannery started commercial operation in April 1997and includes an effective effluent treatment facility. Two production lines are installed,one tanning line, and one machine shop for sheepskin and leather products. The plantreceived no funds or working capital from local authorities and has a debt to equity ratioof 90%. Production in the tannery reached 40% capacity in 1997 and increased to 50% in1998. The product is good quality and the demand is strong. The plant broke-even in1998, with a small post tax profit.

31. Poultry Slaughterhouses. Three plants at Kaifeng, Yanjin and Yucheng werecompleted with facilities to process 1000 birds/hour, and each with lOOt cold stores. Thefacilities and ICB equipment were of good quality, and functioned well but the plants havebeen very little used largely due to lack of managerial and commercial experience. Efforts

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are being made to find commercial partners to operate the plants, and these efforts willcontinue.

32. Seed Processing. After withdrawal and cancellation of nine seed processing lines,eleven plants are in commercial operation, and five have been installed and tested buthave not commenced commercial production. The eleven seed companies operated theirplants commercially in 1998 and processed a combined 50,836 tons of seeds. NCBequipment quality problems combined with poor management and slow implementationby the seed companies have been a continual source of concern throughout the projectimplementation. The main components of the plants were made functional althoughrequiring high maintenance levels. Several seed companies modified the equipment, attheir own cost, and achieved satisfactory processing from the plant.

33. Environmental Aspects. The mission was pleased to learn the project has positiveenvironmental impact on the project and surrounding areas. The irrigation and drainageschemes reduced frequency of occurrence of drought, flood and sandstorm and improvedsoil fertility. The well irrigation combined with more efficient utilization of surfacewater increased underground water level and prevented soil salinity. Windbreak treesblocked or reduced strong winds from the north, while increasing vegetation coveragearea.

34. Manure from livestock production is either used for organic fertilizer or for fishfeed in the fish pond. Use of ammoniated straw for feed (ruminate animals) reduced airpollution due to straw burning. All agro-processing factories have installed effluenttreatment facilities, meet the environmental protection standard, and have been approvedby the environmental authorities.

35. Sustainability. The mission has considered that Henan Province has sufficientcapacity and resources to continue with the developments that have been commencedunder the project, but the mission has made the following recommendations for futureoperation for the project sustainable development:

36. Implementation of the project has provided excellent facilities for production,processing and marketing of agricultural, livestock and aquaculture products, butsustainability depends on future operation. Technical assistance should, therefore,continue to be provided from the relevant technical bureaus. Training of personnel inproduction techniques, enterprise management and product marketing should becontinued and organized on a regular basis. Key personnel of the PMO should continueto be available for this important coordination role in the future of the project.

37. Management. The mission's site visits indicated significant differences inmanagement ability among various production bases and commercial enterprises, rangingfrom excellent management at most of the locations to fairly poor results at a few. Goodmanagement is essential to ensure successful commercial profitability. The experience ofthe very successful business models such as Jiyuan Pig Breeding Farm, Wuzhi ChickenBreeding Farm, and Jiyuan Lukang Fast-Frozen Vegetable Company, should beintroduced to all enterprises under the project.

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38. Marketing. In response to market variation, the production structure and variety ofproducts needs to be continuously re-assessed and adjusted. Currently demand for fishand meat (including chicken and pork) is declining, which has driven market pricesdown. The PMO's and technical bureaus should provide market information to theproject areas and assist enterprises and farmers to react to market changes withadjustment in their production and product ranges.

39. Linkages. The project was designed to establish an integrated system with closelinkages between production, processing and marketing in all project components. Amodel of "company + farm households" was designed and developed for this project andhas been a powerful tool that has created mutual benefit for producers and commerce,and has reduced risks for both companies and farmers. The mission recommends theextension of this model in other areas.

40. Repayments. The project has already commenced repayment of the loans, andthese commitments are the obligation of the project participants. The mission observedthat the project has adequate capacity for loan repayment, and many of the farms andenterprises are already operating above their break-even point and have substantial post-tax profits. The PMO's and the finance bureaus, at all levels, need to make adequate loanrepayment plans with all project participants, to ensure that the Provincial BoF can meetits commitments to MoF and IDA.

41. The Project Future Operation Plans. The future long term success of all projectcomponents will be dependent on good management and administration by the bureausand enterprises attached to the project. Their long term operating plans should includeenabling and facilitating policies, and are important to the sustainability of the project.The operation plans need to make appropriate technical, financial, commercial andinstitutional arrangements to ensure the continuing effectiveness of project operation.The plan should include the timely provision of necessary inputs; adequate staffing(including training) and management; production plans, management systems, andmarketing strategy.

42. Maintenance and Repairs for Irrigation and Drainage Schemes. Basic maintenanceof completed works is being undertaken satisfactorily but not in the case of heavier andnon-routine maintenance and repairs. To ensure long-term sustainability of infrastructureperformance, these tasks will require proper and timely attention. Every effort should bemade to secure the necessary funds and resources for this and to effect the correspondingwork. For the future developments, the application of advanced irrigation technology hasbeen noted in several small but significant areas. In many instances this can be a high-cost venture that fails to succeed. Caution in the promotion of such developments on alarge scale is urged, but a continued focus on pilot projects is encouraged, as long asthese can be methodically monitored, analyzed and reported on over extended periods.Also encouraged would be some research attention to low-cost physical andorganizational interventions aimed at improving already established and acceptedirrigation practices.

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D. Lessons Learned

43. This agricultural development project was a comprehensive project involving multi-sectors (horizontal) and various level of administration (vertical). Some key lessons to belearnt from its implementation are summarized as follows:

* Establishment of an integrated system that links production, processing andmarketing can reach optimum utilization of resources and achieve maximum benefit.It is the direction of future development for the agricultural sector.

* Contractual relationships establishing forward and backward linkages betweencompany and farm households, or company, production base and farm households,can mutually benefit both and reduce market risk, thereby addressing the mainproject objectives of increasing rural income and employment opportunities.

* Provision of initial working capital for agro-processing is essential to help factoriesstart operation after installation and commissioning of equipment. Initial workingcapital can be arranged either from the project or from commercial banks.

* Management of revolving funds has to be improved. A monitoring system orregulatory structure needs to be established. The project set up revolving fiunds forwell irrigation and livestock households. The utilization of these did not show thegreat contribution they were supposed to make.

- Establishment of comprehensive and detailed implementation procedures is anassurance of a successful project. The procedures should include staffresponsibilities, inspection requirements, and procedures for project planning,procurement, civil work construction, finance, monitoring and evaluation (M&E),and training.

E. Follow Up

44. The mission will prepare the ICR and will send it to the PPMO for review andcomments. The ICR prepared by the PMOs will be attached to the World Bank's ICR. TheOperation Evaluation Department (OED) of IDA would randomly select the completedprojects for post-review. Henan ADP would have a chance to be selected.

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ANNEX B: BORROWER'S CONTRIBUTION TO THE ICR

A. Actual Implementation Progress of the Project

1. A total investment of 1,810 million yuan has actually been expended, 104.6% ofSAR target. Among it, IDA credit is 884 million yuan and 926 million yuan iscounterpart funds (147 million yuan from provincial level, 438 million yuan fromcommercial banks and 341 million yuan from municipalities, counties, and other sources.

2. From August 8, 1991 when the Project started to be implemented to December1998 when it's totally finished, the project targets have been achieved or even surpassed.And, all the subcomponents have been implemented well.

3. Disbursement of IDA credit for SDR 81.2854 million has been completed,99.86% of the appraised target.

B. Achievement of Objectives

(a) Irrigation and Drainage. At appraisal, the planned irrigation area of theeight subcomponents is 288,600 ha. From implementation to the end of1997, 278,990 ha has brought about benefits, 96.7 % of the SAR.

(b) Agriculture. 23175 tons of quality fertilizers and 135.8 tons of high-efficiency chemicals were imported under the project, 100% of plans.1,325 green tunnels were constructed, 117.7% of the plan.Implementation of green tunnels has realized scaled and commercialoperation, playing a role of demonstration and extension. Farmers beyondthe project area have followed up and 83,200 households have constructedtunnels for production of unreasonable vegetables. Twenty county seedcentres were to be supported under the project; 16 have been completedand 4 have been canceled. Eleven are in commercial operation while fiveplans have been installed and tested but have not commenced commercialprocessing. On agricultural support, developed and improved 20 countyagro-extension centers and plant reservation stations and 80 townshipextension centers. On scientific research and training, completed sevenstudies and a technology seminar, 100% of SAR target. Trained 105,016people (among them, the province trained 901 agro-technicians fromcounties, the county trained 1,200 technicians from townships, thetownship trained 31,200 farm technicians and 71,795 plant reservation,94.5% of SAR target.

(c) Livestock. The project has totally completed 236.60397 million yuan ofinvestment, 181.05% of SAR target. Among it, 123.12203 million yuan isloan from the Bank, 113.50894 million yuan of counterpart funds fromdomestic (13.943 million yuan from provincial level, 26.377 million fromcounties, and 73.19494 million yuan from farmer labors). A total of 3,400pig households have been developed, 100% of the plan; six commercial

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and two breeding piggeries have been constructed, 100% of the plan. Onebreeding chicken farm and 2,400 chicken households, 3000 cattlehouseholds and 3000 sheep households have been developed, all figuresabove are 100% of those in SAR. On hide goat, 5,700 households havebeen developed, 101.7% of the plan. 384 alfalfa households have beendeveloped, 32% of the appraisal target.

(d) Forestry and Fruit Trees. A total of 20,166.67 ha of trees have beenplanted and rehabilitated, with an expenditure of 51.47008 million yuan,123.7% and 147.6% of SAR targets, and 99.74% and 99.24% of the mid-term review plans. The training under forestry and fruit component hascompleted 1.266 million yuan of investment, 147.9% of the mid-termreview plan and 23,739 people have been trained, 145.6% of the mid-termreview plan. Among them, 10,625 trainees are women. Research of twotasks, namely, Demonstration and Extension of High-Yield CultivationTechniques of Apple and Research, and Extension of High-YieldCultivation Techniques of Nuts have been developed successfully.

(e) Aquaculture: After seven years of implementation, 1,492.83 has of fishfarm and 77.6 ha of hatchery farm were constructed up to the end of 1997.The capacity of feed mill reaches up to 18,300 tons annually in one shift.3,643 people have trained. Research tasks have been fully completed andeven exceeded the targets.

(f) Agro-processing. Eleven agro-industrial plants have completedconstruction and in commercial operations. They have passed the break-even point and have made profits.

C. Major Factors Affecting the Project

4. The following factors have played sustainable, active, and important effects andinfluences on successful implementation and achievement of objectives.

(a) Governments of different levels paid great attention to the project.(b) Efficiency of Project Selection.(c) Efficiency of Project Organization and Operation.

5. The following factors have caused the delay in the implementation progress ofsome agro-industries.

(a) Lack of working capital(b) Delay in ICB procurement which caused implementation delay in two

processing plants (Wuzhi dogbane mill and Kaifeng MDF board mill)

D. Assessment of Project Effects

6. Successful implementation of the Project shows the regional efficiency ofagricultural development project by utilizing foreign fund in large scale, making its

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economic, social and ecological benefits in a harmonious whole. The economic,environmental and social effects are evaluated respectively as follows:

(a) Assessment of Economic Effect. Having powerfully promoted the processand development of agro-industrialization in the project area. The projecthas arranged the distributions and organized the implementation accordingto the target model of industrialization and up to now, the followingprojects have been industrialized, forming the models of Company whichlinks to Farm Households, Company which links to Production Base plusFarm Households. Having greatly promoted the adjustment andimprovement of agriculture and rural economic structure in the projectarea. Cross-connection efficiency of industrialized projects in the projectarea has increased employment opportunities and raised farmers' incomelevel. The 11 agro-processing industries, eight commercial piggeries, onebreeding chicken farm, three poultry slaughterhouses, and 16 seed centersunder the Project have supplied 6,780 fixed employment positions, 55.5%for women. Additionally, 234,000 people have been involved in theProject indirectly for seasonal works and 60% are women. Import ofadvanced equipment speed up to technology progress and transference.

(b) Assessment of Social Effect. Since its implementation has increasedagricultural productivity of the area along the Yellow River, improved theeconomic development and ecological environment, the Project has animportant effect and profound historic significance. In addition,objectives of the Project are in conformity with government's strategiesfor developing rural economy and regional development of the area alongthe Yellow River, so the governments at the provincial, municipal, andcounty levels have paid great attention to it.

(c) Environmental Impact Assessment. Based on the principle and policy ofintegrated project measure with biological measure and reformation withutilization, and the individual control with comprehensive control foragriculture, forestry, livestock and fishery, the optimized ecologicalbenefit have been achieved through the implementation of the project, andit will benefit the environment quality and ecological environmentalquality in the long run. The main environmental impacts of the project areas follows: (i) the completion of the construction of the Yellow RiverDiversion Scheme and the drainage facilities had greatly reduced thefrequency of the natural disaster, such as drought, flood, and sand stormand minimized the harmful effects of the drought, food, water-logging andsaline alkali; (ii) the plantation of windbreak and high yield forest and thetransform and development of orchard, controlled the sand storm,increased the percentage of forest cover, achieved the goal of water andsoil conservation and the improvement of ecological environment forcropland; (iii) two methods for the disposal of animal manure in thelivestock component. One to use it as fertilizer and second to use it as fishfeed. Additionally, straw ammonia technology has been extended underthe project, thus migrating the pollution cased by burning of straw and

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stalks and improving agro-ecology quality; (iv) aquatic projects utilizedthe waste land, low and water-logging land for excavation of fish pond,thus increasing the land utilization rate and being helpful for improvementof local ecological environment; (v) implementation of Xiangfuzhu YRDSand well irrigation works have improved the underground water level andcaused no worse effect on the wetland; and (vi) environmental quality ofcultural and historic remains in the project area.

D. Sustainability of the Project

7. Project sustainability refers to the consistent progress toward the set objectivesand the achievement of the expected goal of the project. The macroeconomics policy, theinherent property of the project and other social, economic factors laid a solid foundationfor the sustainable development of the project.

8. Sustainability of the project depends on policy, economy, production, ecology,and social sustainability.

(a) Economic Sustainability: From the high financial rate of return (FRR) andinternal rate of return (ERR) of this project and the financial benefit ofeach project components of economic contribution, we can see that thefarmers, enterprises, and local government in the project are have a stableincome increment from the project.

(b) Production Sustainability: The result of the project monitoring indicate that,owing to the project water conservancy and irrigation facilities and theconstruction removing the water-logging project drainage has successfullyremoved the restriction factors that hinder the development of the localfarm production.

(c) Sustainability of Ecology: The implementation of this project especially laysstress on the reasonable development and utilization of the naturalresources and the protection of natural resources, and lays stress on theimprovement of ecological environment, thus produce a long-termbeneficial influence on the implementation and further development of theproject, and makes the rural economy and agriculture production get on avirtuous cycle.

(d) Sustainability of Society: The sustainability of this project has establishedthe foundation providing the reliable assurance for the socialsustainability.

E. Performance of the Bank

9. From April 1989 to March 22, 1998, the World Bank has sent 13 projectinvestigation and supervision missions which composed of different officers andspecialists, totalling 73 people.

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10. The proper identification of the project by the WB. The World Bank and thePPMO reach agreement on the determination of project area, the goal of the project andthe objectives of the components, the institution, management production models, thelinkage of the components, technology and financial issues based on the proposal of thePPMO. The result of the implementation of the project indicated that - the goal of theproject is accord with the short-term then requirement of the economic environment andthe objectives of the Eight Five Year Plan of Henan Province then, but also accord withthe objective of the Ninth Five Year Plan and the projected objects for the year 2010 forthe development of agriculture. The selection of the project area is a decision withforesight. The areas along the Yellow River in Henan Province possess the mostproductive potentials, and the development of this area is critical to facilitate thedevelopment of rural economy in Henan Province. Especially the integration model thatlinks the components together is very creative. It not only improves the efficiency of thecomponent, but also optimizes the overall efficiency of the whole project. Furthermore,the integration model has been determined by the Chinese government as an importantway to improve the productivity of agriculture and to increase the farmers income.

11. The full preparation of the project. The WB made further review of the projectobjectives, models, techniques, economical, financial, operational, institutional andenvironmental protection and social development issues based on the feasibility studyreports of the whole project and the project component presented by the PMO, make theproject plan, suitable and advanced technology and good economic benefit and theguarantee of the repayment of the loan had been achieved. Thanks to the WB officialsand experts' hard working, responsibility, high efficiency and professional skills (the WBsent preparation missions to Henan province twice).

F. IDA's Performance

12. The successful appraisal of the project. In appraisal and pre-appraisal, the WBmission inspected each aspects of the project systematically through on-the-spotinvestigation. They made a thorough review of the project preparation works anddocument and a thorough study on the key economical and technological issues,exchanged views with the PPMO.

13. The efficiency of project supervision by the Bank: During the period of theproject implementation, the WB sent project supervision missions, about 38 people toHenan (accounting for 62% and 52% of the Bank's input in this project), which ensuredthe effective supervision for the project.

G. Assessment of Achievements

14. Successful implementation of the project has achieved or even exceeded theexpected targets, with great fruits, remarkable benefits and profound significance.

15. Economic benefits. Each year, the project increments over 4,802 million yuan ofoutput value. Among which, 2,665 million yuan from irrigation and drainage (grain,cotton, oil and vegetable) about 27 million yuan from agriculture, 316 million yuan from

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forestry and fruits, 371 million yuan from livestock, 163 million yuan from aquacultureand 960 million yuan from agro-industries.

16. Social Benefit. The project has totally provided employment opportunities for47,672 people. The specialized household models defined under the project are proved tobe in line with agricultural development status of the project area and to have gooddemonstration efficiency for neighboring area. Implementation of irrigation and drainageschemes has improved and strengthened the infrastructure status in the project area,making a solid base for sustainable development of local agriculture. The personneltraining has a remarkable effect, providing a personnel guarantee for local economicdevelopment in the future.

17. Environmental Benefit. Project implementation has brought about and willsustain a long-term favourable effect on the project area and its neighbouring areas.

H. Future Management and Operation

18. The life period of the project designed by the Bank is 20 years and its futuremanagement and operation depend on guarantee of the following conditions:

(a) Successful implementation of the project has created great economic, social,and ecological benefits and showed vigorous vitality potential.

(b) Henan Project Management Office (PMO) acts as the only one executingagency of Henan for utilizing foreign fund for integrated agriculturaldevelopment, and its continuous existence will ensure future managementand operation of the project from organization stand.

(c) Continuously depending on monitoring and evaluation institution andsystems established by PMO, to continuously improve the indexes ofmonitoring and evaluation and strictly monitor the project operation.

(d) Utilization plan, recycle and relending plan. By using the establishedrevolving fund, to continue strengthening support for the relevant projects.

I. Main Experiences and Lessons

19. Under the leadership of project leading group, having set up a set projectmanagement system, with PMOs at provincial, municipal, and county levels as executingagencies, financial bureaus as project management agencies, technical departments astechnical guide and service agencies and auditing units as the supervision agencies. Thepractice shows that the arrangement of this organization is effective and successful.

20. For integrated agricultural development project utilizing foreign fund, selection,establishment and arrange of project should pay full attention to connection among thecomponents. Taking industrialization as the linkage, to connect the production,processing and marketing of agro-products into a whole, thus better arranging all

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necessary productive factors, making the whole project achieve the most economicbenefits.

21. Complete perfect rules and regulations must be set up and improved continuously,doing the works under strict, scientific, standardized and systematic management.

22. As for state-owned enterprises for processing agricultural or livestock products,restructuring must be promoted according to reform directions. And for newly addedenterprises, attention must be paid to import of diversified investors to improve theircompetitive ability and the econornic benefit.

23. Attention must be paid to tendering and procurement. One year earlier before theproject becomes effective, some works such as personnel training and preparation ofbidding documents must be done, thus ensuring the project implemented smoothly andspeeding up the physical progress.

24. When importing equipment, attention must be paid to the combinations betweencomplete equipment and unit equipment with key technologies, advanced technologies,and applicable technologies, technical-intensive equipment and labor-intensiveequipment.

25. Attention must be paid to training, especially for farmers, important effect oftechnical assistance and task research, willing to invest in these aspects. This is also animportant factor for the project to achieve success.

26. Main Lesson: At appraisal, we underestimated the difficulties of working capitalfinancing. In addition to local economic situation, some agro-industries can't achieve thedesigned capacity after they were put into operation causing these enterprises can'tachieve the full benefits.

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ANNEX C: DOCUMENTS IN THE PROJECT FILE

Appendix 1: Borrower's Comments on the ICR

Appendix 2: Water Resources Component ICR by FAO

Appendix 3: Agriculture, Aquaculture, Livestock, and Forestry Components ICR byFAO

Appendix 4: Agro-industries Component

Appendix 5: Economic Analysis

Appendix 6: ICR by Henan Provincial Project Management Office

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ANNEX D: PHOTOGRAPHS OF PROJECT AREAS

Qucun recharge/storage irrigation scheme

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Wheat field in Zhaokou West YRDS

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Jiyuan Taihang Pig Breeding Farm

An Apple Orchard in Wuzhi County

52

Cocoon collected from drying centers ready for processing

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